-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HaeuY8GJphJGAO1BpeO5eoGJb2FtvZEW+BOoBfasZRkQNCqLgCLaXObCMMCW0crn SuCgWrBo7JOYemDZO4tZyA== 0000883946-98-000002.txt : 19980318 0000883946-98-000002.hdr.sgml : 19980318 ACCESSION NUMBER: 0000883946-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980317 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETWORK IMAGING CORP CENTRAL INDEX KEY: 0000883946 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 541590649 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11135 FILM NUMBER: 98567553 BUSINESS ADDRESS: STREET 1: 500 HUNTMAR PARK DR CITY: HERNDON STATE: VA ZIP: 22070 BUSINESS PHONE: 7034782260 MAIL ADDRESS: STREET 1: 500 HUNTMAR PARK DRIVE CITY: HERNDON STATE: VA ZIP: 22070 10-K 1 NETWORK IMAGING CORPORATION 10-K U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ COMMISSION FILE NUMBER: 0-22970 NETWORK IMAGING CORPORATION (Exact name of registrant as specified in its Charter) DELAWARE 54-1590649 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 500 HUNTMAR PARK DRIVE, HERNDON, VIRGINIA 20170-5100 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (703) 478-2260 Securities Registered pursuant to Section 12(b) of the Act: None Securities Registered pursuant to Section 12(g) of the Act: Common Stock, $.0001 par value per share Redeemable Common Stock Purchase Stock Warrants expiring May 7, 1998 Series A Convertible Preferred Stock, $.0001 par value per share Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing: $39,847,435 as of March 6, 1998 (Price of Common Stock = $1 7/16). Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 28,254,455 shares of Common Stock were outstanding as of March 6, 1998. FORWARD LOOKING STATEMENTS This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in the forward-looking statements as a result of certain factors described herein and in other documents. Readers of this document should pay particular attention to the risk factors described in the section of this Report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations". Readers should also carefully review the risk factors described in the other documents the Company files from time to time with the Securities and Exchange Commission, specifically the Quarterly Reports on Form 10-Q to be filed by the Company in 1997 and any Current Reports on Form 8-K filed by the Company. PART I ITEM 1. DESCRIPTION OF BUSINESS Network Imaging Corporation ("Network Imaging" or the "Company") develops and markets software products, which support the storage, management and distribution of electronic information. These products provide businesses and government organizations with an automated method of electronically storing, managing and distributing large volumes of computer output (reports) and unstructured data (diagrams, scanned images, office automation documents, photos, voice and video). The Company is a leader in technology for managing content and storage of non-database information. Its flagship product suite, 1View, provides a full set of components and applications to manage the acquisition, management, storage, access and distribution of any multimedia (or unstructured) data.. 1View is a unique solution for use in distributed, high-transaction, high-volume mission-critical applications across legacy, client/server and Internet/intranet-based environments. This suite also includes mainframe and PC-based Computer Output to Laser Disk ("COLD") systems. TREEV+(TM) and the Company logo are trademarks of Network Imaging Corporation. All other product and brand names are trademarks or registered trademarks of their respective companies. Operations are conducted in Herndon, Virginia for the development, marketing and sales activities of the 1View suite and Minneapolis, Minnesota and Denver, Colorado for the installation and support of the TREEV COLD and Imaging products. I-1 Traditional manual filing, retrieval, and distribution methods are labor intensive, slow, require bulky file storage, allow only one person to use a file at a time and often result in misfiled, damaged or lost items. Large commercial and government organizations must continually process large volumes of documents stored in hard copy paper files where there is a need for more efficient movement of information throughout the enterprise. The information may take the form of documents, database records, graphics, video clips, audio, computer aided design ("CAD") and engineering drawings, and other such "information objects" which are distributed throughout a multi-site enterprise. To address this need for information storage, retrieval, and distribution management, the Company has developed the 1View software application suite of imaging, document management, COLD, and workflow products. The Company uses advances in object management software to capture and store "information objects" with more advanced indexing and retrieval features than those available for paper documents or "structured data". The Company's information access, object management, and storage management systems have been designed to support "open systems standards" which permit hardware and software from different vendors to operate together on a network. 1View The Company's 1View suite is designed to answer the information access needs of large organizations. 1View's object enabling suite of software tools contains flexible and layered application program interfaces ("APIs") which allow developers to select the appropriate level of API to suit customer solution requirements. This facility provides a bridge to "legacy" systems previously used, and allows for easy customization of software systems in comparison to standard file structures. 1View is an independent platform and can work in conjunction with of any of the popular database systems (Oracle, IBM DB/2, Informix, Microsoft SQL Server, Sybase, etc.) and well as the primary server architectures (UNIX and Windows NT). The 1View suite consists of the following: 1View: Object Manager is a software solution for managing the content and storage of multimedia data types such as text, images, video and audio. Object Manager handles the management, storage and distribution of any type of multimedia or document object in high-transaction, client/server and Internet/intranet environments. Companies, which utilize Object Manager, are able to seamlessly multimedia-enable existing or new database applications while preserving their investments in legacy information systems and hardware equipment. 1View: Workflow is an easy-to-implement suite of software tools designed to automate complex business processes in client/server and Web environments. It is a rules-based workflow management system designed to allow integration and automation of work process management applications into mainstream business practices associated with any business application. 1View:Workflow provides the ability to graphically represent and control I-2 business processes by linking together a variety of people and software elements to automate the flow of documents (objects) throughout an enterprise. 1View: COLD is a report storage and retrieval system that offers high volume, high-speed handling of mission-critical report data for mainframe and client/server environments. In an IBM MVS or VSE mainframe environment, 1View:COLD off-loads report management and storage operations to a dedicated Microsoft NT server thus minimizing the use of host CPU and DASD resources. In 1997, 1View:COLD was significantly upgraded to provide support for APA (All Points Addressable) print streams including IBM's AFP (Advanced Function Presentation), Xerox's Metacode, and Adobe's PDF (Portable Document Format). Also, 1View:COLD/CS (client server) was introduced to address the growing enterprise requirement for archiving non-mainframe computer output data. 1View:COLD provides Internet/intranet browser, Windows 3.1/95/NT, and 3270 viewing for thousands of simultaneous users. 1View: Voyager II is a document imaging system that captures, stores and retrieves scanned images, word processing documents, spreadsheets and other graphical files. Images can be stored and retrieved from RAID, CD-R or optical disk. Voyager II effectively replaces the use of paper and microfilm as a storage medium and is based on the 1View's Object Manager technology. Voyager II takes advantage of Windows NT and Microsoft SQL technologies to deliver an easy to implement package that can be expanded into a true enterprise-wide scalable solution. COLD Products A significant portion of the Company's product emphasis is on packaged software solutions. Computer Output to Laser Disk ("COLD") software is an important component of several of these products. COLD technology is widely accepted as a way to permanently archive and provide for the retrieval of permanent business reports produced by computers (computer output). COLD typically replaces printed paper reports and Computer Output Microfiche (COM or "microfiche") with high capacity optical, CD, or RAID storage. Once written to its storage media, COLD provides for on-line viewing of information such as banking and brokerage statements, utility bills, payroll reports and corporate financial journals and reports. COLD technology provides a more economical way to store the information as well as a faster method to retrieve reports. Optical disk is much less expensive storage medium than microfiche or paper. By putting reports back on-line utilizing an organization's standard terminals, workstations, and networks, productivity is increased versus the manual handling of physical paper and microfiche. Network Imaging Corporation is one of the largest commercial providers of COLD technology. The TREEV Division of the Company's U.S. operations has developed and markets PC-based COLD systems used in over 2,200 community banks. TREEV also markets imaging products to the community bank marketplace including TREEV Voyager II. TREEV Division provides "turn-key" hardware and software solutions, I-3 maintenance services for its client systems, consulting, training, and high quality optical supplies. Product Development Product development operates under a single senior manager and is located at the Company's headquarters in Herndon, Virginia. During 1997, the product development group focused on completing product release plans that are responsive to the market and support the company's short-term revenue goals. The strategic direction for the products is to provide a cohesive suite of 1View products that will deliver innovative solutions for managing documents and other unstructured data, enabling our customers and business partners to leverage existing applications and exploit emerging business opportunities across Internet/intranet environments. This vision will be accomplished by leveraging the existing 1View suite of products and adapting them to the web environment as well as to database vendor products such as Sybase's Adaptive Server. The Company was an early adopter of the Microsoft's ActiveX technology and will continue to migrate the existing toolkits and API's into components that can be used to rapidly build new enterprise-wide applications and easily integrated into existing customer applications. The Company views the product development organization as one of its key assets and will continue to invest in building the group's infrastructure, refining the group's software development methodology, and implementing the 1View products strategy. Assembly; Sources of Supply The Company assembles its products at its facilities in Herndon, Virginia and Denver, Colorado. The Company relies exclusively on outside suppliers for the hardware components of its products such as scanners, computers and optical disk drives and jukeboxes. Most parts and components are currently available from multiple sources at competitive prices. To date, the Company has not experienced significant delays in obtaining parts and components, and although there can be no assurance, the Company does not expect to experience such delays in the future. Patents, Trademarks and Copyrights The Company has numerous trademarks and copyrights that are registered in the United States and various foreign countries. The Company also has a patent on its Enterprise Multimedia Data Processing System and Method that is registered in the United States. Additionally, the Company is pursuing patents on certain other key technologies. In general, however, management believes that the competitive position of the Company depends primarily on the skill, knowledge and experience of Network Imaging's personnel and their ability to develop, market and support software products, and that its business is not I-4 materially dependent on copyright protection, trademarks or patents. The Company believes that all of its products are of a proprietary nature and its licensing agreements generally prohibit program disclosure. It is possible, however, for product users or competitors to copy portions of the Company's products without its consent. Licenses for a number of software products have been granted to the Company for its own use or for remarketing to its customers. In the aggregate, these licenses are material to the business of the Company, but the Company believes that the loss of any one of these licenses would not materially affect the Company's results of operations or financial position. The TREEV and 1View families of product names used herein are registered or unregistered trademarks owned by the Company. Warranty and Service Warranties for hardware sold by the Company are generally provided by the manufacturer. The Company provides warranties and service contracts usually covering one year for its software products. The Company recognizes revenue under service contracts ratably over the contract period. Competition Management believes that the Company's 1View product line is an innovative solution available for enterprise scalable content and storage management in the industry today. When companies have a clear need for storing, managing and distributing multimedia objects such as large drawings, photographs, documents, video clips, and audio clips that must: a) scale to many terabytes, b) serve thousands of users and c) work with existing and new applications, application databases or universal database platforms in distributed heterogeneous environments, there is no direct competition from other companies. When some, but not all, of these conditions are met, there is competition from companies such as Documentum, PC DOCS, FileNet Corporation, IBM, Optika, Banctec, Eastman Kodak and other vendors in the traditional imaging and document management markets. For smaller scale systems with low performance requirements, the competitive issue becomes price or company size and stability. Scalability of content storage requirements, complexity of the environment, i.e., distributed content base, multi platform, multiple application content access, and cost management of the storage resources (hierarchical storage environments) are real and significant issues in this industry. Importantly, Sybase has entered into a reseller agreement to remarket the 1View solution as part of their Adaptive Server initiative. The Network Imaging partner marketing program is targeted to address these competitive issues and make partners of the apparent competitors. I-5 The Company's goal is to be recognized as the standard in storing, managing and distributing multimedia (unstructured) data. Marketing and Sales The Company sells its products directly, through its own sales force offices in locations in or near New York, Boston, Washington D.C., Atlanta, Charlotte, Denver, Minneapolis, Los Angeles, Orlando, San Francisco, Dallas, San Antonio and Seattle. Selling is also done indirectly through channels such as value-added resellers, system integrators, OEMs, and other distributors. It has recently developed a new Business Alliance Program ("BAP"). The BAP is a catalyst and support vehicle for marketing partnerships with the channels above, as well as vendors of complementary product technologies - such as companies who market and manufacture database, application development, systems management, and communication and connectivity software. The Company also focuses on vertical market segments, which have proven requirements for the Company's product line. These market segments primarily include Telecommunications and Finance Banking, where the Company has a strong presence. The vertical market segments also include Utilities, Insurance, Healthcare, Manufacturing, and the Public Sector. The Company has developed programs in these segments to identify sales opportunities, create product awareness, and develop contacts for the Company's indirect sales channels. The Company has an active marketing program, which includes direct representation at trade shows, seminars and user group meetings. The BAP programs now include representation with its marketing business partners in their direct marketing programs on a regional, national and international basis. The Company advertises in numerous major industries, vertical market and news publications and participates in direct mail campaigns with its partners. The Company markets diverse products to multiple industries. It is not dependent on any one customer or business partner for a major percentage of its business. Business Dispositions During 1994, the Company committed itself to a plan of restructuring which was designed to improve operating results by concentrating the Company's resources on the marketing and continued development of its 1View suite of software products. In connection with its restructuring plan, the Company, during 1995, 1996 and 1997, disposed of a number of operating units (the "Divestitures" or the "Divested Businesses") which were not considered complimentary to the Company's business. As a result of the Divestitures, the Company recorded a gain of $266,000 in 1997 and losses of $921,000 and $9.3 million in 1996 and 1995, respectively. The aggregate consideration received by the Company from the I-6 Divestitures was $1.6 million in cash and $11.2 million in notes receivable, of which $1.1 million was reserved as uncollectible at December 31, 1997. The Company sold the stock of its French subsidiary, Dorotech, in the fourth quarter of 1997 and its Symmetrical Technologies, Inc. subsidiary in 1996. During 1995, the Company disposed of the following operations: Hunt Valley Division (formerly NSI, Inc.), Network Imaging (UK Holdings) Limited, Microsouth, Inc., Tekgraf, Inc., P E Systems, Inc., WildSoft Division, and IBZ Digital Production AG. Employees The Company's success is highly dependent on its ability to attract and retain qualified employees. Competition for employees is intense in the software industry. To date, the Company believes it has been successful in its efforts to recruit qualified employees, but there is no assurance that it will continue to be as successful in the future. None of the Company's employees are represented by a labor union. The Company has experienced no work stoppage and believes that its employee relations are good. At March 5, 1998, the Company employed 214 people. Directors and Executive Officers of the Company Name Age Position James J. Leto (2) 53 President, Chief Executive Officer and Chairman of the Board Jorge R. Forgues 42 Senior Vice President of Finance and Administration, Chief Financial Officer and Treasurer John M. Flowers 47 Senior Vice President of Engineering Brian H. Hajost 41 Senior Vice President of Marketing David E. MacWhorter 50 Senior Vice President, Sales Richard G. McMahon 53 Senior Vice President, Government Systems Robert P. Bernardi (2) 46 Director and Secretary John F. Burton (1) 46 Director C. Alan Peyser 63 Director Robert Ripp (1)(2) 56 Director - -------------------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. I-7 James J. Leto became President and Chief Executive Officer and a Director of the Company in May 1996 and became Chairman of the Board in June 1997. Mr. Leto served as the Chairman and Chief Executive Officer of PRC Inc., an information technology company ("PRC"), from January 1993 to February 1996, and prior thereto in various capacities as an executive officer of that company. From January 1989 until February 1992, Mr. Leto served as the Vice President and General Manager of AT&T Federal Systems Computer Division, a division of AT&T charged with developing a major system integration and computer presence in the federal marketplace. Mr. Leto first joined AT&T in November 1977. Mr. Leto is a director of Government Technology Systems, Inc. Jorge R. Forgues became Chief Financial Officer, Vice President of Finance and Administration and Treasurer of the Company in April 1996. In January 1997, Mr. Forgues was promoted to Senior Vice President. From October 1993 through April 1996, he served as the Vice President of Finance & Administration and Chief Financial Officer of Globalink, Inc., a computer software developer that offers foreign language translation software. From July 1992 to September 1993, Mr. Forgues served as Director of Accounting at Spirit Cruises, Inc., and from June 1987 to June 1992 he served as the Vice President of Finance of Best Programs, Inc., a computer software developer. Mr. Forgues is a director of On-Site Sourcing Incorporated. John M. Flowers, Jr. was appointed Senior Vice President of Engineering Services in April 1996. From 1989 to April 1996, he was with PRC, serving in various capacities, including Manager of the Center for Imaging Technology, Chief Architect for Systems Integration Division, Corporate Director of the Imaging Core Competency Program, and Vice President and Chief Scientist for the Information Systems Division. Brian H. Hajost joined the Company in March 1996, was appointed Senior Vice President of Integrated Products in April 1996 and was appointed Senior Vice President of Marketing in May 1997. Form 1985 to 1995, Mr. Hajost was with Servantis Systems, Inc. (formerly Stockholder Systems, Inc.) where he served in various capacities including Securities Products Group Regional Manager, Securities Products Group Regional Director Banking Sales, Securities Product Group Vice President Sales Manager, Imaging Technologies Group Vice President Sales and Marketing, and Imaging Technologies Group Senior Vice President Business Unit Manager. I-8 David E. MacWhorter joined the Company in November 1994 and was appointed Vice President of Sales in January 1996. He was promoted to Senior Vice President effective February 1, 1998. Prior to 1996, Mr. MacWhorter served in other capacities at the Company. From 1993 to 1994, he served as President of Kyocera Electronics' printer division. From 1990 to 1993, he was with Sony as General Manager of its Electronic Photography Division. Prior to 1990, Mr. MacWhorter was with Wang Laboratories where he served in a number of marketing and sales management positions. Richard G. McMahon joined the Company in April 1997 as Vice President of Government Systems. He was promoted to Senior Vice President effective February 1, 1998. From 1992 to 1997, Mr. McMahon was Vice President and Managing Partner of NCR Corporation's government sector professional services business. From 1982 to 1991, he was with AT&T where he served in various senior management and marketing positions. Robert P. Bernardi has been a Director of the Company (and its predecessor) since its inception. He was a co-founder of the Company. Mr. Bernardi is the founder and Chief Executive Officer of the Music Connection. Mr. Bernardi served as President of the Company from inception to February 1995, as Chief Executive Officer from inception to May 1996, and Chairman of the Board of Directors from September 1995 to June 1997. From 1988 to 1990, Mr. Bernardi was an independent consultant in the document imaging and telecommunications fields. From March 1984 to December 1987, Mr. Bernardi was Chairman and Chief Executive Officer of Spectrum Digital Corporation, a publicly held telecommunications equipment manufacturing company ("Spectrum Digital"), with overall management responsibilities including marketing, sales, engineering and finance. John F. Burton was appointed to the Board of Directors in September 1995. Mr. Burton is Managing Director of Updata Capital, Inc., a mergers and acquisitions investment bank, a position he has held since 1997. From October 1996 to February 1997, he was President of Burton Technology Partners. From August 1995 to September 1996, he was President and Chief Executive Officer of Nat Systems, Inc. From 1984 to 1995, Mr. Burton served in various executive capacities at Legent Corporation including President, Chief Executive Officer and Director. C. Alan Peyser became a Director of the Company in May 1996. Mr. Peyser was appointed President and Chief Executive Officer of Cable & Wireless, Inc., in October 1996. From September 1995 to October 1996, Mr. Peyser served as a consultant to Cable & Wireless, Inc. He is also currently President of Country Long Distance Corporation and a member of the Board of Directors of Tridex Corporation and TCI International, Inc. Mr. Peyser previously served as the Chief Executive Officer and President of Cable & Wireless, Inc. from 1980 through September 1995. Robert Ripp has served as a Director since October 1994. Mr. Ripp is Executive Vice President, Global Businesses, of AMP, Inc., an electronics manufacturer. He previously served as its Chief Financial Officer. Prior to joining AMP in 1994, Mr. Ripp was Vice President and Treasurer of International Business Machines Corporation, where he served in various capacities as a I-9 finance executive from 1964 to 1994. He is a member of the board of directors of ACE, Limited. ITEM 2. PROPERTIES As of March 31, 1998, the Company was leasing 25,600 square feet for administrative, marketing and product development and support facilities at its headquarters in Herndon, Virginia, pursuant to a lease which expires in the year 2000. The Company also leases an aggregate of approximately 55,000 square feet of similar facilities at other offices near Atlanta, Georgia; Charlotte, North Carolina; Orlando, Florida; Dallas, Texas; Denver, Colorado; Los Angeles, California; Minneapolis, Minnesota; New York, New York; San Francisco, California; Seattle, Washington; San Jose, California; Boston, Massachusetts; and San Antonio, Texas. The Company's current rent expense under real property leases on an annual basis is approximately $1.0 million. The Company owns no real property and has no plans to purchase any real property for either commercial or investment purposes in the foreseeable future. The Company believes that its facilities are adequate for its purposes. ITEM 3. LEGAL PROCEEDINGS The Company is not involved in any legal proceedings, other than routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY The Company held a Special Meeting of Stockholders on November 17, 1997 at which the stockholders: (1) approved the issuance of shares of the Company's Common Stock issuable in connection with the Company's Series K Convertible Stock, the issuance of warrants to purchase shares of Common Stock at an exercise price of $2.40 per share, and the issuance of warrants to purchase shares of Common Stock at an exercise price of $1.625 per share under Nasdaq Rule 4460(i)(1)(D); (2) approved the issuance of shares of the Company's Common Stock issuable in connection with the Company's 8% Convertible Notes due July 8, 2002 and the issuance of warrants to purchase 36,000 shares of Common Stock at an exercise price of $1.875 per share issued in connection with the Convertible Notes under Nasdaq Rule 4460(i)(1)(D); and (3) approved the amendment of the Company's Certificate of Incorporation to increase the number of authorized shares of Common Stock from 50,000,000 to 100,000,000. In connection with the approval of the issuance of shares and warrants in connection with the Series K Convertible Stock, 19,677,506 shares were voted in favor of the proposal, 1,582,223 were voted against, and 368,225 abstained. I-10 With respect to the approval of the issuance of shares and warrant in connection with the Convertible Notes, 19,521,612 shares were voted in favor of the proposal, 1,858,467 were voted against, and 295,712 abstained. With respect to the approval of the amendment to the Company's Certificate of Incorporation, 19,506,583 shares were voted in favor of the proposal, 1,825,659 were voted against, and 295,712 abstained. The Company held an additional Special Meeting of Stockholders on December 31, 1997 at which the Series A Preferred stockholders and the Common stockholders approved and adopted the Certificate of Amendment to Certificate of Designation of the Company's Series A Cumulative Convertible Preferred Stock. In connection with the Series A stockholders' approval of the Certificate of Amendment, 882,763 shares were voted in favor of the proposal, 102,901 were voted against, and 33,566 abstained. With respect to the Common stockholders' approval of the Certificate of Amendment, 13,339,959 shares were voted in favor of the proposal, 471,479 were voted against, and 87,644 abstained. I-11 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the NASDAQ National Market System TM (NASDAQ-NMS) under the symbol IMGX. The Company also has outstanding redeemable common stock purchase warrants (the "Warrants") that are traded on NASDAQ-NMS under the symbol IMGXW, and Series A Cumulative Convertible Preferred Stock (the "Series A Preferred Stock") that is traded on NASDAQ-NMS under the symbol IMGXP. The following table indicates the high and low sales prices for the Common Stock as reported by NASDAQ for the periods indicated (which reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions). PERIOD HIGH LOW 1996 -First Quarter 5 7/8 3 3/4 -Second Quarter 5 5/8 3 7/16 -Third Quarter 5 1/16 3 1/16 -Fourth Quarter 4 5/32 2 11/16 1997 -First Quarter 3 1/2 2 9/16 -Second Quarter 2 29/32 1 11/16 -Third Quarter 2 1/32 1 1/4 -Fourth Quarter 1 3/4 25/32 1998 -First Quarter 1 17/32 7/8 (through March 6) II-1 The Company has not paid any cash dividends on its Common Stock since its inception and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. The Company suspended payment of the quarterly dividend on the Series A Stock due in July and October 1997 of $0.50 per share or $803,000 in the aggregate, for each period. As a result of the approval and adoption of the Certificate of Amendment to Certificate of Designation of the Series A Stock, effective May 1, 1997, the Company was no longer obligated to make any cash dividend payments to the Series A stockholders. In addition, commencing December 31, 1997, Series A stockholders receive an annual dividend of $.84 per share, accumulating quarterly, payable in Common Stock or cash, at the Company's option. As of February 10, 1998, the Company had approximately 385 record holders of its Common Stock, and based on information supplied by certain of such record holders, the Company estimates that as of such date there were approximately 7,600 beneficial owners of its Common Stock. On December 8, 1997, the Company sold to three investors in a private sale, in reliance upon Regulation D under the Securities Act of 1933, 3,250 units consisting of one share of Series L Convertible Preferred Stock and warrants to purchase 75 shares of Common Stock at an exercise price of $1.65 per share for $3.25 million in cash. On December 29, 1997, the Company issued 4,000 shares of Series M Convertible Stock, convertible into a maximum of 5,360,000 shares of Common Stock, to a single investor upon the conversion to equity of $4.0 million of a $5.0 million line of credit that the Company had secured from the investor. The shares of stock were issued in reliance upon Regulation D under the Securities Act of 1933, and the Company received no cash proceeds from the conversion of debt to equity. ITEM 6. SELECTED FINANCIAL DATA The following tables set forth selected financial data for the five years ended December 31, 1997. The statement of operations data for each of the five years ended December 31, 1997 and the balance sheet data as of those dates have been derived from the consolidated financial statements of the Company. The consolidated financial statements for the years ended December 31,1997 and 1996 have been audited by Ernst & Young LLP. The consolidated financial statements for the three years ended December 31, 1995 have been audited by other independent auditors. The financial data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein. II-2 Statement of Operations Data (in thousands, except share amounts) Year Ended December 31, -------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ----- ---- ---- Revenue $ 35,806 $ 39,477 $ 69,151 $ 67,028 $ 34,069 Net loss (11,339) (17,341) (24,963) (39,625) (30,817) Net loss applicable to common shares (14,310) (21,071) (34,896) (44,121) (31,421) Net loss per common share $ (0.57) $ (1.02) $ (2.41) $ (3.56) $ (4.48) ======== ======== ======== ======== ======== Net loss per common share - assuming dilution $ (0.57) $ (1.02) $ (2.41) $ (3.56) $ (4.48) ======== ======== ======== ======== ======== Balance Sheet Data (in thousands, except share amounts) Year Ended December 31, ---------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Total assets $26,860 $36,778 $49,964 $71,871 $75,519 Working capital 9,980 9,893 13,454 17,513 45,859 Long-term debt 1,108 88 1,264 2,533 2,125 Redeemable preferred stock 6,548 9,857 15,478 14,609 15,626 Stockholders' equity 7,969 11,717 10,185 25,156 42,794 II-3 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company's Consolidated Financial Statements and related notes included herein. Results of Operations Revenue. Product revenue includes sales of software licenses and computer equipment. Product revenue is recognized upon delivery or, if applicable, acceptance. Service revenue includes software maintenance contracts, installation and customization. Service revenue is recognized over the terms of the related contracts as the services are completed or under the percentage of completion method where appropriate. Total revenue was $36 million in 1997, $39 million in 1996 and $69 million in 1995. The decrease in total revenue in 1997 over 1996 of $3.7 million, or 9%, resulted primarily from a decrease in service revenue of $3.6 million or 17%. The decrease in total revenue in 1996 over 1995 of $30 million, or 43%, resulted from decreases in product revenue of $29.2 million, or 61% to $18.3 million, and decreases in service revenue of $500,000, or 2% to $21.1 million. Although reported product revenue remained unchanged in 1997 over 1996, product revenue decreased $3.4 million due to the Divestitures and increased $3.4 million from the Company's continuing operations. The decrease in product revenue in 1996 of $29.2 million, compared to 1995, was primarily attributable to the Divestitures, which reduced product revenue by $19.9 million, and a major installation project in 1995 for $9.3 million, which was not duplicated in 1996. The decrease in service revenue in 1997, compared to 1996, of $3.6 million was attributable to the Divestitures which reduced service revenue by $5.1 million, offset by an increase of $1.5 million in the Company's continuing service operations. The decrease in service revenue in 1996, compared to 1995, of $500,000 was attributable to the Divestitures which reduced service revenue by $2.9 million, offset by an increase of $2.4 million in comparative company service revenue. The increase in 1View comparative company service revenue in 1997 and 1996 was attributable to increased staffing and continued management emphasis on the professional services business. Profit Margins. Profit margins for product sales continued to improve in 1997 over 1996 as the cost of products sold decreased from 54% to 46% of sales. The increase in product sales is attributable to a greater mix of software sales over hardware. Profit margins for product sales improved in 1996 over 1995 as the cost of products sold decreased from 62% to 54% of sales. The increase in product sales margins was due to the continued increased sales of II-4 the Company's internally developed products and due to the dispositions in 1995 of the Company's CAD/CAM resellers.. Profit margins for service sales decreased in 1997 over 1996 as the cost of services increased from 75% to 78% of sales. The decrease in service sales margins was attributable to declines at the Company's former French subsidiary during the first three quarters of 1997. Profit margins for service sales decreased in 1996 over 1995 as the cost of services sold increased from 66% to 75% of sales. The decrease in service sales margins was primarily attributable to the increased staffing in the professional services business. Research and Development. The Company's expenditures on software research and development activities ("R&D") in 1997 were $5.9 million, of which $1.5 million was capitalized and $4.4 million was expensed. The $1.4 million decrease in R&D expenditures is attributable to the Company's 1996 plan to consolidate various product development groups into a common product development organization operating under a single senior manager. Under this plan, the Company consolidated its COLD product development groups during 1996 from three separate locations to one, and vacated excess office space. The Company's disposition of STI also resulted in a reduction of $208,000 in R&D expenditures. The Company's expenditures on software R&D in 1996 were $7.3 million, of which $2.0 million was capitalized and $5.3 million was expensed. The slight decrease in capitalization between 1996 and 1995 was due to primarily to the Divestitures, which reduced total R&D by $703,000, offset by increases from the development of the Company's next generation mainframe and PC based COLD products. The Company's expenditures on software R&D activities in 1995 were $7.8 million, of which $1.7 million was capitalized and $6.1 million was expensed. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") were $20.3 million, or 57% of revenue, in 1997, $24.6 million, or 62% of revenue, in 1996, $35.5 million, or 51% of revenue, in 1995. The decrease in 1997 compared to 1996 of $4.4 million, or 18% was the result of the Divestitures which accounted for a $3.1 million decrease in addition to a $1.3 million decrease from continuing operations due to the Company's efforts in cost reduction. The decrease in 1996 compared to 1995 of $10.9 million, or 31% was the result of the Divestitures which accounted for a $8.7 million decrease in addition to a $2.2 million decrease in SG&A expenses from the Company's continuing 1View, COLD and French operations. Settlement with Stockholders. Operating expenses in 1995 include a $1.6 million expense related to settlement of obligations with former stockholders of IBZ and TREEV for $750,000 and $892,000, respectively. The Company entered into an agreement with the former principle stockholder of IBZ whereby in exchange for an aggregate of $750,000, the former principle shareholder of IBZ relinquished rights to a loan guarantee. During 1995, the Company and four former stockholders of TREEV, entered into agreements to settle a dispute arising from the acquisition of DCR in exchange for extensions of employment II-5 agreements and an aggregate of 175,000 additional shares of Common Stock of the Company, valued at approximately $892,000. Exchange Fee and Gain on Sale of Asset, Net. During 1996, the Company paid a fee of $650,000 plus $80,000 of expenses in connection with the extension of the redemption date of the Company's Series F Preferred Stock. During 1996, the Company realized a $111,000 gain on the disposition of stock distributed to the Company by its medical insurance provider. Restructuring Costs. At December 31, 1996, the 1994 restructuring plan ("the Plan") was complete. Under the Plan, the Company incurred a net change in estimate of $175,000 in 1996 and $1.4 million in 1995. Interest Income (Expense), Net. Net interest expense was $286,000 in 1997, and net interest income of $309,000 and $224,000 in 1996 and 1995, respectively. The $595,000 increase in interest expense was attributable primarily to the line of credit with a stockholder drawn on during 1997. The $85,000 increase in interest income between 1996 and 1995 was primarily attributable to the interest earned for the cash received from the offerings done during the first three quarters of 1996. Income Taxes. The Company incurred income tax benefits of $68,000 and $280,000 in 1996 and 1995, respectively. The $68,000 income tax benefits incurred in 1996 was the result of net operating losses generated by Dorotech's operations offset by a decrease in Dorotech's net deferred tax liabilities. The $280,000 income tax benefit incurred in 1995 was primarily the result of a decrease of net deferred tax liabilities resulting from the divestiture of IBZ's European operations and other purchase accounting adjustments. Net Loss. The Company's net loss was $11.3 million in 1997, $17.3 million in 1996 and $25.0 million in 1995. The $6.0 million decrease in net loss between 1997 and 1996 was due to the $4.4 million reduction in SG&A expenses, $914,000 reduction in product development expenses and the loss on the sale of subsidiary in 1996. The $7.6 million decrease in net loss between 1996 and 1995 was due primarily to the 1995 losses from the Divestitures of $9.3 million, the $1.6 million settlement with stockholders, and the $10.9 million reduction in SG&A expenses in 1996. These reductions in expenses were offset by a $11.9 million reduction in gross margin in 1996, the loss on sale of subsidiary in 1996, of $921,000, and the change in estimate of $1.4 million in restructuring costs in 1995. The entities divested in 1997, 1996, and 1995 contributed a net loss of approximately $840,000, $2.1 million and $5.4 million, respectively. II-6 Net Loss Applicable to Common Shares. Net loss applicable to common shares includes adjustments for accrued and imputed dividends related to the Company's preferred stock. The net loss applicable to common shares was $14.3 million, or $0.57 per share, in 1997; $21.1 million, or $1.02 per share, in 1996 and $34.9 million, or $2.41 per share, in 1995: The decrease in 1997 over 1996 was attributable to the decrease in net loss described above and the reduction in preferred stock dividends of $2.3 million. The imputed dividends of $1.5 million recognized during 1997 were non-cash and related to the below market conversion feature of the Company's Series K and L Preferred Stock. The $2.3 million reduction in accrued dividends related primarily to the amendment to the Company's Series A Preferred Stock. See Note 8 to the Consolidated Financial Statements. The following pro forma statements of operations represent the Company's continuing operations and exclude the results of the Divested Businesses, the gain and loss recorded on the sales of subsidiaries, other one time charges and a major installation project in 1995 that is not representative of the Company's continuing operations: Year Ended December 31, 1997 1996 1995 --------- --------- --------- (in thousands, except per share amounts) Revenue $ 24,486 $ 19,706 $ 16,588 Cost of sales 13,609 11,797 8,931 -------- -------- -------- Gross margin 10,877 7,909 7,657 Gross margin as % of sales 44% 40% 46% Selling, general and administrative 16,700 17,921 21,785 Product development 3,856 4,152 3,725 Other income (expense) (312) 287 612 -------- -------- -------- Operating loss (9,991) (13,877) (17,241) Accrued dividends (1,435) (3,730) (9,933) Imputed Accrued dividends (1,536) -- -- -------- -------- -------- Net loss applicable to common shares $(12,962) $(17,607) $(27,174) ======== ======== ======== Net loss per common share $ (0.51) $ (0.85) $ (1.87) ======== ======== ======== Net loss per common share - assuming dilution $ (0.51) $ (0.85) $ (1.87) ======== ======== ======== Weighted average shares 25,206 20,682 14,502 ======== ======== ======== II-7 Liquidity and Capital Resources As of December 31, 1997, the Company had $3.8 million in cash and cash equivalents compared to $7.6 million in cash and cash equivalents at December 31, 1996. Net working capital increased to $10.0 million at December 31, 1997 from $9.9 million at December 31, 1996. At December 31, 1997, the Company had outstanding debt of $3.6 million, $2.5 million of which is due within one year. This compares with debt of $2.2 million at December 31, 1996, $2.1 million of which was due within one year. The increase in debt of $1.4 million primarily arose from the draw on the Company's line of credit with a stockholder. See Note 7 to the Consolidated Financial Statements. For 1997, the $3.8 million decrease in cash and cash equivalents resulted from a $6.7 million use of cash from operating activities, $2.3 million used in investing activities and the generation of $5.3 million from financing activities. The $6.7 million use of cash in operating activities arose primarily from the $11.3 million loss from operations offset by $4.5 million in depreciation and amortization charges. The $2.3 million to fund investing activities arose with respect to capitalized software development costs and the purchase of fixed assets. The $5.3 million in cash provided by financing activities arose primarily from the $5.1 million proceeds from the issuance of Convertible Preferred Stock and proceeds of $6.9 million from borrowings, offset by payments of $3.5 million to repurchase a portion of the Company's Series F Preferred Stock, Preferred Stock dividends of $1.8 million and net payments in debt and capital leases of $1.5 million. For 1996, the $1.8 million decrease in cash and cash equivalents resulted from a $11.8 million use of cash from operating activities, $2.6 million used in investing activities and the generation of $12.7 million from financing activities. The $11.8 million use of cash in operating activities arose primarily from the $17.3 million loss from operations offset by $5.8 million in depreciation and amortization charges. The $2.6 million to fund investing activities primarily arose due to capitalized software development costs and the purchase of fixed assets. The $12.7 million in cash provided by financing activities arose primarily from the $6.0 million proceeds from the issuance of Common Stock and $10.9 million proceeds from the issuance of Convertible Preferred Stock offset by the $3.2 million payment of Series A Preferred Stock dividends and net payments in debt and capital leases of $1.2 million. During the first quarter of 1996, the Company repaid its $2.5 million U.S. line of credit, which had a termination date of March 31, 1996. At December 31, 1995, $2.5 million of the $3.1 million restricted short-term investments served as collateral for this line of credit. At December 31, 1997, the Company maintained a $1.0 million line of credit negotiated during the fourth quarter of 1996, see Note 7 to the Consolidated Financial Statements. II-8 As a result of stock offerings in 1997, the Company received net proceeds of approximately $9.3 million which included offering costs of approximately $1.4 million. Under the offerings, the Company issued 174,892 shares of Common Stock and 10,550 shares of Preferred Stock. The net proceeds of the offerings were used for working capital purposes. At December 31, 1997, the annual dividend requirements on the Company's Series A Preferred Stock is $0.84 per share annually, payable quarterly, in cash or common stock at the Company's discretion. Dividends on the Company's Series K, L, and M Preferred Stocks are payable in cash or common stock, at the company's election. The adverse results of operations which the Company experienced in 1997 are expected to continue at least until part of 1998. The Company believes that its existing cash, together with the anticipated future proceeds from the sale of Series L Preferred units and any anticipated cash flows from operations, should provide sufficient resources to fund its activities through the next twelve months and to maintain net tangible assets of at least $4.0 million, which is required for continued inclusion of the Company's securities on Nasdaq-NMS. Any anticipated cash flows from operations are largely dependent upon the Company's ability to achieve its sales and gross profit objectives for its 1View and other products. If the Company is unable to meet these objectives, it will consider alternative sources of liquidity, such as additional offerings of equity securities and/or further reductions of operating expenses (such as travel, marketing, consulting and salaries.) Although the Company believes that it can successfully implement its operating plan and, if necessary, raise additional capital, there can be no assurance that implementation of the plan will be successful or that financing, if sought, will be available. Nasdaq announced new listing requirements on February 23, 1998 for con- tinued inclusion on the Nasdaq National Market. Specifically, Nasdaq requires, effective February 23, 1998, that common and preferred stock trading on its National Market continuously have a minimum bid price of $1.00. At times in 1997 and the first part of 1998, the Company's Common Stock has had a minimum bid price below $1.00. The Company's Preferred Stock has consistently traded with a minimum bid price of over $1.00. Although the Company's Common Stock is currently trading with a minimum bid price above $1.00, there can be no assurance that the Company's Common Stock will continue to trade with such a minimum bid price. In the event that the Company's Common Stock has a minimum bid price below $1.00, the Company believes it can propose and effect a plan to achieve compliance; however, there can be no assurance that the Company will be able to stay in compliance with the Nasdaq requirement. While the Company believes that it can meet Nasdaq's National Market or the requirements of The Nasdaq Stock Market, any ability to trade on a national exchange could adversely impact the value of the Company's stock. ITEM 8. FINANCIAL STATEMENTS The Financial Statements appear at pages F-1 to F-27. II-9 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company filed a Form 8-K on July 17, 1996 to report that its in- dependent accountants had been changed to Ernst & Young LLP. II-10 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and Executive Officers of the Company For information regarding directors and executive officers of the Company, see the information appearing under the caption "Executive Officers" in Part I, Item 1 of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Information required by Item 11 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders' meeting to be held on May 21, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by Item 12 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders' meeting to be held on May 21, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by Item 13 is incorporated by reference from the Company's definitive proxy statement for its annual stockholders' meeting to be held on May 21, 1998. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) and (2) List of Financial Statements and Financial Statement Schedules The following consolidated financial statements of Network Imaging Corporation are included in Item 8: Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements The following consolidated financial statement schedule of Network Imaging Corporation is included in Item 14(d): Schedule II - Valuation and Qualifying Accounts (3) Exhibits. The following exhibits are filed herewith or incor- porated herein by reference: Exhibit No. Description 2.9 Agreement and Plan of Reorganization by and among the Company, Doro- tech France SA and the stockholders of Dorotech France SA dated August 30, 1993 with the amendments thereto dated September 29, 1993 and October 1, 1993 (incorporated by reference to Exhibit 1 to Company's Current Report on Form 8-K relating to such Agreement and Plan of Reorganization filed October 13, 1993). III-1 2.26 Agreement for the Purchase and Sale of Assets of Symmetrical Tech- nologies, Inc. as of September 30, 1996 (incorporated by reference to Exhibit 10.a to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1996). 2.27 Share sale and Purchase Agreement between Network Imaging Corporation and Systems Engineering Reinhardt S.A.R.L. dated December 10, 1997. 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's registration statement on Form S-1 (Registration No. 333-36417) filed December 5,1997). 3.2 Restated Bylaws as of may 17, 1996 (Incorporated by reference to Ex- hibit 3.11 to Amendment No. 1 to the Company's Form 10-Q for the quarterly period ended June 30, 1997). 3.3 Certificate of Designations for Series A Cumulative Convertible Pre- ferred Stock filed with the Secretary of State of the State of Delaware on December 7, 1993 (incorporated by reference to Exhibit 3.1c to the Company's registration statement on Form SB-2 (Registration No. 33-73164) filed December 20, 1993). 3.4 Certificates of Designations for Series F-1, F-2, F-3 and F-4 Conver- tible Preferred Stock filed with the Secretary of State of the State of Delaware on March 29, 1996 (incorporated by reference to Exhibit 3.(i)i to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 3.5 Certificate of Designations for Series K Convertible Preferred Stock filed in Delaware on July 28, 1997 (incorporated by reference to Exhibit 3.12 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997). 3.6 Certificate of Amendment to Certificate of Designations of Series A Cumulative Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on December 31, 1997. 3.7 Certificate of Designations, Preferences and Rights of Series L Con- vertible Preferred Stock filed with the Secretary of State of the State of Delaware on December 8, 1997. 3.8 Certificate of Designations, Preferences and Rights of Series M Con- vertible Preferred Stock filed with the Secretary of State of the State of Delaware on January 7, 1998. 3.9 Certificate of Correction filed to Correct a Certain Error in the Cer- tificate of Amendment to Certificate of Designations of Series A Cumulative Convertible Preferred Stock (filed on December 31, 1997) filed with the Secretary of State of the State of Delaware on January 13, 1998. 3.10 Certificate of Elimination of Certificate of Designation of Series F-1 Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on January 13, 1998. 3.11 Certificate of Elimination of Certificate of Designation of Series F-2 Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on January 13, 1998. 3.12 Certificate of Elimination of Certificate of Designation of Series F-3 Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on January 13, 1998. 3.13 Certificate of Elimination of Certificate of Designation of Series F-4 Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on January 13, 1998. III-2 4.1 Specimen Common Stock Certificate. (Incorporated by reference to Ex- hibit 4.2 to Amendment No. 1 to the Company's registration statement on Form S-1 (Registration No. 33-45721) filed April 10, 1992.) 4.2 Warrant Agreement between the Company and American Stock Transfer & Trust Co. dated as of February 1, 1993. (Incorporated by reference to Exhibit 1 to Post-Effective Amendment No. 1 to Company's registration statement on Form S-1 (Registration No. 33-45721) filed April 1, 1993.) 4.3 Amendment No. 1 dated as of April 15, 1993 to the Warrant Agreement between the Company and American Stock Trust & Transfer Co. (Incorporated by reference to Exhibit 2 to Post-Effective Amendment No. 1 to Company's registration statement on Form S-1 (Registration No. 33-45721) filed April 1, 1993.) 4.4 Warrant Agreement between the Company and American Stock Transfer & Trust Co. dated as of April 28, 1993. (Incorporated by reference to Exhibit 4.4 to Company's registration statement on Form SB-2 (Registration No. 33-64046) filed June 8, 1993.) 4.5 Specimen Warrant Certificate (Public Warrants). (Incorporated by re- ference to Exhibit 4.3 to Amendment No. 1 to the Company's registration statement on Form S-1 (Registration No. 33-45721) filed April 10, 1992.) 4.6 Specimen Warrant Certificate (International/Oakes Fitzwilliams Series) (Incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1992.) 4.7 Specimen Warrant Certificate (International/Thomas James Series). (In- corporated by reference to Exhibit 4.7 to Company's registration statement on Form SB-2 (Registration No. 33-64046) filed June 8, 1993.) 4.8 Warrant to purchase 20,700 units issued to Oakes, Fitzwilliams & Co. Limited. (Incorporated by reference to Exhibit 4.8 to Company's registration statement on Form SB-2 (Registration No. 33-64046) filed June 8, 1993.) 4.9 Warrant to purchase 33,214 units issued to Oakes, Fitzwilliams & Co. Limited. (Incorporated by reference to Exhibit 4.9 to Company's registration statement on Form SB-2 (Registration No. 33-64046) filed June 8, 1993.) 4.10 Placement Agent's Warrant to purchase 8,150 units issued to Thomas James Associates, Inc. (Incorporated by reference to Exhibit 4.10 to Company's registration statement on Form SB-2 (Registration No. 33-64046) filed June 8, 1993.) 4.11 Representative's Warrant issued to Thomas James Associates, Inc. (In- corporated by reference to Exhibit 4.11 to Company's registration statement on Form SB-2 (Registration No. 33-64046) filed June 8, 1993.) 4.12 Warrant Agreement among the Company, American Stock Transfer & Trust Co. and Thomas James Associates, Inc. dated as of May 8, 1992. (Incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1992.) 4.12a Form of Amendment to Warrant Agreement among the Company, American Stock Transfer & Trust Co. and Thomas James Associates, Inc. dated as of May 8, 1992. (Incorporated by reference to Exhibit 4.12.a to Amendment No. 1 to the Company's registration statement on Form SB-2 (Registration No. 33-64046) filed January 5, 1994.) III-3 4.13 Warrant to purchase 50,000 shares of Common Stock to Oakes, Fitz- williams & Co. Limited. (Incorporated by reference to Exhibit 4.13 to Amendment No. 1 to the Company's registration statement on Form SB-2 (Registration No. 33-64046) filed January 5, 1994.) 4.14 Warrants to purchase an aggregate of 45,000 shares of Common Stock issued to American Wealth Management, Inc., Edsel Anderson, Harris Anderson and Eric Swartz. (Incorporated by reference to Exhibit 4.14 to Amendment No. 1 to the Company's registration statement on Form SB-2 (Registration No. 33-64046) filed January 5, 1994.) 4.16 Form of Warrant issued in connection with February 1992 debt finan- cing. (Incorporated by reference to Exhibit 4.6.B to the Company's re- gistration statement on Form S-1. (Registration No. 33-45721) filed February 13, 1992.) 4.17 Warrant to purchase 227,068 shares of Common Stock issued to Swartz Investments Inc. (Incorporated by reference to Exhibit 4.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 4.18 Warrant to purchase 34,400 shares of Common Stock issued to Oakes, Fitzwilliams & Co. Limited. (Incorporated by reference to Exhibit 4.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 4.19 Form of Warrants issued in connection with December 1995 Series G Con- vertible Preferred Stock offering. (Incorporated by reference to Exhibit 4.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 4.20 Form of Warrants issued in connection with November/December 1995 Private Placement of Common Stock. (Incorporated by reference to Exhibit 4.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 4.21 Warrant to purchase 25,000 shares of Common Stock issued to Ed Feldman dated November 7, 1995. (Incorporated by reference to Exhibit 4.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 4.22 Warrant to purchase 4,000 shares of Common Stock issued to Jarl Mc- Donald dated December 20, 1995. (Incorporated by reference to Exhibit 4.22 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 4.23 Warrant to purchase 4,000 shares of Common Stock issued to Christian Stackhouse dated December 20, 1995. (Incorporated by reference to Exhibit 4.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 4.35 Exchange Agreement between CDR Enterprises the Company dated March 29, 1996. (Incorporated by reference to Exhibit 4.35 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 4.36 Warrant to purchase 100,000 shares of Common Stock to Fred E. Kassner dated December 31, 1996. (Incorporated by reference to Exhibit 4.36 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 4.37 Warrant to purchase up to 25,000 shares of Common Stock to Damon Tes- taverde dated January 31, 1997. (Incorporated by reference to Exhibit 4.37 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) III-4 4.38 Warrant to purchase 4,000 shares of Common Stock to Susan G. Kaufman dated December 31, 1996. (Incorporated by reference to Exhibit 4.38 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 4.39 Eight Percent (8%) Convertible Note between Network Imaging Corpora- tion and Wood Gundy in trust for RRSP 550 98866 19 and Gundyco in trust for RRSP 550 99119 12 as of July 9, 1997 and attached Schedule. (Incorporated by reference to Exhibit 10.22 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.40 Securities Purchase Agreement between Network Imaging Corporation and Capital Ventures International and Zanett Lombardier, Ltd. as of July 28, 1997. (Incorporated by reference to Exhibit 10.23 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.41 Registration Rights Agreement between Network Imaging Corporation and Capital Ventures International and Zanett Lombardier, Ltd. as of July 28, 1997. (Incorporated by reference to Exhibit 10.24 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.42 Warrant to purchase 20,000 shares of Common Stock issued to Wood Gundy in trust for RRSP 550 98866 19 dated July 9, 1997. (Incorporated by reference to Exhibit 10.25 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.43 Warrant to purchase 16,000 shares of Common Stock issued to Gundyco in trust for RRSP 550 99119 12 dated July 9, 1997. (Incorporated by reference to Exhibit 10.26 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.44 Warrant to purchase 112,500 shares of Common Stock issued to Capital Ventures International dated July 28, 1997. (Incorporated by reference to Exhibit 10.27 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.45 Warrant to purchase 135,000 shares of Common Stock issued to Zanett Lombardier, Ltd. dated July 28, 1997. (Incorporated by reference to Exhibit 10.28 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.46 Warrant to purchase 162,462 shares of Common Stock issued to the Zanett Securities Corporation dated July 28, 1997. (Incorporated by reference to Exhibit 10.29 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.47 Placement Agency Agreement dated July 2, 1997 between Network Imaging Corporation and The Zanett Securities Corporation. (Incorporated by reference to Exhibit 10.30 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.48 Security Agreement dated as of December 31, 1996 between Network Imag- ing Corporation and Fred Kassner. (Incorporated by reference to Exhibit 10.31 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.49 Amendment No. 1 to Loan Agreement dated as of June 8, 1997 between Network Imaging Corporation and Fred Kassner. (Incorporated by reference to Exhibit 10.32 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) 4.50 Amendment No. 1 to Security Agreement dated as of June 8, 1997 between Network Imaging Corporation and Fred Kassner. (Incorporated by reference to Exhibit 10.33 to the Company's Form 10-Q for the quarterly period ended June 30, 1997.) III-5 4.51 Consulting Agreement by and between the Company, BCG, Inc. and Robert P. Bernardi dated May 28, 1996. (Incorporated by reference to Exhibit 10.a to the Company's report on Form 8-K filed August 2, 1996.) 4.52 Form of Consulting Agreement by and between the Company, Sterling Capital Group, Inc. and Robert M. Sterling, Jr. effective February 1, 1994. (Incorporated by reference to Exhibit 10.4.b to Post-Effective Amendment No. 1 to the Company's registration statement on Form SB-2 (Registration No. 33-73164) filed January 14, 1994.) 4.53 Amendment dated October 1, 1995 by and between the Company, Sterling Capital Group, Inc., and Robert M. Sterling, Jr. (Incorporated by reference to Exhibit 10.4.c to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995.) 4.54 Purchase Agreement by and between the Company and CDR Enterprises for the repurchase of the Company's Series F Preferred Stock dated December 31, 1996. (Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 4.55 Loan Agreement by and between the Company and Fred E. Kassner for a line of credit of $5,000,000 dated December 31, 1996. (Incorporated by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 4.56 Amendment dated January 1, 1996 among Network Imaging Corporation, Sterling Capital Group and Robert M. Sterling, Jr. (Incorporated by reference to Exhibit 10.44 to the Company's registration statement on Form S-1 (Registration No. 333-36417) filed December 5, 1997.) 4.57 Amendment dated January 1, 1996 among Network Imaging Corporation, BCG, Inc. and Robert P. Bernardi. (Incorporated by reference to Exhibit 10.45 to the Company's registration statement on Form S-1 (Registration No, 333-36417) filed December 5, 1997). 4.58 Amendment to Purchase Agreement effective May 30, 1997 between Network Imaging Corporation and CDR Enterprises. (Incorporated by reference to Exhibit 10.46 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.59 Registration Rights Agreement between the Company and CDR Enterprises dated as of December 31, 1996. (Incorporated by reference to Exhibit 10.47 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.60 Warrant to purchase 40,000 shares of Common Stock issued to Mark Shoom dated as of June 25, 1996. (Incorporated by reference to Exhibit 10.48 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.61 Warrant to purchase 40,000 shares of Common Stock issued to Charles Kucey dated as of June 25, 1996. (Incorporated by reference to Exhibit 10.49 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.62 Form of Registration Rights Agreement between Network Imaging Corpora- tion and GFL Performance Ltd., dated as of March 15, 1996. (Incorporated by reference to Exhibit 10.50 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). III-6 4.63 Warrant to purchase 5,000 shares of Common Stock issued Redington, Inc dated October 21, 1993 and Form of Registration Rights Agreement between Network Imaging Corporation and Redington, Inc. (Incorporated by reference to Exhibit 10.51 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.64 Form of Registration Rights Agreement between Network Imaging Corpor- ation and Fred Kassner dated as of December 31, 1996. (Incorporated by reference to Exhibit 10.52 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.65 Form of Warrant Agreement between Network Imaging Corporation and American Stock Transfer and Trust Company to issue shares of Common Stock dated as of December 31, 1996. (Incorporated by reference to Exhibit 10.53 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.66 Representative's Warrant issued to Thomas James Associates, Inc. to purchase 150,000 shares of Common Stock dated May 18, 1992. (Incorporated by reference to Exhibit 4.11 to the Company's registration statement on Form SB-2 (Registration No. 33-64046) filed June 9, 1993)). 4.67 Warrant to purchase in aggregate (i) up to 140,000 shares of Series A Preferred Stock, or (ii) up to 253,624 shares of Common Stock, or (iii) any combination of such securities issued to (a) RAS Securities Corp. and (b) R.A. Schneider dated December 7, 1993. (Incorporated by reference to Exhibit 10.57 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.68 Eight Percent (8%) Convertible Notes in the aggregate principal amount of $200,000 dated August 20, 1997 and issued to Gundyco in trust for RRSP 550 99119 12. (Incorporated by reference to Exhibit 10.34 to the Company's Form 10-Q for the three months ended September 30, 1997.) 4.69 Form of Warrant dated August 21, 1997 to purchase 4,000 shares of Common Stock issued to Gundyco in trust for RRSP 550 99119 12. (Incorporated by reference to Exhibit 10.35 to the Company's Form 10-Q for the three months ended September 30, 1997.) 4.70 Termination of Consulting Agreement among Network Imaging Corporation, Sterling Capital Group, Inc., and Robert M. Sterling, Jr., dated October 13, 1997. (Incorporated by reference to Exhibit 10.60 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.71 Termination of Consulting Agreement among Network Imaging Corporation, Mann Enterprises, Inc., and John B. Mann dated October 17, 1997. (Incorporated by reference to Exhibit 10.61 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.72 Termination of Consulting Agreement among Network Imaging Corporation, BCG, Inc., and Robert P. Bernardi, dated October 30, 1997. (Incorporated by reference to Exhibit 10.62 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). III-7 4.73 Form of Warrant to purchase (i) 100,000 shares of Common Stock issued to Robert M. Sterling, Jr., dated October 1, 1997, (ii) 66,667 shares of Common Stock issued to Mann Enterprises, Inc., dated October 1, 1997, (iii) 50,000 shares of Common Stock issued to Robert P. Bernardi dated October 1, 1997, (iv) 4,464 shares of Common Stock issued to the Poretz Group dated August 1, 1997, (v) 5,495 shares of Common Stock issued to the Poretz Group dated November 1, 1997 and (vi) 33,951 shares of Common Stock issued to Alex Brown & Sons Incorporated dated August 5, 1997. (Incorporated by reference to Exhibit 10.63 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.74 Form of Registration Rights Agreement among Network Imaging Corpora- tion and the purchasers of the Series D Preferred Stock. (Incorporated by reference to Exhibit 10.64 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.75 Form of Registration Rights Agreement among Network Imaging Corpora- tion and the purchasers of the Series E Preferred Stock. (Incorporated by reference to Exhibit 10.65 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517). 4.76 Letter of Agreement between Network Imaging Corporation and Alex Brown & Sons Incorporated dated August 13, 1997. (Incorporated by reference to Exhibit 10.66 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.77 Form of Warrant to purchase (i) 3,094 shares of Common Stock issued to the Poretz Group dated February 1, 1997, (ii) 70,000 shares of Common Stock issued to Fred Kassner dated March 27, 1997, (iii) 17,500 shares of Common Stock issued to Damon Testaverde dated March 27, 1997, (iv) 5,495 shares of Common Stock issued to the Poretz Group dated May 1, 1997, (v) 30,000 shares of Common Stock issued to Fred Kassner dated June 9, 1997, and (vi) 7,500 shares of Common Stock issued to Damon Testaverde dated June 9, 1997. (Incorporated by reference to Exhibit 10.67 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.78 Form of Securities Purchase Agreement between Network Imaging Corpora- tion and Genesee Fund Limited dated March 15, 1996. (Incorporated by reference to Exhibit 10.68 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.79 Form of Securities Purchase Agreement between Network Imaging Corpora- tion and (i) Bank Ehinger & CIE AG, and (ii) Privatinvest Bank, respectively, dated in February and March 1996. (Incorporated by reference to Exhibit 10.69 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.80 Letter of Employment Agreement between Network Imaging Corporation and James Leto dated May 9, 1996. (Incorporated by reference to Exhibit 10.70 to Amendment No. 1 to the Company's registration statement on Form S-4 (Registration No. 333-36517)). 4.81 Form of Convertible Preferred Stock Purchase Agreement between Network Imaging Corporation and Purchaser dated June 28, 1996. (Incorporated by reference to Exhibit 4.a to the Company's Quarterly Report on Form 10-Q for the period ending June 30, 1996.) 4.82 Form of Convertible Preferred Stock Purchase Agreement between Network Imaging Corporation and Southbrook International Investments, Ltd., dated September 30, 1996. (Incorporated by reference to Exhibit 4.a to the Company's Quarterly Report of Form 10-Q for the period ending September 30, 1996.) III-8 4.83 Securities Purchase Agreement among Network Imaging Corporation, Cap- ital Ventures International, Zanett Lombardier, Ltd., and Bruno Guazzoni dated as of December 8, 1997. 4.84 Cashless Stock Purchase Warrant to purchase 131,250 shares of Common Stock issued to Capital Ventures International dated December 8, 1997. 4.85 Cashless Stock Purchase Warrant to purchase 56,250 shares of Common Stock issued to Zanett Lombardier, Ltd. dated December 8, 1997. 4.86 Cashless Stock Purchase Warrant to purchase 56,250 shares of Common Stock issued to Bruno Guazzoni dated December 8, 1997. 4.87 Registration Rights Agreement among Network Imaging Corporation, Cap- ital Ventures International, Zanett Lombardier, Ltd., and Bruno Guazzoni dated as of December 8, 1997. 10.22 Securities Purchase Agreement between Network Imaging Corporation and Fred Kassner dated as of December 29, 1997. 10.23 Letter Agreement between Network Imaging Corporation and holders of the Series K Stock entered into on November 30, 1997. 10.24 Letter from Zanett Lombardier Ltd., Capital Ventures International and Bruno Guazzoni to Network Imaging Corporation, dated December 12, 1997. 21 Subsidiaries. 27.1 Financial Data Schedule for the year ended December 31, 1997. 27.2 Financial Data Schedule for the year ended December 31, 1996 b) Reports on Form 8-K. The Company filed the following reports on Form 8-K during or relating to the fourth quarter of 1997: Form 8-K on December 8, 1997 to report the closing of the Series L Convertible Preferred Stock offering. Form 8-K on December 31, 1997 to report that the Company had achieved net tangible assets of at least $6 million and consummated the sale of Dorotech, S.A. Amendment to Form 8-K on March 13, 1998 to include proforma financial statements for the sale of Dorotech, S.A. c) the exhibits are listed in Item 14(a)(3) d) Financial Statement Schedules Schedule II - Valuation and Qualifying Account III-9 INDEX TO FINANCIAL STATEMENTS Page Reports of Independent Accountants F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-5 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-7 Notes to Consolidated Financial Statements F-8 Report of Ernst & Young LLP, Independent Auditors Board of Directors Network Imaging Corporation We have audited the accompanying consolidated balance sheets of Network Imaging Corporation as of December 31, 1996 and 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Network Imaging Corporation at December 31, 1996 and 1997 and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Fairfax, Virginia February 27, 1998 F-2 Report of Independent Accountants To the Board of Directors and Stockholders of Network Imaging Corporation In our opinion, the consolidated balance sheet and the related accompanying consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Network Imaging Corporation and its subsidiaries at December 31, 1995, and the results of their operations and their cash flows for the year, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of the statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/PRICE WATERHOUSE LLP Washington, DC March 29, 1996 F-3 NETWORK IMAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) Pro Forma at December 31, December 31, December 31, 1996 1997 1997 --------- --------- --------- ASSETS Current assets: Cash and cash equivalents $ 7,601 $ 3,816 $ 4,268 Accounts and notes receivable, net 13,243 8,569 8,569 Note receivable Dorotech sale -- 7,000 -- Inventories 1,503 722 722 Prepaid expenses and other 2,362 1,108 1,108 --------- --------- --------- Total current assets 24,709 21,215 14,667 Fixed assets, net 2,887 2,165 2,165 Long-term notes receivable, net 1,979 378 378 Software development costs and purchased technology, net 3,813 2,490 2,490 Goodwill, net 3,237 499 499 Other assets 153 113 113 --------- --------- --------- Total assets $ 36,778 $ 26,860 $ 20,312 ========= ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Current debt maturities and obligations under capital leases $ 2,063 $ 2,479 $ 2,479 Accounts payable 3,185 2,037 2,037 Accrued compensation and related expenses 1,891 1,135 1,135 Deferred revenue 3,789 3,334 3,334 Other accrued expenses 3,888 2,250 2,250 --------- --------- --------- Total current liabilities 14,816 11,235 11,235 Long-term debt and obligations under capital leases 88 1,108 1,108 Deferred income taxes 300 -- -- --------- --------- --------- Total liabilities 15,204 12,343 12,343 Commitments Redeemable Series F preferred stock, 1,792,186 and 792,186 shares issued and outstanding at December 31, 1996 and 1997 and no shares issued and outstanding on a pro forma basis at December 31, 1997 9,857 6,548 -- Stockholders' equity: Preferred stock, $.0001 par value, 20,000,000 shares authorized; 1,605,675 and 1,615,575 shares issued and outstanding at December 31, 1996 and 1997 and 1,615,575 shares issued and outstanding on a pro forma basis at December 31, 1997 Common stock, $.0001 par value, 100,000,000 shares authorized; 22,896,612 and 26,236,186 shares issued and outstanding at December 31, 1996 and 1997 and 26,236,186 shares issued and outstanding on a pro forma basis at December 31, 1997 2 3 3 Additional paid-in-capital 124,429 132,403 132,403 Accumulated deficit (113,098) (124,437) (124,437) Translation adjustment 384 -- -- --------- --------- --------- Total stockholders' equity 11,717 7,969 7,969 --------- --------- --------- Total liabilities and stockholders' equity $ 36,778 $ 26,860 $ 20,312 ========= ========= ========= The accompanying notes are an integral part of these financial statements. F-4 NETWORK IMAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, (In thousands, except share and per share amounts) 1997 1996 1995 -------- -------- -------- Revenues: Products $ 18,310 $ 18,336 $ 47,508 Services 17,496 21,141 21,643 -------- -------- -------- 35,806 39,477 69,151 -------- -------- -------- Costs and expenses: Cost of products sold 8,383 9,953 29,263 Cost of services provided 13,625 15,901 14,315 Product development 4,428 5,342 6,066 Selling, general and administrative 20,263 24,634 35,491 Sale of subsidiaries and other, net 160 921 9,274 Settlement with stockholders -- -- 1,642 Exchange fee and gain on sale of asset, net -- 619 -- Restructuring costs -- (175) (1,433) -------- -------- -------- 46,859 57,195 94,618 -------- -------- -------- Loss before interest (expense) income and income taxes (11,053) (17,718) (25,467) Interest (expense) income, net (286) 309 224 -------- -------- -------- Loss before income taxes (11,339) (17,409) (25,243) Income tax benefit -- (68) (280) -------- -------- -------- Net loss (11,339) (17,341) (24,963) -------- -------- -------- Preferred stock preferences Accrued dividends (1,435) (3,730) (9,933) Imputed dividends (1,536) -- -- -------- -------- -------- Net loss applicable to common shares $(14,310) $(21,071) $(34,896) ======== ======== ======== Net loss per common share $ (0.57) $ (1.02) $ (2.41) ======== ========= ======== Net loss per common share - assuming dilution $ (0.57) $ (1.02) $ (2.41) ======== ========= ======== The accompanying notes are an integral part of these financial statements. F-5 NETWORK IMAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For the years ended December 31, 1997, 1996 and 1995 (In thousands, except share amounts)
Additional Preferred Stock Common Stock paid-in Accumulated Translation Shares Amt. Shares Amt. capital Deficit Adjustment Total ---------------- ---------------- ----------- ------------ ------------ ---------- Balance December 31, 1994 1,605,025 $-- 13,628,175 $1 $ 95,597 ($ 70,794) $ 352 $ 25,156 Issuance of preferred stock, net of offering costs of $1,790 2,174 19,949 19,949 Conversion of preferred stock (885) 2,276,237 -- Redemption of preferred stock (1,086) (15,600) (15,600) Issuance of common stock, net of offering costs of $941 2,732,814 1 9,198 9,199 Accretion of preferred stock (869) (869) Dividends on preferred stock (3,210) (3,210) Translation adjustment 523 523 Net loss (24,963) (24,963) ---------------- --------------- ---------- ---------- ---------- ---------- Balance December 31, 1995 1,605,228 -- 18,637,226 2 105,065 (95,757) 875 10,185 Issuance of common stock, net of offering costs of $376 1,902,487 6,149 6,149 Issuance of preferred stock, net of offering costs of $209 1,100 10,791 10,791 Issuance of warrants for line of credit 192 192 Buy-Back adjustment of Redeemable Series F preferred stock 5,962 5,962 Conversion of preferred stock (653) 2,356,899 -- Accretion of preferred stock (341) (341) Dividends on preferred stock (3,389) (3,389) Translation adjustment (491) (491) Net loss (17,341) (17,341) ---------------- --------------- ---------- ---------- ---------- ---------- Balance December 31, 1996 1,605,675 -- 22,896,612 2 124,429 (113,098) 384 11,717 Issuance of common stock upon exercise of warrants 23,331 23 23 Conversion of preferred stock (650) 3,020,110 1 1 Conversion of convertible notes 121,241 98 98 Issuance of preferred stock, net of offering costs of $2,379 10,550 10,220 10,220 Issuance of common stock 174,892 174 174 Issuance of warrants 430 430 Accrued dividends on preferred stock (1,435) (1,435) Imputed dividends on preferred stock (1,536) (1,536) Translation adjustment (384) (384) Net loss (11,339) (11,339) ---------------- --------------- ---------- ---------- ---------- ---------- Balance December 31, 1997 1,615,575 $-- 26,236,186 $3 $ 132,403 ($ 124,437) $ -- $ 7,969 ================ =============== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-6 NETWORK IMAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (In thousands) 1997 1996 1995 --------- --------- --------- Cash flows from operating activities: Net loss $(11,339) $(17,341) $(24,963) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,464 5,793 6,270 Restructuring costs -- (175) (1,433) Loss (gain) on closure and sale of subsidiaries (266) 921 9,274 Other gains and losses, net 426 -- -- Impairment of asset and stock settlement -- -- 1,063 Realized gain on sale of short-term investments -- (108) (151) Changes in assets and liabilities: Accounts and notes receivable (3,604) 1,871 (1,350) Inventories 4 313 988 Prepaid expenses and other 325 937 (1,681) Accounts payable 1,626 (3,353) (313) Accrued compensation and related expenses 1,217 54 2,107 Deferred revenues 462 (449) 1,521 Deferred income taxes 15 (246) (331) -------- -------- -------- Net cash used in operating activities (6,670) (11,783) (8,999) -------- -------- -------- Cash flows from investing activities: Sale of short-term investments -- 111 12,731 Capitalized software development and license costs (1,454) (1,979) (1,784) Purchases of fixed assets (888) (1,068) (1,522) Business divestitures and related costs 46 299 154 -------- -------- -------- Net cash (used in) provided by investing activities (2,296) (2,637) 9,579 -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock, net 162 6,149 8,412 Proceeds from issuance of preferred stock, net 5,122 10,791 19,949 Redemption of Series D preferred stock -- -- (15,600) Cash dividends paid on preferred stock (1,779) (3,210) (3,210) Proceeds from borrowings 6,861 -- (869) Redemption of Mandatory Redeemable Preferred Stock (3,500) -- -- Proceeds from sale and leaseback of fixed assets -- 196 226 Principal payments on capital lease obligations (1,126) (913) (817) Principal payments on debt (421) (270) (3,382) -------- -------- -------- Net cash provided by financing activities 5,319 12,743 4,709 -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (138) (81) 81 Net (decrease) increase in cash and cash equivalents (3,785) (1,758) 5,370 Cash and cash equivalents at beginning of year 7,601 9,359 3,989 -------- -------- -------- Cash and cash equivalents at end of year $ 3,816 $ 7,601 $ 9,359 ======== ======== ======== Supplemental Cash Flow Information: Interest paid $629 $278 $712 Income taxes paid $208 $209 $151 The accompanying notes are an integral part of these financial statements. F-7 NETWORK IMAGING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995 Network Imaging Corporation ("Network Imaging" or the "Company") is a developer and marketer of content and document management software. Its flagship product suite, 1View , manages the storage, access and distribution of any multimedia data, such as engineering diagrams, office documents, photographs, voice and video. 1View excels in distributed, high transaction, high volume mission critical applications across legacy, client/server and Internet/intranet based environments. The 1View suite also encompasses a scaleable production-level, mainframe enhanced client server Computer Output to Laser Disk ("COLD") application to address a wide variety of report archival and retrieval requirements. In 1997, the Company's operations were divided approximately 70% within the United States and 30% in Europe. The Company's European operations were sold during the fourth quarter 1997. U.S. operations were conducted in Herndon, Virginia (primarily the development of the 1View suite and COLD family of storage products), Minneapolis, Minnesota and Denver, Colorado. European operations were conducted near Paris, France (hierarchical storage management software and related storage products and engineering services). The adverse results of operations which the Company experienced in 1997 are expected to continue, in declining amounts, into 1998. The Company believes that its existing cash, together with the net proceeds of $1.1 million received from the issuance of common stock in the first quarter of 1998 (See Note 17) and the anticipated cash flows from 1998 operations should provide sufficient resources to fund its activities in 1998. Anticipated cash flows from 1998 operations are largely dependent upon the Company's ability to achieve its sales and gross profit objectives for its 1View and COLD products. Achievement of these objectives is subject to various risk factors related to, among other things: the need to use a two-step distribution channel involving system integrators; the long lead times in the sales cycle; the large dollar size of the average unit sale requiring high level customer authorizations; the large number of established and potential competitors in the marketplace; the fast pace of technology evolution related to the product suite; the newness of the Company's sales and marketing staff; and the evolving nature of the Company's sales and marketing strategies. The Company nevertheless believes that its sales and gross profit objectives are achievable in light of its recent divestitures of a non-core business units, the successful installation of 1View and COLD products in several major contracts during 1997, the repositioning of its product lines; additions to the executive sale management, and the refocusing of sales and marketing resources. If the Company is unable to meet these objectives , it will consider alternative sources of liquidity, such as public or private offerings of equity securities; the curtailment of certain capital and discretionary expenditures (such as travel, marketing, consulting and salaries); and other various courses of action. Although the Company believes that it can successfully implement its 1998 operating plan and, if necessary, raise additional capital, there can be no assurance that implementation of the plan will be successful or that financing, if sought, will be available. F-8 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation -- The consolidated financial statements include the accounts of Network Imaging Corporation and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Cash equivalents and short-term investments -- The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Revenue recognition -- The Company recognizes software revenue in accordance with the AICPA Statement of Position 91-1, "Software Revenue Recognition". Revenue from hardware and software sales related to the Company's 1View and COLD software products is recognized when the product is delivered to the customer. The Company accounts for insignificant vendor obligations and post-contract support at the time of product delivery by accruing such costs at the time of sale. Revenue from hardware and software contracts with significant completion services involving technically difficult issues for the attainment of customer acceptance is recognized upon customer acceptance. Revenue from maintenance contracts is recognized ratably over the terms of the contracts. For labor intensive contracts which require significant production or customization, the Company accounts for such revenue in accordance with AICPA Statement of Position 81-1, "Accounting for Performance of Construction-type and Certain Production-type Contracts," using the percentage of completion method. Losses, if any, are recognized in the period that such losses are determined. The Accounting Standards Executive Committee recently issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition". The SOP supersedes SOP 91-1 and provides revised and expanded guidance on when revenue should be recognized and in what amounts for licensing, selling, leasing, or otherwise marketing computer software. The Company adopted the SOP in the first quarter of 1998 and does not expect the adoption of this SOP to materially affect its financial position or results of operations. Inventories -- Inventories are stated at the lower of cost, determined on the first-in, first-out method, or market. Fixed assets -- Fixed assets are stated at cost, net of accumulated depreciation. Depreciation is computed using straight-line and accelerated methods over the life of the related asset, generally three years. Leasehold improvements are amortized over the shorter of the estimated useful life of the improvements or the terms of the related lease. F-9 Software development and license costs -- The Company capitalizes certain software development costs in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed," ("SFAS 86"). The Company capitalizes certain acquired software licenses (see Note 4) which are incorporated into the Company's products. Amortization of software development and license costs is provided on an individual product basis over the estimated useful life of the products, three years, beginning when the related products are available for general release. Costs for research and development incurred prior to establishing technological feasibility of software products, or after their commercial release, are expensed in the period incurred. The Company periodically assesses capitalized software amounts and, when less than anticipated net realizable value, charges any such excess to expense. Goodwill -- The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets of businesses acquired is being amortized on a straight-line basis over seven years. Amortization expense in 1997, 1996 and 1995 was $743,000, $1.1 million and $1.3 million, respectively. Accumulated amortization as of December 31, 1997 and 1996 was $671,000 and $3.1 million, respectively. In accordance with Statement of Financial Accounting Standards No. 121, the Company routinely evaluates recoverability of goodwill by comparing future undiscounted cash flows to the recorded carrying value to determine if a write-down is required. If a write-down is required, the Company would prepare a discounted cash flow analysis to determine the amount of the write-down. Concentration of Credit Risk -- Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of its cash equivalents, trade accounts and notes receivable. The Company periodically performs credit evaluations of customer's financial condition and generally requires no collateral. Fair Value of Financial Instruments -- The carrying value of the Company's financial instruments, including cash equivalents, accounts and notes receivable, accounts payable and debt, approximate fair value. Product warranty -- Warranties for hardware sold by the Company are generally provided by the manufacturer. The Company provides warranties and service contracts for certain products and accrues related expenses based on actual claims history. Income taxes -- The Company's income taxes are presented in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which requires recognition of deferred tax liabilities and assets for the F-10 expected future tax consequences of events that have been included in the financial statements or tax returns. Under SFAS 109, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Foreign currency translation -- The functional currency of the Company's foreign operation was the applicable local currency. Consequently, for the operation outside the United States, assets and liabilities were translated into United States dollars using exchange rates in effect at the balance sheet date and revenues and expenses using the average exchange rate during the period. The gains and losses resulting from such translations are included as a component of stockholders' equity. Since the Company's French subsidiary operated only within France, exposure to foreign exchange risk was limited. Net loss per common share -- In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") which replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented to conform to the SFAS 128 requirements. (See Note 11). Stock Based Compensation -- Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which allows companies which have stock-based compensation arrangements with employees to adopt a new fair-value basis of accounting for stock options and other equity instruments, or to continue to apply the existing accounting rules under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" but with additional disclosure. The Company has adopted the disclosure provisions of SFAS 123 and accordingly there is no effect on the Company's financial position or results of operations (See Note 8). Impact of Recently Issued Accounting Standards -- In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for reporting the components of comprehensive income and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be included in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes net income as well as certain items that are reported directly within a separate component of stockholders' equity and bypass net income. The provisions of SFAS 130 are effective beginning with 1998 interim reporting. These disclosure requirements will have no impact on financial position or results of operations of the Company. F-11 The Company intends to adopt Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"), in fiscal year 1998. SFAS 131 changes the way companies report segment information and requires segments to be determined based on how management measures performance and makes decisions about allocating resources. The adoption of SFAS 131 is not expected to materially impact the Company's financial position or results of operations. Year 2000 -- The Company is aware of the issues associated with the Year 2000 as it relates to information systems. The Year 2000 is not expected to have a material impact on the Company's current information systems because current software is either already Year 2000 compliant or required changes will be insignificant. As a result, the Company does not anticipate that incremental expenditures to ensure that its information systems are Year 2000 compliant will be material to the Company's liquidity, financial position or results of operations over the next few years. Such costs will be expensed as they are incurred. Use of estimates-- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications -- Certain reclassifications have been made to the prior year financial statements in order to conform to the current year presentation. NOTE 2- RECEIVABLES Receivables consist of the following: December 31, 1997 1996 -------- -------- (in thousands) Trade accounts receivable $ 8,586 $ 9,814 Unbilled receivables 49 3,488 Notes receivable 2,329 2,475 Employee receivables 119 112 Other receivables 12 188 -------- -------- 11,095 16,077 Allowance for uncollectible accounts receivable (1,050) (535) Allowance for uncollectible notes receivable (1,098) (320) -------- -------- 8,947 15,222 Less: current receivables, net (8,569) (13,243) -------- -------- Long-term receivables, net $ 378 $ 1,979 ======== ======== F-12 The Company's notes receivable balance of $2.3 million at December 31, 1997 includes $1.8 million of notes resulting from the divestitures of previously owned operating units made during 1995 and 1996 (see Note 5) and $525,000 of notes receivable from former stockholders of a subsidiary acquired in 1994 (See Note 15). Presented separately is the $7.0 million promissory note received as consideration for the sale of the Company's french subsidiary, Dorotech. During the first quarter of 1998, the $7.0 million note receivable was collected (See Note 17). NOTE 3 - FIXED ASSETS Fixed assets consist of the following: December 31, 1997 1996 ------- ------- (in thousands) Computer and office equipment $ 3,032 $ 4,953 Furniture and leasehold improvements 599 1,131 Furniture, fixtures and equipment under capital leases 3,297 2,482 ------- ------- 6,928 8,566 Less: Accumulated depreciation (4,763) (5,679) ------- ------- $ 2,165 $ 2,887 ======= ======= Depreciation and amortization expense related to fixed assets in 1997, 1996, and 1995 totaled $1.8 million, $1.7 million, and $2.1 million, respectively. The Company recorded $489,000, $580,000, and $704,000 as amortization expense of capital leases during 1997, 1996 and 1995, respectively. NOTE 4- SOFTWARE DEVELOPMENT AND PURCHASED TECHNOLOGY Capitalized software development and purchased technology consists of the following: December 31, 1997 1996 -------- -------- (in thousands) Internally developed $ 4,604 $ 8,517 Purchased technology 312 3,149 -------- -------- 4,916 11,666 Less: Accumulated amortization (2,426) (7,853) -------- -------- $ 2,490 $ 3,813 ======== ======== The overall decrease in capitalized software development and purchased technology costs is due to the divestiture of the Company's French subsidiary, Dorotech, S.A. (see Note 5). During 1997, 1996 and 1995, amortization of capitalized software development and license costs totaled $1.6 million, $2.6 million and $2.7 million, respectively, and was included in cost of products sold. The Company expensed $3.4 million of F-13 purchased technology and $721,000 of capitalized software in 1995 due to certain divestitures of its subsidiaries. NOTE 5 - DIVESTITURES OF BUSINESSES During the fourth quarter of 1997, the Company sold the stock of Dorotech, SA. ("Dorotech") a wholly owned subsidiary of the Company, in a transaction that resulted in a $266,000 gain. The Company received as consideration a promissory note totaling $7.0 million which was paid to the Company during January 1998 (See Notes 9 and 17). In connection with the sale of Dorotech, the Company reduced goodwill and related accumulated amortization by $5.1 million and $3.4 million, respectively. During 1996 and 1995, the Company sold several of its subsidiaries ("the Divestitures") resulting in a loss on disposal of $921,000 and $9.3 million in 1996 and 1995, respectively. The Company received as consideration from the Divestitures, cash and notes totaling $1.5 million and $4.3 million in 1996 and 1995, respectively. The following unaudited pro forma information assumes that the 1997 disposition of Dorotech subsidiary occurred January 1, 1997. The unaudited pro forma information is not necessarily indicative of the results of future operations or the actual results that would have occurred had the transactions taken place at January 1, 1997 (in thousands, except share amounts): Revenue $ 24,486 Net loss applicable to common shares $(13,474) Net loss applicable to common share $ (0.53) ======== NOTE 6 - OTHER ACCRUED EXPENSES Other accrued expenses consist of the following: December 31, 1997 1996 ------ ------ (in thousands) Accrued preferred dividends $ -- $ 714 Accrued income and other taxes 427 1,667 Other 1,823 1,507 ------ ------ $2,250 $3,888 ====== ====== F-14 NOTE 7- BORROWING ARRANGEMENTS Borrowings consist of the following: December 31, 1997 1996 ------- ------- (in thousands) Lines of credit $ 1,000 $ -- Convertible notes (net of $37,279 discount) bearing interest at 8.0% 1,863 -- Capital lease obligations bearing interest ranging from 9.4% to 13.5% 724 957 Term loans from French government agencies, non-interest bearing, due at various dates through 1997 -- 1,098 Term notes with financial institutions, bearing interest ranging from 8.8% to 10%, due at various dates through 1997 -- 96 ------- ------- 3,587 2,151 Less: Amounts due in one year (2,479) (2,063) ------- ------- Long-term debt and capital lease obligations $ 1,108 $ 88 ======= ======= During December 1996, the Company entered into a restricted $5.0 million line of credit agreement with a stockholder of the Company ("the Stockholder line of credit") to fund the buy back of the Company's Series F Preferred Stock. During December 1997, $4.0 million of the outstanding $5.0 million Stockholder line of credit was converted into equity through the issuance of 4,000 shares of Series M Convertible Stock (See Note 8). The remaining $1.0 million of the Stockholder line of credit outstanding at December 31, 1997 bears interest at the prime rate (8.50% at December 31, 1997) plus 2% and is secured by the domestic accounts receivable of the Company. The Stockholder line of credit expires on April 1, 1999. During July and August 1997, the Company issued, pursuant to a private placement exemption under the Securities Act of 1933, as amended, 8% Convertible Notes ("the Notes") due July 8, 2002 and August 20, 2002 totaling $2.0 million. The Notes are convertible into the Company's Common Stock beginning 45 days after issue at a conversion price of $1.875 and $1.50 per share, the price on the issue dates. At December 31, 1997, the Notes were convertible into 2,560,327 shares of Common Stock. During December 1997, $100,000 of Notes were converted into 121,241 shares of Common Stock and during January 1998 $1.3 million of the Notes were redeemed in cash (See Note 17). On or after October 30, and December 12, 1997, the Notes holders have the right to redeem the convertible notes plus accrued interest on one business days' notice to the Company in cash or shares of Common Stock, at the Company's election. On or after October 30, and December 12, 1997, the Company has the right to redeem the Notes plus accrued interest on 30 days' notice to the holders in cash or share of Common Stock, at the Notes holders' election. If shares of Common Stock are used, Common Stock is issued at a rate of 90% of the F-15 previous 5 trading days average closing bid price. The interest is compounded semi-annually. The warrants issued to the Notes holders have an exercise price of $1.875 and $1.50 per share and expire on July 8, and August 20, 2000, respectively. The Company leases certain of its furniture and equipment under capital lease arrangements. Future minimum lease payments under these capital leases are: 1998, $667,000; 1999, $89,000; 2000, $20,000; 2001, $13,000, and 2002, $4,000. Of the $793,000 total lease payments, $69,000 represents interest. NOTE 8 - STOCKHOLDERS' EQUITY Common Stock -- In March 1996, the Company completed a private placement of 934,634 shares of Common Stock, together with warrants to purchase an additional 64,000 shares of Common Stock, pursuant to Regulation D under the Securities Act of 1933. Net proceeds from the offering were $3.0 million. The Company subsequently registered the Common Stock and Common Stock issuable upon exercise of the warrants under the Securities Act of 1933. In March and June 1996, the Company also issued 421,040 and 404,611 shares, respectively, of Common Stock pursuant to Regulation S under the Securities Act of 1933. Proceeds from the offerings were $1.7 million and $1.3 million, respectively. Series A Preferred Stock - The issuance of up to 1,750,000 shares of the Series A Cumulative Convertible Preferred Stock (the "Series A Stock") has been authorized and 1,605,025 shares are outstanding. A majority of the outstanding shares of the Series A Stock and the Common Stock voted to approve amendments to the terms of the Series A Stock (the "Amendments"). The Amendments became effective December 31, 1997. Prior to the approval of the Amendments to the Series A Stock, the Series A Stock had a liquidation preference of $25.00 per share plus all accrued and unpaid dividends. The Series A Stock was convertible into Common Stock at any time prior to redemption or exchange at the rate of 2.06 shares of Common Stock for each share of Series A Stock (an effective conversion price of $12.11 per share). The Series A Stock, upon 30 days written notice after December 7, 1996, was redeemable by the Company at $25.00 per share, plus accumulated and unpaid dividends, and exchangeable by the Company for Common Stock having a current market price of $25.00 per share, provided in each case that the closing sale price of the Common Stock for at least 20 consecutive trading days ending not more than 10 trading days prior to the date notice of the call for redemption or notice of exchange is given is at least $18.00 per share, or after December 7, 1997, at the cash redemption prices (ranging from $26.75 to $25.00) set forth in the certificate of designations, plus accumulated and unpaid dividends. F-16 Cumulative dividends on the Series A Stock were at the rate of $2.00 per share per annum and were payable quarterly, out of funds legally available therefor, on January 31, April 30, July 31 and October 31 of each year. The Company did not pay the quarterly dividend on July 31 and October 31, 1997. Upon the approval of the Amendments, the Company eliminated a cash dividend of $3.2 million per year. As of the date of the effectiveness of the Amendments, the stockholders of the Series A Cumulative Convertible Preferred Stock ("Series A Stock") are entitled to receive an annual dividend of $0.84 per share, payable quarterly in cash or Common Stock, at the Company's option, and convert to Common Stock at a rate of 7.68 shares of Common Stock for each share of Series A Stock. On the date the Company releases its earnings for the applicable quarter, it will announce whether the dividend for that quarter will be paid in cash or Common Stock; that date shall also be the record date for the dividend payment. If the dividend is paid in Common Stock, the number of shares of Common Stock distributed as a dividend will be based on the average closing price per share of Common Stock during the 10 day period following the Company's release of earnings for the applicable quarter. Dividend payments will be made 20 days after the release of earnings. The Company may not force conversion of shares of Series A Stock into Common Stock during 1998. Beginning January 1, 1999, the Company will be able to convert each share of Series A Stock into shares of Common Stock if the closing price per share of Common Stock is at least equal to $4.00 per share for 20 consecutive trading days. Beginning January 1, 2000, the Company will be able to convert each share of Series A Stock into shares of Common Stock if the closing price per share of Common Stock is at least equal to $3.00 per share for 20 consecutive trading days. Beginning January 1, 2001, the Company is able to convert each share of Series A Stock into shares of Common Stock at any time at the Company's option. The Series A stockholders vote as a class to approve or disapprove any issuance of any securities senior to or on parity with the Series A Stock with respect to dividends or distributions. The Series A Stock has a liquidation price of $12.00 per share. At December 31, 1997, the Series A Stock was convertible into 12,326,592 shares of Common Stock. Series H and J Preferred Stock -- The 260 shares of Series H and 390 shares of Series J Convertible Preferred Stock outstanding at December 31, 1996 were converted during 1997 into 1,435,650 and 1,584,460 shares of Common stock, respectively. Series K Preferred Stock -- During July 1997, the Company agreed to issue up to 11,000 units, at $1,000 per unit, consisting of one share of Series K Convertible Preferred Stock (the "Series K Stock") and warrants to acquire 75 shares of Common Stock at an exercise price of $2.40 per share. On July 28, 1997, the Company issued 3,300 Units and received net proceeds of $2.9 million ("the Series K Offering"). In accordance with the terms of the Series K Offering, the proceeds will be used for working capital and general corporate purposes. The Series K Stock has a dividend rate of 7% per annum ("the Premium") which is payable at the time of conversion or redemption in cash or shares of Common Stock, as elected by the F-17 Company. The Company also issued warrants to purchase 594,000 shares of Common Stock at an exercise price of $1.00 per share to the purchasers of the Series K Stock and 389,909 shares of Common Stock at $1.00 per share to the placement agent in the transaction. Under the requirements of a newly issued SEC staff position (the "SEC Staff Position"), the carrying value of the Series K Stock was increased by $774,000, the amount allocated to the beneficial conversion feature and a corresponding non-cash charge was recorded to preferred stock dividends. The Series K Stock issued and outstanding in July 2002 automatically converts into Common Stock. At December 31, 1997, the 3,300 shares of Series K Preferred Stock outstanding were convertible into 4,926,612 shares of Common Stock. During the first quarter of 1998, 700 shares of the Series K Stock were converted into 1,023,532 shares of Common Stock. The Series K Preferred Stock has a per share liquidation preference, subject to the liquidation preferences of the Series A Stock and the Series M Convertible Preferred Stock, equal to the sum of $1,000 plus 7% per annum simple cumulative interest thereon for the period since the date of issuance. Each share is convertible at the option of the holder into the number of shares of Common Stock determined by dividing an amount equal to the initial purchase price of $1,000 plus the Premium (if it has not been timely redeemed) by the lesser of (1) $2.00 or (2) the lowest closing sale price for the Common Stock for the ten trading days immediately preceding the conversion multiplied by the "Conversion Percentage." The Conversion Percentage is (a) 105% prior to the 61st day following July 28, 1997 (the "First Closing Date"), (b) 96% for the period between the 61st and the 90th day following the First Closing Date, (c) 85% for the period between the 91st and the 180th day following the First Closing Date, and (d) 81% for the period after the 180th day following the First Closing Date. In an involuntary liquidation, subject to the liquidation preferences described above, each share of Series K Stock is equal to the face amount plus the accrued Premium. The redemption amount per share of Series K Stock equals (1) $1,000 plus the accrued Premium multiplied by (2) the highest closing price of the Common Stock during the period beginning on the date of the redemption notice and ending on the date of redemption, divided by (3) the Conversion Price in effect on the date of the redemption notice ("Redemption Amount"). The holders have the right of redemption under various circumstances, all of which are under the sole control of the Company. The Company has the right to redeem all of the outstanding Series K Stock at any time at a price per share equal to the greater of (1) the sum of the face amount plus the accrued Premium or (2) (a) the sum of $1,000 plus the accrued Premium multiplied by (b) the volume weighted average sales price of the Common Stock on the trading day immediately preceeding the optional redemption notice, divided by (c) the conversion price in effect on the date of the optional redemption notice. Series L Preferred Stock -- In December 1997, the Company issued 3,250 units consisting of one share of Series L Convertible Preferred Stock (the "Series L Stock") and warrants to purchase 75 shares of Common Stock at an exercise price of $1.65 per share. The Company received net proceeds of $2.9 million (the "Series L Offering"). The Series L Stock has a dividend rate of 7% per annum which is payable at the time of conversion or redemption in cash or shares of Common Stock at the election of F-18 the Company. In accordance with the terms of the Series L Offering, the proceeds will be used for working capital and general corporate purposes. The Company also issued warrants to purchase 402,188 shares of Common Stock at an exercise price of $1.00 per share to the purchasers of the Series L Stock and warrants to purchase 264,000 shares of Common Stock at $1.00 per share to the placement agent in the transaction. Under the requirements of the SEC Staff Position, the carrying value of the Series L Stock was increased by $762,000, the amount allocated to the beneficial conversion feature and a corresponding non-cash charge was recorded to preferred stock dividends. The Series L stockholders may acquire up to an additional 3,000 shares of Series L Stock if the Company satisfies certain conditions. Additional warrants will be issued to the placement agent if such closings occur. In connection with the sale of the Series L Stock, the Company agreed to register the Common Stock issuable upon the conversion of the preferred stock and the execution of the warrants. At December 31, 1997, the 3,250 shares of Series L Stock were convertible into 4,731,825 shares of Common Stock. The Series L Stock has a per share liquidation preference, subject to the liquidation preferences of the Series A Stock and the Series M Convertible Preferred Stock of an amount equal to the sum of $1,000 plus 7% per annum simple cumulative interest thereon for the period since the date of issuance. Each share is convertible at the option of the holder into the number of shares of Common Stock determined by dividing an amount equal to the initial purchase price of $1,000 by the lesser of (1) $1.375 and (b) the lowest closing sale price for the Common Stock for the ten trading days immediately preceding the conversion multiplied by the "Conversion Percentage." The Conversion Percentage for the Series L Stock is (a) 85% prior to the 48th day following December 8, 1997 (the "First Series L Closing Date"), and (b) 81% for the period on or after the 48th day following the First Series L Closing Date. In an involuntary liquidation, subject to the liquidation preferences described above, the Series L Stock is equal to the face amount plus the accrued premium. The terms of the Series L Stock provide the holders with the right of redemption under various circumstances all of which are in the sole control of the Company. The Company has the right to redeem all of the outstanding Series L Stock at any time at a price per share equal to the greater of (1) the sum of the face amount plus the accrued Premium or (2) (a) the sum of $1,000 plus the accrued Premium multiplied by (b) the volume weighted average sales price of the Common Stock on the trading day immediately preceeding the optional redemption notice, divided by (c) the conversion price in effect on the date of the optional redemption notice. Series M Preferred Stock -- In December 1997, the Company converted $4 million of the outstanding $5 million Stockholder line of credit into 4,000 shares of Series M Convertible Stock the ("Series M Stock"). The Company agreed to register the Common Stock issuable upon the conversion of the preferred stock no later than August 1, 1998. The Company received no proceeds from the conversion of the Stockholder line of credit to equity. The Series M Stock issued and outstanding in December 2001 automatically converts into Common Stock. At December 31, 1997, the 4,000 shares of Series M Stock were convertible into 4,002,795 shares of Common Stock. The Series M Stock has a per share liquidation preference, subject to the liquidation preference of the Series A Stock, of an amount equal to the sum of $1,000 plus 8 1/2% per annum simple interest thereon for the period since the F-19 date of issuance. Each share is convertible at the option of the holder into the number of shares of Common Stock determined by dividing an amount equal to the initial purchase price of $1,000 by $1.00. The Series M Stock has a cumulative dividend rate of 8 1/2% per annum which is payable at the time of conversion or redemption in cash or shares of Common Stock, at the election of the Company. The Series M holder has a right of redemption under various circumstances, all of which are under the sole control of the Company. The Company has the right, at any time, to redeem all of the then outstanding Series M Stock for a price per share equal to $1,000 plus the accrued unpaid interest. Stock purchase warrants -- The Company has the following warrants outstanding at December 31, 1997, all of which are currently exercisable:
Warrants Shares Warrants Exercise Outstanding Issuable Issuance Issued Price Range Expiration Dec. 31, 1997 Upon Excercise - -------- --------- ----------- ---------- ------------- ------------- IPO Units 1,595,000 $1.50 May 1998 654,392 654,392 Placement agents 1,810,539 $0.86-$14.85 April 1998-Dec 2002 1,521,625 1,535,298 Other 1,306,106 $1.44-$6.82 Jan 2000-Dec 2002 1,117,772 1,117,772 Series A preferred 180,772 $11.62 December 1998 180,772 373,186 Series D preferred 227,068 $7.57 July 2000 227,068 227,068 Series E preferred 34,400 $7.20 July 2000 34,400 34,400 Private Placement 179,400 $1.50-$4.00 Nov 2000-Dec 2002 179,400 179,400 Series G preferred 40,000 $3.75 December 2000 40,000 40,000 Series H Preferred 80,000 $3.75 June 2001 80,000 80,000 Series K Preferred 594,000 $1.00 July 2002 594,000 594,000 Series L Preferred 402,188 $1.00 December 2002 402,188 402,188 --------- --------- --------- 6,449,473 5,031,617 5,237,704 ========= ========= =========
Stock option plans -- The Company applies APB 25 in accounting for its stock option plans ("the Plans"), and accordingly, recognizes compensation expense for any difference between the fair value of the underlying common stock and the grant price of the option at the date of grant. Certain options qualify as incentive stock options under the Internal Revenue Code. The vesting and the terms of any option granted under the plans are determined by the Board of Directors with the requirement that the term of an incentive stock option shall not exceed ten years. To date, options granted range from five- to ten-year terms. The exercise price per share of Common Stock subject to an incentive stock option is not less than the fair market value at the time of grant. The Company has also issued non-qualified plan options. An aggregate of 9.5 million shares have been authorized for issuance under the Company's stock option plans. Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value of options granted during 1997, 1996 and 1995 are estimated at $0.79, $2.22 and $2.56 per share respectively, on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997, 1996 and 1995 respectively: average risk-free interest rates of 5.4%, 6.7% and 6.6%; dividend yields of 0.0%; volatility factors of the expected market price of the Company's F-20 common stock is .58 for 1997 and .63 for 1996 and 1995; and a weighted-average expected life of the option of 5 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma loss is $16.2 million, $23.1 million and $35.6 million for 1997, 1996 and 1995, respectively and pro forma net loss applicable to common shares is $0.64, $1.12 and $2.46 for 1997, 1996 and 1995, respectively. The effect of applying SFAS 123 on the 1997, 1996 and 1995 pro forma net losses is not necessarily representative of the effects on reported net loss and net loss per share for future years due to, among other things, 1) the vesting period of the stock options and the 2) fair value of additional stock options in future years. The following table summarizes the activity in stock options issued by the Company: Weighted Average Exercise Options Price ---------- -------------- Balance, January 1, 1995 5,267,800 $6.77 Granted 2,486,250 2.91 Exercised (89,957) 3.15 Forfeited (1,163,769) 6.15 ---------- Balance, December 31, 1995 6,500,324 4.12 Granted 1,454,000 1.88 Exercised (88,869) 1.23 Forfeited (851,619) 4.08 ---------- Balance, December 31, 1996 7,013,836 4.22 Granted 2,680,354 1.90 Exercised -- Forfeited (3,036,037) 4.15 ---------- Balance, December 31, 1997 6,658,153 $1.92 ========= In August 1997, the Board of Directors approved a plan to reprice the Company's outstanding stock options. The plan allowed holders of out-of-the-money options, excluding executives, officers, and directors, to receive a new exercise price of $1.50 per option share, the market price on the date of the approved plan. The plan allowed executives and officers of out-of-the-money options to also receive a new exercise price of $1.50 but for fewer shares of Common Stock determined pursuant to the Black-Scholes formula intended to result in approximate economic equivalence between the old and the new options. As a result of this repricing, options for an aggregate of 561,752 out of a total of F-21 1,635,000 shares of Common Stock at exercise prices ranging from $1.91 to $6.82 per share were surrendered. Stock options held by the Company's Board of Directors were not repriced. In July 1997, the Company adopted the 1997 Director Stock Option Plan ("the Director Plan") for the Company's Directors and discontinued cash payments to the Board Members for their service. The Director Plan provides stock option grants in the amount of 30,000 shares at each annual board meeting for those directors who are not executive officers of the Company. Persons appointed to the Board at any time after the annual grant receive pro-rata shares of the option grant. Options vest 25% each quarter and become fully vested on the first anniversary of their grant. The Company has reserved 360,000 shares of Common Stock for issuance in connection with the Director Plan. At December 31, 1997, options to purchase 2,770,406 shares had vested and were exercisable at a weighted average exercise price of $1.99 per share and had a weighted average contractual life of 5.8 years. NOTE 9 - REDEEMABLE PREFERRED STOCK In December 1996, the Company entered into an agreement with the holder of the Series F Preferred Stock to redeem the shares for an aggregate of $9.9 million or $5.50 per share. The agreement required the Company to make payments totaling $6.3 million through June 30, 1997, and an additional $3.6 million on or before January 31, 1998. During the first quarter of 1997, the Company redeemed 1,000,000 shares of Series F Preferred Stock for $3.5 million. The Company used proceeds from its line of credit to finance the Series F Preferred share buy back. During the second quarter of 1997, the Company amended the December 1996 redemption agreement and as a result, the remaining $6.4 million, excluding interest, was due upon the sale of the Company's Dorotech subsidiary, but no later than January 31, 1998. During the fourth quarter 1997, the Company sold its Dorotech subsidiary and in January 1998, the Company redeemed the remaining 792,186 shares of Series F Preferred Stock for $6.5 million including outstanding interest (See Note 17). NOTE 10 - INCOME TAXES The source of the loss before the income tax benefit was from the following jurisdictions: Year Ended December 31 1997 1996 1995 -------- -------- --------- (in thousands) U.S. $(10,417) $(16,332) $(23,480) Foreign (922) (1,077) (1,763) -------- -------- -------- $(11,339) $(17,409) $(25,243) ======== ======== ======== The income tax expense (benefit) consists of the following: Year Ended December 31 1997 1996 1995 ----------- ----------- ----------- (in thousands) Current tax expense (benefit): U.S. Federal $ -- $ -- $ 51 ----------- ----------- ----------- State and local -- -- -- ----------- ----------- ----------- Foreign -- -- -- ----------- ----------- ----------- Deferred tax expense: Foreign -- (68) (331) ----------- ----------- ----------- Total income tax $ -- $ (68) $ (280) =========== =========== =========== F-22 Deferred tax assets and liabilities are comprised of the following: December 31, 1997 1996 -------- -------- (in thousands) Deferred tax assets: Net operating loss and capital loss carry forwards $ 42,414 $ 24,419 Other 2,099 1,659 -------- -------- Gross deferred tax assets $ 44,513 $ 26,078 ======== ======== Deferred tax liabilities: Software development costs (910) (1,372) -------- -------- Gross deferred tax liabilities (910) (1,372) Deferred tax asset valuation allowance (43,603) (24,752) -------- -------- $ -- $ (46) ======== ======== Current deferred tax assets (included in prepaid and other current assets net of valuation allowance) $ -- $ 254 Non current deferred tax liabilities -- (300) -------- -------- $ -- $ (46) ======== ======== Income tax expense (benefit) differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to the loss before income taxes as a result of the following differences: Year Ended December 31 1997 1996 1995 ------ ------ ------ (in thousands) Statutory U.S. tax rate benefit 34.0% 34.0% 34.0% State income taxes, net 3.6% 4.0% 4.0% Operating losses and tax credits with no current tax benefit (37.6%) (37.5%) (31.0%) Other (--%) (0.1%) (5.9%) ------ ------ ------ --% 0.4% 1.1% ====== ====== ====== As of December 31, 1997, the Company had net operating loss carry forwards, capital loss carry forwards and research tax credit carry forwards of approximately $75.4 million, $34.8 million and $958,000, respectively, for U.S. income tax purposes which expire in years through 2010. The Company experienced changes in ownership during prior years which triggered certain limitations F-23 under Internal Revenue Code Section 382. Accordingly, the utilization of the net operating loss and research tax credits will be limited in future years due to the changes in ownership. The Company sold its foreign subsidiary, Dorotech, during 1997. Due to a difference between book and tax basis, the Company realized a capital loss of approximately $25 million. In addition, due to the sales of Dorotech, the Company has recognized a deferred tax benefit of approximately $46,000, which is reflected in the gain on the sale of Dorotech. NOTE 11 - LOSS PER SHARE The following table sets forth the computation of basic and diluted loss per share: 1997 1996 1995 ---------- ---------- ---------- Numerator (in thousands): Net Loss $ (11,339) $ (17,341) $ (24,963) Preferred stock preferences - Accrued dividends (1,435) (3,730) (9,933) - Imputed dividends (1,536) -- -- ---------- ---------- ---------- Numerator of basic loss per share- Net loss applcable to common shares (14,310) (21,071) (34,896) Effect of dilutive securities -- -- -- ---------- ---------- ---------- Numerator for diluted loss per share- Net loss applicable to common shares after assumed conversions $ (14,310) $ (21,071) $ (34,896) Denominator: Denominator for basic loss per share- weighted average shares 25,205,854 20,681,694 14,502,399 Effect of dilutive securities -- -- -- ---------- ---------- ---------- Denominator for diluted loss per share- adjusted weighed average shares and assumed conversions 25,205,854 20,681,694 14,502,399 ========== ========== ========== Basic loss per share $ (0.57) $ (1.02) $ (2.41) ========== ========== ========== Diluted loss per share $ (0.57) $ (1.02) $ (2.41) ========== ========== ========== Since the Company has incurred losses in 1995, 1996 and 1997, securities that could potentially dilute the basic earnings per share in the future were not included in the dilution computation because they would have been antidilutive for the periods presented. The potentially dilutive convertible securities include the Company's Series A, Series K, Series L, Series M Convertible Preferred Stock and convertible notes, which were convertible into weighted average common shares at December 31, 1997, of 12,326,592 shares, 2,201,180 shares, 331,388 shares, 35,672 shares and 1,252,731 shares, respectively. Also outstanding at December 31, 1997, were options and warrants which were convertible into weighted average common shares of 2,921,897 and 4,401,000, respectively. For additional disclosures regarding outstanding preferred stock, employee stock options and warrants (See Note 8) and for the Company's convertible notes (See Note 7). F-24 During the first quarter of 1998, the Company redeemed a $1.3 million of the convertible notes and issued 1,240,789 shares of common stock in a private placement (See Note 17). On a proforma basis, the inclusion of the private placement of common stock in the operating results of 1997 results in weighted average common shares outstanding of 26,446,643 and a basic loss per share of $(0.54). NOTE 12 - BUSINESS SEGMENTS The Company sells its products and services through a single industry segment to a wide variety of customers throughout the United States. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral from its customers. The following table sets forth summary information for the years ended December 31, 1997, 1996 and 1995 (in thousands): United Western States Europe -------- -------- 1997: Revenue: $ 24,486 $ 11,320 Net Loss (10,417) (922) Total Assets 26,860 -- 1996: Revenue $ 21,383 $ 18,094 Net loss (16,332) (1,077) Total assets 22,718 14,060 1995: Revenue $ 38,367 $ 30,784 Net loss (23,531) (1,432) Total assets 30,654 19,310 Revenue in 1997 included sales to the U.S. Government and French Government totaling $1.6 million and $6.0 million, respectively. Revenue in 1996 included sales to the U.S. Government and French Government totaling $1.1 million and $10.3 million, respectively. Revenue in 1995 included sales to the U.S. Government and French Government totaling $1.7 million and $9.6 million, respectively. NOTE 13 - COMMITMENTS The Company leases its corporate office, sales offices, assembly facilities and certain equipment under non-cancelable operating leases certain of which provide for annual escalations that are amortized over the lease term and pro rata operating expense reimbursements. Rent expense related to these leases was $1.1 million, $1.6 million and $2.7 million for the years ended December 31, 1997, 1996, and 1995, respectively. F-25 Future minimum lease payments under non-cancelable operating leases are as follows (in thousands): Year Ending December 31, ------------ 1998 $ 1,093 1999 922 2000 351 Thereafter -- -------- $ 2,366 ======== NOTE 14- CONTINGENCIES The Company is subject to legal proceedings and claims which are in the ordinary course of business. Management believes that the outcome of such matters will not have a material impact on the Company's financial position or its result of operations. NOTE 15 - RELATED PARTY TRANSACTIONS During 1997, the Company renegotiated the termination of three consulting agreements, with individuals who are current or former members of the Board of Directors and officers of the Company, whereby all three will expire during 1998. The Company recognized total compensation expense of approximately $553,000, $715,000 and $898,000 in 1997, 1996 and 1995, respectively, related to these employment and consulting agreements. During December 1996, the Company and a stockholder entered into a line of credit agreement. At December 31, 1997, there was $1.0 million outstanding against the line of credit (see Note 7). During 1997, the Company paid $295,000 relating to interest on the line of credit. The Company holds two notes receivable totaling $525,000 from two former stockholders of a subsidiary acquired in 1994 due and payable December 1998. Interest accrues at 6.55% per annum (See Note 2). NOTE 16 - EMPLOYEE PROFIT SHARING PLANS AND 401K PLAN The Company sponsors, in the United States, a 401(K) plan which covers all full-time employees. Participants in the plan may make contributions of up to 15% of pre-tax annual compensation. The Company may make discretionary matching contributions at the option of the Board of Directors. The Company has made no contributions. The Company had a mandatory and a voluntary profit sharing plan covering substantially all employees in France. Contributions to the plans were based upon earnings of the French operations. There were no contributions made to the plans in 1997 and 1995, while plan contributions in 1996 totaled $28,000. F-26 NOTE 17 - SUBSEQUENT EVENTS AND PRO FORMA BALANCE SHEET In January 1998, the Company received proceeds from the sale of its Dorotech subsidiary (See Note 5) totaling $7.0 million of which $6.5 million was paid directly to the holder of the Company's Series F Preferred Stock (See Note 9). The $6.5 million payment retired the obligations under the Series F Preferred Stock. The pro forma balance sheet at December 31, 1997 reflects the collection of the $7.0 million proceeds from the sale of Dorotech and the $6.5 million payment retiring the Series F Preferred Stock. During January 1998, the Company redeemed $1.3 million of the $2.0 million 8% Convertible Notes issued during July and August 1997, for $1,351,000 in cash (See Note 7). During the first quarter of 1998, the Company completed a private placement of 1,240,789 shares of Common Stock, together with warrants to purchase an additional 50,000 shares of Common Stock, pursuant to Regulation D under the Securities Act of 1993. Proceeds from the offering were $1.2 million and offering costs were approximately $30,000. Under the share sale agreement, the Company must register the shares by August 31, 1998. F-27 SIGNATURES In accordance with Section 13 of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of Fairfax, Commonwealth of Virginia, on March 17, 1998. NETWORK IMAGING CORPORATION By: /s/ James J. Leto ------------------- James J. Leto President and Chief Executive Officer In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name Capacity Date ---- -------- ---- /s/ James J. Leto President, Chief Executive March 17, 1998 - --------------------------- Officer and Chairman of the James J. Leto Board /s/ Jorge R. Forgues Senior Vice President of March 17, 1998 - --------------------------- Finance and Administration, Jorge R. Forgues Chief Financial Officer and Treasurer /s/ Robert P. Bernardi Secretary and Director March 17, 1998 - --------------------------- Robert P. Bernardi /s/ C. Alan Peyser Director March 17, 1998 - --------------------------- C. Alan Peyser /s/ John F. Burton Director March 17, 1998 - --------------------------- John F. Burton /s/ Robert Ripp Director March 17, 1998 - --------------------------- Robert Ripp F-28 EX-2.27 2 SER SHARE SALE AND PURCHASE AGREEMENT SHARE SALE AND PURCHASE AGREEMENT BETWEEN THE UNDERSIGNED Network Imaging Corporation, a corporation incorporated under the laws of the state of Delaware and having its principal place of business at 500 Huntmar Park Drive, Herndon, Virginia 22170, USA, duly represented by Mr. Jorge Forgues, duly authorised for the purposes hereof pursuant to the declaration, of which a copy is attached as Schedule 1 hereof, hereinafter called the "Vendor" OF THE ONE HAND AND Systems Engineering Reinhardt S.A.R.L, a French corporation, whose registered office (siege) is at 22, rue du Chemnitz, 68200 Mulhouse, which is registered under no. B 383 805 504 with the Commercial and Company Register of Mulhouse, in the process of being converted to a Societe par Actions Simplifiee, duly represented by Mr. Gert J. Reinhardt, and duly authorised for the purposes hereof pursuant to the declarations in Schedule 2 hereof, hereinafter called the "Purchaser" ON THE SECOND HAND Hereafter collectively referred to as the "Parties" and individually referred to as the Party" WHEREAS: A. Dorotech France, a societe anonyme whose registered office (siege) is at 344 avenue George Clemenceau, 92000 Nanterre, and which is registered under no. B 334 631 504 with the Commercial and Company Registry of Nanterre. B. The share capital of Dorotech France amounts to FRF 2,053,800 divided into 20,538 shares of FRF 100 each. The Vendor is the owner of all the shares. C. The principal activity of Dorotech France is the provision of computer systems for data storage and processing, including software, engineering services and hardware. D. The Vendor wishes to sell and the Purchaser wishes to purchase the entirety of the shares of Dorotech France. NOW IT IS HEREBY AGREEED AS FOLLOWS: 1. Definitions In this agreement, the following terms and expressions shall have the meanings set forth below: 1.1. "Actual Consolidated Net Equity" shall mean the actual Consolidated Net Equity of the Company as of the Closing Date as determined in accordance with Article 3.1.6 hereof; 1.2. "Actual Tax Credits" shall mean the actual Company Tax Credits as of the Closing Date as determined in accordance with Article 3.1.6 hereof; 1.3. "Assumed Consolidated Net Equity" shall mean the Consolidated Net Equity (as defined) of the Company as of the Closing Date, assuming no change between September 30, 1997 and the Closing Data, which, pursuant to Article 3.1.2 hereof, is deemed to amount to FRF 20,274,493; 1.4. "Assumed Tax Credits" shall mean the Company Tax Credits (as defined) as of September 30, 1997; 1.5. "Closing Accounts" shall mean the accounts (balance sheet and statement of loss or profit) to be drawn up by Ernst & Young pursuant to Article 3.1.6 hereof; 1.6. "Closing Date" shall mean the date on which the ownership of the Shares is transferred as defined at Article 5.1 hereof; 1.7. "Company" shall mean Dorotech France. 1.8. "Company Tax Credits" shall refer to the amount of carry forward losses, deductible for tax purposes pursuant to French tax law, multiplied by the corporate income tax rate applicable to companies in fiscal year 1997; 1.9. "Consolidated Net Equity" shall mean the consolidated net equity of the Company calculated in accordance with the French generally accepted accounting principles, and more specifically, calculated in accordance with the principles set forth at Schedule 3 hereof. 1.10. "Damage" shall refer to the damages which may be claimed by the Pur- chaser in accordance with the provisions of Article 8.1 et seq hereof; 1.11. "Dorotech" shall mean Dorotech France SA, a French societe anonyme, having its registered office at 344 avenue Clemenceau, 92000 Nanterre; 1.12. "Escrow Agreement" shall mean the escrow agreement to be entered into between the Parties and the Escrow Agent in accordance with the terms set forth at Article 3.2.1 hereof and in the form set forth at Schedule 4 hereof; 1.13. "Estimated Damage" shall mean the estimated amount of damages contained in Purchaser's notice pursuant to Article 8; 1.14. "Independent Arbitrator" shall mean the independent arbitrator appointed pursuant to Article 3.1.6, for the resolution of disagreements as to the amount of Actual Consolidated Net Equity and the difference between the Actual Tax Credits and the Assumed Tax Credits; 1.15. "Interim Accounts" shall mean the balance sheets, and profit and loss account of the Company as of, and for the period of nine months ended on, September 30, 1997; 1.16. "Purchase Price" shall mean the price paid in consideration of the Shares, as defined at Article 3.1.1 hereof; 1.17. "Representations and Warranties" shall mean representations made and warranties given by the Vendor pursuant to Article 7 hereof; 1.18. "Shares" shall mean 100% of the shares of Dorotech France; 1.19. "Share Purchase Agreement" shall mean the present Share Purchase Agree- ment, including the Schedules attached hereto; 1.20. "Non-Competition Agreement" shall mean the non-competition undertaking to be entered into by the Vendor in the form set forth at Schedule 5 hereof. 1.21. "Net Purchase Price" shall mean the Purchase Price reduced or increased by the price adjustments in accordance with Articles 3.1.4 and 3.1.5 hereof, respectively. 2. Sale and Purchase of the Shares 2.1 In consideration for the payment of the Purchase Price, the Vendor shall sell and the Purchaser shall purchase all, but not part only, of the Shares in accordance with the terms and conditions hereafter set forth together with all rights now or hereafter attaching thereto. To this end, the Vendor hereby irrevocably undertakes to carry out all the necessary procedures (without limitation to the foregoing, obtaining any requisite authorisation to transfer Shares (clause d'agrement), and as the case may be, carrying out any necessary share transfer prior to the Closing Date) so that the Purchaser, on the Closing Date, shall become the owner of all the Shares. 3. Purchase Price and Terms of Payment 3.1 Purchase Price 3.1.1 The total price of the Shares (hereafter referred to as the "Purchase Price") shall amount to US$ 8,275,000 subject to the provisions of Articles 3.1.4 and 3.1.5 hereof. 3.1.2 The above Purchase Price is based upon the assumption that the Consolidated Net Equity (as defined) of the Company as of the Closing Date is equal to FRF 20,274,493 (hereinafter referred to as the "Assumed Consolidated Net Equity") and that the Company Tax Credits (as defined) are equal to the Assumed Tax Credits (as defined). 3.1.3 The Consolidated Net Equity and the Company Tax Credits at the Closing Date shall be verified by a financial review to be carried out in accordance with the terms set forth at Article 3.1.6 hereof. The final figures obtained following such verification shall be referred to as the "Actual Consolidated Net Equity" and "Actual Tax Credits." 3.1.4 In the event that the Actual Consolidated Net Equity plus the Actual Tax Credits are less than the Assumed Consolidated Net Equity plus the Assumed Tax Credits, the Purchaser shall be entitled to a dollar for dollar reduction of the Purchase Price, which reduction shall be equal to the sum of the Assumed Consolidated Net Equity and the Assumed Tax Credits minus the sum of the Actual Consolidated Net Equity and the Actual Tax Credits. 3.1.5 In the event that the Actual Consolidated Net Equity plus the Actual Tax Credits are greater than the Assumed Consolidated Net Equity plus the Assumed Tax Credits, the Vendor shall be entitled to a dollar for dollar increase in the Purchase Price, which increase shall be equal to the sum of the Actual Consolidated Net Equity and the Actual Tax Credits minus the sum of the Assumed Consolidated Net Equity and the Assumed Tax Credits. 3.1.6 The following provision shall apply in relation to the determination of the Actual Consolidated Net Equity and the Actual Tax Credits: (i) After the Closing Date, the firm Ernst & Young shall conduct an independent audit and draw up a statement of accounts (the "Closing Accounts") of the Company with the purpose of determining the assets, liabilities and the amount of the Actual Consolidated Net Equity at the Closing Date and the difference between the Actual Tax Credits and the Assumed Tax Credits. The cost of the additional work by Ernst and Young, which is more than required in the ordinary course of business for Dorotech, if any, shall be shared equally by the Parties. The Actual Consolidated Net Equity and the Company Tax Credits should be calculated in accordance with the principles set forth at Schedule 3 hereof. The Closing Accounts shall be drawn up and transmitted to the Parties no later than 45 days after the Closing Date. The Purchaser shall make available to Ernst & Young all of the documents they might reasonably require in order to draw up such account statement, and shall authorize, upon reasonable notice, access to the premises, for a reasonable duration. (ii) Following the drawing up of the Closing Accounts, the Parties shall be entitled to review and verify the results thereof. Such review by the Parties shall be carried out within a period of 15 days as from the receipt by the Parties of the report. (iii) To this end, the Parties shall promptly make available all such documentation as may be in their possession, or in the possession of their advisors with respect to the carrying out of the above review and verification by the Parties referred to in paragraph (ii) above. (iv) Upon completion of the Parties' verification, the Parties shall promptly inform each other of their findings. (v) In the event of a continued disagreement between the Parties as to the amount of the Actual Consolidated Net Equity and/or the difference between the Actual Tax Credits and the Assumed Tax Credits following completion of the above Closing Accounts and verification thereof, provided that the difference between the amounts found by each party amounts to more than FRF 100,000 and notably in the event of a disagreement for a period of longer than 10 days following notification of the results of its verifications by the Purchaser, the matter shall be referred by either Party to the offices of the Independent Arbitrator who, having agreed to act in this capacity, shall finally resolve such disagreement within 30 days of such referral, in compliance with section (vi) below, it being understood that the Parties shall make available all such documentation and provide such access as may be required for the performance of its assignment by the Independent Arbitrator. (vi) The Independent Arbitrator shall be Coopers & Lybrand Audit sub- ject to the condition that at the times it is entrusted with the assignment, neither Coopers & Lybrand nor any other related entity have accepted any assignment whatsoever from either of the parties or from an entity it controls, which controls it or which is controlled by an entity controlling it, directly or indirectly. Should Coopers & Lybrand be unable to act as Independent Arbitrator, for any reason whatsoever, including that referred to above, the Independent Arbitrator shall be appointed jointly by the parties by mutual agreement or, should no appointment be made within 10 working days as from the written request of one of the aforementioned Parties to the other in order so to do, by order of the President of the Commercial Court of Paris ruling in summary proceedings, each of the parties having had the right to state its case. Initially, the estimated expenses and fees of the Independent Arbitrator shall be divided in equal shares and paid in advance by each of the Parties. At the end of the arbitration proceedings, the Independent Arbitrator shall determine the liability of each party for all or part of the expenses and fees. In order to determine the Actual Consolidated Net Equity and the Actual Tax Credits, the Independent Arbitrator shall act as arbitrator pursuant to the working of Article 1592 of the French Civil Code and his decisions shall be deemed final and shall be binding on the Parties, unless there is obvious error. The Independent Arbitrator shall consider only the points of disagreement, that he shall convene both parties in advance to draw up, under his responsibility the list of points of disagreement. The Independent Arbitrator shall not have the power to construe the Share Purchase Agreement, as his assignment is limited to determining the amount of the Actual Consolidated Net Equity and/or the Actual Tax Credits in the strict confines of the Parties' requests. The Independent Arbitrator shall use his best efforts to render his decision within 15 to 30 days following the date of the submission by the Vendor and the Purchaser of all the documents necessary to carry out this assignment. 3.2 Terms of Payment 3.2.1 The Purchase Price shall be paid upon accordance with the following terms and conditions: Upon the Closing Date, the Purchaser shall provide two Irrevocable Standby Letters Of Credit which are payable on demand on January 2, 1998, issued by BHF-BANK Frankfurt, one to CDR Entreprises for an amount of US$ 6,547,908 and the other to the Vendor for an amount of US$ 452,092, and Upon completion of the independent audit by Ernst & Young and production of the Closing Accounts as referred to in article 3.1.6 hereof: (i) 50% of the remaining balance of the Net Purchase Price shall be paid to the Vendor by wire transfer within 7 days of the final determination of the Actual Consolidated Net Equity and the difference between the Actual Tax Credits and Assumed Tax Credits of the Company. (ii) The remaining balance of the Net Purchase Price shall be paid to the Escrow Agent to be held in escrow in accordance with the terms and conditions of the Escrow Agreement set forth at Schedule 4 hereof, not to be released to the Vendor until 12 months after the Closing Date. If the balance of the Net Purchase Price in accordance with Articles 3.2.1 (I) and 3.2.1 (ii) is not paid within the given 7 day period the Parties hereby agree that interest shall be due thereon, payable monthly by the Purchaser to the Vendor at the legal interest rate ("taux d'interet legal") from time to time in force. 4. Conditions Precedent 4.1 The purchase of the Shares by the Purchaser shall be subject to prior fulfilment of the following conditions precedent, each of which constitute essential and determining conditions to its decision to purchase the Shares: 4.1.1 the completion of the financial, legal, tax and social audit of the Company by the Purchaser and/or its advisors, other than the one to be undertaken by Ernst and Young under Article 3.1.6, which shall reveal no material adverse change in the Company's business, financial condition, assets or operations as compared with the information already made available to the Purchaser by or on behalf of the Vendors nor any material finding; 4.1.2 the continuing accuracy, as at the Closing Date, of the Representations and Warranties contained in Article 7 hereof; 4.1.3 the execution by the Vendor of a Non-Competition Agreement in the form set forth at Schedule 5 hereto; 4.1.4(i) the signature of an amendment to the employment contract between the Company and Mr. Alain GOURLAY in the form set forth in Schedule 6.1 hereto; 4.1.4(ii)the transfer to the Purchaser of a certain commitment from the Vendor towards Mr. Jean-Philippe BORDES pursuant to an amendment executed on March 20, 1997 in the form set forth in Schedule 6.2 hereto. 4.1.5 the entering into of the Escrow Agreement in the form set forth at Schedule 4 hereto; 4.1.6 the obtaining of valid releases of all pledges and charges whatsoever over the Company's Shares or assets and notably, but without limitation to the generality of the foregoing, the obtaining of a valid release from CDR Entreprises SA of the pledge covering 100% of the Shares; 4.1.7 the proper and complete execution by the Vendor of all their obligations under the Share Purchase Agreement; 4.1.8 the prior approval by the Board of Directors of the Company relating to the transfer of the shares; 4.1.9 the release of any guarantees whatsoever granted by the Company and covering third party obligations (except for the guarantee granted in favor of COFRACOMI); 4.1.10.1 the obtaining from CDR Entreprises SA of the following duly executed documents: (1) a counter-guarantee (contre-cautionnement) in favor of the Com- pany in the form set forth at Schedule 20A hereof; (2) a side letter addressed to the Company in the form set forth at Schedule 20B hereof; 4.1.10.2 the obtaining from Cofracomi of a clear statement of account in relation to monies payable by ATG Cygnet (and guaranteed by the Company) in the form set forth in Schedule 20C hereof; 4.1.11 the obtaining of a new purchase order known as the "P6 Contract" from France Telecom SA for a value exceeding FRF 17,000,000, together with the express approval by France Telecom of the Purchaser as controlling shareholder of the Company; 4.1.12 the absence of pending or threatened legislation regarding this agreement or the transactions to be contemplated thereby; and 4.1.13 the cancellation of the Management Services Agreement entered into on February 22, 1995 between the Vendor and the Company. 4.2 The above conditions are for the benefit solely of the Purchaser who may waive all or any of them in whole or in part. 4.3 The Parties shall use al their efforts to ensure that the above conditions are fulfilled as soon as reasonably practicable. 4.4 Subject to any waiver by the Purchaser pursuant to Article 4.2 hereof, if the above conditions are not fulfilled by December 31, 1997 this Share Purchase Agreement shall become null and void and, in the absence of fraud or manifest bad faith which may have prevented the fulfillment of any of such conditions, neither party shall have any claim against the other in respect thereof. However, the Parties may freely agree in writing to extend the date upon which the aforementioned conditions precedent must be satisfied. 5. Closing 5.1 The parties hereby agree that the transfer of ownership of the Shares in favor of the Purchaser shall occur at 6:01 pm on December 31, 1997, Eastern Standard Time (the "Closing Date), or any other date mutually agreed by the Parties. 5.2 Upon the Closing Date, the Vendor shall deliver the Purchaser: 5.2.1 duly executed share transfer forms (ordres de mouvement) in respect the entirety of the Shares in favor of such person or persons as the Purchaser may specify; 5.2.2 a certified copy of the resolution of the Company's board of directors approving the Purchaser and such other persons or corporations as the Purchaser may specify as shareholders of the Company; 5.2.3 the Company's shareholder accounts, together with the transfer registers in both cases updated to record the transfers made pursuant to the share transfer forms referred to in Article 5.2.1 hereof; 5.2.4 the current minute books of board and shareholder's meetings of the Company both of which are up-to-date, together with the relevant attendance sheets and proxies for shareholders' meetings and the minute books of board meetings being numbered, initialed and signed by all members of the board at the end of each board meeting; 5.2.5 the unconditional resignations of the directors of the Company, except Mr. Jean Philippe BORDES. 5.2.6 a certificate signed by all of the Vendor confirming that (I) at the Closing Date the Representations and Warranties contained in Article 7 hereof remain true and accurate in all respects and (ii) the Vendor have duly performed their obligations set forth in the Share Purchase Agreement; 5.2.7 the Escrow Agreement, for a duration of 12 months, running from the Closing Date, duly signed by the Vendor, the Purchaser and CARPA des Hauts-deSEine ("The Escrow Agent") in the form of the draft set forth in Schedule 4 hereto pursuant to the balance of the Purchase Price, as referred to in Article 3.2.1 hereof, shall be paid to the "CARPA" account of the Escrow Agent, by way of security for any claim arising pursuant to Article 8 hereof; 5.2.8 the Non-Competition Agreement duly executed by the Vendor; 5.2.9 evidence of the agreement between the Company and the Vendor as to the cancellation of the Management Services Agreement; 5.2.10 duly signed P6 contract between France Telecom and the Com- pany; 5.2.11 evidence of the express approval by France Telecom of the Purchaser as controlling shareholder of the Company; 5.2.12 duly executed counter-guarantee from CDR Enterprises SA and a duly executed side letter entered into by CDR Enterprises SA, as referred to in article 4.1.10.1 hereof; together with the statement of account duly executed by Cofracomi as referred to at article 4.1.10.2 hereof; 5.2.13 release, executed by CDR Enterprises SA, of the pledge cover- ing 100% of the Shares; 5.2.14 release of all other pledges covering the Shares; 5.2.15 such other documents or instruments as the Purchaser or the Vendor may reasonably request for the valid completion of the operations provided for herein. 5.3 At the Closing Date, the Vendor shall procure the holding of such board and/or shareholders' meetings of the Company as the Purchaser may request to effect the appointment of such persons as the Purchaser may require to the position of directors (administrators) of the Company and as Chairman (President du conseil d'administration) of the Company. 6. Vendor's Obligations Pending Closing 6.1 As from the date hereof and up to and including the Closing Date the Ven- dor shall cause: 6.1.1 the business of the Company to be carried on in the ordinary course and in a prudent and appropriate manner and that any material adverse change in such business shall be forthwith notified to the Purchaser in writing; 6.1.2 the Company to comply with all relevant laws and regulations and, in particular, but without prejudice to the generality of the foregoing, with all applicable employment law requirements in relation to the subject matter of the Share Purchase Agreement; 6.1.3 the Company, except with the prior written consent of the Purchase, not to modify their articles of association (statuts), undertake any merger, spin-off or other form of reorganization or propose, declare or pay any dividend or grant any mortgage, pledge or security, or take any other measure which may encumber or otherwise affect the free disposition of their respective assets; 6.1.4 except with the prior written consent of the Purchaser, there to be no increase or undertakings to increase the compensation payable or other benefits due to any members of the personnel or of any manager or mandataire social (whether or not having employee status) of the Company (such as premiums, profit sharing, pension or retirement rights or other similar benefits) nor shall the Company hire or dismiss an corporate officers (cadres superieurs) or executive employees (cadres dirigeants); 6.1.5 the Company to authorize the Purchaser and its representatives (including its auditors and legal advisors) and Ernst & Young, for the purposes of the independent audit referred to in Article 3.1.6 hereof, to have access to the properties, assets, books and records of the Company and to provide all requested assistance and explanations; 6.1.6 except with the prior agreement of the Purchaser, the Company not to enter into any contracts which are subject to unusual or unduly onerous terms, or which are outside the normal course of business of the Company; 6.1.7 the Company not to undertake any capital or non-routine expenditure, except with respect to replacements for an amount less than FRF 500,000, save where such expenditure is essential to preserve the value of an asset of the Company, it being understood that any such expenditure on replacements which equals or exceeds FRF 500,000 must be authorized prior thereto, by the Purchaser; 6.1.8 the Company not to grant nor receive any loan from a third party; 6.1.9 the Company and its directors, shareholders, representatives and agents not to negotiate nor enter into an agreement with any third party prior to Closing Date in respect of the purchase of shares of the Company contemplated herein, or the sale in part or in whole of the Company's assets. 6.2 Generally, the Vendor unconditionally agrees, up to the Closing Date inclusively, to ensure the ordinary day-to-day management of the Company with a view towards maintaining a profitable operation in accordance with customary commercial, accounting and fiscal principles, applied in the course of the three fiscal years preceding the Closing Date, and to ensure that any transaction of an extraordinary nature shall only be decided on after consultation with the Purchaser. 7. Representations and Warranties 7.1 The Vendor hereby makes the Representations and gives the Warranties set forth below: 7.1.1 Corporate existence and capitalisation of the Company 7.1.1.1 Dorotech France is a duly organized societe anonyme, validly existing under French Law whose registered office is at 344 av. Georges Clemenceau 92000 Nanterre, registered in the Commercial and Company Registry of Nanterre under the number B 334 631 504, whose share capital of FRF 2,053,800 is divided into 20,538 shares of FRF 100 each; 7.1.1.2 a certified true and up-to-date copy of the articles of association (stratuts) of Dorotech France is at- tached as Schedule 8 hereto; the minutes and other corporate records of the Company are accurate and up- to-date; the Company's filing with the Commercial and Company Registry is complete and up-to-date in all respects; the good-standing information sheet (ex- trait K-bis) dated November 12, 1997, and a liens and Charges Search Certificate (etat des nantissements et privileges) issued by the Commercial and Company Re- gistry of Nanterre and provided in Schedule 9 hereto are fail and accurate at the date hereof; 7.1.1.3 The Company is not in a state of insolvency, or in suspension of payments (cessation des paiements) and is not and never has been subject to a judicial reorganization (redressement judiciaire) or judicial liquidation (liquidation judiciaire) proceedings, or any other amicable settlement (reglement amiable) or collective bankruptcy proceedings provided for by Law number 84-148 of March 1, 1984, nor has it requested an extension period (delai de grace) in application of Article 1244-1 of the French Civil Code; 7.1.1.4 Except for possible minor infringements with no implications for the continuation/and or profitability of its business, the Company (I) has the corporate power and authority and holds all governmental and other authorizations and permits to own all of its properties and other assets an to carry on business as it is currently being conducted, and (ii) is in compliance with all the laws and regulations to which they are subject. The Company is not in default with respect to any judgment, or order of any court, arbitrage tribunal or government department or agency; 7.1.1.5 The Company is not, and has not over the last five years been, whether directly or indirectly, a member of any partnership, joint venture, economic interest group or any other organization or structure having unlimited liability; 7.1.1.6 Since February 1997, the Company has not (I) held any shares in any corporation or (ii) exercised any authority as board member or manger or (iii) acted as a de facto manager of any corporation. 7.1.2 The Shares 7.1.2.1 The Shares represent all of the share capital of Dorotech France, are fully paid in, and are freely transferable, subject to the restrictions constrained in the by-law of the Company. 7.1.2.2 There exists no agreement or undertaking of any na- ture whatsoever pursuant to which any person is, or could become, entitled to request the issue of new shares by any of the Company (and namely without limitation to the generality of the foregoing, the Company has neither entered into promises to sell nor options to purchase nor other rights of a similar na- ture in respect of the Shares). The Company has not issued any securities which would give rise to a capital increase or the issue of securities granting the right to any amount which the Company may dis- tribute, or to voting rights, or which could result in any limitation of the rights attached to the Shares. 7.1.2.3 The Vendor has full and valid title to the Shares free from any lien, charge or encumbrance or any other third party rights, with the exception of the pledge in favor of CDR Enterprises SA; on the Closing Date such titled shall be validly transferred to the Purchaser or to such person or persons as the Purchaser may stipulate. All of the authorization which must be obtained prior to the transfer of the Shares, in accordance with the Company's status and the law, have been or will have been obtained at the Closing Date. 7.1.2.4 A list of shareholders of the Company including the names and number of Shares held by each of them is set forth at Schedule 11 hereto. 7.1.3 Effects of the Transfer of Shares 7.1.3.1 The transfer of the Shares to or in accordance with the Purchaser's instruction will not result in: (i) any breach of any agreement or undertaking by the Company; (ii) the possibility for any person having dealings with the Company (a) to terminate any agreement or contract or to modify the effects thereof, other than the "P6 France Telecom Contract" referred to in Article 4.1.12 hereof for which approval as to the change of control shall have been obtained before the Closing Date, or (b) to claim the reimbursement of any subsidy, grant, loan or advance; (iii) the modification, cancellation or revocation of any permit, authorization or license of any kind whatsoever which is necessary or desirable for the operations of the Company's activities, or the modification, cancellation or revocation of any preferential tax regime or subsidy or other assistance granted by public or quasi-public authorities; (iv) the possibility for a third party to invoke any guarantee, surety, comfort letter of any other document having and equivalent effect which may have been granted by or in favor of one of the Company; (v) the violation of the articles of association of the Company or of the law or of any agreement made other than that which is provided herein. 7.1.4 Financial Statement of the Company 7.1.4.1 Copies of the Company's financial statements which means the annual accounts for both the 1995 and 1996 financial years, as defined, hereof (balance sheet, profit and loss account as well as the other documents appearing in the liasse fiscale together with annexed documents in compliance with Article 8 of the French Code de commerce), and the Interim Accounts are annexed as Schedule 12 hereto (the "Financial Statement"). 7.1.4.2 The Financial Statements have been prepared in accordance with the accounting principles generally accepted in France, which principles were consistently applied by the Company. 7.1.4.3 The Financial Statements have been prepared in the form required by applicable law and show a true and fair view of, and accurately reflect the position of the Company, and the result of its operations for the financial period ended on the date of the Financial Statements. 7.1.4.4 At the date of the Financial Statements, the Company had no liabilities or obligations (due, payable, certain, contingent, conditional or otherwise and including, without limitation, any obligation resulting from a factoring or leasing agreement or from current, pending or threatened litigation) other than those set out, or for which adequate provision has been made, in the Financial Stataements. 7.1.4.5 The depreciation and other provisions appearing in the Financial Statements are sufficient, have been determined in accordance with applicable legislation. 7.1.4.6 All of the Company's accounts, books and records have been fully, properly and accurately kept and completed. They give a true, complete and fair view of the Company's financial, contractual and business position and of its plant and machinery, fixed and current assets and liabilities (actual and contingent), debtors, creditors and inventories and work in progress. 7.1.5 Receivables 7.1.5.1 The Company's trade and other receivables as shown in the Financial Stataements, and any receivables which have arisen since the date of the Financial Statements, are valid and have been recovered, or are recoverable in full, within the relevant legal or contractual time-limits (subject, in the case of receivables shown in the Financial Statements, to any provision for bad and/or doubtful debts appearing therein). 7.1.6 Inventories 7.1.6.1 The inventories set out in the Financial Stataements consist of usable articles which, with respect to their quality and quantity, can be sold in the normal course of business at a price at least equal to the value at which they appear in the Financial State- ment, namely the lower of cost and net realizable value. The Company does not hold in its inventories any products on consignment which belong to third parties, or which are subject to a retention of title clause, and no undertakings have been given to take back the inventories of any agents, distributors or other representatives of the Company. Inventories acquired since the date of the Financial Statements consist of high-quality, usable articles which can be sold in the normal course of business and are carried in the books at the lower of cost and net realizable value. The Company's current levels of inventories are adequate for the Company's present and anticipat- ed requirements. 7.1.7 Taxes 7.1.7.1 The provisions for taxes and the provisions for social charges (including, but not limited to, social security contributions, and contributions to comple- mentary welfare and pension schemes) which appear in the Financial Statements are sufficient for the pay- ment of all taxes, social charges due to accrued at the date of the Financial Stataements (regardless of the date of the event which is the source of the taxes, social charges, and regardless of the date on which payment thereof is due). The Company has filed al national, departmental and local tax and social security declarations at the required time and has kept copies of the original filed. All State, de- partmental and local taxes, and duties (including, but not limited to, corporation tax, value added tax, business tax, registration tax, land tax and customs duties) and all social charges owed by the Company or payable at the date hereof have been paid within the legal time limits. 7.1.7.2 The Company has withheld all tax and/or social security charges to be withheld by it in respect to wages, license fees, interest or any other sum payable by it. 7.1.7.3 The interest paid tot he Company's shareholders prior to the date hereof has never exceeded the maximum authorized by Articles 39-1 3 and 212 of the General Tax Code. 7.1.7.4 Attached at Schedule 13 is a copy of the tax reassessment relating to Dorotech. The Vendor hereby declares that is has paid all sums due as a result of such tax reassessment. 7.1.7.5 Save in respect of the specific circumstances described in Article 8.6 to 8.7 hereof, (inclusive), the Vendor hereby undertake to bear the entire cost of all taxes, interest for late payment and penalties that the Company may have to pay pursuant to a tax reassessment, where the cause of action for such reassessment arose prior to the Closing Date. 7.1.8 Ownership of Assets 7.1.8.1 The Company has full and unencumbered title to all of its assets including its on-going business (fonds de commerce). All tangible assets (both real estate and otherwise) are properly constructed an in good condition, subject only to normal wear and tear, and have been consistently and properly maintained. None of such tangible assets is out of order or has any apparent defect which prevents or could prevent its use in the future in accordance with the purpose for which it was intended. 7.1.8.2 The Company conducts its business and uses its assets in accordance with all legal or regulatory requirements; 7.1.8.3 The Company holds all the necessary assets for its business activities and the said assets are all geographically located on the Company's premises of; 7.1.9 Leases 7.1.9.1 Details of all material leases agreements to which the Company is a party, whether as lessor or lessee, are set forth at Schedule 14 hereto. 7.1.9.2 Each of the leases of real or personal property to which the Company is a party, either as lessor or lessee, is valid and enforceable in accordance with its terms. All of the premises (establishments) in which the Company conducts its business under a commercial lease subject to the provisions of the Decree of September 30, 1953 are registered (immarticule) with the competent commercial and companies registries. 7.1.9.3 The Company has given notice, in compliance with all French Laws and regulations, by bailiff (huissier) on August 7, 1997, of the termination, with effect on February 28, 1998, of the leases covering the premises situated at 344 Avenue George Clemenceau, 92000 Nanterre (building A-B and C) and 32 rue Pierre Curie, 92000 Nanterre. 7.1.9.4 Except as mentioned in Schedule 14 hereof, none of such leases are at this time the subject, and, to the best of the Vendor's knowledge, shall in the future be the subject of, any objection, refusal to renew or claim. 7.1.9.5 The contracts in respect of utilities (gas, electricity, water, etc.) in respect of the premises are sufficient in view of the activities carried out by the Company on its premises and are not assigned to other premises. 7.1.10 Intellectual Property 7.1.10.1 Schedule 15 hereof contains a list of the patents, trademarks, trade names, copyright, logos, design, non-protected design, software and other intellectual property rights (hereinafter called "the Rights") used by the Company. The Rights are owned by the Company free from any charge or encumbrance. 7.1.10.2 The Company has not infringed, nor is infringing, any right belonging to any third party relating to any patent, trademark, trade name, copyright, logo, design or software or any other intellectual property rights belonging to third parties and, to the knowledge of the Vendor, no third party is infringing any industrial or intellectual property right belonging to the Company. 7.1.10.3 None of the directors, manager or employees or the Company own, directly or indirectly, in whole or in part, any patent, trademark, or other intellectual or industrial property right to which the Company has a license or which is necessary or desirable for its commercial activities as presently carried on. 7.1.10.4 The company has the unencumbered right to use its corporate name of which it has full title and enjoyment, without paying any royalties whatsoever to any third party. 7.1.11 Contracts 7.1.11.1 All the contracts, commitments, agreements and guarantees or other undertakings to which the Company is a party, and which: (i) account for more than 5% of the revenue turnover of the Company for the most recent financial period; or (ii) are for a period of more than one year; or (iii) involve the disposal of capital assets for an aggregate amount in excess of FRF 50,000; or (iv) contain binding undertakings to buy or sell for an aggregate amount in excess of FRF 50,000, or any exclusivity commitment by, or for the benefit of, the Company; or (v) contain a non-competition undertaking; or (vi) are otherwise material to the management, development and marketing of the Company; are hereinafter called "Material Contracts". 7.1.11.2 the Company (I) has not entered into any Material Contract which gives rise to duties or liabilities which are unusual in relation to the normal rules of proper management of a commercial enterprise, and (ii) is not in breach of any of its obligations under any Material Contract. 7.1.11.3 To the best of the Vendor's knowledge, all contracts, agreements or arrangements, whether written or verbal, to which the Company is a party, represent valid enforceable obligations. None of them has been entered into in violation of applicable laws or regulations and the Company and the other contracting parties have complied with their obligations thereunder. No such contract, agreement or arrangement was entered into outside the normal course of business or is illegal or liable to be declared null and void. 7.1.11.4 The transfer of the Shares on the Closing Date will not result in the accelerated maturity of any loan or guarantee agreement or any other payment to be made to any third party under the other contract or arrangement to which the Company is a party. 7.1.11.5 By virtue of the change in control of the Company, the execution and performance of the Share Purchase Agreement: (i) does not and will not result in the termination of any Material Contract or any other instrument or arrangement to which the Company is a party or by which it may be bound or affected, (ii) does not and will not conflict with or result in any violation or breach by the Company under any Material Contract or other instrument or arrangement, and (iii) will not grant to any other contracting party the right to terminate or modify any such Material Contract or other instrument or arrangement, other than the "P6 France Telecom Contract" referred to in Article 4.1.12 hereof for which approval as to the change of control shall have been obtained before the Closing Date. 7.1.11.6 Neither the Vendor nor the Company has received any notice whatever pursuant to which any customers of, or suppliers or lenders to the Company has disclosed its intention to cease or substantially reduce its commercial relationship with the Company for any reason whatsoever including, without limitation, as a result of the transfer of the Shares to the Purchaser. 7.1.11.7 The Company is not bound by any contract, commitment or other arrangement directly or indirectly with the Vendor, or any of its corporate officers (mandataires sociaux), or any legal entity controlled by any of them, other than the Management Services Agreement which shall be terminated before or on the Closing Date pursuant to Article 4.1.16 hereof. 7.1.12 Personnel 7.1.12.1 The following are set forth at Schedule 17 hereof: (i) a list of all the Company's employees, including their ages, seniority and present annual remuneration (including any right to bonus, benefits in kind, profit sharing and any departure or retirement indemnities) and, for persons having a definite term employment agreement, the date of expiration of the agreement; (ii) a list of all pension benefits offered by the Company to any of their present or former employees or corporate officers, all of which benefits are fully funded; (iii) a list of temporary personnel, outside collaborators, sales representatives (VRP's) and any other persons who do not have the status of salaried employees but who regularly collaborate in the operations of the Company, if any; and (iv) a list of all the collective bargaining and other collective agreements applicable to the Company's personnel (including any agreement relating to bonuses, pensions (excluding compulsory state pension schemes), deferred remuneration, profit sharing or share option schemes). 7.1.12.2 The Company has compiled with the continues to comply with, all their obligations pursuant to the applicable labor and social security law. 7.1.12.3 None of the employees or corporate officers of the Company benefit from unusual rights in the light of the prevailing industry standards in the place where they are employed 7.1.12.4 To the knowledge of the Vendor, none of the Company's employees have made known their intention to terminate their employment agreement. 7.1.12.5 There have been no strikes, lock-outs, strike pickets, occupation of the premises or other labor unrest on the premises of the Company during the 2 years prior to the date hereof, and the Vendor is not aware of any such industrial action being threatened or pending. 7.1.13 Insurance 7.1.13.1 To the best of the Vendor's knowledge, the Company's activities and all the assets owned, leased or used by it are validly insured, under customary conditions, with reputable companies, and the terms of the policies are such as would be acceptable to a prudent entrepreneur carrying on a similar business with similar assets. 7.1.13.2 The Company ahs fulfilled all its obligations pursuant to the insurance policies, in particular with respect to the declarations of risks and claims and the payment of premiums relating to such policies. As at the date hereof the Company has not received or given any notice of termination or non-renewal in respect to any of the said policies and the insurance companies have not given them notice of their intention to increase substantially the premiums due, to raise the deductibles or to reduce the coverage provided. 7.1.14 Product Liability 7.1.14.1 To the best of the Vendor's knowledge, no claim has been made on the Company in respect t of damage suffered resulting from a defect in any product manufactured, assembled or sold and not product manufactured, assembled or sold by the Company has any latent defect or other defect likely to result in a claim for damages from a purchaser or user of the product or a third party. 7.1.15 Environment 7.1.15.1 To the best of the Vendor's knowledge, the activities of the Company have al ways been and are being operated in compliance with the applicable laws and regulations in force concerning environmental protection, and not product manufactured, assembled or sold or any service supplied by the Company is in violation of such laws and regulations. 7.1.15.2 The Company has at all times obtained and complied with all authorizations, licenses and other approvals required by the laws and regulations in force and have not received any notification from any entity in authority to the effect that any such authorization, license or approval has not been complied with or has been withdrawn. 7.1.15.3 No leak or spill or disposal of any substance, material or waste which is regulated as "toxic" or "hazardous" under any applicable environmental regulation has occurred on any of the real properties currently owned or occupied by the Company. The Company is not obligated nor reasonably likely to become obligated to clean up or otherwise conduct remedial work on any contaminated surface water, ground or soil. 7.1.16 Litigation 7.1.16.1 There is not current, threatened or pending litigation, arbitration, claim, administrative proceeding, administrative or tax investigation or any other action or proceeding pending or contemplated, whether as plaintiff or defendant, in relation to the Company, relating to payments of amounts in excess of FRF 50,000, or assets worth more than such amount, or which could have a material negative impact on the Company's business and the Vendor is unaware of any facts which might give rise to any such action or proceeding. 7.1.17 Absence of Changes 7.1.17.1 From the date of the Interim Accounts to the Closing Date, non of the following events in respect of the Company has arisen or shall arise; (i) any change in the financial position, as- sets, liabilities, business or operations otherwise than in normal course of business; (ii) save with the prior written consent of the Purchaser, any declaration or payment of any dividend or any other distribution of profits or reserves; (iii) any damage, destruction or other casualty loss (whether or not covered by insurance) materially affecting the Company's business or financial position; (iv) any purchase or sale of securities by the Company, as issue of shares or other securities, rights or options to purchase or subscribe shares in the Company or which might grant the right to acquire or subscribe securities which represent a share in the capital of the Company; (v) any loan incurred, granted, promised or se- cured by the Company; (vi) the assumption of an obligation or liability other than current obligations or liabilities incurred in the normal course of business; (vii) any termination, waiver, amendment of, or default in relation to any contract, undertaking or arrangement other than in the normal course of business; (viii) any increase or promised increase in the remuneration of employees, agents, sales representatives or corporate officers or in any of their benefits; (ix) any sale, lease or transfer of any tangible or intangible assets other than items of stock in the normal course of business, nor any cancellation or waiver of any receivables; (x) any guaranteed, surety or comfort letter in respect of the obligations of third parties; (xi) any lien, security interest, pledge, mortgage, easement, or other charge granted over any tangible or intangible assets; (xii) any social disturbance, conflict, strike, lock-out, sit-in or similar event. 7.1.18 Guarantee of Third Party Obligations 7.1.18.1 The Company is not liable under any guarantee granted in order to cover the execution of a third parties obligations, save as mentioned in Schedule 18 hereof; 7.1.18.2 The Company is not jointly and severally liable with any other person or entity as regards the execution of the latter's contractual or legal obligations. 7.1.18.3 More generally, there are not obligations incumbent upon the Company as a result of the winding up of Dorotech GmbH nor the sale of its entire shareholding in Dorotech (UK) Ltd. Nor the sale of its entire shareholding in Dorotech Srl. 7.1.19 Lists 7.1.19.1 Schedule 19 hereof contains lists in relation to the Company, setting forth: (i) the name and address of each person who has received general or special powers; (ii) all real estate, land, facilities or other property owned, rented, leased or otherwise occupied; (iii) banks and bank accounts, and financing arrangement showing (a) the names or people with power of signature (b) the amount of each credit line and the level of utilization and any other financing agreement, and (c) the amount of any borrowing guaranteed by the Company. (iv) all guarantees, sureties or endorsements granted in favor of third parties; (v) the name of each corporate officer (mandataire social) and of the gross annual remuneration (including all benefits) of each of them; (vi) all agency, license, distribution or repre- sentation agreements; (vii) all grants, subsidies or other public benefits in excess of FRF 50,000 which the Company is under a contingent liability to repay. 7.1.20 General 7.1.20.1 To the best of the Vendor's knowledge, all of the information contained in the Share Purchase Agreement and its Schedules thereto are complete and accurate in all respects. 7.1.20.2 There are no existing facts or events known to the Vendor which are likely to have a negative effect of the Company's assets, business or activities or which could reasonably be expected to affect adversely with willingness of the Purchaser to purchase the Shares upon the terms of the Share Purchase Agreement which has not been disclosed to the Purchaser in writing by the Vendor. 7.1.21 Authority Relative to this Share Purchase Agreement 7.1.21.1 The execution and performance of this Share Purchase Agreement by the Vendor do not and will not conflict with or result in any violation or breach of, or any default under, any law or any obligation of the Vendor or any other agreement to which the Vendor is a party, not is there any litigation current or pending involving the Vendor which could prevent or hinder their execution and performance of this Share Purchase Agreement. 7.1.21.2 The Vendor has full power, authority and right to enter into this Share Purchase Agreement and to complete the transactions contemplated hereby. 7.2 The Vendor recognizes and accepts that the Purchaser has entered into this Share Purchase Agreement in reliance on the Representations and Warranties an in reliance on the documents and information of a significant nature which the Vendor has transmitted to the Purchaser. The liability of the Vendor in relation to the Representations and Warranties shall be in no way limited should it be established that the Purchaser was aware of the inaccuracy of one or more of the Representation or Warranties either at the date hereof or at the Closing Date. 8. Indemnification 8.1 Subject to the provisions of Article 8.2 herein, the Vendor undertakes to indemnify the Purchaser by reducing the Purchase Price or, and if the Purchaser in its absolute discretion so wishes, by making good and holding harmless the Company for the full amount of any damage, loss, liability or expense of any kind, including legal and court fees (hereinafter called "Damage") which results from; 8.1.1 any failure of the Vendor to respect its obligations hereunder; 8.1.2 any inaccuracy, error or omission in the Representations and War- ranties; and 8.1.3 any increase in the liabilities, whose origin is prior to the Closing Date, and which is not shown in the Actual Consolidated Net Equity of the Company, drawn up as at the Closing Date. 8.1.4 It is specifically agreed and understood by the Parties that the Purchaser may validly claim against the Vendor under Article 8.1.2 hereof, notwithstanding any lack of knowledge on the part of the Vendor should there be any contract, agreement or arrangement as more particularly described in Article 7.1.11.3 hereof, to which the Company is a party, and which in fact represents an unenforceable obligation. 8.1.5 It is specifically agreed and understood by the Parties that the Purchaser may validly claim against the Vendor under Article 8.1.2 hereof, notwithstanding any lack of knowledge on the part of the Vendor should there in fact be any claim relating to product liability for products manufactured distributed or sold, as more particularly described in Article 7.1.14.1 hereof. 8.1.6 It is specifically agreed and understood by the Parties that the Purchaser may validly claim against the Vendor under Article 8.1.2 hereof, notwithstanding any lack of knowledge on the part of the Vendor, in respect of the completeness and accuracy of any information contained therein, as more particularly described in Article 7.1.19.1 hereof. 8.1.7 It is specifically agreed and understood by the Parties that the Purchaser may validly claim against the Vendor under Article 8.1.2 hereof, notwithstanding any lack of knowledge on the part of the Vendor, in respect of any failure to comply with the laws and regulations in force concerning environmental protection, as more particularly described in Article 7.1.15.1 hereof. 8.2 The total indemnity paid hereunder shall not exceed ten percent (10%) of the Net Purchase Price. 8.3 The Vendor shall not be liable to indemnify the Purchaser under this Article 8 in respect of damage or Estimated Damage unless and until the aggregate amount of value of such Damage or Estimated Damage exceed FRF 100,000, but in which event the Seller shall be liable to indemnify the Purchaser against any and all damage or Estimated Damage in full including those Damages and Estimated Damages in the said FRF 100,000, subject to the maximum total indemnity specified in Article 8.2. 8.4 Except for claims in respect of fiscal or social security matters which may be made up of the expiration of the statute of limitations, and for claims in respect to environmental matters (Article 7.1.15 hereof) which may be made for up to 5 years following the Closing Date, any claim for indemnification pursuant to Article 8.1 hereof must be made no later than 12 months following the Closing Date by notice I n writing to the Vendor in accordance with Article 12 hereof. Such notice shall give brief details of the relevant facts and an estimate of the Damage ("Estimated Damages"). Indemnification based on the Estimated Damages shall be due if notice of the relevant facts is given within the relevant period, even if the quantification of the Damage does not take place until after the expiration of such period. Payment from the Escrow Agent shall be in accordance with Section 6 of the Escrow Agreement. 8.5 In the event that any Damage or Estimated Damage results from a demand or claim made by a third party, the Purchase shall notify the Vendor, with the details described above, within one month of the Purchase becoming aware thereof and the Vendor, or its counsel, shall have access to all relevant books and other documents of the Company any with regard to such a demand or claim, and these shall be made available at the Company's registered office or any other place mutually agreed upon, subject to reasonable notice, and for reasonable period. The Vendor shall have the right, at its own expense to join in the defense or the conclusion, by way of settlement (transaction) or amicable agreement with respect to any such demand or claim. However, the Purchaser shall have absolute discretion as to whether and, if so, on what terms, to settle any such demand or claim. Should. the Purchaser elect not tom comply with the Vendor's proposal of settlement, any sums due by the Company and/or Purchaser exceeding the amount of the settlement proposed by the Vendor, which shall have been accepted by the third party as full and final settlement of all related claims, shall be borne by the Purchaser. 8.6 All payments due under Article 8 hereof shall be treated as a reduction in the Purchase Price made within one month from the date on which notice of the Damage is given by the Purchaser to the Vendor or, if later, from the date on which the Damage is quantified. These sums shall be drawn in priority from the amounts deposited with the Escrow Agent, it being specified that in the event that the amounts held upon escrow should be insufficient to compensate the Purchaser for any damage notified by the latter, the Vendor shall be under an obligation to pay an indemnity for an amount equal of the difference between the amounts due pursuant to Article 8 hereof and the said held sums held upon escrow. Should the damaged be quantified or the Estimated Damages be payable after the amounts held in escrow have been released to the Vendor in accordance with Article 3.2 herein and the Article 3 of the Escrow Agreement, the indemnity to be paid by the Vendor shall be paid by wire transfer to the Purchaser's bank account. Should the quantification of the Damage result in a sum to be reimbursed by the Purchaser to the Vendor in respect of the Estimated Damage previously paid by the Vendor, the Purchaser shall pay the sum by wire transfer to the Vendor's bank account. 8.7 The parties agree that if it emerges that any Damage is deductible from the taxable results of the Company that amount of an indemnity to be paid by the Vendor shall be reduced by the tax saving effectively made by the Company. 9. Assignment 9.1 This Share Purchase Agreement is personal to the Parties and cannot be assigned by any of them save that (I) the Purchaser may assign its right hereunder to an associated company for which purpose the term "associated company" shall mean any company which, directly or indirectly, controls or is controlled by or is under the same control as the Purchaser and the term "control" shall mean the ability to exercise or to procure the exercise, directly or indirectly, of at least 50 percent (50%) of the voting shares of a company; and (ii) the Purchaser (or such associated company) may freely assign its rights pursuant to Article 8 hereof to any person(s) or corporation(s) to whom the Shares may be transferred following the Closing Date. Rights to Escrow can be assigned by the Vendor if a successor in interest purchases substantially all the assets of the Vendor. 9.2 Should the Purchaser assign its rights under the terms herein, it shall remain liable, jointly with the assignee, for the obligation under this Share Purchase Agreement until full payment of the Purchase Price has been made to the Vendor 10. Expenses 10.1 Each of the Parties shall bear all of the costs and expenses incurred by it in connection with this Share Purchase Agreement and its execution including, but not limited to, the fees and disbursements of any counsel, independent accountant or any other person whose services may have been used by said party in relation hereto, with the exception of the independent audit to be conducted by Ernst & Young pursuant to Article 3.1.6 hereof, the Parties having agreed to share equally the expenses of such audit. 10.2 It is agreed that a short form French version of this Agreement summarizing the main provisions concerning the scope of the sale and purchase and the price shall be produced and signed by the parties hereto at the Closing Date and registered with the French fiscal authorities at the expense of the Purchaser. It is expressly agreed that none of the parties may avail themselves of the short form agreement for any purpose other than as proof of such registration, their rights and obligations in connection with the sale and purchase contemplated herein deriving solely from this Agreement. 11. Confidentiality 11.1 The Vendor and the Purchaser undertake to keep confidential and not to disclose to third parties (except to their professional advisors and, in the case of the Purchaser, to any of its associated Companies as defined in Article 9.1 hereof for the purposes of the assignment), without the prior written consent of the other Party, the terms and conditions of the transaction contemplated hereby. 11.2 All announcement by or on behalf of the Parties hereto relating to the transaction contemplated hereby shall be in terms agreed by the Parties save that the Parties shall be entitled to make such announcements as they think fit to comply with the regulations of the Stock Exchanges on which they were quoted. 11.3 If for any reason the transaction contemplated hereby is not completed, the obligations of the Parties pursuant to this Article 11 hereof will remain in force for a period of 12 months from the date hereof. 12. Notices 12.1 Any notice required to be given hereunder shall be validly given if sent by registered letter (with return receipt requested) or by fax, confirmed by such registered letter, or by hand delivery against written acknowledgment of receipt to the following addresses or to such other address as may have been transmitted by either of the Parties to the other in accordance herewith: For notices to the Vendor: For notices to the Purchaser: Mr. Jorge Forgues Dr. Phil Storey CFO, Network Imaging Corporation Board Member, SER Systems AG 500 Huntmar Park Drive 11608 Bromley Village Lane Herndon, VA 20170, USA Reston, VA 20194, USA Notices shall be effective as of the date of receipt. 12.2 The Vendor irrevocably confers on Mr. Jorge Forgues (referred to in Ar- ticle 12.1 hereof), who accepts, the authority to accept notices on its behalf. 13. Proper Law and Jurisdiction 13.1 This Agreement shall be governed by and construed in accordance with French law. 13.2 Subject to the provisions of Article 3.1.6 hereof in relation to the resolution of disagreements pertaining to the amount of Actual Consolidated Net Equity, Actual Tax Credits and Assumed Tax Credits, any dispute arising in relation to this Agreement, its interpretation or execution (including, without limitation, its validity, performance or interpretation) shall be submitted to the Commercial Court of Paris. 14. Waivers 14.1 The failure by one of the Parties hereto promptly to avail itself in whole or in part of any right, power or privilege to which such party is entitles pursuant to the terms of this Agreement shall not constitute a waiver of such right, power or privilege which may be exercised at any time. To be valid, waiver by one of the Parties hereto to right, power or privilege must be in writing and notified to the other party as provided herein. 15. Headings The descriptive words or phrases at the head of the Articles are inserted only as a convenience and for reference purposed and are not intended to in any way define, limit or describe the scope or intent of the Articles which they preceded. 16. Whole Agreement This Share Purchase Agreement constitutes the entirety of the agreement between the Parties with regard to the subject matter hereof and supersedes any previous agreement or agreements whether verbal or written with regard thereto. 17. Interpretation and Language 17.1 Unless the context requires otherwise, all words used in this Share Purchase Agreement in the singular number shall extend to and include the plural, all words in the plural number shall extend to and include the singular, and vice versa. 17.2 This Agreement shall be executed only in the English language. 17.3 Severability If any provision, clause, or part of the Share Purchase Agreement, or application thereof under certain circumstances, should be held void, illegal or unenforceable, the Parties undertake to consult each other and to seek an agreement in respect of a valid clause the effects of which come as close as possible to those of the paragraph, the clause or the part invalidated. EXECUTED by the Parties on In Herndon, Virginia, USA The Vendor For the Purchaser ----------------------------- ------------------------- By: Jorge R. Forgues By: Title: Senior Vice President & Title: Chief Financial Officer List of Schedules 1. Declaration of authority to sign the Share Purchase Agreement on behalf of NIC. 2. Declaration of authority to sign the Share Purchase Agreement on behalf of SER. 3. Principles relating to the claculation of the Consolidated Net Equity. 4. Escrow Agreement 5. Non-Competition Agreement. 6. Addendums to Employment contracts for Mr. Jean-Phillipe Bordes and Mr. Alain Gourlay. 7. List of resigning directors. 8. Certified true and up-to-date copy of the articles of association (statuts) of Dorotech France SA. 9. Good-standing information sheet (extrait kbis) of Dorotech France SA dated November 12, 1997. 10. Liens and Charges Search Certificate (etat des nantissement et privileges) of Dorotech France SA issued by the Commercial and Companies Registry of Nanterre. 11. List of the shareholders of the Company including the name and numbers of Shares held by each of them. 12. Copies of the Financial Statements of the Company for both the 1995 and 1996 financial years and of the Interim Accounts of the Company as of September 30, 1997. 13. Copy of the Company's tax reassessment. 14. Copy of all lease agreements to which the Company is a party and list of objections, refusals to renew or claims relating to these leases. 15. Patents, trademarks, trade names, copyright, logos, designs, non-protected designs, software and other intellectual property rights owned by the Company. 16. N/A 17. Lists relating to: - all pension benefits offered by the Company to any of their employees or corporate officers, all of which are fully funded; - temporary personnel, outside collaborators, sales representatives (VRPs) and any other persons who do not have the satus of salaried employees but who regularly collaborate in the Company's operation; - the collective bargaining and other collective agreement applicable to the Company's personnel (including any agreement relating to bonuses, pensions (excluding compulsory state pension Schemes), deferred remuneration, profit sharing or share option schemes). 1. Guarantees and other undertakings in favor of third parties. 2. Lists setting forth: - the name and address of each person who has received general or special powers. - all real estate, land, facilities or other property owned, rented, leased or otherwise occupied; - the name of each corporate officer (man- dataire social) and of the gross annual remuneration (including all be- nefits) of each of them; - all agency, license, distribution or representation agreements; - all grants, subsidies or other public benefits in excess of FRF _______ which the Company is under a contingent liability to repay. 1. Documents relating to CDR counter guarantee a) Main counter-guarantee for 47,000,000 FF b) CDR's side letter c) Cofracomi letter EX-3.6 3 SERIES A CERTFICATE OF AMENDMENT CERTIFICATE OF AMENDMENT TO CERTIFICATE OF DESIGNATIONS OF SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK OF NETWORK IMAGING CORPORATION Pursuant to Section 242 of the General Corporation Law of the State of Delaware We, James J. Leto, President, and Julia A. Bowen, Assistant Secretary, of Network Imaging Corporation (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That, pursuant to authority conferred upon the Board of Directors of the Corporation by its Certificate of Incorporation, and pursuant to the provisions of Sections 151(a) and (g) of the General Corporation Law of the State of Delaware, the Board of Directors, at a meeting duly called and held on December 6, 1993, adopted a resolution creating a series of 1,750,000 shares of cumulative convertible preferred stock designated as Series A Cumulative Convertible Preferred Stock; That, (1) on December 3, 1997, the Board of Directors of the Corporation resolved to amend the Certificate of Designations of the Series A Cumulative Convertible Preferred Stock ("Certificate of Designations"), (2) on December 31, 1997, the holders of Common Stock, voting separately as a class, and the holders of the Series A Cumulative Convertible Preferred Stock, voting separately as a class, (3) by unanimous written consent dated December 31, 1997, the holder of the Series F-1 Convertible Preferred Stock, the Series F-2 Convertible Preferred Stock, the Series F-3 Convertible Preferred Stock and the Series F-4 Convertible Preferred Stock and (4) by unanimous written consent dated December 31, 1997, the holders of the Series K Convertible Preferred Stock, resolved to amend the Certificate of Designations as follows: 1. Designation and Number. The designation of the series of preferred stock fixed by this resolution shall be "Series A Cumulative Convertible Preferred Stock" (hereinafter referred to as the "Series A Preferred Stock" and the number of shares constituting such series shall be 1,750,000. Each share shall have a par value of $.0001 per share. 2. Rank. The Series A Preferred Stock shall rank: (i) prior to all of the Corporation's Common Stock, par value $.0001 per share ("Common Stock"), (ii) prior to all of the Corporation's Series F-1, F-2, F-3 and F-4 Convertible Preferred Stock, par value $.0001 per share (collectively, "Series F Preferred Stock"), (iii) prior to all of the Corporation's Series K Convertible Preferred Stock, par value $.0001 per share ("Series K Preferred Stock"), (iv) prior to any class or series of capital stock of the Corporation hereafter created either specifically ranking by its terms junior to the Series A Preferred Stock or not specifically ranking by its terms senior to or on parity with the Series A Preferred Stock (collectively with the Common Stock, the Series F Preferred Stock and the Series K Preferred Stock, "Junior Securities"); (v) subject to the provisions of subparagraph 4(ii) hereof, on parity with any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms on parity with the Series A Preferred Stock ("Parity Securities"); and (vi) subject to the provisions of subparagraph 4(ii) hereof, junior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms senior to the Series A Preferred Stock ("Senior Securities"), in each case, as to payment of dividends or as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (all such distributions being referred to collectively as "Distributions"). 3. Dividends. (i) No dividends shall accrue on the Series A Preferred Stock from May 1, 1997 through the date prior to the date ("Meeting Date") this Certificate of Amendment to Certificate of Designations of Series A Cumulative Convertible Preferred Stock of Network Imaging Corporation is approved by the holders of Common Stock, voting separately as a class, the holders of Series A Preferred Stock, voting separately as a class, the holders of Series F Preferred Stock, voting separately as a class, and the holders of Series K Preferred Stock, voting separately as a class. (ii) The dividend rate of the Series A Preferred Stock shall be computed at a rate of $.84 per share per annum payable in kind on each outstanding share of Series A Preferred Stock from the Meeting Date. Dividends shall be payable quarterly in arrears out of funds legally available therefor on March 15, June 15, September 15 and December 15 of each year, commencing March 15, 1998 (each a "Series A Dividend Payment Date"). Dividends on shares of Series A Preferred Stock shall be cumulative and shall accrue (whether or not declared), without interest, from the first day of the quarterly period in which such dividend may be payable as herein provided, except with respect to the first quarterly payment, which shall accrue from the Meeting Date. On each Series A Dividend Payment Date, all dividends that shall have accrued on each share of Series A Preferred Stock outstanding on the applicable record date shall accumulate and be deemed to become "due." Any dividend that shall not be paid on the Series A Dividend Payment Date on which it shall become due shall be deemed to be "past due" (a "Cumulated Series A Dividend") until such Cumulated Series A Dividend shall have been paid. (iii) The Corporation shall have the right to pay dividends on each Series A Dividend Payment Date in shares of Common Stock, valued at the Quarterly Average Stock Price (as hereinafter defined). The "Quarterly Average Stock Price" shall be the average Closing Price (as hereinafter defined) per share of Common Stock during the 10 consecutive trading days following release by the Corporation of its earnings for the quarterly period ended immediately prior to the applicable Series A Dividend Payment Date. The "Closing Price" means, as of any date, the last sale price per share of Common Stock on the principal securities exchange or trading market where the Common Stock is listed or traded as reported by Bloomberg Financial Markets or a comparable reporting service of national reputation selected by the Board of Directors of the Corporation ("Board") if Bloomberg Financial Markets is not then reporting Closing Prices per share of Common Stock (collectively, "Bloomberg"), or if the foregoing does not apply, the last reported sale price per share of Common Stock in the over-the-counter market on the electronic bulletin board as reported by Bloomberg, or, if no sale price is reported per share of Common Stock by Bloomberg, the average of the bid prices of any market makers for the Common Stock as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Price cannot be calculated on such date on any of the foregoing bases, the Closing Price per share of Common Stock on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Board, with the costs of such appraisal to be borne by the Corporation. If the Corporation determines to pay dividends on any Series A Dividend Payment Date in shares of Common Stock, the Corporation shall cause certificates representing shares of Common Stock to be mailed to the holders of record of Series A Preferred Stock (determined in accordance with subparagraph 3(v)) within 30 Business Days (as hereinafter defined) of the applicable Series A Dividend Payment Date. (iv) If dividends are to be paid in cash, the Board shall declare and pay current dividends out of funds legally available therefor (after giving effect to the payment of all requisite dividends on Senior Securities). (v) In order to determine the holders of the Series A Preferred Stock entitled to receive dividends, the Corporation shall fix a record date not more than 60 days prior to any Series A Dividend Payment Date. If any such Series A Dividend Payment Date should fall on a day that is not a "Business Day," then the Corporation shall pay the applicable dividend if payable in cash on the next succeeding Business Day. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which any national securities exchange or quotation system on which the Common Stock of the Corporation is traded or quoted is authorized or required by law to close. (vi) The Corporation shall not: (A) pay or declare and set apart for payment any dividends or Distributions on the Corporation's Junior Securities, other than dividends payable in the form of additional shares of the same Junior Security as that on which such dividend is declared, or (B) redeem, purchase, or otherwise acquire any shares of Junior Securities or any right, warrant or option to acquire any Junior Securities, unless full Cumulated Series A Dividends have been, or contemporaneously are, paid or declared and set apart for such payment on the Series A Preferred Stock. (vii) No full dividends shall be paid or declared and set apart for payment on any class or series of Parity Securities for any period unless full Cumulated Series A Dividends have been, or contemporaneously are, paid or declared and set apart for such payment on the Series A Preferred Stock for all dividend periods terminating on or prior to the date of payment of such full Cumulated Series A Dividends. No full dividends shall be paid or declared and set apart for payment on the Series A Preferred Stock for any period unless full cumulative dividends have been, or contemporaneously are, paid or declared and set apart for payment on the Parity Securities for all dividend periods terminating on or prior to the date of payment of such full Cumulated Series A Dividends. When dividends are not paid in full upon the Series A Preferred Stock and the Parity Securities, all dividends paid or declared and set apart for payment upon shares of Series A Preferred Stock and the Parity Securities shall be paid or declared and set apart for payment pro rata, so that the amount of dividends paid or declared and set apart for payment per share on the Series A Preferred Stock and the Parity Securities shall in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the shares of Series A Preferred Stock and the Parity Securities bear to each other (without taking into account the dividends so paid and those so declared and set apart for payment). (viii) To the extent the Corporation shall not have funds legally available to pay all Cumulated Series A Dividends when due under paragraphs 3, 5, 6, 7 or 8 hereof or otherwise, the Corporation's obligation to make such payment shall be deferred until the first date on which the Corporation shall have funds legally available for all or a portion of such payment, which shall then be made in whole or in part, as the case may be, until such Cumulated Series A Dividends shall have been paid in full. 4. Voting Rights. (i) Except as may otherwise be provided herein or required by law, the holders of the shares of Series A Preferred Stock ("Series A Holders") shall not be entitled to any vote in respect of such shares. (ii) The affirmative vote, in person or by proxy, of the Series A Holders of the majority of the outstanding shares of the Series A Preferred Stock, voting as a single class, on a one-vote-per-share of Series A Preferred Stock basis, shall be necessary for the Corporation to authorize: (x) any class or series of Senior Securities; or (y) any class or series of Parity Securities; provided, however, that no such vote shall be required pursuant to clause (x) or (y) in the event the Corporation shall then have the right to redeem the Series A Preferred Stock and, prior to the date of issuance of such new class or series of Senior Securities or Parity Securities, provision shall have been made for the redemption or exchange of all the outstanding shares of the Series A Preferred Stock and such redemption or exchange occurs on or prior to the date of issuance of such new series or class of Senior Securities or Parity Securities. (iii) On all matters on which the Series A Preferred Stock is entitled to vote by law, the Series A Holders shall be entitled to one vote per share of Series A Preferred Stock, voting separately as a single class, and the presence, in person or by proxy, of the Series A Holders of a majority of the outstanding shares of the Series A Preferred Stock shall constitute a quorum. 5. Conversion Rights. (i) Each share of Series A Preferred Stock may be converted, at the option of each Series A Holder, at any time and from time to time, into fully-paid and non-assessable shares of Common Stock; provided, however, that a Series A Holder's right to so convert shares of Series A Preferred Stock shall terminate as to shares thereof that are redeemed or exchanged by the Corporation on the Exchange Date or the time a Change in Control occurs (as hereinafter defined) therefor as provided in and subject to the terms and conditions of subparagraph 7(ii) or 8(ii) hereof, respectively. The number of shares of Common Stock to which the Series A Holder of each share of Series A Preferred Stock shall be entitled upon conversion shall be the product obtained by multiplying the number of shares of Series A Preferred Stock to be converted by the Conversion Rate (as hereinafter defined); in addition, the Series A Holder shall be entitled upon conversion to receive cash or shares of Common Stock (valued at the Quarterly Average Stock Price determined as of the immediately preceding Series A Dividend Payment Date), at the option of the Corporation, in an amount equal to all Cumulated Series A Dividends on each share of Series A Preferred Stock so converted, provided, if dividends are paid in cash, there are funds legally available therefor. The "Conversion Rate," that is, the number of shares of Common Stock for which each share of Series A Preferred Stock may be converted, shall be determined by reference to the Average Stock Price (as hereinafter defined). The "Average Stock Price" shall be the average Closing Price per share of Common Stock during the 20 consecutive trading days following the Meeting Date. With the quotient of $10 and the Average Stock Price provided that such quotient is not greater than 7.68 and not less than 5.00, if the Average Stock Price is less than or equal to $1.30, the Conversion Rate shall be 7.68; if the Average Stock Price is greater than $1.30 but less than or equal to $1.50, the Conversion Rate shall be 6.67; if the Average Stock Price is greater than $1.50 but less than or equal to $1.75, the Conversion Rate shall be 5.71; and if the Average Stock Price is greater than $1.75, the Conversion Rate shall be 5.00. The Corporation shall not issue fractional shares of Common Stock upon conversion of Series A Preferred Stock or as Cumulated Series A Dividends, but, in lieu thereof, shall pay to a Series A Holder cash in an amount equal to such fraction multiplied by the Closing Price per share of the Common Stock on the trading day prior to the date on which the shares are converted. (ii) The Series A Preferred Stock shall be converted into Common Stock in the following manner: (A) Shares of Series A Preferred Stock received by the Corporation in exchange for Common Stock shall be retired and canceled and shall no longer be available for issuance as Series A Preferred Stock. (B) A Series A Holder shall give written notice to the Corporation of its desire to convert all or a portion of the shares of Series A Preferred Stock owned by such Series A Holder. Such notice shall be accompanied by certificates, duly endorsed for transfer, evidencing the number of shares of Series A Preferred Stock such Series A Holder desires to convert, together with cash, if any, required by subparagraph 5(ii)(C) hereof. The Corporation will, as soon as practicable thereafter, deliver to such Series A Holder or to such Series A Holder's nominee or nominees, a certificate or certificates for the appropriate number of shares of Common Stock, together with cash, as provided in subparagraph 5(i), with respect to any fractional shares otherwise issuable upon conversion, and cash or shares of Common Stock (valued at the Quarterly Average Stock Price determined as of the immediately preceding Series A Dividend Payment Date), at the option of the Corporation, in an amount equal to all Cumulated Series A Dividends on each share of Series A Preferred Stock so converted, provided, if dividends are paid in cash, there are funds legally available therefor, and, in the event of a partial conversion, a certificate representing the balance, if any, of the shares of Series A Preferred Stock represented by the surrendered certificate or certificates but not converted to Common Stock. (C) In the event that shares of Series A Preferred Stock are surrendered for conversion on any date during the period from the close of business on a record date fixed for determining the Series A Holders entitled to receive dividends to the opening of business on the corresponding Series A Dividend Payment Date, the Series A Holder must also deliver to the Corporation an amount in cash equal to the dividend payable with respect to such shares of Series A Preferred Stock on such Series A Dividend Payment Date and shall continue to be entitled to receive such dividend on such Series A Dividend Payment Date. In the event that the date on which the shares are converted is the Series A Dividend Payment Date, such Series A Holder will be entitled to receive the dividend payable with respect to such Series A Preferred Stock and shall not be required to include any payment in the amount of the dividend payable with respect to such converted shares of Series A Preferred Stock. (D) If, prior to the date on which all shares of Series A Preferred Stock are converted, the Corporation shall (1) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (2) subdivide its outstanding shares of Common Stock, (3) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock or (4) issue by reclassification of its Common Stock other securities of the Corporation, the Conversion Rate in effect on the opening of business on the record date for determining stockholders entitled to participate in such transaction shall thereupon be adjusted, or, if necessary, the right to convert shall be amended, such that the number of shares of Common Stock receivable upon conversion of the shares of Series A Preferred Stock immediately prior thereto shall be adjusted so that the Series A Holder shall be entitled to receive, upon the conversion of such shares of Series A Preferred Stock, the kind and number of shares of Common Stock or other securities of the Corporation that it would have owned or would have been entitled to receive after the happening of any of the events described above had the Series A Preferred Stock been converted immediately prior to the happening of such event or any record date with respect thereto. Any adjustment made pursuant to this subparagraph 5(ii)(D) shall become effective immediately after the effective date of such event and such adjustment shall be retroactive to the record date, if any, for such event. No adjustment with respect to any ordinary cash dividends (made out of current earnings) on shares of Common Stock shall be made. (E) Whenever the Conversion Rate is adjusted pursuant to any of the foregoing provisions of this paragraph 5, the Corporation shall forthwith prepare a written statement signed by the president or any vice president and the treasurer or any assistant treasurer or the secretary or any assistant secretary of the Corporation, setting forth the adjusted Conversion Rate determined as provided in this paragraph 5, and in reasonable detail the facts requiring such adjustment. Such statement shall be filed among the permanent records of the Corporation and a copy thereof shall be furnished to any Series A Holder requesting the same, and shall at all reasonable times during business hours be open to inspection by the Series A Holders. Within 10 days of the event requiring an adjustment, the Corporation shall also cause a notice, stating that such an adjustment has been made and setting forth the adjusted Conversion Rate, to be mailed, first-class, postage prepaid, to all then Series A Holders of record at their addresses as the same appear on the stock records of the Corporation. (F) If a Series A Holder has delivered notice to the Cor- poration of its desire to convert all or a portion of its shares of Series A Preferred Stock, and certificates, duly endorsed for conversion in respect of such shares and cash, if any, required by subparagraph 5(ii)(C) hereof, then all shares of Series A Preferred Stock so tendered to the Corporation shall be deemed to be no longer outstanding and, notwithstanding the failure of the Corporation to issue the Common Stock, such Series A Holder shall be deemed, for all purposes (except as set forth in the next sentence of this subparagraph 5(ii)(F)), to be a holder of the number of shares of Common Stock into which the shares of Series A Preferred Stock such Series A Holder is entitled to receive pursuant to the terms of this paragraph 5 in each case as of the close of business on the date on which such conversion notice is delivered. In the event such Series A Holder has delivered notice to the Corporation of his desire to convert all or a portion of his shares of Series A Preferred Stock, such Series A Holder shall retain the right to receive all Cumulated Series A Dividends payable on the shares so converted through the date such Series A Holder's conversion notice is delivered, as provided in this paragraph 5, notwithstanding such conversion. (iii) The Corporation shall not, by amendment of its Certificate of Incorporation as amended as of the date hereof, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but shall at all times in good faith assist in the carrying out of all the provisions of this paragraph 5. The Corporation shall at all times reserve and keep available out of its authorized but unissued Common Stock the full number of shares of Common Stock deliverable upon the conversion of all the then outstanding shares of Series A Preferred Stock and shall take all such action and obtain all such permits or orders as may be necessary to enable the Corporation to validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of Series A Preferred Stock. The Corporation shall obtain, prior to or concurrently with the first issuance of the Series A Preferred Stock, the authorization for the listing of shares of Common Stock issuable upon conversion of the Series A Preferred Stock on the Nasdaq National Market and shall use its best efforts to maintain, for as long as any shares of Series A Preferred Stock shall be outstanding, such authorization or authorization for the listing of such shares on a national securities exchange on which the Common Stock may hereafter be listed. The Corporation shall pay any and all transfer, stamp and other like taxes that may be payable in respect of the issuance or delivery to a Series A Holder of shares of Common Stock on conversion of the Series A Preferred Stock by such holder. (A) Liquidation Price. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the amount that shall be paid to a Series A Holder of each share of Series A Preferred Stock shall be $12.00 and an additional sum equal to all Cumulated Series A Dividends on a share of Series A Preferred Stock (hereinafter called the "Liquidation Price"), and no more. Upon any liquidation, dissolution or winding up of the Corporation, the Series A Holders will be entitled to be paid, after payment or provision for payment of the debts and other liabilities of the Corporation and after payment or provision for payment is made upon any Senior Securities, but before any Distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Price of all shares outstanding, and the Series A Holders will not be entitled to any further payment. If, upon any such liquidation, dissolution or winding up of the Corporation, the Corporation's assets to be distributed among the Series A Holders and the holders of Parity Securities (the "Parity Holders") are insufficient to permit payment in full to such Series A Holders and the Parity Holders of the aggregate amount that they are entitled to be paid, then the available assets to be distributed will be distributed ratably among such Series A Holders and Parity Holders based upon the aggregate Liquidation Price of the Series A Preferred Stock and the aggregate liquidation preference of any Parity Securities held by each such Series A Holder and Parity Holder, respectively. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than 30 days prior to the payment date stated therein, to each Series A Holder of record. Neither the consolidation or merger of the Corporation into or with any other corporation or any other person, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of paragraphs 2 and 6. 6. 7. Exchange. (i) Time of Exchange. The Corporation may, at its option, re- deem shares of the Series A Preferred Stock, in whole or in part, by action of the Board, at any time after December 31, 1998, by exchanging shares of Common Stock for shares of Series A Preferred Stock at the Conversion Rate, provided (A) during the period beginning January 1, 1999 and ending on December 31, 1999, the Closing Price per share of the Common Stock is at least $4.00 per share for 20 consecutive trading days, (B) during the period beginning January 1, 2000 and ending on December 31, 2000, the Closing Price per share of the Common Stock is at least $3.00 per share for 20 consecutive trading days and (c) during the period beginning January 1, 2001, at any time at the Corporation's option. In addition, each Series A Holder shall also be entitled, upon exchange, to receive cash or shares of Common Stock (valued at the Quarterly Average Stock Price determined as of the immediately preceding Series A Dividend Payment Date), at the option of the Corporation, in an amount equal to all Cumulated Series A Dividends on each share of Series A Preferred Stock so exchanged, provided, if dividends are paid in cash, there are funds legally available therefor. The Corporation shall not issue fractional shares of Common Stock in exchange for Series A Preferred Stock or as Cumulated Series A Dividends, but, in lieu thereof, shall pay to a Series A Holder cash in an amount equal to such fraction multiplied by the Closing Price per share of Common Stock on the last trading day prior to the date on which the shares of Series A Preferred Stock are exchanged. The number of shares of Common Stock received in exchange for shares of Series A Preferred Stock plus the number of shares of Common Stock paid as Cumulated Series A Dividends are hereinafter referred to as "Exchange Shares," and the Exchange Shares plus the Cumulated Series A Dividends payable in cash, if any, are hereinafter referred to as the "Exchange Price." (ii) Procedures for Exchange. The Series A Preferred Stock shall be exchanged pursuant to subparagraph 7(i) in the following manner: (A) Shares of the Series A Preferred Stock redeemed by the Corporation shall be retired and canceled and shall no longer be available for issuance as Series A Preferred Stock. (B) In the event of an exchange of shares of Series A Preferred Stock pursuant to subparagraph 7(i), notice of exchange of shares of Common Stock for shares of Series A Preferred Stock shall be given by the Corporation, not less than 30 nor more than 60 days prior to the Business Day designated in such notice (the "Exchange Date"), by first class mail to Series A Holders at their respective addresses then appearing on the records of the Corporation, and shall also be published, on or about the date of such mailing, in the National Edition of the Wall Street Journal. Such notice of exchange shall specify the Exchange Date, the Conversion Rate, whether Cumulated Series A Dividends will be paid in cash or in shares of Common Stock, the total number of shares of Series A Preferred Stock to be exchanged and, if fewer than all the shares held by such Series A Holder, the number of shares of such Series A Holder to be exchanged, and the place or places of exchange. The conversion rights of the Series A Holders shall continue until the Exchange Date (provided no default by the Corporation in the payment of the Exchange Price shall have occurred and be continuing, and in the event of any such default the Series A Holders' conversion rights shall continue until such shares are actually redeemed, exchanged or converted), and such notice shall state the then effective Conversion Rate and that the right of Series A Holders to exercise their conversion rights shall terminate at the close of business on the Exchange Date (provided no default by the Corporation in the payment of the Exchange Price shall have occurred and be continuing). On or before the Exchange Date, each Series A Holder shall surrender to the Corporation or its designated agent, at such place as it may designate in the exchange notice, certificates, duly endorsed for transfer, evidencing the number of shares of Series A Preferred Stock held by such Series A Holder and being exchanged. Upon such surrender, the Series A Holder shall be entitled to receive the Exchange Price per share. (C) If on the Exchange Date, (1) notice of exchange has been mailed or delivered as provided herein and (2) the Corporation has deposited with an independent paying agent funds necessary to pay the Exchange Price payable in cash and certificates representing shares of Common Stock representing the Exchange Shares, then, unless the Corporation defaults on the exchange, all shares of Series A Preferred Stock subject to exchange shall, whether or not certificates for such shares have been surrendered for cancellation, be deemed to be no longer outstanding for any purpose and all rights with respect to such shares shall cease, except the right of the Series A Holder to receive the Exchange Price per share, without interest. The Corporation shall issue to the Series A Holder certificates representing the shares of Common Stock that constitute the Exchange Shares only after such holder's Series A Preferred Stock certificates have been surrendered to the Corporation for cancellation. 7. 8. Change in Control (i) In the event of a "Change in Control" of the Corporation (as hereinafter defined), each Series A Holder shall have the right to put the security to the Corporation at $25.00 per share ("Change in Control Price") and no more. The Corporation shall have the right to pay the Change in Control Price in cash and/or shares of Common Stock (in which case such shares of Common Stock shall be valued at average stock price for the ten days preceding the Change in Control event, provided, if the Change in Control Price is to be paid in cash, there are funds legally available therefor. The Corporation shall not issue fractional shares of Common Stock in exchange for Series A Preferred Stock, but, in lieu thereof, shall pay to a Series A Holder cash in an amount equal to such fraction multiplied by the Closing Price per share of Common Stock on the last trading day prior to the date on which the shares of Series A Preferred Stock are exchanged. (ii) Procedures for Exchange. The Series A Preferred Stock shall be exchanged pursuant to subparagraph 8(i) in the following manner: (A) Shares of the Series A Preferred Stock redeemed by the Corporation in exchange for the Change in Control Price shall be retired and canceled and shall no longer be available for issuance as Series A Preferred Stock. (B) In the event of a Change in Control may occur, notice shall be given by the Corporation, not less than 30 nor more than 60 days prior to the Business Day designated in such notice (the "Change in Control Exchange Date"), by first class mail to Series A Holders at their respective addresses then appearing on the records of the Corporation, and shall also be published, on or about the date of such mailing, in the National Edition of the Wall Street Journal. Such notice of exchange shall specify the Change in Control Exchange Date, whether the Change in Control Price is to be paid in cash, in shares of Common Stock or in a combination thereof, and the place or places of exchange. The conversion rights of the Series A Holders shall continue until the Change in Control occurs (provided no default by the Corporation in the payment of the Change in Control Price shall have occurred and be continuing, and in the event of any such default the Series A Holders' conversion rights shall continue until such shares are actually redeemed, exchanged or converted), and such notice shall state the then effective Conversion Rate and that the right of Series A Holders to exercise their conversion rights shall terminate at the time the Change in Control occurs (provided no default by the Corporation in the payment of the Change in Control Price shall have occurred and be continuing). On or before the Change in Control Exchange Date, each Series A Holder shall surrender to the Corporation or its designated agent, at such place as it may designate in the exchange notice, certificates, duly endorsed for transfer, evidencing the number of shares of Series A Preferred Stock held by such Series A Holder. Upon such surrender, the Series A Holder shall be entitled to receive the Change in Control Price per share. (C) If, at the time the Change in Control occurs, (1) notice of exchange has been mailed or delivered as provided herein and (2) the Corporation has deposited with an independent paying agent funds necessary to pay the aggregate Change in Control Price payable in cash and certificates representing shares of Common Stock if part of the Change in Control Price is to be paid in shares of Common Stock, then, unless the Corporation defaults on the exchange, all shares of Series A Preferred Stock subject to exchange shall, whether or not certificates for such shares have been surrendered for cancellation, be deemed to be no longer outstanding for any purpose and all rights with respect to such shares shall cease, except the right of the Series A Holder to receive the Change in Control Price per share, without interest. The Corporation or its independent paying agent shall pay the Change in Control Price only after such holder's Series A Preferred Stock certificates have been surrendered to the Corporation for cancellation. (iii) "Change in Control" shall means the occurrence, after the Meeting Date, of any of the following events, directly or indirectly or in one or more series of transactions: (A) The consolidation or merger of the Corporation with any Third Party (as hereinafter defined), unless the Corporation is the entity surviving such merger or consolidation; (B) The transfer of all or substantially all of the assets of the Corporation to a Third Party; (C) A Third Party, directly or indirectly, through one or more subsidiaries or transactions or acting in concert with one or more persons or entities: (x) acquires beneficial ownership of more than 50% of the outstanding shares of Common Stock; (y) acquires irrevocable proxies representing more than 50% of the outstanding shares of Common Stock; or (z) acquires any combination of beneficial ownership of outstanding shares of Common Stock and irrevocable proxies representing more than 50% of the outstanding shares of Common Stock. Notwithstanding any provision contained herein, a Change in Control shall not include any of the above described events if they are the result of a Third Party's inadvertently acquiring beneficial ownership or irrevocable proxies or a combination of both for 50% or more of the outstanding shares of Common Stock, and the Third Party as promptly as practicable thereafter divests itself of beneficial ownership or irrevocable proxies for a sufficient number of shares so that the Third Party no longer has beneficial ownership or irrevocable proxies or a combination of both for 50% or more of the outstanding shares of Common Stock. (iv) Third Party" means a single person or a group of persons or entities acting in concert not wholly owned directly or indirectly by the Corporation. IN WITNESS WHEREOF, we have executed and subscribed this Certificate of Amendment and do hereby affirm the foregoing as true under the penalties of perjury this 31st day of December, 1997. NETWORK IMAGING CORPORATION By: ________________________ Name: James J. Leto Title: President ATTEST: - -------------------------- Name: Julia A. Bowen Title: Assistant Secretary EX-3.7 4 SERIES L CERTIFICATE OF DESIGNATIONS CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS of SERIES L CONVERTIBLE PREFERRED STOCK of NETWORK IMAGING CORPORATION (Pursuant to Section 151 of the Delaware General Corporation Law) Network Imaging Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation pursuant to authority of the Board of Directors as required by Section 151 of the Delaware General Corporation Law. RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (the "Board of Directors" or the "Board") in accordance with the provisions of its Certificate of Incorporation and Bylaws, each as amended and restated through the date hereof, the Board of Directors hereby authorizes a series of the Corporation's previously authorized Preferred Stock, par value $.0001 per share (the "Preferred Stock"), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: Series L Convertible Preferred Stock: I. DESIGNATION AND AMOUNT The designation of this series, which consists of 6,250 shares of Preferred Stock, is the Series L Convertible Preferred Stock (the "Series L Preferred Stock") and the face amount shall be One Thousand U.S. Dollars ($1000.00) per share (the "Face Amount"). II. NO DIVIDENDS The Series L Preferred Stock will bear no dividends, and the holders of the Series L Preferred Stock shall not be entitled to receive dividends on the Series L Preferred Stock. III. CERTAIN DEFINITIONS For purposes of this Certificate of Designation, the following terms shall have the following meanings: A. "Closing Price" means, for any security as of any date, the last sale price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding shares of Series L Preferred Stock if Bloomberg Financial Markets is not then reporting Closing Prices of such security (collectively, "Bloomberg"), or if the foregoing does not apply, the last reported sale price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no sale price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Corporation and reasonably acceptable to holders of a majority of the then outstanding shares of Series L Preferred Stock, with the costs of such appraisal to be borne by the Corporation. B. "Conversion Date" means, for any Optional Conversion, the date specified in the notice of conversion in the form attached hereto (the "Notice of Conversion"), so long as the copy of the Notice of Conversion is faxed (or delivered by other means resulting in notice) to the Corporation before Midnight, New York City time, on the Conversion Date indicated in the Notice of Conversion. If the Notice of Conversion is not so faxed or otherwise delivered before such time, then the Conversion Date shall be the date the holder faxes or otherwise delivers the Notice of Conversion to the Corporation. The Conversion Date for the Required Conversion at Maturity shall be the Maturity Date (as such terms are defined in Paragraph D of Article IV). C. "Conversion Percentage" shall initially have the meaning set forth below during each of the periods set forth below. In the event, the Corporation's Common Stock is no longer designated for quotation on the Nasdaq National Market ("Nasdaq") and is designated for quotation on the Nasdaq Small Cap Market, the Conversion Percentage for each of the periods set forth below shall be permanently reduced by two percent (2%) to 83% and 79%, respectively. In addition, in the event that the second closing and third closing under the Securities Purchase Agreement (as defined herein) do not occur by virtue of the Corporation's failure to obtain the Stockholder Approval contemplated by Section 4(n) of the Securities Purchase Agreement, the Conversion Percentage for each of the periods set forth below shall be permanently reduced by ten percent (10%) to 75% and 71%, respectively. The Conversion Percentages also shall be subject to adjustment as provided herein and as provided in Section 2(c) of the Registration Rights Agreement (as defined herein): If the Conversion Date is: Then the Conversion Percentage is: Prior to the 48th day following 85% the First Closing Date On or after the 48th day following 81% the First Closing Date D. "Conversion Price" means the lower of the Fixed Conversion Price and the Variable Conversion Price, each in effect as of such date and subject to adjustment as provided herein. E. "First Closing Date" means the date of the first closing under that certain Securities Purchase Agreement by and among the Corporation and the purchasers named therein with respect to the initial issuance of the Series L Preferred Stock (the "Securities Purchase Agreement"). F. "Fixed Conversion Price" means $1.375 and shall be subject to adjustment as provided herein. G. "N" means the number of days from, but excluding, the date of original issuance of such share of Series L Preferred Stock. H. "Premium" means an amount equal to (.07)x(N/365)x(1,000). I. "Variable Conversion Price" means, as of any date of determination, the amount obtained by multiplying the Conversion Percentage then in effect by the lowest Closing Price for the Corporation's Common Stock, par value $.0001 per share ("Common Stock"), on any single trading day during the ten (10) consecutive trading days ending on the trading day immediately preceding such date of determination (subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such ten (10) trading day period), and shall be subject to adjustment as provided herein. IV. CONVERSION A. Conversion at the Option of the Holder. (i) Subject to the limitations on conversions contained in Paragraph C of this Article IV, each holder of shares of Series L Preferred Stock may, at any time and from time to time, convert (an "Optional Conversion") each of its shares of Series L Preferred Stock into a number of fully paid and nonassessable shares of Common Stock determined in accordance with the following formula if the Corporation timely redeems the Premium thereon in cash in accordance with subparagraph (ii) below: 1,000 ---------------- Conversion Price or in accordance with the following formula if the Corporation does not timely redeem the Premium thereon in accordance with subparagraph (ii) below: 1,000 + the Premium ------------------- Conversion Price (ii) (a) The Corporation shall have the right, in its sole discretion, upon receipt of a Notice of Conversion or in the event of a Required Conversion at Maturity, to redeem any portion of the Premium subject to such conversion for a sum of cash equal to the amount of the Premium being so redeemed. All cash redemption payments hereunder shall be paid in lawful money of the United States of America at such address for the holder as appears on the record books of the Corporation (or at such other address as such holder shall hereafter give to the Corporation by written notice). In the event the Corporation so elects to redeem all or any portion of the Premium in cash and fails to pay such holder the applicable redemption amount to which such holder is entitled by depositing a check in the U.S. Mail to such holder within three (3) business days of receipt by the Corporation of a notice of Conversion (in the case of a redemption in connection with an Optional Conversion) or the Maturity Date (in the case of a redemption in connection with a Required Conversion at Maturity), the Corporation shall thereafter forfeit its right to redeem such Premium in cash and such Premium shall thereafter be converted into shares of Common Stock in accordance with Article IV.A(i). (b) Each holder of Series L Preferred Stock shall have the right to require the Corporation to provide advance notice to such holder stating whether the Corporation will elect to redeem all or any portion of the Premium in cash pursuant to the Corporation's redemption rights discussed in subparagraph (a) of this Article IV.A(ii). A holder may exercise such right from time to time by sending notice (an "Election Notice") to the Corporation, by facsimile, requesting that the Corporation disclose to such holder whether the Corporation would elect to redeem any portion of the Premium for cash in lieu of issuing Common Stock therefor if such holder were to exercise its right of conversion pursuant to this Article IV.A. The Corporation shall, no later than the close of business on the next business day following receipt of an Election Notice, disclose to such holder whether the Corporation would elect to redeem any portion of a Premium in connection with a conversion pursuant to a Notice of Conversion delivered over the subsequent five (5) business day period. If the Corporation does not respond to such holder within such one (1) business day period via facsimile, the Corporation shall, with respect to any conversion pursuant to a Conversion Notice delivered within the subsequent five (5) business day period, forfeit its right to redeem such Premium in accordance with subparagraph (a) of this Article IV.A(ii) and shall be required to convert such Premium into shares of Common Stock. B. Mechanics of Conversion. In order to effect an Optional Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Corporation or the transfer agent for the Common Stock and (y) surrender or cause to be surrendered the original certificates representing the Series L Preferred Stock being converted (the "Preferred Stock Certificates"), duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation or the transfer agent. Upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a holder, the Corporation shall immediately send, via facsimile, a confirmation to such holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a conversion unless either the Preferred Stock Certificates are delivered to the Corporation or the transfer agent as provided above, or the holder notifies the Corporation or the transfer agent that such certificates have been lost, stolen or destroyed (subject to the requirements of Article XIV.B). (i) Delivery of Common Stock Upon Conversion. Upon the surrender of Preferred Stock Certificates from a holder of Series L Preferred Stock accompanied by a Notice of Conversion, the Corporation shall, no later than the second business day following the later of (a) the Conversion Date and (b) the date of such surrender (or, in the case of lost, stolen or destroyed certificates, after provision of indemnity pursuant to Article XIV.B) (the "Delivery Period"), issue and deliver to the holder (x) that number of shares of Common Stock issuable upon conversion of such shares of Series L Preferred Stock being converted and (y) a certificate representing the number of shares of Series L Preferred Stock not being converted, if any. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the holder and its compliance with the provisions contained in this paragraph, so long as the certificates therefor do not bear a legend and the holder thereof is not obligated to return such certificate for the placement of a legend thereon, the Corporation shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the holder by crediting the account of holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. (ii) Taxes. The Corporation shall pay any and all taxes which may be imposed upon it with respect to the issuance and delivery of the shares of Common Stock upon the conversion of the Series L Preferred Stock. (iii) No Fractional Shares. If any conversion of Series L Preferred Stock would result in the issuance of a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon conversion of the Series L Preferred Stock shall be the next higher whole number of shares. (iv) Conversion Disputes. In the case of any dispute with respect to a conversion, the Corporation shall promptly issue such number of shares of Common Stock as are not disputed in accordance with subparagraph (i) above. If such dispute involves the calculation of the Conversion Price, the Corporation shall submit the disputed calculations to its outside accountant via facsimile within two (2) business days of receipt of the Notice of Conversion. The accountant shall audit the calculations and notify the Corporation and the holder of the results no later than two (2) business days from the date it receives the disputed calculations. The accountant's calculation shall be deemed conclusive, absent manifest error. The Corporation shall then issue the appropriate number of shares of Common Stock in accordance with subparagraph (i) above. C. Limitations on Conversions. The conversion of shares of Series L Preferred Stock shall be subject to the following limitations (each of which limitations shall be applied independently): (i) Cap Amount. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is listed or traded, in no event shall the total number of shares of Common Stock issued upon conversion of the Series L Preferred Stock exceed the maximum number of shares of Common Stock that the Corporation can so issue pursuant to Rule 4460(i) of the Nasdaq (or any successor rule) (the "Cap Amount"), which, as of the First Closing Date, shall be 5,190,000 shares of Common Stock. The Cap Amount shall be allocated pro-rata to the holders of Series L Preferred Stock as provided in Article XIV.C. In the event the Corporation is prohibited from issuing shares of Common Stock as a result of the operation of this subparagraph (i), the Corporation shall comply with Article VII. (ii) No Five Percent Holders. Except in a Required Conversion at Maturity, in no event shall a holder of shares of Series L Preferred Stock be entitled to receive shares of Common Stock upon a conversion to the extent that the sum of (x) the number of shares of Common Stock beneficially owned by the holder and its affiliates (exclusive of shares issuable upon conversion of the unconverted portion of the shares of Series L Preferred Stock or the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (y) the number of shares of Common Stock issuable upon the conversion of the shares of Series L Preferred Stock with respect to which the determination of this subparagraph is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of this subparagraph, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder, except as otherwise provided in clause (x) above. The restriction contained in this subparagraph (ii) shall not be altered, amended, deleted or changed in any manner whatsoever unless the holders of a majority of the Common Stock and each holder of Series L Preferred Stock shall approve such alteration, amendment, deletion or change. D. Required Conversion at Maturity. Subject to the limitations set forth in Paragraph C(i) of this Article IV and provided all shares of Common Stock issuable upon conversion of all outstanding shares of Series L Preferred Stock are then (i) authorized and reserved for issuance, (ii) registered under the Securities Act of 1933, as amended (the "Securities Act"), for resale by the holders of such shares of Series L Preferred Stock and (iii) eligible to be traded on either the Nasdaq, the New York Stock Exchange or the American Stock Exchange, each share of Series L Preferred Stock issued and outstanding on the fourth anniversary of the First Closing Date (the "Maturity Date"), automatically shall be converted into shares of Common Stock on such date in accordance with the conversion formulas set forth in Paragraph A of this Article IV (the "Required Conversion at Maturity"). If the Required Conversion at Maturity occurs, the Corporation and the holders of Series L Preferred Stock shall follow the applicable conversion procedures set forth in Paragraph B of this Article IV; provided, however, that the holders of Series L Preferred Stock are not required to deliver a Notice of Conversion to the Corporation or its transfer agent. V. RESERVATION OF SHARES OF COMMON STOCK A. Reserved Amount. Upon the initial issuance of the shares of Series L Preferred Stock, the Corporation shall reserve 12,500,000 shares of the authorized but unissued shares of Common Stock for issuance upon conversion of the Series L Preferred Stock and thereafter the number of authorized but unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be decreased and shall at all times be sufficient to provide for the conversion of the Series L Preferred Stock outstanding at the then current Conversion Price. The Reserved Amount shall be allocated to the holders of Series L Preferred Stock as provided in Article XIV.C. B. Increases to Reserved Amount. If the Reserved Amount for any three (3) consecutive trading days (the last of such three (3) trading days being the "Authorization Trigger Date") shall be less than 135% of the number of shares of Common Stock then issuable upon conversion of the outstanding Series L Preferred Stock on such trading days, the Corporation shall immediately notify the holders of Series L Preferred Stock of such occurrence and shall take immediate action (including, if necessary, seeking shareholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to 200% of the number of shares of Common Stock then issuable upon conversion of the outstanding Series L Preferred Stock. Subject to Paragraph C of this Article V, in the event the Corporation fails to so increase the Reserved Amount within ninety (90) days after an Authorization Trigger Date, each holder of Series L Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a Redemption Notice (as defined in Article VIII.C) to the Corporation, to require the Corporation to purchase for cash, at an amount per share equal to the Redemption Amount (as defined in Article VIII.B), a portion of the holder's Series L Preferred Stock such that, after giving effect to such purchase, the holder's allocated portion of the Reserved Amount exceeds 135% of the total number of shares of Common Stock issuable to such holder upon conversion of its Series L Preferred Stock. If the Corporation fails to redeem any of such shares within ten (10) business days after its receipt of a Redemption Notice, then such holder shall be entitled to the remedies provided in Article VIII.C. C. Limitations on Redemption Right. Notwithstanding the provisions of Paragraph B of this Article V, the holders of Series L Preferred Stock shall have no right to require the Corporation to effect a redemption of their outstanding shares of Series L Preferred Stock as provided in Paragraph B of this Article V so long as (i) the Corporation has not, at any time, decreased the Reserved Amount below 12,500,000 shares of Common Stock; (ii) the Corporation shall have taken immediate action following the applicable Authorization Trigger Date (including, if necessary, seeking stockholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to 200% of the number of shares of Common Stock then issuable upon conversion of the outstanding Series L Preferred Stock; and (iii) the Corporation continues to use its good faith best efforts (including the resolicitation of stockholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to 200% of the number of shares of Common Stock then issuable upon conversion of the outstanding Series L Preferred Stock. The Corporation will be deemed to be using "its good faith best efforts" to increase the Reserved Amount so long as it solicits stockholder approval to authorize the issuance of additional shares of Common Stock not less than three (3) times during each twelve month period following the applicable Authorization Trigger Date during which any shares of Series L Preferred Stock remain outstanding. VI. FAILURE TO SATISFY CONVERSIONS A. Conversion Default Payments. If, at any time, (x) a holder of shares of Series L Preferred Stock submits a Notice of Conversion and the Corporation fails for any reason (other than because such issuance would exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for which failures the holders shall have the remedies set forth in Articles V and VII) to deliver, on or prior to the fourth business day following the expiration of the Delivery Period for such conversion, such number of freely tradeable shares of Common Stock to which such holder is entitled upon such conversion, or (y) the Corporation provides notice to any holder of Series L Preferred Stock at any time of its intention not to issue freely tradeable shares of Common Stock upon exercise by any holder of its conversion rights in accordance with the terms of this Certificate of Designation (other than because such issuance would exceed such holder's allocated portion of the Reserved Amount or Cap Amount) (each of (x) and (y) being a "Conversion Default"), then the Corporation shall pay to the affected holder, in the case of a Conversion Default described in clause (x) above, and to all holders, in the case of a Conversion Default described in clause (y) above, payments for the first ten (10) business days following the expiration of the Delivery Period, in the case of a Conversion Default described in clause (x), and for the first ten (10) business days following a Conversion Default described in clause (y), an amount equal to $500 per day. Notwithstanding the foregoing, in no event shall the Company be deemed to have committed a Conversion Default at any time prior to the Registration Deadline or during an Excluded Period (as such terms are defined in the Registration Rights Agreement (as defined herein)) solely because the shares of Common Stock issued upon a conversion of Series L Preferred Stock were not freely tradeable. In the event any Conversion Default continues beyond such ten (10) business day period, the Corporation shall pay to the holder an additional amount equal to: (.24) x (D/365) x (the Default Amount) where: "D" means the number of days after the expiration of the ten (10) business day period described above through and including the Default Cure Date; "Default Amount" means (i) the total Face Amount of all shares of Series L Preferred Stock held by such holder plus (ii) the total accrued Premium as of the first day of the Conversion Default on all shares of Series L Preferred Stock included in clause (i) of this definition; and "Default Cure Date" means (i) with respect to a Conversion Default described in clause (x) of its definition, the date the Corporation effects the conversion of the full number of shares of Series L Preferred Stock and (ii) with respect to a Conversion Default described in clause (y) of its definition, the date the Corporation begins to issue freely tradeable Common Stock in satisfaction of all conversions of Series L Preferred Stock in accordance with Article IV.A. The payments to which a holder shall be entitled pursuant to this Paragraph A are referred to herein as "Conversion Default Payments." A holder may elect to receive accrued Conversion Default Payments in cash or to convert all or any portion of such accrued Conversion Default Payments, at any time, into Common Stock at the lowest Conversion Price in effect during the period beginning on the date of the Conversion Default through the Conversion Date for such conversion. In the event a holder elects to receive any Conversion Default Payments in cash, it shall so notify the Corporation in writing. Such payment shall be made in accordance with and be subject to the provisions of Article XIV.E. In the event a holder elects to convert all or any portion of the Conversion Default Payments into Common Stock, the holder shall indicate on a Notice of Conversion such portion of the Conversion Default Payments which such holder elects to so convert and such conversion shall otherwise be effected in accordance with the provisions of Article IV. B. Adjustment to Conversion Price. If a holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Delivery Period with respect to a conversion of Series L Preferred Stock for any reason (other than because such issuance would exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for which failures the holders shall have the remedies set forth in Articles V and VII), then the Fixed Conversion Price in respect of any shares of Series L Preferred Stock held by such holder shall thereafter be the lesser of (i) the Fixed Conversion Price on the Conversion Date specified in the Notice of Conversion which resulted in the Conversion Default and (ii) the lowest Conversion Price in effect during the period beginning on, and including, such Conversion Date through and including the day such shares of Common Stock are delivered to the holder. If there shall occur a Conversion Default of the type described in clause (y) of Article VI.A, then the Fixed Conversion Price with respect to any conversion thereafter shall be the lowest Conversion Price in effect at any time during the period beginning on, and including, the date of the occurrence of such Conversion Default through and including the Default Cure Date. The Fixed Conversion Price shall thereafter be subject to further adjustment for any events described in Article XI. C. Buy-In Cure. Unless the Corporation has notified the applicable holder in writing prior to the delivery by such holder of a Notice of Conversion that the Corporation is unable to honor conversions, if (i) the Corporation fails for any reason to deliver during the Delivery Period shares of Common Stock to a holder upon a conversion of shares of Series L Preferred Stock and (ii) after the applicable Delivery Period with respect to such conversion, such holder purchases (in an open market transaction or otherwise) shares of Common Stock to make delivery in satisfaction of a sale by such holder of the shares of Common Stock (the "Sold Shares") which such holder anticipated receiving upon such conversion (a "Buy-In"), the Corporation shall pay such holder (in addition to any other remedies available to the holder) the amount by which (x) such holder's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the net proceeds received by such holder from the sale of the Sold Shares. For example, if a holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for $10,000, the Corporation will be required to pay the holder $1,000. A holder shall provide the Corporation written notification indicating any amounts payable to such holder pursuant to this Paragraph C. The Corporation shall make any payments required pursuant to this Paragraph C in accordance with and subject to the provisions of Article XIV.E. D. Redemption Right. If the Corporation fails, and such failure continues uncured for five (5) business days after the Corporation has been notified thereof in writing by the holder, for any reason (other than because such issuance would exceed such holder's allocated portion of the Reserved Amount or Cap Amount, for which failures the holders shall have the remedies set forth in Articles V and VII) to issue shares of Common Stock within ten (10) business days after the expiration of the Delivery Period with respect to any conversion of Series L Preferred Stock, then the holder may elect at any time and from time to time prior to the Default Cure Date for such Conversion Default, by delivery of a Redemption Notice (as defined in Article VIII.C) to the Corporation, to have all or any portion of such holder's outstanding shares of Series L Preferred Stock purchased by the Corporation for cash, at an amount per share equal to the Redemption Amount (as defined in Article VIII.B). If the Corporation fails to redeem any of such shares within five (5) business days after its receipt of a Redemption Notice, then such holder shall be entitled to the remedies provided in Article VIII.C. VII. INABILITY TO CONVERT SHARES OF SERIES L PREFERRED STOCK DUE TO CAP AMOUNT A. Obligation to Cure. If at any time the then unissued portion of any holder's Cap Amount is less than 135% of the number of shares of Common Stock then issuable upon conversion of such holder's shares of Series L Preferred Stock (a "Trading Market Trigger Event"), the Corporation shall immediately notify the holders of Series L Preferred Stock of such occurrence and shall take immediate action (including, if necessary, seeking the approval of its shareholders to authorize the issuance of the full number of shares of Common Stock which would be issuable upon the conversion of Series L Preferred Stock but for the Cap Amount) to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Corporation or any of its securities on the Corporation's ability to issue shares of Common Stock in excess of the Cap Amount. In the event the Corporation fails to eliminate all such prohibitions within ninety (90) days after the Trading Market Trigger Event, each holder of Series L Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a Redemption Notice (as defined in Article VIII.C) to the Corporation, to require the Corporation to purchase for cash, at an amount per share equal to the Redemption Amount (as defined in Article VIII.B), a portion of the holder's Series L Preferred Stock such that, after giving effect to such purchase, the then unissued portion of such holder's Cap Amount on the date of such Redemption Notice exceeds 135% of the total number of shares of Common Stock then issuable to such holder upon conversion of its Series L Preferred Stock. If the Corporation fails to redeem any of such shares within five (5) business days after its receipt of a Redemption Notice, then such holder shall be entitled to the remedies provided in Article VIII.C. B. Remedies. If the Corporation fails to eliminate the applicable prohibitions within the ninety (90) day cure period referred to in Paragraph A of this Article VII and thereafter the Corporation is prohibited, at any time, from issuing shares of Common Stock upon conversion of Series L Preferred Stock to any holder because such issuance would exceed the then unissued portion of such holder's Cap Amount because of applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Corporation or its securities, any holder who is so prohibited from converting its Series L Preferred Stock may elect any or both of the following additional remedies: (i) to require, with the consent of holders of at least fifty percent (50%) of the outstanding shares of Series L Preferred Stock (including any shares of Series L Preferred Stock held by the requesting holder), the Corporation to terminate the listing of its Common Stock on the Nasdaq (or any other stock exchange, interdealer quotation system or trading market) and to cause its Common Stock to be eligible for trading on the Nasdaq SmallCap Market or on the over-the-counter electronic bulletin board, at the option of the requesting holder; or (ii) to require the Corporation to issue shares of Common Stock in accordance with such holder's Notice of Conversion at a conversion price equal to the average of the Closing Prices of the Common Stock for the five (5) consecutive trading days (subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such five (5) trading day period) preceding the date of the holder's written notice to the Corporation of its election to receive shares of Common Stock pursuant to this subparagraph (ii). VIII. REDEMPTION DUE TO CERTAIN EVENTS A. Redemption by Holder. In the event (each of the events described in clauses (i)-(iv) below after expiration of the applicable cure period (if any) being a "Redemption Event"): (i) the Common Stock (including any of the shares of Common Stock issuable upon conversion of the Series L Preferred Stock) is suspended from trading on any of, or is not listed (and authorized) for trading on at least one of, the New York Stock Exchange, the American Stock Exchange, the Nasdaq Small Cap Market or Nasdaq for an aggregate of ten (10) trading days in any nine (9) month period; (ii) the Corporation fails, and any such failure continues uncured for five (5) business days after the Corporation has been notified thereof in writing by the holder, to remove any restrictive legend on any certificate or any shares of Common Stock issued to the holders of Series L Preferred Stock upon conversion of the Series L Preferred Stock as and when required by the Securities Purchase Agreement or the Registration Rights Agreement; (iii) the Corporation provides notice to any holder of Series L Preferred Stock, including by way of public announcement, at any time, of its intention not to issue shares of Common Stock to any holder of Series L Preferred Stock upon conversion in accordance with the terms of this Certificate of Designation (other than due to the circumstances contemplated by Articles V or VII for which the holders shall have the remedies set forth in such Articles); (iv) the Corporation shall: (a) sell, convey or dispose of all or substantially all of its assets; (b) merge, consolidate or engage in any other business combination with any other entity (other than pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Corporation); or (c) have approved, recommended or otherwise con- sented to any transaction or series of related transactions which result in fifty percent (50%) or more of the voting power of the Corporation's capital stock being owned beneficially by one person, entity or "group" (as such term is used under Section 13(d) of the Securities Exchange Act of 1934, as amended); then, upon the occurrence of any such Redemption Event, each holder of shares of Series L Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a Redemption Notice (as defined in Paragraph C below) to the Corporation while such Redemption Event continues, to require the Corporation to purchase for cash any or all of the then outstanding shares of Series L Preferred Stock held by such holder for an amount per share equal to the Redemption Amount (as defined in Paragraph B below) in effect at the time of the redemption hereunder. For the avoidance of doubt, the occurrence of any event described in clauses (i), (iii) or (iv) above shall immediately constitute a Redemption Event and there shall be no cure period; provided, however, that the holders of Series L Preferred Stock shall have no right to deliver a Redemption Notice following the occurrence of a Redemption Event specified in clause (i) above if the Corporation pays to each holder within five (5) business days after the occurrence of such Redemption Event, as liquidated damages for the decrease in the value of the Series L Preferred Stock (and the shares of the Corporation's Common Stock issuable upon conversion thereof) which will result from the occurrence of such Redemption Event, an amount (the "Damages Amount") equal to twenty-five percent (25%) of the aggregate Face Amount of the shares of Series L Preferred Stock then held by each such holder. The Damages Amount shall be payable, at the Corporation's option, in cash or shares of Common Stock that have been registered by the Corporation under the Securities Act for resale by the holders (based upon a price per share of Common Stock equal to fifty percent (50%) of the lowest Closing Price of the Common Stock on any single trading day during the ten (10) consecutive trading day period ending on the trading day immediately preceding the date of such Redemption Event). Upon the initial issuance of shares of Series L Preferred Stock, the Corporation shall reserve 3,000,000 shares of Common Stock to satisfy its obligation with respect to the Damages Amount and thereafter the number of authorized but unissued shares of Common Stock so reserved shall not be decreased. In the event that the number of shares required to be issued by the Corporation with respect to the Damages Amount exceeds 3,000,000 shares of Common Stock and the Corporation does not have a sufficient number of shares of Common Stock authorized and available for issuance to satisfy its obligation with respect to the Damages Amount, the Corporation shall issue and deliver to the holders, on a pro-rata basis based on the number of shares of Series L Preferred Stock then held by each such holder, a number of shares of Common Stock equal to the greater of (i) the number of shares authorized and available for issuance by the Corporation to satisfy such obligation and (ii) all 3,000,000 shares of Common Stock so reserved for such purpose and, upon such issuance, the holders shall have no right of redemption with respect to such Redemption Event, but shall retain all other remedies to which they may be entitled at law or in equity (which remedies shall not include the right of redemption). B. Definition of Redemption Amount. The "Redemption Amount" with respect to a share of Series L Preferred Stock means an amount equal to: V X M ---------------- C P where: "V" means the face amount thereof plus the accrued Premium thereon and all Conversion Default Payments (if any) with respect thereto through the date of redemption; "CP" means the Conversion Price in effect on the date of the Redemption Notice; and "M" means the highest Closing Price of the Corporation's Common Stock during the period beginning on the date of the Redemption Notice and ending on the date of the redemption. C. Redemption Defaults. If the Corporation fails to pay any holder the Redemption Amount with respect to any share of Series L Preferred Stock within ten (10) business days of its receipt of a notice requiring such redemption (a "Redemption Notice"), then the holder of Series L Preferred Stock delivering such Redemption Notice (i) shall be entitled to interest on the Redemption Amount at a per annum rate equal to the lower of twenty-four percent (24%) and the highest interest rate permitted by applicable law from the date of the Redemption Notice until the date of redemption hereunder, and (ii) shall have the right, at any time and from time to time, to require the Corporation, upon written notice, to immediately convert (in accordance with the terms of Paragraph A of Article IV) all or any portion of the Redemption Amount, plus interest as aforesaid, into shares of Common Stock at the lowest Conversion Price in effect during the period beginning on the date of the Redemption Notice and ending on the Conversion Date with respect to the conversion of such Redemption Amount. In the event the Corporation is not able to redeem all of the shares of Series L Preferred Stock subject to Redemption Notices, the Corporation shall redeem shares of Series L Preferred Stock from each holder pro rata, based on the total number of shares of Series L Preferred Stock included by such holder in the Redemption Notice relative to the total number of shares of Series L Preferred Stock in all of the Redemption Notices. D. Redemption by Corporation. (i) The Corporation shall have the right, at any time and provided the Corporation is not in material violation of any of its obligations under this Certificate of Designation, the Securities Purchase Agreement or the Registration Rights Agreement, to redeem (an "Optional Redemption") all (but not less than all) of the then outstanding Series L Preferred Stock (other than Series L Preferred Stock which is the subject of a Notice of Conversion delivered prior to the delivery date of the Optional Redemption Notice (as defined in subparagraph (iii) below)) for a price per share equal to the Optional Redemption Amount (as defined below) which right shall be exercisable only one time while any Series L Preferred Stock is outstanding by the Corporation in its sole discretion by delivery of an Optional Redemption Notice in accordance with the redemption procedures set forth below. Holders of Series L Preferred Stock may not convert any shares of Series L Preferred Stock selected for redemption hereunder into Common Stock at any time on or prior to the Effective Date of Redemption designated by the Corporation in the Optimal Redemption Notice pursuant to subparagraph (iii). The "Optional Redemption Amount" with respect to each share of Series L Preferred Stock means the greater of (a) 100% multiplied by the sum of (I) the Face Amount thereof plus (II) the accrued Premium thereon and all Conversion Default Payments (if any) with respect thereto through the date of redemption, and (b) the Benefit of the Bargain (as defined below). (ii) The "Benefit of the Bargain" with respect to a share of Series L Preferred Stock means an amount equal to: V X M --------------- C P where: "V" means the face amount thereof plus the accrued Premium thereon and all Conversion Default Payments (if any) with respect thereto through the date of redemption; "CP" means the Conversion Price in effect on the date of the Optional Redemption Notice; and "M" means the volume weighted average sales price of the Corporation's Common Stock on the trading day immediately preceding the date of the Optional Redemption Notice. (iii) The Corporation shall effect each redemption under this Section VIII.D by giving at least five (5) business days but not more than ten (10) business days prior written notice (the "Optional Redemption Notice") of the date which such redemption is to become effective (the "Effective Date of Redemption"), the shares of Series L Preferred Stock selected for redemption and the Optional Redemption Amount to (i) the holders of Series L Preferred Stock selected for redemption at the address and facsimile number of such holder appearing in the Corporation's register for the Series L Preferred Stock and (ii) the transfer agent for the Common Stock, which Optional Redemption Notice shall be deemed to have been delivered on the business day after the Corporation's fax (with a copy sent by overnight courier to the holders of Series L Preferred Stock) of such notice to the holders of Series L Preferred Stock. (iv) The Optional Redemption Amount shall be paid to the holder of the Series L Preferred Stock being redeemed within three (3) business days of the Effective Date of Redemption; provided, however, that the Corporation shall not be obligated to deliver any portion of the Optional Redemption Amount until either the certificates evidencing the Series L Preferred Stock being redeemed are delivered to the office of the Corporation or the transfer agent, or the holder notifies the Corporation or the transfer agent that such certificates have been lost, stolen or destroyed and delivers the documentation in accordance with Article XIV.B hereof. Notwithstanding anything herein to the contrary, in the event that the certificates evidencing the Series L Preferred Stock being redeemed are not delivered to the Corporation or the transfer agent prior to the third business day following the Effective Date of Redemption, the redemption of the Series L Preferred Stock pursuant to this Article VIII.D shall still be deemed effective as of the Effective Date of Redemption and the Optional Redemption Amount shall be paid to the holder of Series L Preferred Stock being redeemed within five (5) business days of the date the certificates evidencing the Series L Preferred Stock being redeemed are actually delivered to the Corporation or the transfer agent. (v) If the Corporation fails to pay, when due and owing, any Optional Redemption Amount, then the holder of Series L Preferred Stock entitled to receive such Optional Redemption Amount shall have the right, at any time and from time to time during the twenty (20) trading day period following the Effective Date of Redemption (the "Optional Redemption Amount Conversion Period"), to require the Corporation, upon written notice, to immediately convert (in accordance with the terms of paragraph A of Article IV) any or all of the shares of Series L Preferred Stock which are the subject of such redemption, into shares of Common Stock at the lowest Conversion Price in effect during the period beginning on the date the Corporation elected to redeem such shares of Series L Preferred Stock and ending on expiration of the Optional Redemption Amount Conversion Period. From and after the expiration of the Optional Redemption Amount Conversion Period, the holders may convert Series L Preferred Stock at the Conversion Price then in effect and in accordance with Article IV. In addition, if the Corporation fails to pay an Optional Redemption Amount when due and owing, the Corporation shall pay the holder interest on such Optional Redemption Amount at a per annum rate equal to the lower of twenty-four percent (24%) and the highest interest rate permitted by applicable law from the date the Corporation elected to redeem such shares of Series L Preferred Stock until the later of the Effective Date of Redemption or the date the Corporation notifies the holder that it will not redeem the shares the Series L Preferred Stock selected for redemption by the Corporation. If a holder is entitled to interest pursuant to this subparagraph (v), the holder will not be entitled to interest under Article XIV.E for the Corporation's failure to timely pay any Optional Redemption Amount hereunder. IX. RANK All shares of the Series L Preferred Stock shall rank (i) prior to the Corporation's Common Stock; (ii) prior to any class or series of capital stock of the Corporation hereafter created (unless, with the consent of the holders of Series L Preferred Stock obtained in accordance with Article XIII hereof, such class or series of capital stock specifically, by its terms, ranks senior to or pari passu with the Series L Preferred Stock) (collectively with the Common Stock, "Junior Securities"); (iii) pari passu with the Corporation's Series K Convertible Preferred Stock, par value $.0001 per share, and any class or series of capital stock of the Corporation hereafter created (with the consent of the holders of Series L Preferred Stock obtained in accordance with Article XIII hereof) specifically ranking, by its terms, on parity with the Series L Preferred Stock (collectively, the "Pari Passu Securities"); (iv) junior to the Corporation's Series A Cumulative Convertible Preferred Stock, par value $.0001 per share, the Series F-1, F-2, F-3 and F-4 Convertible Preferred Stock, par value $.0001 per share, and the Corporation's Series H Convertible Preferred Stock, par value $.0001 per share (collectively the "Existing Preferred Stock"); and (v) junior to any class or series of capital stock of the Corporation hereafter created (with the consent of the holders of Series L Preferred Stock obtained in accordance with Article XIII hereof) specifically ranking, by its terms, senior to the Series L Preferred Stock (collectively, with the Existing Preferred Stock, the "Senior Securities"), in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. X. LIQUIDATION PREFERENCE A. If the Corporation shall commence a voluntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of sixty (60) consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up (a "Liquidation Event"), no distribution shall be made to the holders of any shares of capital stock of the Corporation (other than Senior Securities) upon liquidation, dissolution or winding up unless prior thereto the holders of shares of Series L Preferred Stock shall have received the Liquidation Preference with respect to each share. If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of the Series L Preferred Stock and holders of Pari Passu Securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Series L Preferred Stock and the Pari Passu Securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. B. The purchase or redemption by the Corporation of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Corporation. Neither the consolidation or merger of the Corporation with or into any other entity nor the sale or transfer by the Corporation of less than substantially all of its assets shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Corporation. C. The "Liquidation Preference" with respect to a share of Series L Preferred Stock means an amount equal to the Face Amount thereof plus the accrued Premium thereon through the date of final distribution. The Liquidation Preference with respect to any Pari Passu Securities shall be as set forth in the Certificate of Designation filed in respect thereof. XI. ADJUSTMENTS TO THE CONVERSION PRICE The Conversion Price shall be subject to adjustment from time to time as follows: A. Stock Splits, Stock Dividends, Etc. If at any time on or after the First Closing Date, the number of outstanding shares of Common Stock is increased by a stock split, stock dividend, combination, reclassification or other similar event, the Fixed Conversion Price shall be proportionately reduced, or if the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination or reclassification of shares, or other similar event, the Fixed Conversion Price shall be proportionately increased. In such event, the Corporation shall notify the Corporation's transfer agent of such change on or before the effective date thereof. B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the First Closing Date, there shall be (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation or merger of the Corporation with any other entity (other than a merger in which the Corporation is the surviving or continuing entity and its capital stock is unchanged), (iii) any sale or transfer of all or substantially all of the assets of the Corporation or (iv) any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property (each of (i) - (iv) above being a "Fundamental Change"), then the holders of Series L Preferred Stock shall thereafter have the right to receive upon conversion, in lieu of the shares of Common Stock otherwise issuable, such shares of stock, securities and/or other property as would have been issued or payable in such Fundamental Change with respect to or in exchange for the number of shares of Common Stock which would have been issuable upon conversion (without giving effect to the limitations contained in Article IV.C) had such Fundamental Change not taken place, and in any such case, appropriate provisions shall be made with respect to the rights and interests of the holders of the Series L Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares of Common Stock issuable upon conversion of the Series L Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the conversion thereof. The Corporation shall not effect any transaction described in this Paragraph B unless (i) each holder of Series L Preferred Stock has received written notice of such transaction at least thirty (30) days prior thereto, but in no event later than ten (10) days prior to the record date for the determination of shareholders entitled to vote with respect thereto, and (ii) the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument the obligations of this Paragraph B. The above provisions shall apply regardless of whether or not there would have been a sufficient number of shares of Common Stock authorized and available for issuance upon conversion of the shares of Series L Preferred Stock outstanding as of the date of such transaction, and shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. For purposes of this Paragraph B, the sale of the capital stock or assets of Dorotech, S.A. as contemplated by that certain Purchase Agreement dated December 31, 1996 by and between the Company and CDR Enterprises shall not constitute a sale of all or substantially all of the Company's assets. C. Adjustment Due to Distribution. If at any time after the First Closing Date the Corporation shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Corporation's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a "Distribution"), then the holders of Series L Preferred Stock shall be entitled, upon any conversion of shares of Series L Preferred Stock after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the holder with respect to the shares of Common Stock issuable upon such conversion (without giving effect to the limitations contained in Article IV.C) had such holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. D. Purchase Rights. If at any time after the First Closing Date, the Corporation issues any Convertible Securities or rights to purchase stock, warrants, securities or other property (the "Purchase Rights") pro rata to the record holders of any class of Common Stock, then the holders of Series L Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series L Preferred Stock (without giving effect to the limitations contained in Article IV.C) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. E. Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Article XI, the Corporation, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to each holder of Series L Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series L Preferred Stock, furnish to such holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of a share of Series L Preferred Stock. XII. VOTING RIGHTS The holders of the Series L Preferred Stock have no voting power whatsoever, except as otherwise provided by the Delaware General Corporation Law (the "Business Corporation Law"), in this Article XII and in Article XIII below. Notwithstanding the above, the Corporation shall provide each holder of Series L Preferred Stock with prior notification of any meeting of the shareholders (and copies of proxy materials and other information sent to shareholders). If the Corporation takes a record of its shareholders for the purpose of determining shareholders entitled to (a) receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or (b) to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Corporation, or any proposed merger, consolidation, liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice to each holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier, but in no event earlier than public announcement of such proposed transaction), of the date on which any such record is to be taken for the purpose of such vote, dividend, distribution, right or other event, and a brief statement regarding the amount and character of such vote, dividend, distribution, right or other event to the extent known at such time. To the extent that under the Business Corporation Law the vote of the holders of the Series L Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the shares of the Series L Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of a majority of the shares of Series L Preferred Stock (except as otherwise may be required under the Business Corporation Law) shall constitute the approval of such action by the class. To the extent that under the Business Corporation Law holders of the Series L Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series L Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible (without giving effect to the limitations contained in Article IV.C) using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated. XIII. PROTECTION PROVISIONS So long as any shares of Series L Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by the Business Corporation Law) of the holders of at least a majority of the then outstanding shares of Series L Preferred Stock: (a) alter or change the rights, preferences or privileges of the Series L Preferred Stock; (b) alter or change the rights, preferences or privileges of any capital stock of the Corporation so as to affect adversely the Series L Preferred Stock; (c) create any new class or series of capital stock having a preference over the Series L Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation (as previously defined in Article IX hereof, "Senior Securities"); (d) create any new class or series of capital stock ranking pari passu with the Series L Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation (as previously defined in Article IX hereof, "Pari Passu Securities"); (e) increase the authorized number of shares of Series L Preferred Stock; (f) issue any shares of Series L Preferred Stock other than pursuant to the Securities Purchase Agreement; (g) issue any additional shares of Senior Securities; or (h) redeem, or declare or pay any cash dividend or distribution on, any Junior Securities. If holders of at least a majority of the then outstanding shares of Series L Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series L Preferred Stock pursuant to subsection (a) above, then the Corporation shall deliver notice of such approved change to the holders of the Series L Preferred Stock that did not agree to such alteration or change (the "Dissenting Holders") and the Dissenting Holders shall have the right, for a period of thirty (30) days, to convert pursuant to the terms of this Certificate of Designation as they existed prior to such alteration or change or to continue to hold their shares of Series L Preferred Stock. XIV. MISCELLANEOUS A. Cancellation of Series L Preferred Stock. If any shares of Series L Preferred Stock are converted pursuant to Article IV, the shares so converted shall be canceled, shall return to the status of authorized, but unissued preferred stock of no designated series, and shall not be issuable by the Corporation as Series L Preferred Stock. B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i) evidence of the loss, theft, destruction or mutilation of any Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Corporation, or (z) in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Corporation shall execute and deliver new Preferred Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the holder contemporaneously requests the Corporation to convert such Series L Preferred Stock. C. Allocations of Cap Amount and Reserved Amount. The initial Cap Amount and Reserved Amount shall be allocated pro rata among the holders of Series L Preferred Stock based on the number of shares of Series L Preferred Stock issued to each holder. Each increase to the Cap Amount and Reserved Amount shall be allocated pro rata among the holders of Series L Preferred Stock based on the number of shares of Series L Preferred Stock held by each holder at the time of the increase in the Cap Amount or Reserved Amount, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder's shares of Series L Preferred Stock, each transferee shall be allocated a pro rata portion of such transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or Reserved Amount which remains allocated to any person or entity which does not hold any Series L Preferred Stock shall be allocated to the remaining holders of shares of Series L Preferred Stock, pro rata based on the number of shares of Series L Preferred Stock then held by such holders. D. [Intentionally Omitted] E. Payment of Cash; Defaults. Whenever the Corporation is required to make any cash payment to a holder under this Certificate of Designation (as a Conversion Default Payment, upon redemption or otherwise), such cash payment shall be made to the holder within five (5) business days after delivery by such holder of a notice specifying that the holder elects to receive such payment in cash and the method (e.g., by check, wire transfer) in which such payment should be made. If such payment is not delivered within such five (5) business day period, such holder shall thereafter be entitled to interest on the unpaid amount at a per annum rate equal to the lower of twenty-four percent (24%) and the highest interest rate permitted by applicable law until such amount is paid in full to the holder. F. Status as Stockholder. Upon submission of a Notice of Conversion by a holder of Series L Preferred Stock, the shares covered thereby shall be deemed converted into shares of Common Stock and the holder's rights as a holder of such converted shares of Series L Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. Notwithstanding the foregoing, if a holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Delivery Period with respect to a conversion of Series L Preferred Stock for any reason, then (unless the holder otherwise elects to retain its status as a holder of Common Stock) the holder shall regain the rights of a holder of Series L Preferred Stock with respect to such unconverted shares of Series L Preferred Stock and the Corporation shall, as soon as practicable, return such unconverted shares to the holder. In all cases, the holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Article VI.A to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Article VI.B) for the Corporation's failure to convert Series L Preferred Stock. G. Remedies Cumulative. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit a holder's right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designation. The Corporation acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of Series L Preferred Stock and that the remedy at law for any such breach may be inadequate. The Corporation therefore agrees, in the event of any such breach or threatened breach, the holders of Series L Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation this 8th day of December, 1997. NETWORK IMAGING CORPORATION By: NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Series L Preferred Stock) The undersigned hereby irrevocably elects to convert ____________ shares of Series L Preferred Stock (the "Conversion"), represented by stock certificate Nos(s). ___________ (the "Preferred Stock Certificates") into shares of common stock ("Common Stock") of Network Imaging Corporation (the "Corporation") according to the conditions of the Certificate of Designations, Preferences and Rights of Series L Convertible Preferred Stock (the "Certificate of Designation"), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof). The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series L Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption from registration under the Act. [ ] The undersigned hereby requests that the Corporation electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned's Prime Broker (which is __________) with DTC through its Deposit Withdrawal Agent Commission System. Date of Conversion:___________________________ Applicable Conversion Price:____________________ Amount of Conversion Default Payments to be Converted, if any:______________________ Number of Shares of Common Stock to be Issued:_____________________ Signature:____________________________________ Name:_______________________________________ Address:______________________________________ * The Corporation is not required to issue shares of Common Stock until the original Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Corporation or its transfer agent. The Corporation shall issue and deliver shares of Common Stock to an overnight courier not later than the later of (a) two (2) business days following receipt of this Notice of Conversion and (b) delivery of the original Preferred Stock Certificates (or evidence of loss, theft or destruction thereof) and shall make payments pursuant to the Certificate of Designation for the failure to make timely delivery. EX-3.8 5 SERIES M CERIFICATE OF DESIGNATIONS CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS of SERIES M CONVERTIBLE PREFERRED STOCK of NETWORK IMAGING CORPORATION (Pursuant to Section 151 of the Delaware General Corporation Law) Network Imaging Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation pursuant to authority of the Board of Directors as required by Section 151 of the Delaware General Corporation Law. RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (the "Board of Directors" or the "Board") in accordance with the provisions of its Certificate of Incorporation and Bylaws, each as amended and restated through the date hereof, the Board of Directors hereby authorizes a series of the Corporation's previously authorized Preferred Stock, par value $.0001 per share (the "Preferred Stock"), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: Series M Convertible Preferred Stock: I. DESIGNATION AND AMOUNT The designation of this series, which consists of 4,000 shares of Preferred Stock, is the Series M Convertible Preferred Stock (the "Series M Preferred Stock") and the face amount shall be One Thousand U.S. Dollars ($1,000.00) per share (the "Face Amount"). No other Series M Preferred Stock shall be issued without the consent of Fred Kassner. II. NO DIVIDENDS The Series M Preferred Stock will bear no dividends, and the holders of the Series M Preferred Stock shall not be entitled to receive dividends on the Series M Preferred Stock. III. CERTAIN DEFINITIONS For purposes of this Certificate of Designation, the following terms shall have the following meanings: A. "Conversion Date" means, for any Optional Conversion, the date specified in the notice of conversion in the form attached hereto (the "Notice of Conversion"), so long as the copy of the Notice of Conversion is faxed (or delivered by other means resulting in notice) to the Corporation before Midnight, New York City time, on the Conversion Date indicated in the Notice of Conversion. If the Notice of Conversion is not so faxed or otherwise delivered before such time, then the Conversion Date shall be the date the holder faxes or otherwise delivers the Notice of Conversion to the Corporation. The Conversion Date for the Required Conversion at Maturity shall be the Maturity Date (as such terms are defined in Paragraph D of Article IV). B. "Conversion Price" means a price equal to One Dollar ($1.00) per share. C. "N" means the number of days from, but excluding, the date of original issuance of such share of Series M Preferred Stock. D. "Premium" means an amount equal to (.0850)x(N/365)x(1,000). IV. CONVERSION A.Conversion at the Option of the Holder. (i) Subject to the limitations on conversions contained in Paragraph C of this Article IV, each holder of shares of Series M Preferred Stock may, at any time and from time to time, convert (an "Optional Conversion") each of its shares of Series M Preferred Stock into a number of fully paid and nonassessable shares of Common Stock at $1.00 per share if the Corporation timely redeems the Premium thereon in cash or Common Stock, at the sole option of the Company. (ii)(a) The Corporation shall have the right, in its sole discretion, upon receipt of a Notice of Conversion or in the event of a Required Conversion at Maturity, to redeem any portion of the Premium subject to such conversion for a sum of cash or Common Stock, at the sole option of the Company, equal to the amount of the Premium being so redeemed. All cash redemption payments hereunder shall be paid in lawful money of the United States of America at such address for the holder as appears on the record books of the Corporation (or at such other address as such holder shall hereafter give to the Corporation by written notice). B. Mechanics of Conversion. In order to effect an Optional Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the Corporation or the transfer agent for the Common Stock and (y) surrender or cause to be surrendered the original certificates representing the Series M Preferred Stock being converted (the "Preferred Stock Certificates"), duly endorsed, along with a copy of the Notice of Conversion as soon as practicable thereafter to the Corporation or the transfer agent. Upon receipt by the Corporation of a facsimile copy of a Notice of Conversion from a holder, the Corporation shall immediately send, via facsimile, a confirmation to such holder stating that the Notice of Conversion has been received, the date upon which the Corporation expects to deliver the Common Stock issuable upon such conversion and the name and telephone number of a contact person at the Corporation regarding the conversion. The Corporation shall not be obligated to issue shares of Common Stock upon a conversion unless either the Preferred Stock Certificates are delivered to the Corporation or the transfer agent as provided above, or the holder notifies the Corporation or the transfer agent that such certificates have been lost, stolen or destroyed (subject to the requirements of Article XII.B). (i) Delivery of Common Stock Upon Conversion. Upon the surrender of Preferred Stock Certificates from a holder of Series M Preferred Stock accompanied by a Notice of Conversion, the Corporation shall, no later than the second business day following the later of (a) the Conversion Date and (b) the date of such surrender (or, in the case of lost, stolen or destroyed certificates, after provision of indemnity pursuant to Article XII.B) (the "Delivery Period"), issue and deliver to the holder (x) that number of shares of Common Stock issuable upon conversion of such shares of Series M Preferred Stock being converted and (y) a certificate representing the number of shares of Series M Preferred Stock not being converted, if any. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the holder and its compliance with the provisions contained in this paragraph, so long as the certificates therefor do not bear a legend and the holder thereof is not obligated to return such certificate for the placement of a legend thereon, the Corporation shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the holder by crediting the account of holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. (ii) Taxes. The Corporation shall pay any and all taxes and all other reasonable expenses which may be imposed upon it with respect to the issuance and delivery of the shares of Common Stock upon the conversion of the Series M Preferred Stock. (iii) No Fractional Shares. If any conversion of Series M Preferred Stock would result in the issuance of a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon conversion of the Series M Preferred Stock shall be the next higher whole number of shares. (iv) Conversion Disputes. In the case of any dispute with respect to a conversion, the Corporation shall promptly issue such number of shares of Common Stock as are not disputed in accordance with subparagraph (i) above. If such dispute involves the calculation of the Conversion Price, the Corporation shall submit the disputed calculations to its outside accountant via facsimile within two (2) business days of receipt of the Notice of Conversion. The accountant shall audit the calculations and notify the Corporation and the holder of the results no later than two (2) business days from the date it receives the disputed calculations. The accountant's calculation shall be deemed conclusive, absent manifest error. The Corporation shall then issue the appropriate number of shares of Common Stock in accordance with subparagraph (i) above. C. Required Conversion at Maturity. Provided all shares of Common Stock issuable upon conversion of all outstanding shares of Series M Preferred Stock are then (i) authorized and reserved for issuance, (ii) registered under the Securities Act of 1933, as amended (the "Securities Act") for resale by the holders of such shares of Series M Preferred Stock and (iii) eligible to be traded on either the Nasdaq, the New York Stock Exchange or the American Stock Exchange, each share of Series M Preferred Stock issued and outstanding on the fourth anniversary of the execution date (the "Maturity Date"), automatically shall be converted into shares of Common Stock on such date in accordance with the conversion rate set forth in Paragraph A of this Article IV (the "Required Conversion at Maturity"). If the Required Conversion at Maturity occurs, the Corporation and the holders of Series M Preferred Stock shall follow the applicable conversion procedures set forth in Paragraph B of this Article IV; provided, however, that the holders of Series M Preferred Stock are not required to deliver a Notice of Conversion to the Corporation or its transfer agent. V. RESERVATION OF SHARES OF COMMON STOCK Upon the initial issuance of the shares of Series M Preferred Stock, the Corporation shall reserve 5,360,000 shares of the authorized but unissued shares of Common Stock for issuance upon conversion of the Series M Preferred Stock and thereafter the number of authorized but unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be decreased and shall at all times be sufficient to provide for the conversion of the Series M Preferred Stock outstanding at the then current Conversion Price. VI. REDEMPTION DUE TO CERTAIN EVENTS A. Redemption by Holder. In the event (each of the events described in clauses (i)-(v) below after expiration of the applicable cure period (if any) being a "Redemption Event"): (i) the Corporation fails, and any such failure continues uncured for five (5) business days after the Corporation has been notified thereof in writing by the holder, to remove any restrictive legend on any certificate or any shares of Common Stock issued to the holders of Series M Preferred Stock upon conversion of the Series M Preferred Stock as and when required by the Securities Purchase Agreement; (ii) the Corporation provides notice to any holder of Series M Preferred Stock, including by way of public announcement, at any time, of its intention not to issue shares of Common Stock to any holder of Series M Preferred Stock upon conversion in accordance with the terms of this Certificate of Designation (other than due to the circumstances contemplated by Articles V or VII for which the holders shall have the remedies set forth in such Articles); (iii) the Corporation shall: (a) sell, convey or dispose of all or substantially all of its assets; (b) merge, consolidate or engage in any other bus- iness combination with any other entity (other than pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incor- poration of the Corporation); or (c) have approved, recommended or otherwise consented to any transaction or series of related transactions which result in fifty percent (50%) or more of the voting power of its capital stock owned beneficially by one person, entity or "group" (as such term is used under Section 13(d) of the Securities Exchange Act of 1934, as amended); then, upon the occurrence of any such Redemption Event, each holder of shares of Series M Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a Redemption Notice (as defined in Paragraph C below) to the Corporation while such Redemption Event continues, to require the Corporation to purchase for cash any or all of the then outstanding shares of Series M Preferred Stock held by such holder for an amount per share equal to the Redemption Amount (as defined in Paragraph B below) in effect at the time of the redemption hereunder. B. Definition of Redemption Amount. The "Redemption Amount" with respect to a share of Series M Preferred Stock means an amount equal to: V X M ----------------- C P where: "V" means the face amount thereof plus the accrued Premium thereon and all Conversion Default Payments (if any) with respect thereto through the date of redemption; "CP" means the Conversion Price in effect on the date of the Redemption Notice; and "M" means the highest Closing Price of the Corporation's Common Stock during the period beginning on the date of the Redemption Notice and ending on the date of the redemption. C. Redemption Defaults. If the Corporation fails to pay any holder the Redemption Amount with respect to any share of Series M Preferred Stock within ten (10) business days of its receipt of a notice requiring such redemption (a "Redemption Notice"), then the holder of Series M Preferred Stock delivering such Redemption Notice (i) shall be entitled to interest on the Redemption Amount at a per annum rate equal to the lower of twelve percent (12%) and the highest interest rate permitted by applicable law from the date of the Redemption Notice until the date of redemption hereunder, and (ii) shall have the right, at any time and from time to time, to require the Corporation, upon written notice, to immediately convert (in accordance with the terms of Paragraph A of Article IV) all or any portion of the Redemption Amount, plus interest as aforesaid, into shares of Common Stock at the Conversion Price D. Redemption by Corporation. (i) The Corporation shall have the right, at any time and provided the Corporation is not in material violation of any of its obligations under this Certificate of Designation or the Securities Purchase Agreement to redeem (an "Optional Redemption") all (but not less than all) of the then outstanding Series M Preferred Stock (other than Series M Preferred Stock which is the subject of a Notice of Conversion delivered prior to the delivery date of the Optional Redemption Notice) for a price per share equal to the Optional Redemption Amount (as defined below) which right shall be exercisable only one time while any Series M Preferred Stock is outstanding by the Corporation in its sole discretion by delivery of an Optional Redemption Notice in accordance with the redemption procedures set forth below. Holders of Series M Preferred Stock may not convert any shares of Series M Preferred Stock selected for redemption hereunder into Common Stock at any time or on prior to the Effective Date of Redemption designated by the Corporation in the Optimal Redemption Notice. The "Optional Redemption Amount" with respect to each share of Series M Preferred Stock means (a) 100% multiplied by the sum of (I) the Face Amount thereof plus (II) the accrued Premium thereon. VII. RANK All shares of the Series M Preferred Stock shall rank (i) prior to the Corporation's Common Stock; (ii) prior to the Series K and L Cumulative Convertible Preferred Stocks; (iii) prior to any class or series of capital stock of the Corporation hereafter created (unless, with the consent of the holder(s) of Series M Preferred Stock); and (iii) junior to the Corporations Series A Cumulative Convertible Preferred Stock, par value $.0001 per share (the "Senior Securities"), in each case as to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary. VIII. LIQUIDATION PREFERENCE A. If the Corporation shall commence a voluntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of sixty (60) consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up (a "Liquidation Event"), no distribution shall be made to the holders of any shares of capital stock of the Corporation (other than Senior Securities) upon liquidation, dissolution or winding up unless prior thereto the holders of shares of Series M Preferred Stock shall have received the Liquidation Preference with respect to each share. B. The purchase or redemption by the Corporation of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Corporation. Neither the consolidation or merger of the Corporation with or into any other entity nor the sale or transfer by the Corporation of less than substantially all of its assets shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Corporation. C. The "Liquidation Preference" with respect to a share of Series M Preferred Stock means an amount equal to the Face Amount thereof plus the accrued Premium thereon through the date of final distribution. The Liquidation Preference with respect to any Pari Passu Securities shall be as set forth in the Certificate of Designation filed in respect thereof. IX. ADJUSTMENTS TO THE CONVERSION PRICE The Conversion Price shall be subject to adjustment from time to time as follows: A. Stock Splits, Stock Dividends, Etc. If at any time on or after the date of execution, the number of outstanding shares of Common Stock is increased by a stock split, stock dividend, combination, reclassification or other similar event, the Conversion Price shall be proportionately reduced, or if the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination or reclassification of shares, or other similar event, the Conversion Price shall be proportionately increased. In such event, the Corporation shall notify the Corporation's transfer agent of such change on or before the effective date thereof. B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the date of execution, there shall be (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation or merger of the Corporation with any other entity (other than a merger in which the Corporation is the surviving or continuing entity and its capital stock is unchanged), (iii) any sale or transfer of all or substantially all of the assets of the Corporation or (iv) any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property (each of (i) - (iv) above being a "Fundamental Change"), then the holders of Series M Preferred Stock shall thereafter have the right to receive upon conversion, in lieu of the shares of Common Stock otherwise issuable, such shares of stock, securities and/or other property as would have been issued or payable in such Fundamental Change with respect to or in exchange for the number of shares of Common Stock which would have been issuable upon conversion had such Fundamental Change not taken place, and in any such case, appropriate provisions shall be made with respect to the rights and interests of the holders of the Series M Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares of Common Stock issuable upon conversion of the Series M Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the conversion thereof. The Corporation shall not effect any transaction described in this Paragraph B unless (i) each holder of Series M Preferred Stock has received written notice of such transaction at least thirty (30) days prior thereto, but in no event later than ten (10) days prior to the record date for the determination of shareholders entitled to vote with respect thereto, and (ii) the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument the obligations of this Paragraph B. The above provisions shall apply regardless of whether or not there would have been a sufficient number of shares of Common Stock authorized and available for issuance upon conversion of the shares of Series M Preferred Stock outstanding as of the date of such transaction, and shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. For purposes of this Paragraph B, the sale of the capital stock or assets of Dorotech, S.A. as contemplated by that certain Purchase Agreement dated December 31, 1996 by and between the Company and CDR Enterprises shall not constitute a sale of all or substantially all of the Company's assets. C. Adjustment Due to Distribution. If at any time after the date of execution the Corporation shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Corporation's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a "Distribution"), then the holders of Series M Preferred Stock shall be entitled, upon any conversion of shares of Series M Preferred Stock after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the holder with respect to the shares of Common Stock issuable upon such conversion had such holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. D. Purchase Rights. If at any time after the date of execution, the Corporation issues any Convertible Securities or rights to purchase stock, warrants, securities or other property (the "Purchase Rights") pro rata to the record holders of any class of Common Stock, then the holders of Series M Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of the Series M Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. E. Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Article IX, the Corporation, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to each holder of Series M Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series M Preferred Stock, furnish to such holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of a share of Series M Preferred Stock. X. VOTING RIGHTS The holders of the Series M Preferred Stock have no voting power whatsoever, except as otherwise provided by the Delaware General Corporation Law (the "Business Corporation Law"), in this Article X and in Article XI below. Notwithstanding the above, the Corporation shall provide each holder of Series M Preferred Stock with prior notification of any meeting of the shareholders (and copies of proxy materials and other information sent to shareholders). If the Corporation takes a record of its shareholders for the purpose of determining shareholders entitled to (a) receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or (b) to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Corporation, or any proposed merger, consolidation, liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice to each holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier, but in no event earlier than public announcement of such proposed transaction), of the date on which any such record is to be taken for the purpose of such vote, dividend, distribution, right or other event, and a brief statement regarding the amount and character of such vote, dividend, distribution, right or other event to the extent known at such time. To the extent that under the Business Corporation Law the vote of the holders of the Series M Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the holders of at least a majority of the shares of the Series M Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of a majority of the shares of Series M Preferred Stock (except as otherwise may be required under the Business Corporation Law) shall constitute the approval of such action by the class. To the extent that under the Business Corporation Law holders of the Series M Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series M Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated. XI. PROTECTION PROVISIONS So long as any shares of Series M Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by the Business Corporation Law) of the holders of at least a majority of the then outstanding shares of Series M Preferred Stock: (a) alter or change the rights, preferences or privileges of the Series M Preferred Stock; (b) alter or change the rights, preferences or privileges of any capital stock of the Corporation so as to affect adversely the Series M Preferred Stock; (c) create any new class or series of capital stock having a preference over the Series M Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation (as previously defined, "Senior Securities"); (d) create any new class or series of capital stock ranking pari passu with the Series M Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation (as previously defined, "Pari Passu Securities"); (e) increase the authorized number of shares of Series M Preferred Stock; (f) issue any shares of Series M Preferred Stock other than pursuant to the Securities Purchase Agreement with Fred Kassner; (g) issue any additional shares of Senior Securities; or (h) redeem, or declare or pay any cash dividend or distribution on, any Junior Securities. If holders of at least a majority of the then outstanding shares of Series M Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series M Preferred Stock pursuant to subsection (a) above, then the Corporation shall deliver notice of such approved change to the holders of the Series M Preferred Stock that did not agree to such alteration or change (the "Dissenting Holders") and the Dissenting Holders shall have the right, for a period of thirty (30) days, to convert pursuant to the terms of this Certificate of Designation as they existed prior to such alteration or change or to continue to hold their shares of Series M Preferred Stock. XII. MISCELLANEOUS A. Cancellation of Series M Preferred Stock. If any shares of Series M Preferred Stock are converted pursuant to Article IV, the shares so converted shall be canceled, shall return to the status of authorized, but unissued preferred stock of no designated series, and shall not be issuable by the Corporation as Series M Preferred Stock. B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i) evidence of the loss, theft, destruction or mutilation of any Preferred Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Corporation, or (z) in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Corporation shall execute and deliver new Preferred Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the holder contemporaneously requests the Corporation to convert such Series M Preferred Stock. C. Status as Stockholder. Upon submission of a Notice of Conversion by a holder of Series M Preferred Stock, the shares covered thereby shall be deemed converted into shares of Common Stock and the holder's rights as a holder of such converted shares of Series M Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such holder because of a failure by the Corporation to comply with the terms of this Certificate of Designation. Notwithstanding the foregoing, if a holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Delivery Period with respect to a conversion of Series M Preferred Stock for any reason, then (unless the holder otherwise elects to retain its status as a holder of Common Stock) the holder shall regain the rights of a holder of Series M Preferred Stock with respect to such unconverted shares of Series M Preferred Stock and the Corporation shall, as soon as practicable, return such unconverted shares to the holder. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation this ____ day of December, 1997. NETWORK IMAGING CORPORATION By: NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Series M Preferred Stock) The undersigned hereby irrevocably elects to convert ____________ shares of Series M Preferred Stock (the "Conversion"), represented by stock certificate No.(s). ___________ (the "Preferred Stock Certificates") into shares of common stock ("Common Stock") of Network Imaging Corporation (the "Corporation") according to the conditions of the Certificate of Designations, Preferences and Rights of Series M Convertible Preferred Stock (the "Certificate of Designation"), as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof). The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Series M Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to an exemption from registration under the Act. [ ] The undersigned hereby requests that the Corporation electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned's Prime Broker (which is __________) with DTC through its Deposit Withdrawal Agent Commission System. Date of Conversion:___________________________ Applicable Conversion Price: $1.00 Number of Shares of Common Stock to be Issued:_____________________ Signature:____________________________________ Name:_______________________________________ Address:______________________________________ * The Corporation is not required to issue shares of Common Stock until the original Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Corporation or its transfer agent. The Corporation shall issue and deliver shares of Common Stock to an overnight courier not later than the later of (a) two (2) business days following receipt of this Notice of Conversion and (b) delivery of the original Preferred Stock Certificates (or evidence of loss, theft or destruction thereof) and shall make payments pursuant to the Certificate of Designation for the failure to make timely delivery. EX-3.9 6 SERIES A CERTIFICATE OF CORRECTION CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE CERTIFICATE OF AMENDMENT TO CERTIFICATE OF DESIGNATIONS OF SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK OF NETWORK IMAGING CORPORATION FILED IN THE OFFICE OF THE SECRETARY OF STATE OF DELAWARE ON DECEMBER 31, 1997 Network Imaging Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: 1. The name of the corporation is Network Imaging Corporation. 2. That a Certificate of Amendment to Certificate of Designations of Series A Cumulative Convertible Preferred Stock of Network Imaging Corporation was filed by the Secretary of State of Delaware on December 31, 1997 and that said Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware. 3. The inaccuracy or defect of said Certificate of Amendment is that the third paragraph of said Certificate did not include a reference to the unanimous written consent on December 31, 1997 of the holders of the Series L Convertible Preferred Stock in which these holders resolved to amend the Certificate of Designations in an identical manner as did the holders of Common Stock, Series F-1 Convertible Preferred Stock, Series F-2 Convertible Preferred Stock, Series F-3 Convertible Preferred Stock, Series F-4 Convertible Preferred Stock, and Series K Convertible Preferred Stock, as described in said Certificate. 4. The inaccuracy or defect of said Certificate to be corrected as follows: The third paragraph of said Certificate should be corrected to read in its entirety as follows: That, (1) on December 3, 1997, the Board of Directors of the Corporation resolved to amend the Certificate of Designations of the Series A Cumulative Convertible Preferred Stock ("Certificate of Designations"), (2) on December 31, 1997, the holders of Common Stock, voting separately as a class, and the holders of the Series A Cumulative Convertible Preferred Stock, voting separately as a class, (3) by unanimous written consent dated December 31, 1997, the holders of the Series F-1 Convertible Preferred Stock, the Series F-2 Convertible Preferred Stock, the Series F-3 Convertible Preferred Stock and the Series F-4 Convertible Preferred Stock, (4) by unanimous written consent dated December 31, 1997, the holders of the Series K Convertible Preferred Stock, and (5) by unanimous written consent dated December 31, 1997, the holders of the Series L Convertible Preferred Stock, resolved to amend the Certificate of Designations as follows: IN WITNESS WHEREOF, Network Imaging Corporation has caused this Certificate to be signed by Julia A. Bowen, its Vice President, General Counsel and Assistance Secretary, this ___ day of January 1998. NETWORK IMAGING CORPORATION By: _______________________ Julia A. Bowen EX-3.10 7 SERIES F-1 CERTIFICATE OF ELIMINATION NETWORK IMAGING CORPORATION CERTIFICATE OF ELIMINATION OF CERTIFICATES OF DESIGNATION OF SERIES F-1 CONVERTIBLE PREFERRED STOCK (Pursuant to Section 151 of the Delaware General Corporation Law) We, James J. Leto and Julia A. Bowen, the President and Assistant Secretary, respectively, of Network Imaging Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Company"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation of the Company and Section 151(g) of the Delaware General Corporation Law, the Board of Directors on adopted the following resolutions for the purpose of eliminating the Certificate of Designation of the Company's Series F-1 Convertible Preferred Stock from the Certificate of Incorporation: WHEREAS, the Board of Directors authorized the issuance of an aggregate of 1,792,186 shares of Series F-1 Convertible Preferred Stock ("Series F-1 Stock") at a meeting held on March 29, 1996; WHEREAS, there are no longer any outstanding shares of the Series F-1 Stock as a result of conversions and redemptions of the Series F-1 Stock; WHEREAS, the Board of Directors of the Company has determined that no further shares of Series F-1 Stock will be issued pursuant to the Certificate of Designation; it is RESOLVED, that all authorized shares of the Series F-1 Stock be, and they hereby are, cancelled and that all such shares be, and they hereby are, returned to the status of authorized but unissued Preferred Stock of no designated series; and FURTHER RESOLVED, that the proper officers of the Company be, and they hereby are, authorized and directed on behalf of the Company to prepare, execute and file documents, to amend or modify the same, to pay such fees, and to take such other actions as may be necessary or appropriate for purposes of eliminating from the Certificate of Incorporation of the Company all reference to Series F-1 Stock. IN WITNESS WHEREOF, Network Imaging Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by James J. Leto, its President, and attested by Julia A. Bowen, its Assistant Secretary, this day of January 1998. NETWORK IMAGING CORPORATION By: _______________________________ James J. Leto President Attest: By: __________________ Julia A. Bowen Assistant Secretary EX-3.11 8 SERIES F-2 CERTIFICATE OF ELIMINATION NETWORK IMAGING CORPORATION CERTIFICATE OF ELIMINATION OF CERTIFICATES OF DESIGNATION OF SERIES F-2 CONVERTIBLE PREFERRED STOCK (Pursuant to Section 151 of the Delaware General Corporation Law) We, James J. Leto and Julia A. Bowen, the President and Assistant Secretary, respectively, of Network Imaging Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Company"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation of the Company and Section 151(g) of the Delaware General Corporation Law, the Board of Directors on adopted the following resolutions for the purpose of eliminating the Certificate of Designation of the Company's Series F-2 Convertible Preferred Stock from the Certificate of Incorporation: WHEREAS, the Board of Directors authorized the issuance of an aggregate of 1,792,186 shares of Series F-2 Convertible Preferred Stock ("Series F-2 Stock") at a meeting held on March 29, 1996; WHEREAS, there are no longer any outstanding shares of the Series F-2 Stock as a result of conversions and redemptions of the Series F-2 Stock; WHEREAS, the Board of Directors of the Company has determined that no further shares of Series F-2 Stock will be issued pursuant to the Certificate of Designation; it is RESOLVED, that all authorized shares of the Series F-2 Stock be, and they hereby are, cancelled and that all such shares be, and they hereby are, returned to the status of authorized but unissued Preferred Stock of no designated series; and FURTHER RESOLVED, that the proper officers of the Company be, and they hereby are, authorized and directed on behalf of the Company to prepare, execute and file documents, to amend or modify the same, to pay such fees, and to take such other actions as may be necessary or appropriate for purposes of eliminating from the Certificate of Incorporation of the Company all reference to Series F-2 Stock. IN WITNESS WHEREOF, Network Imaging Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by James J. Leto, its President, and attested by Julia A. Bowen, its Assistant Secretary, this day of January 1998. NETWORK IMAGING CORPORATION By: _______________________________ James J. Leto President Attest: By: __________________ Julia A. Bowen Assistant Secretary EX-3.12 9 SERIES F-3 CERTIFICATE OF ELIMINATION NETWORK IMAGING CORPORATION CERTIFICATE OF ELIMINATION OF CERTIFICATES OF DESIGNATION OF SERIES F-3 CONVERTIBLE PREFERRED STOCK (Pursuant to Section 151 of the Delaware General Corporation Law) We, James J. Leto and Julia A. Bowen, the President and Assistant Secretary, respectively, of Network Imaging Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Company"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation of the Company and Section 151(g) of the Delaware General Corporation Law, the Board of Directors on adopted the following resolutions for the purpose of eliminating the Certificate of Designation of the Company's Series F-3 Convertible Preferred Stock from the Certificate of Incorporation: WHEREAS, the Board of Directors authorized the issuance of an aggregate of 1,792,186 shares of Series F-3 Convertible Preferred Stock ("Series F-3 Stock") at a meeting held on March 29, 1996; WHEREAS, there are no longer any outstanding shares of the Series F-3 Stock as a result of conversions and redemptions of the Series F-3 Stock; WHEREAS, the Board of Directors of the Company has determined that no further shares of Series F-3 Stock will be issued pursuant to the Certificate of Designation; it is RESOLVED, that all authorized shares of the Series F-3 Stock be, and they hereby are, cancelled and that all such shares be, and they hereby are, returned to the status of authorized but unissued Preferred Stock of no designated series; and FURTHER RESOLVED, that the proper officers of the Company be, and they hereby are, authorized and directed on behalf of the Company to prepare, execute and file documents, to amend or modify the same, to pay such fees, and to take such other actions as may be necessary or appropriate for purposes of eliminating from the Certificate of Incorporation of the Company all reference to Series F-3 Stock. IN WITNESS WHEREOF, Network Imaging Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by James J. Leto, its President, and attested by Julia A. Bowen, its Assistant Secretary, this day of January 1998. NETWORK IMAGING CORPORATION By: _______________________________ James J. Leto President Attest: By: __________________ Julia A. Bowen Assistant Secretary EX-3.13 10 SERIES F-4 CERTIFICATE OF ELIMINATION NETWORK IMAGING CORPORATION CERTIFICATE OF ELIMINATION OF CERTIFICATES OF DESIGNATION OF SERIES F-4 CONVERTIBLE PREFERRED STOCK (Pursuant to Section 151 of the Delaware General Corporation Law) We, James J. Leto and Julia A. Bowen, the President and Assistant Secretary, respectively, of Network Imaging Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Company"), in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation of the Company and Section 151(g) of the Delaware General Corporation Law, the Board of Directors on adopted the following resolutions for the purpose of eliminating the Certificate of Designation of the Company's Series F-4 Convertible Preferred Stock from the Certificate of Incorporation: WHEREAS, the Board of Directors authorized the issuance of an aggregate of 1,792,186 shares of Series F-4 Convertible Preferred Stock ("Series F-4 Stock") at a meeting held on March 29, 1996; WHEREAS, there are no longer any outstanding shares of the Series F-4 Stock as a result of conversions and redemptions of the Series F-4 Stock; WHEREAS, the Board of Directors of the Company has determined that no further shares of Series F-4 Stock will be issued pursuant to the Certificate of Designation; it is RESOLVED, that all authorized shares of the Series F-4 Stock be, and they hereby are, cancelled and that all such shares be, and they hereby are, returned to the status of authorized but unissued Preferred Stock of no designated series; and FURTHER RESOLVED, that the proper officers of the Company be, and they hereby are, authorized and directed on behalf of the Company to prepare, execute and file documents, to amend or modify the same, to pay such fees, and to take such other actions as may be necessary or appropriate for purposes of eliminating from the Certificate of Incorporation of the Company all reference to Series F-4 Stock. IN WITNESS WHEREOF, Network Imaging Corporation has caused its corporate seal to be hereunto affixed and this certificate to be signed by James J. Leto, its President, and attested by Julia A. Bowen, its Assistant Secretary, this day of January 1998. NETWORK IMAGING CORPORATION By: _______________________________ James J. Leto President Attest: By: __________________ Julia A. Bowen Assistant Secretary EX-4.83 11 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December 8, 1997, by and among Network Imaging Corporation, a corporation organized under the laws of the State of Delaware (the "Company"), with headquarters located at 500 Huntmar Park Drive, Herndon, Virginia 20170 and each of the purchasers (the "Purchasers") set forth on the execution pages hereof (the "Execution Pages"). WHEREAS: A. The Company and each Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("Regulation D"), as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"); B. Each Purchaser desires to purchase, upon the terms and conditions stated in this Agreement, units (the "Units") consisting of (i) one (1) share of the Company's Series L Convertible Preferred Stock, par value $.0001 per share (the "Preferred Shares"), convertible into its common stock, par value $.0001 per share, of the Company (the "Common Stock") and (ii) warrants (the "Warrants"), in the form attached hereto as Exhibit B, to acquire seventy-five (75) shares of Common Stock. The rights, preferences and privileges of the Preferred Shares, including the terms upon which such Preferred Shares are convertible into shares of Common Stock are set forth in the form of Certificate of Designations, Preferences and Rights attached hereto as Exhibit A (the "Certificate of Designation"). The shares of Common Stock issuable upon conversion of the Preferred Shares or otherwise pursuant to the Certificate of Designation are referred to herein as the "Conversion Shares" and the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are referred to as the "Warrant Shares". The Units, the Preferred Shares, the Conversion Shares and the Warrant Shares are collectively referred to herein as the "Securities." C. Contemporaneous with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit C (the "Registration Rights Agreement"), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws; NOW, THEREFORE, the Company and the Purchasers hereby agree as follows: 1. PURCHASE AND SALE OF UNITS. a. Purchase of Units. The issuance, sale and purchase of the Units shall take place in three (3) separate closings, the first of which is hereinafter referred to as the "First Closing," the second of which is hereinafter referred to as the "Second Closing" and the third of which is hereinafter referred to as the "Third Closing." The purchase price (the "Purchase Price") per Unit shall be equal to One Thousand Dollars ($1,000.00). Each Purchaser's obligation to purchase Units hereunder is distinct and separate from each other Purchaser's obligation to purchase Units and no Purchaser shall be required to purchase hereunder more than the number of Units set forth on such Purchaser's Execution Page hereto notwithstanding any failure by any other Purchaser to purchase Units hereunder. (i) On the date of the First Closing, subject to the satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7 below, the Company shall issue and sell to each Purchaser and each Purchaser severally agrees to purchase from the Company, such number of Units as is set forth on such Purchaser's Execution Page as being purchasable by such Purchaser at the First Closing. (ii) On the date of the Second Closing, subject to the satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7 below, the Company shall issue and sell to each Purchaser and each Purchaser severally agrees to purchase from the Company such number of Units (not to exceed 375 Units in the case of Zanett Lombardier, Ltd. ("Lombardier"), 375 Units in the case of Bruno Guazzoni ("Guazzoni") and 750 Units in the case of Capital Ventures International ("CVI")) as such Purchaser may hereafter designate in a written notice delivered to the Company no later than the second business day following June 15, 1998; provided, however, that the aforementioned two (2) business day period shall be extended by one (1) day for each day after June 15, 1998 on which the Company has not held the special meeting of its stockholders required to be held pursuant to Section 4(n) hereof. If a Purchaser shall fail to designate that it will purchase Units at the Second Closing, such Purchaser shall have no obligation to purchase any Units at such closing. (iii) On the date of the Third Closing, subject to the satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7 below, the Company shall issue and sell to each Purchaser and each Purchaser severally agrees to purchase from the Company such number of Units (not to exceed 375 Units in the case of Lombardier, 375 Units in the case of Guazzoni and 750 Units in the case of CVI) as such Purchaser may hereafter designate in a written notice delivered to the Company no later than the second business day following September 15, 1998; provided, however, that the aforementioned two (2) business day period shall be extended by one (1) day for each day after September 15, 1998 on which the Company has not held the special meeting of its stockholders required to be held pursuant to Section 4(n) hereof. If a Purchaser shall fail to designate that it will purchase Units at the Third Closing, such Purchaser shall have no obligation to purchase any Units at such closing. b. Form of Payment. At each closing hereunder, each Purchaser shall pay the aggregate Purchase Price for the Units being purchased by such Purchaser at such closing hereunder by wire transfer to the Company, in accordance with the Company's written wiring instructions, against delivery of duly executed certificates representing the Preferred Shares and Warrants being purchased by such Purchaser at such closing hereunder and the Company shall deliver such certificates against delivery of such aggregate Purchase Price. c. Closing Date. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Units pursuant to this Agreement shall be (i) in the case of the First Closing, 12:00 noon New York City time on December 8, 1997; (ii) in the case of the Second Closing, 12:00 noon New York City time on the fifth (5th) trading day following receipt by the Company of the last notice from a Purchaser under Section 1(a)(ii) hereof; and (iii) in the case of the Third Closing, 12:00 noon New York City time on the fifth (5th) trading day following receipt by the Company of the last notice from a Purchaser under Section 1(a)(iii) hereof (subject, in the case of each of the Second Closing and the Third Closing, to a two (2) business day grace period at either party's option) or such other time as may be mutually agreed upon by the Company and the Purchasers purchasing Units in such closing. The closings shall occur at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia, Pennsylvania 19102. 2. PURCHASERS' REPRESENTATIONS AND WARRANTIES Each Purchaser severally represents and warrants to the Company that: a. Investment Purpose. Purchaser is purchasing the Units for Purchaser's own account for investment only and not with a present view towards the public sale or distribution thereof, except pursuant to sales that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act. Purchaser understands that Purchaser must bear the economic risk of this investment indefinitely, unless the Securities are registered pursuant to the Securities Act and any applicable state securities or blue sky laws or an exemption from such registration is available, and that the Company has no present intention of registering any such Securities other than as contemplated by the Registration Rights Agreement. Notwithstanding anything in this Section 2(a) to the contrary, by making the representations herein, the Purchaser does not agree to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time, however, Purchaser agrees that any and all such disposal(s) shall be in accordance with or pursuant to a registration statement or an exemption under the Securities Act. b. Accredited Investor Status. Purchaser is an "Accredited Investor" as that term is defined in Rule 501(a) of Regulation D. c. Reliance on Exemptions. Purchaser understands that the Units are being offered and sold to Purchaser in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and Purchaser's compliance with, the representations, warranties, agreements, acknowledgments and understandings of Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of Purchaser to acquire the Units. d. Information. Purchaser and its counsel, if any, have been furnished all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Units which have been specifically requested by Purchaser or its counsel. Purchaser and its counsel, if any, have been afforded the opportunity to ask questions of the Company and have received what Purchaser believes to be satisfactory answers to any such inquiries. Neither such inquiries nor any other due diligence investigation conducted by Purchaser or its counsel or any of its representatives shall modify, amend or affect Purchaser's right to rely on the Company's representations and warranties contained in Section 3 below. Purchaser understands that Purchaser's investment in the Securities involves a high degree of risk. e. Governmental Review. Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. f. Transfer or Resale. Purchaser understands that (i) except as provided in the Registration Rights Agreement, the Securities have not been and are not being registered under the Securities Act or any state securities laws, and may not be transferred unless (a) subsequently registered thereunder, or (b) Purchaser shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (c) sold pursuant to Rule 144 promulgated under the Securities Act (or a successor rule) ("Rule 144"); (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case, other than pursuant to the Registration Rights Agreement). g. Legends. Purchaser understands that the Preferred Shares and Warrants and, until such time as the Conversion Shares and Warrant Shares have been registered under the Securities Act (including registration pursuant to Rule 416 thereunder) as contemplated by the Registration Rights Agreement or otherwise may be sold by Purchaser pursuant to Rule 144, the certificates for the Securities may bear a restrictive legend in substantially the following form: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. The securities have been acquired for investment and may not be sold, transferred or assigned in the absence of an effective registration statement for the securities under said Act, or an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, that registration is not required under said Act or unless sold pursuant to Rule 144 under said Act. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of such Security is registered under the Securities Act (including registration pursuant to Rule 416 thereunder), or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the Securities Act or (c) such holder provides the Company with reasonable assurances that such Security can be sold pursuant to Rule 144. Purchaser agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, pursuant to an effective registration statement or in compliance with an exemption from the registration requirements of the Securities Act. In the event the above legend is removed from any Security and thereafter the effectiveness of a registration statement covering such Security is suspended or the Company determines that a supplement or amendment thereto is required by applicable securities laws, then upon reasonable advance notice to Purchaser the Company may require that the above legend be placed on any such Security that cannot then be sold pursuant to an effective registration statement or Rule 144 and Purchaser shall cooperate in the prompt replacement of such legend. Such legend shall be removed when such Security may be sold pursuant to an effective registration statement or Rule 144. h. Authorization; Enforcement. This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of Purchaser and are valid and binding agreements of Purchaser enforceable in accordance with their terms. i. Residency. Purchaser is a resident of the jurisdiction set forth under such Purchaser's name on the Execution Page hereto executed by such Purchaser. j. Acknowledgments Regarding Placement Agent. Purchaser acknowledges that The Zanett Securities Corporation is acting as placement agent (the "Placement Agent") for the Securities being offered hereby and will be compensated by the Company for acting in such capacity. Purchaser further acknowledges that the Placement Agent has acted solely as placement agent in connection with the offering of the Securities by the Company, that the information and data provided to Purchaser and referred to in subsection (d) above or otherwise in connection with the transactions contemplated hereby have not been subjected to independent verification by the Placement Agent, and that the Placement Agent makes no representation or warranty with respect to the accuracy or completeness of such information, data or other related disclosure material. Purchaser further acknowledges that in making its decision to enter into this Agreement and purchase the Securities it has relied on its own examination of the Company and the terms of, and consequences, of holding, the Securities. Purchaser further acknowledges that the provisions of this Section 2(j) are for the benefit of, and may be enforced by, the Placement Agent. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each Purchaser that: a. Organization and Qualification. The Company and each of its subsidiaries is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure so to qualify would have a Material Adverse Effect. "Material Adverse Effect" means any material adverse effect on (i) the Securities; (ii) the ability of the Company to perform its obligations hereunder, the Certificate of Designation, the Warrants or the Registration Rights Agreement or (iii) the business, operations, properties, prospects or financial condition of the Company and its subsidiaries, taken as a whole. b. Authorization; Enforcement. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Warrants and the Registration Rights Agreement, to issue and sell the Units, Preferred Shares and Warrants in accordance with the terms hereof, and to issue the Conversion Shares upon conversion of the Preferred Shares and the Warrant Shares upon exercise of the Warrants in accordance with the terms of the Certificate of Designation and the Warrants; (ii) the execution, delivery and performance of this Agreement, the Warrants and the Registration Rights Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation the issuance of the Preferred Shares and the issuance and reservation for issuance of the Conversion Shares and Warrant Shares) have been duly authorized by the Company's Board of Directors and, no further consent or authorization of the Company, its Board or Directors, or its stockholders is required (under Rule 4460(i) promulgated by the National Association of Securities Dealers or otherwise); (iii) this Agreement has been duly executed and delivered by the Company; and (iv) this Agreement constitutes, and, upon execution and delivery by the Company of the Registration Rights Agreement and Warrants, such agreements will constitute, valid and binding obligations of the Company enforceable against the Company in accordance with their terms. c. Capitalization. The capitalization of the Company as of the date hereof, including the authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company's stock option plans, the number of shares issuable and reserved for issuance pursuant to securities (other than the Preferred Shares and Warrants) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares to be reserved for issuance upon conversion of the Preferred Shares and exercise of the Warrants is set forth on Schedule 3(c). All of such outstanding shares of capital stock have been, or upon issuance will be, validly issued, fully paid and nonassessable. No shares of capital stock of the Company (including the Preferred Shares, the Conversion Shares and the Warrant Shares) are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances. Except for the Securities and as set forth on Schedule 3(c), as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act (except the Registration Rights Agreement). Except as set forth on Schedule 3(c), there are no securities or instruments containing antidilution or similar provisions that will be triggered by the issuance of the Securities in accordance with the terms of this Agreement, the Certificate of Designation or the Warrants. The Company has furnished to each Purchaser true and correct copies of the Company's Certificate of Incorporation as in effect on the date hereof ("Certificate of Incorporation"), the Company's By-laws as in effect on the date hereof (the "By-laws"), and all other instruments and agreements governing securities convertible into or exercisable or exchangeable for Common Stock of the Company. The Certificate of Designation, in the form attached hereto, has been duly filed with the Secretary of State of the State of Delaware and, upon the issuance of the Preferred Shares in accordance with the terms hereof, each Purchaser shall be entitled to the rights set forth therein. The Company shall provide each Purchaser with a written update of this representation signed by the Company's Chief Executive Officer on behalf of the Company as of the date of each closing hereunder. The only changes to such schedule after the date hereof shall be the result of issuances of capital stock not in violation of any of the provisions of this Agreement (including the schedules hereto). d. Issuance of Shares. The Preferred Shares are duly authorized and, upon issuance in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances and will not be subject to preemptive rights or other similar rights of stockholders of the Company and will not impose personal liability on the holders thereof. The Conversion Shares and Warrant Shares are duly authorized and reserved for issuance, and, upon conversion of the Preferred Shares and exercise of the Warrants in accordance with the terms thereof, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances and will not be subject to preemptive rights or other similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof. e. No Conflicts. The execution, delivery and performance of this Agreement, the Warrants and the Registration Rights Agreement by the Company, the performance by the Company of its obligations under the Certificate of Designation, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance, as applicable, of the Preferred Shares, Warrants, Conversion Shares and Warrant Shares) will not (i) result in a violation of the Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including U.S. federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected (except, with respect to clause (ii), for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Except as set forth on Schedule 3(e), neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its subsidiaries is in default (and no event has occurred which, with notice or lapse of time or both, would put the Company or any of its subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, except for possible defaults or rights as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its subsidiaries are not being conducted, and shall not be conducted so long as a Purchaser owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity, except for possible violations the sanctions for which either singly or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and the Registration Rights Agreement, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self regulatory agency in order for it to execute, deliver or perform any of its obligations under this Agreement, the Warrants or the Registration Rights Agreement or to perform its obligations under the Certificate of Designation, in each case in accordance with the terms hereof or thereof. Except as set forth on Schedule 3(e), the Company is not in violation of the listing requirements of the NASDAQ National Market ("NASDAQ") and does not reasonably anticipate that the Common Stock will be delisted by NASDAQ for the foreseeable future. f. SEC Documents, Financial Statements. Since December 31, 1993, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the foregoing, filed prior to the date hereof and after December 31, 1993, and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits) incorporated by reference therein, being hereinafter referred to herein as the "SEC Documents"). The Company has delivered to each Purchaser true and complete copies of the SEC Documents, except for such exhibits, schedules and incorporated documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents filed prior to the date hereof, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of such financial statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which liabilities and obligations referred to in clauses (i) and (ii) individually or in the aggregate, are not material to the financial condition or operating results of the Company. Without limiting the accuracy of the representations contained in this Section 3(f), the Purchasers acknowledge that the Company has disclosed to the Purchasers the items set forth on Schedule 3(f). g. Absence of Certain Changes. Since December 31, 1996, there has been no material adverse change and no material adverse development in the business, properties, operations, prospects, financial condition or results of operations of the Company except as disclosed in Schedule 3(g) or in the SEC Documents filed prior to the date hereof. h. Absence of Litigation. Except as disclosed in the SEC Documents filed prior to the date hereof, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company, any of its subsidiaries, or any of their respective directors or officers in their capacities as such. i. Intellectual Property. Except as set forth on Schedule 3(i), each of the Company and its subsidiaries owns or is licensed to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, permits, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "Intangibles") necessary for the conduct of its business as now being conducted and as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. To the best knowledge of the Company, neither the Company nor any subsidiary of the Company infringes or is in conflict with any right of any other person with respect to any Intangibles which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received written notice of any pending conflict with or infringement upon such third party Intangibles. Neither the Company nor any of its subsidiaries has entered into any consent, indemnification, forbearance to sue or settlement agreements with respect to the validity of the Company's or its subsidiaries' ownership or right to use its Intangibles and, to the best knowledge of the Company, there is no reasonable basis for any such claim to be successful. Except as set forth on Schedule 3(i), the Intangibles are valid and enforceable and no registration relating thereto has lapsed, expired or been abandoned or cancelled or is the subject of cancellation or other adversarial proceedings, and all applications therefor are pending and are in good standing. The Company and its subsidiaries have complied, in all material respects, with its respective contractual obligations relating to the protection of the Intangibles used pursuant to licenses. To the best knowledge of the Company, no person is infringing on or violating the Intangibles owned or used by the Company or its subsidiaries. j. Foreign Corrupt Practices. Neither the Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. k. Disclosure. All information relating to or concerning the Company set forth in this Agreement or provided to the Purchasers pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to Company or its subsidiaries or their respective businesses, properties, prospects, operations or financial conditions, which has not been publicly disclosed but, under applicable law, rule or regulation, would be required to be disclosed by the Company in a registration statement filed on the date hereof by the Company under the Securities Act with respect to the primary issuance of the Company's securities. l. Acknowledgment Regarding Purchasers' Purchase of the Units. The Company acknowledges and agrees that none of the Purchasers or the Placement Agent are acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, and any advice given by any Purchaser or the Placement Agent, or any of their representatives or agents, in connection with this Agreement and the transactions contemplated hereby is merely incidental to each Purchaser's purchase of Units or such Placement's Agent role as a placement agent and has not been relied upon the Company in any way. The Company further represents to each Purchaser that the Company's decision to enter into this Agreement has been based solely on an independent evaluation by the Company and its representatives. m. [Intentionally Omitted] n. No General Solicitation. Neither the Company nor any distributor participating on the Company's behalf in the transactions contemplated hereby (if any) nor any person acting for the Company, or any such distributor, has conducted any "general solicitation," as such term is defined in Regulation D, with respect to any of the Securities being offered hereby. o. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offerers to buy any security under circumstances that would require registration of the Securities being offered hereby under the Securities Act or cause this offering of Securities to be integrated with any prior offering of the Company for purposes of the Securities Act or any applicable stockholder approval provisions. p. No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments by any Purchaser relating to this Agreement or the transactions contemplated hereby, except for dealings with the Placement Agent whose commissions and fees will be paid for by the Company. q. Acknowledgment of Dilution. The number of Conversion Shares issuable upon conversion of the Preferred Shares may increase in certain circumstances, including the circumstance wherein the trading price of the Common Stock declines. The Company acknowledges that its obligation to issue Conversion Shares upon conversion of the Preferred Shares in accordance with the Certificate of Designation is absolute and unconditional, regardless of the dilution that such issuance may have on the ownership interests of other stockholders. Taking the foregoing into account, the Company's Board of Directors has determined that the issuance of the Units hereunder and the consummation of the other transactions contemplated hereby are in the best interests of the Company and its stockholders. r. Title. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(r) or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries. s. Tax Status. Except as set forth on Schedule 3(s), the Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. 4. COVENANTS. a. Best Efforts. The parties shall use their best efforts timely to satisfy each of the conditions described in Section 6 and 7 of this Agreement. b. Form D: Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Purchaser promptly after such filing. The Company shall, on or before the date of the First Closing take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Purchasers pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States or obtain exemption therefrom, and shall provide evidence of any such action so taken to the Purchasers on or prior to the date of the First Closing. c. Reporting Status. So long as any Purchaser beneficially owns any of the Securities, the Company shall timely file all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. d. Use of Proceeds. The Company shall use the proceeds from the sale of the Units as set forth in Schedule 4(d). None of the proceeds from the sale of the Units shall be used to redeem or otherwise acquire, or to pay any dividend or make any distribution with respect to, any of the Company's capital stock (including, without limitation, to satisfy any obligation which the Company may have in connection with the transactions contemplated by that certain Purchase Agreement dated December 31, 1996 by and between the Company and CDR Enterprises). e. Right of First Offer. The Company agrees that during the period beginning on the date hereof and ending two hundred and seventy (270) days following the date of the last closing which occurs hereunder (the "Lock-Up Period"), the Company will not, without the prior written consent of Purchasers holding two-thirds of the Preferred Shares then outstanding, contract with any party to obtain additional equity financing (including debt financing with an equity component) in any form (a "Future Offering") unless the Company shall have first delivered to each Purchaser at least five (5) business days prior to the closing of such Future Offering, written notice describing the proposed Future Offering, including the terms and conditions thereof, and providing each Purchaser and its affiliates, an option during the five (5) business day period following delivery of such notice to purchase the lower of (x) the aggregate purchase price of all Units purchased by such Purchaser hereunder and (y) such Purchaser's pro rata portion (based on the aggregate purchase price of all Units purchased by such Purchaser hereunder compared to the aggregate purchase price of all Units purchased hereunder) of the securities being offered in the Future Offering on the same terms as contemplated by such Future Offering, (the limitation referred to in this sentence is referred to as the "Capital Raising Limitation"). The Capital Raising Limitation shall not apply to any transaction involving issuances of securities as consideration for a merger, consolidation or acquisition of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or as consideration for the acquisition of a business, product or license by the Company or exercise of options by employees or directors. The Capital Raising Limitation also shall not apply to (i) the issuance of securities pursuant to an underwritten public offering, (ii) the issuance of securities to holders of the Company's Series A Cumulative Convertible Preferred Stock in connection with the restructuring of such capital stock, (iii) the issuance of securities upon exercise or conversion of the Company's options, warrants or other convertible securities outstanding as of the date hereof, (iv) the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan for the benefit of the Company's employees or directors or (v) the issuance of securities to Alex. Brown & Sons, Incorporated as compensation for services rendered to the Company pursuant to that certain letter agreement dated as of August 13, 1997. Notwithstanding the foregoing, no Purchaser shall have any rights under this Section 7(e) at any time that it no longer holds any Preferred Shares. f. Expenses. Except as otherwise provided in Section 5 of the Registration Rights Agreement, each party hereto shall be responsible for its own expenses incurred in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith. g. Financial Information. The Company agrees to send the following reports to each Purchaser until such Purchaser transfers, assigns or sells all of its Securities: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy statements and any Current Reports on Form 8-K; and (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its subsidiaries. h. Reservation of Shares. The Company shall at all times have authorized and reserved for the purpose of issuance a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Preferred Shares and issuance of the Conversion Shares in connection therewith and the full exercise of the Warrants and the issuance of the Warrant Shares in connection therewith and as otherwise required by the Certificate of Designation and the Warrants. The Company shall not reduce the number of shares reserved for issuance upon conversion of the Preferred Shares and the full exercise of the Warrants without the consent of Purchasers holding a majority of the Preferred Shares then held by all Purchasers. i. Listing. The Company shall promptly secure the listing of the Conversion Shares and Warrant Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Preferred Shares and Warrant Shares from time to time issuable upon exercise of the Warrants. The Company will not take any action adverse to the continued, and will use all commercially reasonable and lawful efforts to continue the listing and trading of its Common Stock on the NASDAQ, the NASDAQ Small Cap Market ("SmallCap"), the New York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX") and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the National Association of Securities Dealers ("NASD") and such exchanges, as applicable. The Company shall promptly provide to each holder of Preferred Shares copies of any notices it receives regarding the continued eligibility of the Common Stock for trading in the over-the-counter market or, if applicable, any securities exchange (including the NASDAQ) on which securities of the same class or series issued by the Company are then listed or quoted, if any. j. Corporate Existence. So long as a Purchaser beneficially owns any Preferred Shares or Warrants, the Company shall maintain its corporate existence, and in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, the Corporation shall ensure that the surviving or successor entity in such transaction assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith regardless of whether or not the Company would have had a sufficient number of shares of Common Stock authorized and available for issuance in order to effect the conversion of all Preferred Shares and exercise in full of all Warrants outstanding as of the date of such transaction. k. No Integrated Offerings. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the Securities Act or cause this offering of Securities to be integrated with any other offering of securities by the Company for purposes of NASDAQ Rule 4460(i). l. Transfer Agent Instructions. No later than the tenth business day following the date of the First Closing the Company shall have delivered evidence reasonably satisfactory to the Purchasers that the Company's transfer agent has agreed to act in accordance with irrevocable instructions in the form attached hereto as Exhibit E. m. Compliance with Certificate of Designation. The Company shall comply with all of the provisions contained in the Certificate of Designation. n. Stockholder Approval. The Company shall hold a special meeting of its stockholders no later than June 15, 1998 and use its best efforts to obtain at such meeting such approvals of the Company's stockholders as may be required to issue all of the shares of Common Stock issuable upon conversion of, or otherwise with respect to, the Preferred Shares and the shares of Common Stock issuable upon exercise of, or otherwise with respect to, the Warrants without violating NASD Rule 4460(i) (or any successor rule thereto which may then be in effect) (the "Stockholder Approval"). The Company shall comply with the filing and disclosure requirements of Section 14 promulgated under the Exchange Act in connection with the solicitation, acquisition and disclosure of such Stockholder Approval. The Company represents and warrants that its Board of Directors has unanimously recommended that the Company's stockholders approve the proposals contemplated by this Section 4(n) and shall so indicate such recommendation in the proxy statement used to solicit such Stockholder Approval. 5. TRANSFER AGENT INSTRUCTIONS. a. The Company shall instruct its transfer agent to issue certificates, registered in the name of each Purchaser or its nominee, for the Conversion Shares and Warrant Shares in such amounts as specified from time to time by such Purchaser to the Company upon conversion of the Preferred Shares or exercise of the Warrants. To the extent and during the periods provided in Section 2(f) and 2(g) of this Agreement, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. b. The Company warrants that no instruction other than such instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof in the case of all of the Securities prior to registration of the Conversion Shares and Warrant Shares under the Securities Act, will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. Nothing in this Section shall affect in any way each Purchaser's obligations and agreement set forth in Section 2(g) hereof to resell the Securities pursuant to an effective registration statement or in compliance with an exemption from the registration requirements of applicable securities law. c. If a Purchaser provides the Company with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from registration, or a Purchaser provides the Company with reasonable assurances that such Securities may be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares and Warrant Shares promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by a Purchaser. d. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Purchaser by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that a Purchaser shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Units to a Purchaser at a closing hereunder is subject to the satisfaction, at or before the applicable closing, of each of the following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion. The obligation of the Company to issue and sell the Units to any Purchaser hereunder is distinct and separate from its obligation to issue and sell Units to any other Purchaser hereunder and any failure by one or more Purchasers to fulfill the conditions set forth herein or to consummate the purchase of Units hereunder will not relieve the Company of its obligations with respect to any other Purchaser. a. With respect to the First Closing: (i) The applicable Purchaser shall have executed the signature page to this Agreement and the Registration Rights Agreement, and delivered the same to the Company. (ii) The applicable Purchaser shall have delivered the Purchase Price for the Units purchased at the First Closing in accordance with Section 1(b) above. (iii) The representations and warranties of the applicable Purchaser shall be true and correct as of the date when made and as of the date and time of such closing as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and the applicable Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Purchaser at or prior to the date of the First Closing. (iv) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. b. With respect to the Second Closing and the Third Closing: (i) The applicable Purchaser shall have executed the signature page to this Agreement and the Registration Rights Agreement, and delivered the same to the Company. (ii) The applicable Purchaser shall have paid the Purchase Price for the Units purchased at such closing in accordance with Section 1(b) above. (iii) The representations and warranties of the applicable Purchaser shall be true and correct as of the date when made and as of the date and time of such closing as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and the applicable Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the applicable Purchaser at or prior to the date of such closing. (iv) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. (v) The Stockholder Approval contemplated by Section 4(n) shall have been obtained. 7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE. The obligation of each Purchaser hereunder to purchase the Units to be purchased by it at the closings is subject to the satisfaction, at or before the applicable closing date, of each of the following conditions, provided that these conditions are for such Purchaser's sole benefit and may be waived by such Purchaser at any time in the Purchaser's sole discretion: a. With respect to the First Closing: (i) The Company shall have executed the signature page to this Agreement and the Registration Rights Agreement, and delivered the same to such Purchaser. (ii) The Certificate of Designation shall have been accepted for filing with the Secretary of State of the State of Delaware and a copy thereof certified by the Secretary of State of Delaware shall have been delivered to such Purchaser. (iii) The Company shall have delivered to such Purchaser duly executed certificates and Warrant agreements (each in such denominations as such Purchaser shall request) representing the Preferred Shares and Warrants being so purchased by such Purchaser at the First Closing in accordance with Section 1(b) above. (iv) The Common Stock shall be authorized for quotation on NASDAQ and trading in the Common Stock (or NASDAQ generally) shall not have been suspended by the SEC or NASDAQ. (v) The representations and warranties of the Company shall be true and correct as of the date when made and as of the date of the First Closing as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the date of the First Closing. Such Purchaser shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the date of the First Closing to the foregoing effect and as to such other matters as may be reasonably requested by such Purchaser. (vi) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. (vii) Such Purchaser shall have received an opinion of the Company's counsel, dated as of the date of the First Closing, in form, scope and substance reasonably satisfactory to the Purchaser and in substantially the form of Exhibit D attached hereto. (viii) The aggregate number of Units being purchased hereunder by all Purchasers at the First Closing hereunder shall be at least 3,250. b. With respect to the Second Closing and the Third Closing: (i) The Company shall have executed this Agreement and the Registration Rights Agreement, and delivered the same to such Purchaser. (ii) The Company shall have delivered to such Purchaser duly executed certificates and Warrant agreements (each in such denominations as such Purchaser shall request) representing the Preferred Shares and Warrants being so purchased by such Purchaser at such closing in accordance with Section 1(b) above. (iii) The Common Stock shall be authorized for quotation on NASDAQ and trading in the Common Stock (or NASDAQ generally) shall not have been suspended by the SEC or NASDAQ. (iv) The representations and warranties of the Company shall be true and correct as of the date when made and as of the date of such closing as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the date of such closing. Such Purchaser shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the date of such closing, to the foregoing effect and as to such other matters as may be reasonably requested by such Purchaser. (v) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. (vi) Such Purchaser shall have received an opinion of the Company's counsel, dated as of the date of such closing, in form, scope and substance reasonably satisfactory to such Purchaser and in substantially the form of Exhibit D attached hereto. (vii) No material adverse change or development in the business, operations, properties, or financial condition, or results of operations of the Company shall have occurred since the First Closing except for such changes or developments set forth on Schedule 7(b)(vii). (viii) The Stockholder Approval contemplated by Section 4(n) shall have been obtained. 8. GOVERNING LAW; MISCELLANEOUS. a. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company and the Purchasers irrevocably consent to the exclusive jurisdiction of the United States federal courts located in the State of Delaware in any suit or proceeding based on or arising under this Agreement and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waived the defense of an inconvenient forum to the maintenance of such suit or proceeding. Service of process on the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the right of any Purchaser to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. b. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. In the event any signature is delivered by facsimile transmission, the party using such means of delivery shall cause the manually executed Executive Page(s) to be physically delivered to the other party within five (5) days of the execution hereof. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchasers make any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement and no provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Purchasers. f. Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 Attn: President with a copy to: General Counsel's Office Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 If to any Purchaser, to such address set forth under such Purchaser's name on the Execution Page hereto executed by such Purchaser. Each party shall provide notice to the other parties of any change in address. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, any Purchaser may assign its rights hereunder to any of its "affiliates," as that term is defined under the Exchange Act, without the consent of the Company; provided, such assignee is an "accredited investor" as such term is defined in Rule 501(a) of Regulation D and such assignment will not impose any significant obligations on the Company under the blue sky laws of any jurisdiction. This provision shall not limit a Purchaser's right to transfer the Securities pursuant to the terms of the Certificate of Designation, the Warrants and this Agreement or to assign such Purchaser's rights hereunder to any such transferee. h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person, except for the provisions of Section 2(j) and 3(l) which are for the benefit of, and may be enforced by, the Placement Agent. i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the closings hereunder notwithstanding any due diligence investigation conducted by or on behalf of any Purchasers. Moreover, none of the representations and warranties made by the Company herein shall act as a waiver of any rights or remedies a Purchaser may have under applicable federal or state securities laws. Notwithstanding the foregoing, any disclosure made by the Company to the Purchasers in this Agreement (including, without limitation, in Section 3 hereof or in the Schedules attached hereto) shall constitute disclosure to the Purchasers for purposes of any applicable federal or state securities laws. The Company agrees to indemnify and hold harmless each Purchaser and each of such Purchaser's officers, directors, employees, partners, members, agents and affiliates for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations or covenants set forth herein, including advancement of expenses as they are incurred. j. Publicity. The Company and each Purchaser shall have the right to approve before issuance any press releases, SEC, NASDAQ or NASD filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Purchasers, to make any press release or SEC, NASDAQ or NASD filings with respect to such transactions as is required by applicable law and regulations (although the Purchasers shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof). k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. Termination. In the event that the First Closing shall not have occurred on or before December 8, 1997, unless the parties agree otherwise, this Agreement shall terminate at the close of business on such date. Notwithstanding any termination of this Agreement, any party not in breach of this Agreement shall preserve all rights and remedies it may have against another party hereto for a breach of this Agreement prior to the termination hereof. m. Joint Participation in Drafting. Each party to this Agreement has participated in the negotiation and drafting of this Agreement. As such, the language used herein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this Agreement to be duly executed as of the date first above written. NETWORK IMAGING CORPORATION By: Name: Title: PURCHASER: CAPITAL VENTURES INTERNATIONAL By: Susquehanna Securities Trading GmbH for the account of Capital Ventures International By: Martin Kobinger, Managing Director RESIDENCE: Cayman Islands ADDRESS: Susquehanna Securities Trading GmbH with a copy to: Oberlindau 7 Susquehanna Financial Group 60323 Frankfurt am Main 401 City Line Avenue Attn: Martin Kobinger, Suite 220 Bala Cynwyd, PA 19004-1122 Attn: Melita Saunders AGGREGATE SUBSCRIPTION AMOUNT Number of Units* to be Purchased at First Closing: 1,750 Purchase Price ($1,000 per Unit): $1,750,000 - -------- * Each Unit consists of one (1) Preferred Share and a Warrant to purchase seventy-five (75) shares of Common Stock. IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this Agreement to be duly executed as of the date first above written. NETWORK IMAGING CORPORATION By: Name: Title: PURCHASER: ZANETT LOMBARDIER, LTD. By:_____________________________ By: Name: Title: RESIDENCE: Cayman Islands ADDRESS: Zanett Lombardier, Ltd. c/o The Zanett Securities Corporation Tower 49, 31st Floor 12 East 49th Street New York, NY 10017 Telecopy: (212) 588-0205 Attn: Claudio Guazzoni AGGREGATE SUBSCRIPTION AMOUNT Number of Units* to be Purchased at First Closing: 750 Purchase Price ($1,000 per Unit): $750,000 - -------- * Each Unit consists of one (1) Preferred Share and a Warrant to purchase seventy-five (75) shares of Common Stock. IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this Agreement to be duly executed as of the date first above written. NETWORK IMAGING CORPORATION By: Name: Title: PURCHASER: - ---------------------------- BRUNO GUAZZONI By: Name: Title: RESIDENCE: Italy ADDRESS: Bruno Guazzoni c/o The Zanett Securities Corporation Tower 49, 31st Floor 12 East 49th Street New York, NY 10017 Telecopy: (212) 588-0205 Attn: Claudio Guazzoni AGGREGATE SUBSCRIPTION AMOUNT Number of Units* to be Purchased at First Closing: 750 Purchase Price ($1,000 per Unit): $750,000 - -------- * Each Unit consists of one (1) Preferred Share and a Warrant to purchase seventy-five (75) shares of Common Stock. EX-4.84 12 CAPITAL VENTURES WARRANT VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 131,250 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, CAPITAL VENTURES INTERNATIONAL or its registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to One Hundred Thirty-One Thousand Two Hundred Fifty (131,250) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.65. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 56,250 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, ZANETT LOMBARDIER, LTD. or its registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to Fifty-Six Thousand Two Hundred Fifty (56,250) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.65. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 56,250 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, BRUNO GUAZZONI or his registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to Fifty-Six Thousand Two Hundred Fifty (56,250) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.65. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). 12 VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 160,000 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, THE ZANETT SECURITIES CORPORATION or its registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to One Hundred Sixty Thousand (160,000) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.625. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). This Warrant is subject to the following terms, provisions, and conditions: 1. Manner of Exercise; Issuance of Certificates; Payment for Shares. (a) Subject to the provisions hereof, including, without limitation, the limitations contained in Section 7 hereof, this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant, together with a completed exercise agreement in the form attached hereto (the "Exercise Agreement"), to the Company during normal business hours on any business day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), which notice shall include a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered, and payment shall have been made for such shares as set forth above. (b) Upon any exercise of this Warrant, the holder shall surrender this Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares for which this Warrant is being exercised by a fraction, the numerator of which shall be the difference between the last sale price of a share of Common Stock on the trading day immediately preceding the date of the Exercise Agreement (as reported on the principal securities market on which the Common Stock is traded) (the "Cashless Exercise Market Price") and the Exercise Price, and the denominator of which shall be the Cashless Exercise Market Price. (c) Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding two (2) business days, after this Warrant shall have been so exercised (the "Delivery Period"). The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder; provided, however, that no holder may designate any party to receive such certificates unless such recipient is an "accredited investor" within the meaning of Rule 501 under the Securities Act and such designation does not cause the Company any significant obligation under the blue sky laws of any jurisdiction. In lieu of delivering physical certificates representing the Common Stock issuable upon exercise, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the holder and its compliance with the provisions contained in this Section 1, so long as the certificates therefor do not bear a legend and the holder thereof is not obligated to return such certificates for the placement of a legend thereon, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon exercise to the holder by crediting the account of holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. (d) If, at any time, a holder of this Warrant submits this Warrant and an Exercise Agreement, and the Company fails for any reason to deliver, on or prior to the fourth business day following the expiration of the Delivery Period for such exercise, the number of shares of Common Stock to which the holder is entitled upon such exercise (an "Exercise Default"), then the Company shall pay to the holder payments ("Exercise Default Payments") for an Exercise Default in the amount of (a) (N/365), multiplied by (b) the closing sales price (as reported on the Nasdaq National Market, or if not so reported, as reported on the principal securities market or interdealer quotation system on which the Common Stock is traded or quoted) on the date the Exercise Agreement giving rise to the Exercise Default is transmitted in accordance with Section 1 (the "Exercise Default Date"), multiplied by (c) the number of shares of Common Stock the Company failed to so deliver in such Exercise Default, multiplied by (d) .24, where N = the number of days from the Exercise Default Date to the date that the Company effects the full exercise of this Warrant which gave rise to the Exercise Default. The accrued Exercise Default Payment for each calendar month shall be paid in cash or shall be convertible into Common Stock at the Exercise Price, at the holder's option, as follows: (i) In the event holder elects to take such payment in cash, cash payment shall be made to holder by the fifth (5th) day of the month following the month in which it has accrued; and (ii) In the event holder elects to take such payment in Common Stock, the holder may convert such payment amount into Common Stock at the Exercise Price (as in effect at the time of conversion) at any time after the fifth (5th) day of the month following the month in which it has accrued. Nothing herein shall limit the holder's right to pursue actual damages for the Company's failure to maintain a sufficient number of authorized shares of Common Stock as required pursuant to the terms of Section 3(b) hereof, or to otherwise issue shares of Common Stock upon exercise of this Warrant in accordance with the terms hereof, and each holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). 2. Period of Exercise. This Warrant is exercisable at any time or from time to time on or after the date hereof and before 5:00 p.m., New York City time on the fifth (5th) anniversary of the date hereof (the "Exercise Period"). 3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all taxes, liens, claims and encumbrances. (b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. (c) Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed or become listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all of the Company's assets. 4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Section 4. In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up or down to the nearest cent. (a) Adjustment of Exercise Price and Number of Shares upon Issuance of Convertible Securities. Except as otherwise provided in Sections 4(c) and 4(e) hereof, if and whenever after the First Closing under the Securities Purchase Agreement (the "First Closing") the Company issues, grants or sells any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities exercisable, convertible into or exchangeable for Common Stock ("Convertible Securities") at a price per share of Common Stock which is not based on a percentage of the market price of the Company's Common Stock in effect from time to time (a "Fixed Price") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options") or Convertible Securities which may be convertible or exchangeable for Common Stock at a Fixed Price that is less than the Exercise Price in effect at the time of such issuance, grant or sale, then the Exercise Price will, as of the date of the issuance, grant or sale of such Options or Convertible Securities, be immediately adjusted to the Fixed Price of such Options or Convertible Securities. (b) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise Price will be made pursuant to Section 4(a) (i) upon the grant or exercise of any stock or options which may hereafter be granted or exercised under any employee benefit plan of the Company now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose; (ii) upon the issuance of Preferred Stock or Warrants in accordance with terms of the Securities Purchase Agreement; (iii) upon the issuance of securities as consideration for a merger, consolidation or acquisition of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or as consideration for the acquisition of a business, product or license by the Company or (iv) upon the issuance of securities pursuant to an underwritten public offering. (c) Subdivision or Combination of Common Stock. If the Company, at any time after the First Closing, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company, at any time after the First Closing, combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately increased. (d) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 4, the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (e) Consolidation, Merger or Sale. In case of any consolidation of the Company with, or merger of the Company into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company at any time after the initial issuance of this Warrant (in each case at any time after the First Closing) (each of the foregoing being a "Fundamental Change"), then as a condition of such Fundamental Change, adequate provision will be made whereby the holder of this Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock otherwise issuable upon the exercise of this Warrant, such shares of stock, securities or assets as would have been issued or payable in such Fundamental Change with respect to or in exchange for the number of shares of Common Stock which would have been issuable and receivable upon exercise of this Warrant had such Fundamental Change not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company will not effect any Fundamental Change unless prior to the consummation thereof, the successor corporation (if other than the Company) assumes by written instrument the obligations under this Section 4 and the obligations to deliver to the holder of this Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, the holder may be entitled to acquire. (f) Distribution of Assets. In case the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Company's shareholders of cash or shares (or rights to acquire shares) of capital stock of a subsidiary) (a "Distribution"), at any time after the First Closing, then the holder of this Warrant shall be entitled upon exercise of this Warrant for the purchase of any or all of the shares of Common Stock subject hereto, to receive the amount of such assets (or rights) which would have been payable to the holder had such holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. (g) Purchase Rights. If at any time after the First Closing, the Company issues any securities or rights to purchase stock, warrants, securities or other property (the "Purchase Rights") pro rata to the record holders of any class of Common Stock, then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock issuable upon complete exercise of this Warrant (without giving effect to the limitations contained in Section 7(g)) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (h) Notice of Adjustment. Upon the occurrence of any event which requires any adjustment of the Exercise Price, then, and in each such case, the Company shall give notice thereof to the holder of this Warrant, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares issuable upon exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company. (i) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. (j) No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Market Price of a share of Common Stock on the date of such exercise. (k) Other Notices. In case at any time: (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution (other than dividends or distributions payable in cash out of retained earnings consistent with the Company's past practices with respect to declaring dividends and making distributions) to the holders of the Common Stock; (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all of its assets to, another corporation or entity; or (iv) there shall be a voluntary or involuntary dis- solution, liquidation or winding-up of the Company; then, in each such case, the Company shall give to the holder of this Warrant (a) notice of the date on which the books of the Company shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution, or subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least 30 days prior to the record date or the date on which the Company's books are closed in respect thereto. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. (l) Certain Events. If, at any time after the initial issuance of this Warrant, any event occurs of the type contemplated by the adjustment provisions of this Section 4 but not expressly provided for by such provisions, the Company will give notice of such event as provided in Section 4(h) hereof, and the Company's Board of Directors will make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock acquirable upon exercise of this Warrant so that the rights of the holder shall be neither enhanced nor diminished by such event. (m) Definition of Common Stock. For purposes of this Section 4, "Common Stock" includes the Common Stock and any additional class of stock of the Company having no preference as to dividends or distributions on liquidation, provided that the shares issuable pursuant to this Warrant shall include only Common Stock, par value $.0001 per share, in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Section 4(e) hereof, the stock or other securities or property provided for in such Section. 5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the holder of this Warrant or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the holder of this Warrant. 6. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company. No provision of this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7. Transfer, Exchange, Redemption and Replacement of Warrant. (a) Restriction on Transfer. This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Company referred to in Section 7(e) below, provided, however, that any transfer or assignment shall be subject to the conditions set forth in Section 7(f) and (g) hereof and to the provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Section 8 hereof are assignable only in accordance with the provisions of that certain Registration Rights Agreement, dated as of December 8, 1997, by and among the Company and the other signatories thereto (the "Registration Rights Agreement"). (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the holder hereof at the office or agency of the Company referred to in Section 7(e) below, for new Warrants of like tenor of different denominations representing in the aggregate the right to receive up to the number of shares of Common Stock which may be issuable hereunder, each of such new Warrants to represent the right to receive such number of shares as shall be designated by the holder hereof at the time of such surrender. (c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Section 7, this Warrant shall be promptly canceled by the Company. The Company shall pay all expenses (other than legal expenses and taxes, if any, incurred by the Holder or transferees) and charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 7. (e) Warrant Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (f) Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such exercise, transfer, or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter, status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. (g) Additional Restrictions on Exercise or Transfer. Notwithstanding anything contained herein to the contrary, in no event shall the holder hereof exercise Warrants to the extent that (a) the number of shares of Common Stock beneficially owned by such holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised portion of the Warrants or the unexercised or unconverted portion of any other securities (including, without limitation, the Preferred Stock) of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein) and (b) the number of shares of Common Stock issuable upon exercise of the Warrants (or portion thereof) with respect to which the determination described herein is being made, would result in beneficial ownership by such holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (a) hereof. The restrictions contained in this Section 7(g) may not be amended without the consent of the holder of this Warrant and the holders of a majority of the Company's then outstanding Common Stock. 8. Registration Rights. The initial holder of this Warrant (and certain assignees thereof) is entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in the Registration Rights Agreement. 9. Notices. Any notices required or permitted to be given under the terms of this Warrant shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 Attn: President with copy to: General Counsel's Office Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 and if to the holder, at such address as such holder shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 9. 10. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company irrevocably consents to the jurisdiction of the United States federal courts located in the State of Delaware, in any suit or proceeding based on or arising under this Warrant and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company agrees that service of process upon the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the holder's right to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 11. Miscellaneous. (a) Amendments. This Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the holder hereof. (b) Descriptive Headings. The descriptive headings of the several Sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. NETWORK IMAGING CORPORATION By: ________________________ Name:___________________ Title:____________________ FORM OF EXERCISE AGREEMENT (To be Executed by the Holder in order to Exercise the Warrant) The undersigned hereby irrevocably exercises this Warrant with respect to _____________ of the shares of common stock of Network Imaging Corporation, a Delaware corporation (the "Company"), evidenced by the attached Warrant, and is hereby entitled to receive _______ shares of Common Stock determined as follows in accordance with the conditions and provisions of said Warrant: A. No. of shares subject to this Exercise __________ shares B. Last sale price on trading day immediately preceding the date of this Exercise Agreement $ C. Exercise Price $ D. Number of shares of Common Stock issuable pursuant to this Exercise Agreement equals A x B-C --- B or __________ shares i. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any Common Stock obtained on exercise of the Warrant, except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws, and agrees that the following legend may be affixed to the stock certificate for the Common Stock hereby subscribed for if resale of such Common Stock is not registered or if Rule 144 is unavailable: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ii. Check appropriate box. [ ] The undersigned hereby requests that the Company electronically trans- mit the Common Stock issuable pursuant to this Exercise Agreement to the account of the undersigned's Prime Broker (which is __________) with DTC through its Deposit Withdrawal Agent Commission System. [ ] The undersigned requests that stock certificates for such shares be issued, and a Warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the Holder and delivered to the undersigned at the address set forth below: Dated:_________________ Signature of Holder ------------------------------------ Name of Holder (Print) Address: ------------------------------------ ------------------------------------ ------------------------------------ FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to: Name of Assignee Address No of Shares , and hereby irrevocably constitutes and appoints ______________ ________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Dated: _____________________, ____, In the presence of - ------------------ Name: ____________________________ Signature: _______________________ Title of Signing Officer or Agent (if any): ________________________ Address: ________________________ ________________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. EX-4.85 13 ZANETT LOMBARDIER WARRANT VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 56,250 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, ZANETT LOMBARDIER, LTD. or its registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to Fifty-Six Thousand Two Hundred Fifty (56,250) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.65. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 56,250 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, ZANETT LOMBARDIER, LTD. or its registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to Fifty-Six Thousand Two Hundred Fifty (56,250) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.65. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 56,250 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, BRUNO GUAZZONI or his registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to Fifty-Six Thousand Two Hundred Fifty (56,250) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.65. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). 12 VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 160,000 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, THE ZANETT SECURITIES CORPORATION or its registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to One Hundred Sixty Thousand (160,000) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.625. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). This Warrant is subject to the following terms, provisions, and conditions: 1. Manner of Exercise; Issuance of Certificates; Payment for Shares. (a) Subject to the provisions hereof, including, without limitation, the limitations contained in Section 7 hereof, this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant, together with a completed exercise agreement in the form attached hereto (the "Exercise Agreement"), to the Company during normal business hours on any business day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), which notice shall include a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered, and payment shall have been made for such shares as set forth above. (b) Upon any exercise of this Warrant, the holder shall surrender this Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares for which this Warrant is being exercised by a fraction, the numerator of which shall be the difference between the last sale price of a share of Common Stock on the trading day immediately preceding the date of the Exercise Agreement (as reported on the principal securities market on which the Common Stock is traded) (the "Cashless Exercise Market Price") and the Exercise Price, and the denominator of which shall be the Cashless Exercise Market Price. (c) Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding two (2) business days, after this Warrant shall have been so exercised (the "Delivery Period"). The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder; provided, however, that no holder may designate any party to receive such certificates unless such recipient is an "accredited investor" within the meaning of Rule 501 under the Securities Act and such designation does not cause the Company any significant obligation under the blue sky laws of any jurisdiction. In lieu of delivering physical certificates representing the Common Stock issuable upon exercise, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the holder and its compliance with the provisions contained in this Section 1, so long as the certificates therefor do not bear a legend and the holder thereof is not obligated to return such certificates for the placement of a legend thereon, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon exercise to the holder by crediting the account of holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. (d) If, at any time, a holder of this Warrant submits this Warrant and an Exercise Agreement, and the Company fails for any reason to deliver, on or prior to the fourth business day following the expiration of the Delivery Period for such exercise, the number of shares of Common Stock to which the holder is entitled upon such exercise (an "Exercise Default"), then the Company shall pay to the holder payments ("Exercise Default Payments") for an Exercise Default in the amount of (a) (N/365), multiplied by (b) the closing sales price (as reported on the Nasdaq National Market, or if not so reported, as reported on the principal securities market or interdealer quotation system on which the Common Stock is traded or quoted) on the date the Exercise Agreement giving rise to the Exercise Default is transmitted in accordance with Section 1 (the "Exercise Default Date"), multiplied by (c) the number of shares of Common Stock the Company failed to so deliver in such Exercise Default, multiplied by (d) .24, where N = the number of days from the Exercise Default Date to the date that the Company effects the full exercise of this Warrant which gave rise to the Exercise Default. The accrued Exercise Default Payment for each calendar month shall be paid in cash or shall be convertible into Common Stock at the Exercise Price, at the holder's option, as follows: (i) In the event holder elects to take such payment in cash, cash payment shall be made to holder by the fifth (5th) day of the month following the month in which it has accrued; and (ii) In the event holder elects to take such payment in Common Stock, the holder may convert such payment amount into Common Stock at the Exercise Price (as in effect at the time of conversion) at any time after the fifth (5th) day of the month following the month in which it has accrued. Nothing herein shall limit the holder's right to pursue actual damages for the Company's failure to maintain a sufficient number of authorized shares of Common Stock as required pursuant to the terms of Section 3(b) hereof, or to otherwise issue shares of Common Stock upon exercise of this Warrant in accordance with the terms hereof, and each holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). 2. Period of Exercise. This Warrant is exercisable at any time or from time to time on or after the date hereof and before 5:00 p.m., New York City time on the fifth (5th) anniversary of the date hereof (the "Exercise Period"). 3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all taxes, liens, claims and encumbrances. (b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. (c) Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed or become listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all of the Company's assets. 4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Section 4. In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up or down to the nearest cent. (a) Adjustment of Exercise Price and Number of Shares upon Issuance of Convertible Securities. Except as otherwise provided in Sections 4(c) and 4(e) hereof, if and whenever after the First Closing under the Securities Purchase Agreement (the "First Closing") the Company issues, grants or sells any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities exercisable, convertible into or exchangeable for Common Stock ("Convertible Securities") at a price per share of Common Stock which is not based on a percentage of the market price of the Company's Common Stock in effect from time to time (a "Fixed Price") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options") or Convertible Securities which may be convertible or exchangeable for Common Stock at a Fixed Price that is less than the Exercise Price in effect at the time of such issuance, grant or sale, then the Exercise Price will, as of the date of the issuance, grant or sale of such Options or Convertible Securities, be immediately adjusted to the Fixed Price of such Options or Convertible Securities. (b) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise Price will be made pursuant to Section 4(a) (i) upon the grant or exercise of any stock or options which may hereafter be granted or exercised under any employee benefit plan of the Company now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose; (ii) upon the issuance of Preferred Stock or Warrants in accordance with terms of the Securities Purchase Agreement; (iii) upon the issuance of securities as consideration for a merger, consolidation or acquisition of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or as consideration for the acquisition of a business, product or license by the Company or (iv) upon the issuance of securities pursuant to an underwritten public offering. (c) Subdivision or Combination of Common Stock. If the Company, at any time after the First Closing, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company, at any time after the First Closing, combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately increased. (d) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 4, the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (e) Consolidation, Merger or Sale. In case of any consolidation of the Company with, or merger of the Company into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company at any time after the initial issuance of this Warrant (in each case at any time after the First Closing) (each of the foregoing being a "Fundamental Change"), then as a condition of such Fundamental Change, adequate provision will be made whereby the holder of this Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock otherwise issuable upon the exercise of this Warrant, such shares of stock, securities or assets as would have been issued or payable in such Fundamental Change with respect to or in exchange for the number of shares of Common Stock which would have been issuable and receivable upon exercise of this Warrant had such Fundamental Change not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company will not effect any Fundamental Change unless prior to the consummation thereof, the successor corporation (if other than the Company) assumes by written instrument the obligations under this Section 4 and the obligations to deliver to the holder of this Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, the holder may be entitled to acquire. (f) Distribution of Assets. In case the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Company's shareholders of cash or shares (or rights to acquire shares) of capital stock of a subsidiary) (a "Distribution"), at any time after the First Closing, then the holder of this Warrant shall be entitled upon exercise of this Warrant for the purchase of any or all of the shares of Common Stock subject hereto, to receive the amount of such assets (or rights) which would have been payable to the holder had such holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. (g) Purchase Rights. If at any time after the First Closing, the Company issues any securities or rights to purchase stock, warrants, securities or other property (the "Purchase Rights") pro rata to the record holders of any class of Common Stock, then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock issuable upon complete exercise of this Warrant (without giving effect to the limitations contained in Section 7(g)) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (h) Notice of Adjustment. Upon the occurrence of any event which requires any adjustment of the Exercise Price, then, and in each such case, the Company shall give notice thereof to the holder of this Warrant, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares issuable upon exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company. (i) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. (j) No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Market Price of a share of Common Stock on the date of such exercise. (k) Other Notices. In case at any time: (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution (other than dividends or distributions payable in cash out of retained earnings consistent with the Company's past practices with respect to declaring dividends and making distributions) to the holders of the Common Stock; (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all of its assets to, another corporation or entity; or (iv) there shall be a voluntary or involuntary dis- solution, liquidation or winding-up of the Company; then, in each such case, the Company shall give to the holder of this Warrant (a) notice of the date on which the books of the Company shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution, or subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least 30 days prior to the record date or the date on which the Company's books are closed in respect thereto. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. (l) Certain Events. If, at any time after the initial issuance of this Warrant, any event occurs of the type contemplated by the adjustment provisions of this Section 4 but not expressly provided for by such provisions, the Company will give notice of such event as provided in Section 4(h) hereof, and the Company's Board of Directors will make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock acquirable upon exercise of this Warrant so that the rights of the holder shall be neither enhanced nor diminished by such event. (m) Definition of Common Stock. For purposes of this Section 4, "Common Stock" includes the Common Stock and any additional class of stock of the Company having no preference as to dividends or distributions on liquidation, provided that the shares issuable pursuant to this Warrant shall include only Common Stock, par value $.0001 per share, in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Section 4(e) hereof, the stock or other securities or property provided for in such Section. 5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the holder of this Warrant or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the holder of this Warrant. 6. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company. No provision of this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7. Transfer, Exchange, Redemption and Replacement of Warrant. (a) Restriction on Transfer. This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Company referred to in Section 7(e) below, provided, however, that any transfer or assignment shall be subject to the conditions set forth in Section 7(f) and (g) hereof and to the provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Section 8 hereof are assignable only in accordance with the provisions of that certain Registration Rights Agreement, dated as of December 8, 1997, by and among the Company and the other signatories thereto (the "Registration Rights Agreement"). (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the holder hereof at the office or agency of the Company referred to in Section 7(e) below, for new Warrants of like tenor of different denominations representing in the aggregate the right to receive up to the number of shares of Common Stock which may be issuable hereunder, each of such new Warrants to represent the right to receive such number of shares as shall be designated by the holder hereof at the time of such surrender. (c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Section 7, this Warrant shall be promptly canceled by the Company. The Company shall pay all expenses (other than legal expenses and taxes, if any, incurred by the Holder or transferees) and charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 7. (e) Warrant Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (f) Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such exercise, transfer, or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter, status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. (g) Additional Restrictions on Exercise or Transfer. Notwithstanding anything contained herein to the contrary, in no event shall the holder hereof exercise Warrants to the extent that (a) the number of shares of Common Stock beneficially owned by such holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised portion of the Warrants or the unexercised or unconverted portion of any other securities (including, without limitation, the Preferred Stock) of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein) and (b) the number of shares of Common Stock issuable upon exercise of the Warrants (or portion thereof) with respect to which the determination described herein is being made, would result in beneficial ownership by such holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (a) hereof. The restrictions contained in this Section 7(g) may not be amended without the consent of the holder of this Warrant and the holders of a majority of the Company's then outstanding Common Stock. 8. Registration Rights. The initial holder of this Warrant (and certain assignees thereof) is entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in the Registration Rights Agreement. 9. Notices. Any notices required or permitted to be given under the terms of this Warrant shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 Attn: President with copy to: General Counsel's Office Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 and if to the holder, at such address as such holder shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 9. 10. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company irrevocably consents to the jurisdiction of the United States federal courts located in the State of Delaware, in any suit or proceeding based on or arising under this Warrant and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company agrees that service of process upon the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the holder's right to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 11. Miscellaneous. (a) Amendments. This Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the holder hereof. (b) Descriptive Headings. The descriptive headings of the several Sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. NETWORK IMAGING CORPORATION By: ________________________ Name:___________________ Title:____________________ FORM OF EXERCISE AGREEMENT (To be Executed by the Holder in order to Exercise the Warrant) The undersigned hereby irrevocably exercises this Warrant with respect to _____________ of the shares of common stock of Network Imaging Corporation, a Delaware corporation (the "Company"), evidenced by the attached Warrant, and is hereby entitled to receive _______ shares of Common Stock determined as follows in accordance with the conditions and provisions of said Warrant: A. No. of shares subject to this Exercise _________ shares B. Last sale price on trading day immediately preceding the date of this Exercise Agreement $ C. Exercise Price $ D. Number of shares of Common Stock issuable pursuant to this Exercise Agreement equals A x B-C --- B or _________ shares i. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any Common Stock obtained on exercise of the Warrant, except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws, and agrees that the following legend may be affixed to the stock certificate for the Common Stock hereby subscribed for if resale of such Common Stock is not registered or if Rule 144 is unavailable: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ii. Check appropriate box. [ ] The undersigned hereby requests that the Company electronically transmit the Common Stock issuable pursuant to this Exercise Agreement to the account of the undersigned's Prime Broker (which is __________) with DTC through its Deposit Withdrawal Agent Commission System. [ ] The undersigned requests that stock certificates for such shares be issued, and a Warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the Holder and delivered to the undersigned at the address set forth below: Dated:_________________ Signature of Holder ------------------------------------ Name of Holder (Print) Address: ------------------------------------ ------------------------------------ ------------------------------------ FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to: Name of Assignee Address No of Shares , and hereby irrevocably constitutes and appoints ______________ ________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Dated: _____________________, ____, In the presence of - ------------------ Name: ____________________________ Signature: _______________________ Title of Signing Officer or Agent (if any): _______________________ _______________________ _______________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. EX-4.86 14 GUAZZONI WARRANT VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 56,250 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, BRUNO GUAZZONI or its registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to Fifty-Six Thousand Two Hundred Fifty (56,250) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.65. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 56,250 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, ZANETT LOMBARDIER, LTD. or its registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to Fifty-Six Thousand Two Hundred Fifty (56,250) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.65. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 56,250 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, BRUNO GUAZZONI or his registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to Fifty-Six Thousand Two Hundred Fifty (56,250) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.65. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). 12 VOID AFTER 5:00 P.M. NEW YORK CITY TIME ON DECEMBER 8, 2002 THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. Right to Purchase 160,000 Shares of Common Stock, par value $.0001 per share Date: December 8, 1997 NETWORK IMAGING CORPORATION CASHLESS STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, THE ZANETT SECURITIES CORPORATION or its registered assigns, is entitled to purchase from Network Imaging Corporation, a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, up to One Hundred Sixty Thousand (160,000) fully paid and nonassessable shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), by effecting a cashless exercise in accordance with Section 1 hereof. For purposes of this Warrant, the exercise price per share (the "Exercise Price") shall be equal to $1.625. The number of shares of Common Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrant and the other warrants of the Company issued pursuant to the terms of the Securities Purchase Agreement dated December 8, 1997 by and between the Company and the purchasers listed on the execution pages thereof (the "Securities Purchase Agreement"). This Warrant is subject to the following terms, provisions, and conditions: 1. Manner of Exercise; Issuance of Certificates; Payment for Shares. (a) Subject to the provisions hereof, including, without limitation, the limitations contained in Section 7 hereof, this Warrant may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant, together with a completed exercise agreement in the form attached hereto (the "Exercise Agreement"), to the Company during normal business hours on any business day at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), which notice shall include a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder's designee, as the record owner of such shares, as of the close of business on the date on which this Warrant shall have been surrendered, the completed Exercise Agreement shall have been delivered, and payment shall have been made for such shares as set forth above. (b) Upon any exercise of this Warrant, the holder shall surrender this Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares for which this Warrant is being exercised by a fraction, the numerator of which shall be the difference between the last sale price of a share of Common Stock on the trading day immediately preceding the date of the Exercise Agreement (as reported on the principal securities market on which the Common Stock is traded) (the "Cashless Exercise Market Price") and the Exercise Price, and the denominator of which shall be the Cashless Exercise Market Price. (c) Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time, not exceeding two (2) business days, after this Warrant shall have been so exercised (the "Delivery Period"). The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder; provided, however, that no holder may designate any party to receive such certificates unless such recipient is an "accredited investor" within the meaning of Rule 501 under the Securities Act and such designation does not cause the Company any significant obligation under the blue sky laws of any jurisdiction. In lieu of delivering physical certificates representing the Common Stock issuable upon exercise, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of the holder and its compliance with the provisions contained in this Section 1, so long as the certificates therefor do not bear a legend and the holder thereof is not obligated to return such certificates for the placement of a legend thereon, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon exercise to the holder by crediting the account of holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. (d) If, at any time, a holder of this Warrant submits this Warrant and an Exercise Agreement, and the Company fails for any reason to deliver, on or prior to the fourth business day following the expiration of the Delivery Period for such exercise, the number of shares of Common Stock to which the holder is entitled upon such exercise (an "Exercise Default"), then the Company shall pay to the holder payments ("Exercise Default Payments") for an Exercise Default in the amount of (a) (N/365), multiplied by (b) the closing sales price (as reported on the Nasdaq National Market, or if not so reported, as reported on the principal securities market or interdealer quotation system on which the Common Stock is traded or quoted) on the date the Exercise Agreement giving rise to the Exercise Default is transmitted in accordance with Section 1 (the "Exercise Default Date"), multiplied by (c) the number of shares of Common Stock the Company failed to so deliver in such Exercise Default, multiplied by (d) .24, where N = the number of days from the Exercise Default Date to the date that the Company effects the full exercise of this Warrant which gave rise to the Exercise Default. The accrued Exercise Default Payment for each calendar month shall be paid in cash or shall be convertible into Common Stock at the Exercise Price, at the holder's option, as follows: (i) In the event holder elects to take such payment in cash, cash payment shall be made to holder by the fifth (5th) day of the month following the month in which it has accrued; and (ii) In the event holder elects to take such payment in Common Stock, the holder may convert such payment amount into Common Stock at the Exercise Price (as in effect at the time of conversion) at any time after the fifth (5th) day of the month following the month in which it has accrued. Nothing herein shall limit the holder's right to pursue actual damages for the Company's failure to maintain a sufficient number of authorized shares of Common Stock as required pursuant to the terms of Section 3(b) hereof, or to otherwise issue shares of Common Stock upon exercise of this Warrant in accordance with the terms hereof, and each holder shall have the right to pursue all remedies available at law or in equity (including a decree of specific performance and/or injunctive relief). 2. Period of Exercise. This Warrant is exercisable at any time or from time to time on or after the date hereof and before 5:00 p.m., New York City time on the fifth (5th) anniversary of the date hereof (the "Exercise Period"). 3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows: (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all taxes, liens, claims and encumbrances. (b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. (c) Listing. The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed or become listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, and (ii) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding to the Company by merger, consolidation, or acquisition of all or substantially all of the Company's assets. 4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares shall be subject to adjustment from time to time as provided in this Section 4. In the event that any adjustment of the Exercise Price as required herein results in a fraction of a cent, such Exercise Price shall be rounded up or down to the nearest cent. (a) Adjustment of Exercise Price and Number of Shares upon Issuance of Convertible Securities. Except as otherwise provided in Sections 4(c) and 4(e) hereof, if and whenever after the First Closing under the Securities Purchase Agreement (the "First Closing") the Company issues, grants or sells any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities exercisable, convertible into or exchangeable for Common Stock ("Convertible Securities") at a price per share of Common Stock which is not based on a percentage of the market price of the Company's Common Stock in effect from time to time (a "Fixed Price") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options") or Convertible Securities which may be convertible or exchangeable for Common Stock at a Fixed Price that is less than the Exercise Price in effect at the time of such issuance, grant or sale, then the Exercise Price will, as of the date of the issuance, grant or sale of such Options or Convertible Securities, be immediately adjusted to the Fixed Price of such Options or Convertible Securities. (b) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise Price will be made pursuant to Section 4(a) (i) upon the grant or exercise of any stock or options which may hereafter be granted or exercised under any employee benefit plan of the Company now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose; (ii) upon the issuance of Preferred Stock or Warrants in accordance with terms of the Securities Purchase Agreement; (iii) upon the issuance of securities as consideration for a merger, consolidation or acquisition of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or as consideration for the acquisition of a business, product or license by the Company or (iv) upon the issuance of securities pursuant to an underwritten public offering. (c) Subdivision or Combination of Common Stock. If the Company, at any time after the First Closing, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then, after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company, at any time after the First Closing, combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionately increased. (d) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 4, the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (e) Consolidation, Merger or Sale. In case of any consolidation of the Company with, or merger of the Company into any other corporation, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company at any time after the initial issuance of this Warrant (in each case at any time after the First Closing) (each of the foregoing being a "Fundamental Change"), then as a condition of such Fundamental Change, adequate provision will be made whereby the holder of this Warrant will have the right to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock otherwise issuable upon the exercise of this Warrant, such shares of stock, securities or assets as would have been issued or payable in such Fundamental Change with respect to or in exchange for the number of shares of Common Stock which would have been issuable and receivable upon exercise of this Warrant had such Fundamental Change not taken place. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 4 hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable upon the exercise of this Warrant. The Company will not effect any Fundamental Change unless prior to the consummation thereof, the successor corporation (if other than the Company) assumes by written instrument the obligations under this Section 4 and the obligations to deliver to the holder of this Warrant such shares of stock, securities or assets as, in accordance with the foregoing provisions, the holder may be entitled to acquire. (f) Distribution of Assets. In case the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Company's shareholders of cash or shares (or rights to acquire shares) of capital stock of a subsidiary) (a "Distribution"), at any time after the First Closing, then the holder of this Warrant shall be entitled upon exercise of this Warrant for the purchase of any or all of the shares of Common Stock subject hereto, to receive the amount of such assets (or rights) which would have been payable to the holder had such holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. (g) Purchase Rights. If at any time after the First Closing, the Company issues any securities or rights to purchase stock, warrants, securities or other property (the "Purchase Rights") pro rata to the record holders of any class of Common Stock, then the holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock issuable upon complete exercise of this Warrant (without giving effect to the limitations contained in Section 7(g)) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (h) Notice of Adjustment. Upon the occurrence of any event which requires any adjustment of the Exercise Price, then, and in each such case, the Company shall give notice thereof to the holder of this Warrant, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares issuable upon exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company. (i) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise Price. (j) No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Market Price of a share of Common Stock on the date of such exercise. (k) Other Notices. In case at any time: (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution (other than dividends or distributions payable in cash out of retained earnings consistent with the Company's past practices with respect to declaring dividends and making distributions) to the holders of the Common Stock; (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all of its assets to, another corporation or entity; or (iv) there shall be a voluntary or involuntary dis- solution, liquidation or winding-up of the Company; then, in each such case, the Company shall give to the holder of this Warrant (a) notice of the date on which the books of the Company shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution, or subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least 30 days prior to the record date or the date on which the Company's books are closed in respect thereto. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. (l) Certain Events. If, at any time after the initial issuance of this Warrant, any event occurs of the type contemplated by the adjustment provisions of this Section 4 but not expressly provided for by such provisions, the Company will give notice of such event as provided in Section 4(h) hereof, and the Company's Board of Directors will make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock acquirable upon exercise of this Warrant so that the rights of the holder shall be neither enhanced nor diminished by such event. (m) Definition of Common Stock. For purposes of this Section 4, "Common Stock" includes the Common Stock and any additional class of stock of the Company having no preference as to dividends or distributions on liquidation, provided that the shares issuable pursuant to this Warrant shall include only Common Stock, par value $.0001 per share, in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Section 4(e) hereof, the stock or other securities or property provided for in such Section. 5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the holder of this Warrant or such shares for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the holder of this Warrant. 6. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company. No provision of this Warrant, in the absence of affirmative action by the holder hereof to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7. Transfer, Exchange, Redemption and Replacement of Warrant. (a) Restriction on Transfer. This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the form attached hereto, at the office or agency of the Company referred to in Section 7(e) below, provided, however, that any transfer or assignment shall be subject to the conditions set forth in Section 7(f) and (g) hereof and to the provisions of Sections 2(f) and 2(g) of the Securities Purchase Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights described in Section 8 hereof are assignable only in accordance with the provisions of that certain Registration Rights Agreement, dated as of December 8, 1997, by and among the Company and the other signatories thereto (the "Registration Rights Agreement"). (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the holder hereof at the office or agency of the Company referred to in Section 7(e) below, for new Warrants of like tenor of different denominations representing in the aggregate the right to receive up to the number of shares of Common Stock which may be issuable hereunder, each of such new Warrants to represent the right to receive such number of shares as shall be designated by the holder hereof at the time of such surrender. (c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Section 7, this Warrant shall be promptly canceled by the Company. The Company shall pay all expenses (other than legal expenses and taxes, if any, incurred by the Holder or transferees) and charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 7. (e) Warrant Register. The Company shall maintain, at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (f) Exercise or Transfer Without Registration. If, at the time of the surrender of this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant (or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such exercise, transfer, or exchange, (i) that the holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such exercise, transfer, or exchange may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act; provided that no such opinion, letter, status as an "accredited investor" shall be required in connection with a transfer pursuant to Rule 144 under the Securities Act. (g) Additional Restrictions on Exercise or Transfer. Notwithstanding anything contained herein to the contrary, in no event shall the holder hereof exercise Warrants to the extent that (a) the number of shares of Common Stock beneficially owned by such holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unexercised portion of the Warrants or the unexercised or unconverted portion of any other securities (including, without limitation, the Preferred Stock) of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein) and (b) the number of shares of Common Stock issuable upon exercise of the Warrants (or portion thereof) with respect to which the determination described herein is being made, would result in beneficial ownership by such holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided in clause (a) hereof. The restrictions contained in this Section 7(g) may not be amended without the consent of the holder of this Warrant and the holders of a majority of the Company's then outstanding Common Stock. 8. Registration Rights. The initial holder of this Warrant (and certain assignees thereof) is entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in the Registration Rights Agreement. 9. Notices. Any notices required or permitted to be given under the terms of this Warrant shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 Attn: President with copy to: General Counsel's Office Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 and if to the holder, at such address as such holder shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 9. 10. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company irrevocably consents to the jurisdiction of the United States federal courts located in the State of Delaware, in any suit or proceeding based on or arising under this Warrant and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company agrees that service of process upon the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the holder's right to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 11. Miscellaneous. (a) Amendments. This Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the holder hereof. (b) Descriptive Headings. The descriptive headings of the several Sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. NETWORK IMAGING CORPORATION By: ________________________ Name:___________________ Title:____________________ FORM OF EXERCISE AGREEMENT (To be Executed by the Holder in order to Exercise the Warrant) The undersigned hereby irrevocably exercises this Warrant with respect to _____________ of the shares of common stock of Network Imaging Corporation, a Delaware corporation (the "Company"), evidenced by the attached Warrant, and is hereby entitled to receive _______ shares of Common Stock determined as follows in accordance with the conditions and provisions of said Warrant: A. No. of shares subject to this Exercise _________ shares B. Last sale price on trading day immediately preceding the date of this Exercise Agreement $ C. Exercise Price $ D. Number of shares of Common Stock issuable pursuant to this Exercise Agreement equals A x B-C --- B or _________ shares i. The undersigned agrees not to offer, sell, transfer or otherwise dispose of any Common Stock obtained on exercise of the Warrant, except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws, and agrees that the following legend may be affixed to the stock certificate for the Common Stock hereby subscribed for if resale of such Common Stock is not registered or if Rule 144 is unavailable: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ii. Check appropriate box. |_| The undersigned hereby requests that the Company electronically transmit the Common Stock issuable pursuant to this Exercise Agreement to the account of the undersigned's Prime Broker (which is __________) with DTC through its Deposit Withdrawal Agent Commission System. |_| The undersigned requests that stock certificates for such shares be issued, and a Warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the Holder and delivered to the undersigned at the address set forth below: Dated:_________________ Signature of Holder ------------------------------------ Name of Holder (Print) Address: ------------------------------------ ------------------------------------ ------------------------------------ FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to: Name of Assignee Address No of Shares , and hereby irrevocably constitutes and appoints ______________ ________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Dated: _____________________, ____, In the presence of - ------------------ Name: ____________________________ Signature: _______________________ Title of Signing Officer or Agent (if any): ________________________ Address: ________________________ ________________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. EX-4.87 15 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December 8, 1997 by and among NETWORK IMAGING CORPORATION, a corporation organized under the laws of the State of Delaware, with headquarters located at 500 Huntmar Park Drive, Herndon, Virginia 20170 (the "Company"), and the undersigned (together with affiliates, the "Initial Investors"). WHEREAS: A. In connection with the Securities Purchase Agreement of even date herewith by and between the Company and the Initial Investors (the "Securities Purchase Agreement"), the Company has agreed, upon the terms and subject to the conditions contained therein, to issue and sell to the Initial Investors units ("Units") consisting of (i) shares of its Series L Convertible Preferred Stock (the "Preferred Stock") that is convertible into shares (the "Conversion Shares") of the Company's common stock, par value $.0001 per share (the "Common Stock"), upon the terms and subject to the limitations and conditions set forth in the Certificate of Designations, Rights and Preferences with respect to such Preferred Stock (the "Certificate of Designation") and (ii) warrants (the "Investor Warrants") to acquire shares of Common Stock (the "Investor Warrant Shares"); B. To induce the Initial Investors to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act"), and applicable state securities laws; and C. The Company has issued The Zanett Securities Corporation (the "Placement Agent") Warrants (collectively with the Investor Warrants, the "Warrants") to purchase shares of Common Stock (collectively with the Investor Warrant Shares, the "Warrant Shares") pursuant to that certain Placement Agency Agreement dated as of July 2, 1997 by and between the Company and the Placement Agent and has agreed to provide the Placement Agent the rights set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Initial Investors hereby agree as follows: 1. DEFINITIONS. a. As used in this Agreement, the following terms shall have the following meanings: (i) "Investors" means the Initial Investors and any transferees or assignees who agree to become bound by the provisions of this Agreement in accordance with Section 9 hereof. (ii) "register," "registered," and "registration" re- er to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "SEC"). (iii) "Registrable Securities" means the Conversion Shares and the Warrant Shares (including any Conversion Shares issuable with respect to Conversion Default Payments or the Damages Amount under the Certificate of Designation or in redemption of any Preferred Stock and any Warrant Shares issuable with respect to Exercise Default Payments under the Warrants) issued or issuable with respect to the Preferred Stock and the Warrants and any shares of capital stock issued or issuable, from time to time (with any adjustments), as a distribution on or in exchange for or otherwise with respect to any of the foregoing. (iv) "Registration Statement" means a registration statement of the Company under the Securities Act. b. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. 2. REGISTRATION. a. Mandatory Registration. The Company shall prepare, and, as soon as practicable after the First Closing under the Securities Purchase Agreement, but in no event later than the sixtieth (60th) day following such closing, file with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on Form S-1) covering the resale of at least 135% (or, if the Investors have provided the Company a notice pursuant to Section 3(b) hereof, at least 200%) of the maximum number of Registrable Securities issuable upon the full conversion of, or as dividends on or otherwise with respect to, the Preferred Stock and the full exercise of the Warrants comprising 3,250 Units (assuming a conversion price based on 81% of the closing sales price of the Common Stock as reported on the Nasdaq National Market (or the principal securities market on which the Common Stock is then trading) on the date of such closing). The Company shall prepare, and, as soon as practicable after each additional closing under the Securities Purchase Agreement, but in no event later than the sixtieth (60th) day following each of such closings, file with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on Form S-1) covering the resale of at least 135% (or, if the Investors have provided the Company a notice pursuant to Section 3(b) hereof, at least 200%) of the maximum number of Registrable Securities issuable upon the full conversion of, or as dividends on or otherwise with respect to, the Preferred Stock and the full exercise of the Warrants comprising the Units issued at such closing pursuant to Section 1(a)(ii) or Section 1(a)(iii) of the Securities Purchase Agreement, as applicable (assuming a conversion price based on 81% of the closing sales price of the Common Stock as reported on the Nasdaq National Market (or the principal securities market on which the Common Stock is then trading) on the date of such Closing). In the event any Registration Statement filed by the Company pursuant to this Section 2(a) is on Form S-1, the Company shall, (x) no later than the date the Company files each periodic report on Form 10-Q or 10-K, file a prospectus supplement or post-effective amendment to the Registration Statement to include in the Registration Statement such information (including, without limitation, updated financial statements) from the periodic report as is necessary or required to keep the Registration Statement in compliance with the rules of the SEC and this Agreement and (y) within fifteen (15) days of the Company becoming eligible to register the Registrable Securities on Form S-3, file a new Registration Statement on Form S-3 covering at least 135% (or, if the Investors have provided the Company a notice pursuant to Section 3(b) hereof, at least 200%) of the Registrable Securities issuable upon the full conversion of, or as dividends on or otherwise with respect to, the Preferred Stock and the full exercise of the Warrants (based on the conversion and exercise prices thereof then in effect) and cause such Registration Statement to be declared effective by the SEC as soon as practicable thereafter, and in no event later than ninety (90) days after the filing thereof (such ninetieth (90th) day being the "Second Registration Deadline"). Each Registration Statement filed hereunder, to the extent allowable under the Securities Act and the Rules promulgated thereunder (including Rule 416), shall state that such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Preferred Stock and exercise of the Warrants (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions or (ii) by reason of reductions in the Conversion Price of the Preferred Stock or the Exercise Price of the Warrants in accordance with the terms thereof (including, but not limited to, in the case of the Preferred Stock, the terms which cause the applicable Conversion Percentages to decrease and the terms which cause the Variable Conversion Price to decrease to the extent that the closing sales price of the Common Stock decreases). The Registrable Securities included in any Registration Statement filed hereunder shall be allocated to the Investors as set forth in Section 11(k) hereof. Each Registration Statement filed hereunder (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided to (and subject to the approval of) the Initial Investors and their counsel prior to its filing or other submission. The Company shall not include any securities (other than Registrable Securities and securities designated on Schedule 3(c) to the Securities Purchase Agreement for possible inclusion on a Registration Statement hereunder) on any Registration Statement filed pursuant to this Section 2(a). In addition, the Company shall not permit any securities of the Company (other than Registrable Securities) to be registered under the Securities Act prior to or at the same time as the registration of the Registrable Securities; provided, however, that the Company may register (i) up to 1,750,000 shares of Series A Cumulative Convertible Preferred Stock ("Series A Stock") and up to 15,027,937 shares of Common Stock in connection with certain proposed changes to the Series A Stock, and (ii) up to 2,150,000 shares of Common Stock in connection with certain convertible notes in the aggregate principal amount of $2,000,000 issued by the Company in July and August 1997. b. Underwritten Offering. If any offering pursuant to a Registration Statement pursuant to Section 2(a) or 3(b) hereof involves an underwritten offering, the Investors who hold a majority in interest of the Registrable Securities subject to such underwritten offering, with the consent of the Initial Investors, shall have the right to select a total of one legal counsel to represent the Investors at the cost and expense of the Investors and an investment banker or bankers and manager or managers to administer the offering, which investment banker or bankers or manager or managers shall be reasonably satisfactory to the Company and the Placement Agent. In the event that any Investors elect not to participate in such underwritten offering, such Registration Statement shall contain appropriate plans of distribution reasonably satisfactory to the Investors participating in such underwritten offering and the Investors electing not to participate in such underwritten offering (including, without limitation, the ability of nonparticipating Investors to sell from time to time and at any time during the effectiveness of such Registration Statement). c. Payments by the Company. The Company shall cause each Registration Statement filed pursuant to Section 2(a) to become effective as soon as practicable, but in no event later than (i) the ninetieth (90th) day following the date it was required to be filed hereunder in the case of a Registration Statement on Form S-3 or (ii) the one hundred fiftieth (150th) day following the date it was required to be filed hereunder in the case of a Registration Statement on Form S-1 (each a "Registration Deadline"). If (i) any Registration Statement(s) covering the Registrable Securities required to be filed by the Company pursuant to the first sentence of Section 2(a) hereof is not declared effective by the SEC on or before the Registration Deadline for such Registration Statement or if, after the Registration Statement has been declared effective by the SEC, sales of all the Registrable Securities issued or issuable with respect to the Preferred Stock and Warrants required to be covered by such Registration Statement pursuant to Section 2(a) hereof (including any Registrable Securities required to be registered pursuant to Section 3(b) hereof) cannot be made pursuant to a Registration Statement (by reason of a stop order or the Company's failure to update the Registration Statement or any other reason outside the control of the Investors) or (ii) the Common Stock is not listed or included for quotation on the Nasdaq National Market ("Nasdaq"), the Nasdaq Small Cap Market, the New York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX") at any time after the Registration Deadline for such Registration Statement, then each of the Conversion Percentages set forth in the Certificate of Designation (the "Conversion Percentages") shall be permanently reduced pursuant to this Section 2(c) as partial relief for the damages to the Investors by reason of any such delay in or reduction of their ability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity). Each of the Conversion Percentages applicable during each time period shall be permanently reduced by an amount equal to the product of (i) two hundredths (.02) multiplied by (ii) the sum of: (y) the number of months (prorated for partial months) after a Registration Deadline and prior to the date the applicable Registration Statement filed pursuant to Section 2(a) is declared effective by the SEC and (z) the number of months (prorated for partial months) that sales cannot be made pursuant to a Registration Statement after the Registration Statement has been declared effective or the Common Stock is not listed or included for quotation on Nasdaq, the Nasdaq Small Cap Market, the NYSE or AMEX; provided, however, that there shall be excluded from each such period (I) any delays which are solely attributable to changes (other than corrections of Company mistakes with respect to information previously provided by the Investors) required by the Investors in the Registration Statement with respect to information relating to the Investors, including, without limitation, changes to the plan of distribution, (II) and any delays resulting from the Initial Investor's counsel selected pursuant to Section 3(h) failing to respond to the Company within five (5) business days of its receipt of any Registration Statement and (III) if the Registration Statement filed pursuant to Section 2(a) is on Form S-1, the first thirty (30) days following each post-effective amendment thereto filed on or before June 30, 1998 (each of the periods described in clauses (I), (II) and (III) being an "Excluded Period"); and provided, further, that the aggregate reductions to each of the Conversion Percentages pursuant to this Section 2(c) as a result of the failure of the Common Stock to be listed or included for quotation on Nasdaq, the Nasdaq Small Cap Market, the NYSE or AMEX shall not exceed ten percent (10%). (For example, if a Registration Statement is declared effective on the last day of the second month following the applicable Registration Deadline, each of the Conversion Percentages set forth in the Certificate of Designation would be reduced by four percent (4%) to 81% and 77%, respectively.) In addition, if any Registration Statement required to be filed by the Company pursuant to Section 2(a) hereof has not been declared effective on or before the sixtieth (60th) day following the applicable Registration Deadline for such Registration Statement or any such Registration Statement, after being declared effective, cannot be utilized by the Investors for the resale of the Registrable Securities covered by such Registration Statement for an aggregate of more than thirty (30) days after the earlier of (i) the date on which the Company first becomes eligible to register the resale of Registrable Securities pursuant to a Registration Statement on Form S-3 and (ii) June 30, 1998, each of the Conversion Percentages applicable during each time period shall be permanently reduced at the rate of two hundredths (.02) per week (prorated for partial weeks) rather than two hundredths (.02) per month (prorated for partial months). d. Piggy-Back Registrations. If at any time prior to the expiration of the Registration Period (as hereinafter defined) the Company shall file with the SEC a Registration Statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities (other than on Form S-4 or Form S-8 or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with stock option or other employee benefit plans or pursuant to a plan to reorganize the Company's Series A Cumulative Convertible Preferred Stock), the Company shall send to each Investor who is entitled to registration rights under this Section 2(d) written notice of such determination and, if within fifteen (15) days after the date of such notice, such Investor shall so request in writing, the Company shall include in such Registration Statement all or any part of the Registrable Securities such Investor requests to be registered, except that if, in connection with any underwritten public offering for the account of the Company the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in such underwriter(s)' judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which such Investor has requested inclusion hereunder as the underwriter shall permit. Any exclusion of Registrable Securities shall be made pro rata among the Investors seeking to include Registrable Securities, in proportion to the number of Registrable Securities sought to be included by such Investors; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities; and provided, further, however, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the right to include such securities in the Registration Statement other than holders of securities entitled to inclusion of their securities in such Registration Statement by reason of demand registration rights. No right to registration of Registrable Securities under this Section 2(d) shall be construed to limit any registration required under Section 2(a) hereof. If an offering in connection with which an Investor is entitled to registration under this Section 2(d) is an underwritten offering, then each Investor whose Registrable Securities are included in such Registration Statement shall, unless otherwise agreed by the Company, offer and sell such Registrable Securities in an underwritten offering using the same underwriter or underwriters and, subject to the provisions of this Agreement, on the same terms and conditions as other shares of Common Stock included in such underwritten offering. e. Rule 416. The Company and the Investors each acknowledge that an indeterminate number of Registrable Securities shall be registered pursuant to Rule 416 under the Securities Act so as to include in each Registration Statement required pursuant to Section 2(a) hereof any and all Registrable Securities which may become issuable (i) to prevent dilution resulting from stock splits, stock dividends or similar transactions and (ii) by reason of reductions in the Conversion Price of the Preferred Stock or the Exercise Price of the Warrants in accordance with the terms thereof (including, but not limited to, in the case of the Preferred Stock, the terms which cause the applicable Conversion Percentages to decrease and the terms which cause the Variable Conversion Price to decrease to the extent the closing sales price of the Common Stock decreases (collectively, the "Rule 416 Securities"). In this regard, the Company agrees to take all steps necessary to ensure that all Registrable Securities are registered pursuant to Rule 416 under the Securities Act in any such Registration Statement and, absent guidance from the SEC or other definitive authority to the contrary, the Company shall affirmatively support and not take any action adverse to the position that the Registration Statements filed hereunder cover all of the Rule 416 Securities. If the Company determines that the Registration Statements filed hereunder do not cover all of the Rule 416 Securities, the Company shall immediately provide to each Investor written notice (a "Rule 416 Notice") setting forth the basis for the Company's position and the authority therefor. 3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities on any Registration Statement filed hereunder, the Company shall have the following obligations: a. The Company shall prepare promptly and file with the SEC the Registration Statements required by Section 2(a), and cause such Registration Statements relating to Registrable Securities to become effective as soon as practicable after such filing, but in no event later than the Registration Deadline or the Second Registration Deadline (as applicable), and keep such Registration Statements effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold and (ii) the date on which all of the Registrable Securities (in the reasonable opinion of counsel to the Initial Investors) may be immediately sold to the public without registration pursuant to Rule 144(k) under the Securities Act or any successor provision (the "Registration Period"), which Registration Statements (including any amendments or supplements thereto and prospectuses contained therein and all documents incorporated by reference therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein not misleading. b. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statements and the prospectus used in connection with the Registration Statements as may be necessary to keep the Registration Statements effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statements until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statements. In the event the holders of a majority of the Registrable Securities notify the Company in writing (the date of such notice being the "Registration Trigger Date") that they have determined that the number of shares available under all Registration Statements filed pursuant to this Agreement is, for any three (3) consecutive trading days insufficient to cover the sum of one hundred percent (100%) of the Registrable Securities issuable upon exercise of the Warrants plus one hundred thirty-five percent (135%) of the Registrable Securities issued or issuable upon conversion of the Preferred Stock, the Company shall amend (if permissible) the Registration Statements, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover the sum of one hundred percent (100%) of the Registrable Securities issuable upon exercise of the Warrants plus two hundred percent (200%) of the Registrable Securities issued or issuable upon conversion of the Preferred Stock, in each case, as soon as practicable, but in any event within fifteen (15) days after the Registration Trigger Date (based on the market price of the Common Stock and other relevant factors on which the Company reasonably elects to rely). The Company shall cause such amendment(s) and/or new Registration Statement to become effective as soon as practicable following the filing thereof. In the event the Company fails to obtain the effectiveness of any such Registration Statement within ninety (90) days after a Registration Trigger Date, each Investor shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a written notice to the Company (a "Redemption Notice"), to require the Company to purchase for cash, at an amount per share equal to the Redemption Amount (as defined in Article VIII.B of the Certificate of Designation), a portion of the Investor's Preferred Stock such that the total number of Registrable Securities included on the Registration Statement for resale by such Investor exceeds the sum of one hundred percent (100%) of the Registrable Securities issuable upon exercise of the Warrants plus one hundred thirty-five percent (135%) of the Registrable Securities issued or issuable upon conversion of such Investor's Preferred Stock. If the Corporation fails to redeem any of such shares within five (5) business days after its receipt of a Redemption Notice, then such Investor shall be entitled to the remedies provided in Article VIII.C of the Certificate of Designation. c. The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement and its legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company, one copy of each such Registration Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment or supplement thereto, and, in the case of any Registration Statement referred to in Section 2(a), each letter written by or on behalf of the Company to the SEC or the staff of the SEC (including, without limitation, any request to accelerate the effectiveness of any Registration Statement or amendment thereto), and each item of correspondence from the SEC or the staff of the SEC, in each case relating to any such Registration Statement (other than any portion, if any, thereof which contains information for which the Company has sought confidential treatment), (ii) on the date of effectiveness of any Registration Statement or any amendment thereto, a notice stating that such Registration Statement or amendment has been declared effective, and (iii) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as such Investor may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Investor. d. The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by each Registration Statement under such other securities or "blue sky" laws of such jurisdictions in the United States as each Investor who holds Registrable Securities being offered reasonably requests, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (a) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (b) subject itself to general taxation in any such jurisdiction, (c) file a general consent to service of process in any such jurisdiction, (d) provide any undertakings that cause the Company undue expense or burden, or (e) make any change in its charter or bylaws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders. e. In the event the Investors who hold a majority in interest of the Registrable Securities being offered pursuant to a Registration Statement under Section 2(a) or 3(b) hereof select underwriters for the offering, the Company shall enter into and perform its obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the underwriters of such offering. f. As promptly as practicable after becoming aware of such event, the Company shall notify each Investor of the happening of any event, of which the Company has knowledge, as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request. g. The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, and, if such an order is issued, to obtain the withdrawal of such order at the earliest practicable moment (including in each case by amending or supplementing such Registration Statement) and to notify each Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof (and if such Registration Statement is supplemented or amended, deliver such number of copies of such supplement or amendment to each Investor as such Investor may reasonably request). h. The Company shall permit a single firm of counsel designated by the Initial Investors to review each Registration Statement and all amendments and supplements thereto a reasonable period of time prior to their filing with the SEC, and not file any document in a form to which such counsel reasonably objects. i. The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the Securities Act) covering a twelve-month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of a Registration Statement. j. From time to time upon the request of any Investor, the Company shall furnish (i) an opinion from counsel representing the Company, dated as of the date of issuance of such opinion, addressed to the Investors and in form, scope and substances as is customarily given in an underwritten public offering and (ii) in the case of an underwriting, a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and the Investors. k. The Company shall make available for inspection by (i) any Investor, (ii) any underwriter participating in any disposition pursuant to a Registration Statement, (iii) one firm of attorneys and one firm of accountants or other agents retained by the Investors, and (iv) one firm of attorneys retained by all such underwriters (collectively, the "Inspectors") all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably deemed necessary by each Inspector to enable each Inspector to exercise its due diligence responsibility, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to an Investor) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (b) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 3(k). Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein shall be deemed to limit the Investors' ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations. l. The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement, or (v) such Investor consents to the form and content of any such disclosure. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to such Investor prior to making such disclosure. The Investor, at its expense, may undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. m. The Company shall use its best efforts either to (i) cause all the Registrable Securities covered by any Registration Statement to be listed on each national securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure the designation and quotation, of all the Registrable Securities covered by any Registration Statement on each national interdealer quotation system on which securities of the same class or series issued by the Company are designated for quotation and, without limiting the generality of the foregoing, to arrange for or maintain at least two market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable Securities. n. The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of any Registration Statement. o. The Company shall cooperate with the Investors who hold Registrable Securities being offered and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be offered pursuant to any Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the managing underwriter or underwriters, if any, or the Investors may reasonably request and registered in such names as the managing underwriter or underwriters, if any, or the Investors may request, and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) an opinion of such counsel in the form attached hereto as Exhibit 1. p. At the request of any Investor, the Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement. q. The Company shall comply with all applicable laws related to a Registration Statement and offering and sale of securities and all applicable rules and regulations of governmental authorities in connection therewith (including without limitation the Securities Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC). r. The Company shall take all such other actions as any Investor or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of the Registrable Securities. 4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of the Registrable Securities, the Investors shall have the following obligations: a. It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least three (3) business days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Investor of the information the Company requires from each such Investor. b. Each Investor, by such Investor's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of each Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from any such Registration Statement. c. In the event Investors holding a majority in interest of the Registrable Securities being offered determine to engage the services of an underwriter, each Investor agrees to enter into and perform such Investor's obligations under an underwriting agreement, in usual and customary form, including, without limitation, customary indemnification and contribution obligations, with the managing underwriter of such offering and take such other actions as are reasonably required in order to expedite or facilitate the disposition of the Registrable Securities, unless such Investor has notified the Company in writing of such Investor's election to exclude all of such Investor's Registrable Securities from the Registration Statement. d. Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or 3(g), such Investor will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the Company, such Investor shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Investor's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. e. No Investor may participate in any underwritten distribution hereunder unless such Investor (i) agrees to sell such Investor's Registrable Securities on the basis provided in any underwriting arrangements in usual and customary form entered into by the Company, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any expenses in excess of those payable by the Company pursuant to Section 5 below. 5. EXPENSES OF REGISTRATION. All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, the fees and disbursements of counsel for the Company, the fees and disbursements contemplated by Section 3(j) hereof. Notwithstanding the foregoing, the Company will pay all of Investors' costs and expenses (including reasonable legal fees and expenses) incurred in connection with enforcing their rights hereunder. 6. INDEMNIFICATION. In the event any Registrable Securities are included in a Registration Statement under this Agreement: a. To the extent permitted by law, the Company will indemnify, hold harmless and defend (i) each Investor who holds such Registrable Securities, and (ii) the directors, officers, partners, members, employees, agents and each person who control any Investor within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any, (each, an "Indemnified Person"), against any joint or several losses, claims, damages, liabilities or expenses (collectively, together with actions, proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or threatened, in respect thereof, "Claims") to which any of them may become subject insofar as such Claims arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or the omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject to the restrictions set forth in Section 6(c) with respect to the number of legal counsel, the Company shall reimburse the Investors and each such underwriter or controlling person, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person expressly for use in the Registration Statement or any such amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) with respect to any preliminary prospectus, shall not inure to the benefit of any Indemnified Person if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, if such corrected prospectus was timely made available by the Company pursuant to Section 3(c) hereof, and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a Violation and such Indemnified Person, notwithstanding such advice, used it. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. b. In connection with any Registration Statement in which an Investor is participating, each such Investor agrees severally and not jointly to indemnify, hold harmless and defend, to the same extent and in the same manner set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, its employees, agents and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder within the meaning of the Securities Act or the Exchange Act (collectively and together with an Indemnified Person, an "Indemnified Party"), against any Claim to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and subject to Section 6(c) such Investor will reimburse any legal or other expenses (promptly as such expenses are incurred and are due and payable) reasonably incurred by an Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld; provided, further, however, that the Investor shall be liable under this Agreement (including this Section 6(b) and Section 7) for only that amount as does not exceed the net proceeds actually received by such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented, and the Indemnified Party failed to utilize such corrected prospectus. c. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that such indemnifying party shall not be entitled to assume such defense and an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential conflicts of interest between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding or the actual or potential defendants in, or targets of, any such action include both the Indemnified Person or the Indemnified Party and the indemnifying party and any such Indemnified Person or Indemnified Party reasonably determines that there may be legal defenses available to such Indemnified Person or Indemnified Party which are different from or in addition to those available to such indemnifying party. In the event an Indemnified Person or Indemnified Party retains its own counsel pursuant to the immediately preceding sentence, the indemnifying party shall pay for only one separate legal counsel for the Indemnified Persons or the Indemnified Parties, as applicable, and such legal counsel shall be selected by Investors holding a majority-in-interest of the Registrable Securities included in the Registration Statement to which the Claim relates (with the approval of the Initial Investors if they hold Registrable Securities included in such Registration Statement), if the Investors are entitled to indemnification hereunder, or by the Company, if the Company is entitled to indemnification hereunder, as applicable. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is actually prejudiced in its ability to defend such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 7. CONTRIBUTION. a. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that (i) no contribution shall be made under circumstances where the maker would not have been liable for indemnification under the fault standards set forth in Section 6, (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other obligations under this Agreement) by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities. b. Notwithstanding the foregoing, in the event the Initial Investors participate in an underwriting hereunder pursuant to an underwriting agreement which includes indemnification and contribution provisions, the indemnification and contribution provisions contained in such underwriting agreement shall control and supersede the provisions contained in Sections 6 and 7(a) hereof with respect to any violations arising from the offering contemplated by such underwriting agreement. 8. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: b. file with the SEC in a timely manner and make and keep available all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements (it being understood that nothing herein shall limit the Company's obligations under Section 4(c) of the Securities Purchase Agreement) and the filing and availability of such reports and other documents is required for the applicable provisions of Rule 144; and c. furnish to each Investor so long as such Investor owns shares of Preferred Stock, Warrants or Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144(c), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration. 9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Investors hereunder, including the right to have the Company register Registrable Securities pursuant to this Agreement, shall be automatically assignable by each Investor to any transferee of all or any portion of the shares of Preferred Stock, the Warrants or the Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company after such assignment, (ii) the Company is furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment, the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing for the benefit of the Company to be bound by all of the provisions contained herein, and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement. 10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with written consent of the Company and Investors who hold a majority in interest of the Registrable Securities; provided, however, that no amendment hereto which restricts the ability of an Investor to elect not to participate in an underwritten offering shall be effective against any Investor which does not consent in writing to such amendment; provided, further, however, that no consideration shall be paid to an Investor by the Company in connection with an amendment hereto unless each Investor similarly affected by such amendment receives a pro-rata amount of consideration from the Company. Unless an Investor otherwise agrees, each amendment hereto must similarly affect each Investor. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. 11. MISCELLANEOUS. a. A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. b. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five (5) days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 Attn: President with a copy to: General Counsel's Office Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 and if to any Investor, at such address as such Investor shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 11(b). c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. d. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company irrevocably consents to the jurisdiction of the United States federal courts located in the State of Delaware in any suit or proceeding based on or arising under this Agreement and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company, mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the Investors' right to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. e. This Agreement, the Securities Purchase Agreement, the Placement Agency Agreement and the Warrants (including all schedules and exhibits thereto) constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the Securities Purchase Agreement and the Placement Agency Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof. f. Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. h. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. i. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. j. All consents and other determinations to be made by the Investors or the Initial Investors pursuant to this Agreement shall be made by the Investors or the Initial Investors holding a majority of the Registrable Securities (determined as if all shares of Preferred Stock and Warrants then outstanding had been converted into or exercised for Registrable Securities) held by all Investors or Initial Investors, as the case may be. k. The initial number of Registrable Securities included on any Registration Statement and each increase (if any) to the number of Registrable Securities included thereon shall be allocated pro rata among the Investors based on the number of Registrable Securities held by each Investor at the time of such establishment or increase, as the case may be. In the event an Investor shall sell or otherwise transfer any of such holder's Registrable Securities, each transferee shall be allocated a pro rata portion of the number of Registrable Securities included on a Registration Statement for such transferor. Any shares of Common Stock included on a Registration Statement and which remain allocated to any person or entity which does not hold any Registrable Securities shall be allocated to the remaining Investors, pro rata based on the number of shares of Registrable Securities then held by such Investors. For the avoidance of doubt, the number of Registrable Securities held by any Investor shall be determined as if all shares of Preferred Stock and Warrants then outstanding were converted into or exercised for Registrable Securities. l. Each party to this Agreement has participated in the negotiation and drafting of this Agreement. As such, the language used herein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. NETWORK IMAGING CORPORATION By: _______________________ Name: _______________________ Its: _______________________ INITIAL INVESTOR: CAPITAL VENTURES INTERNATIONAL By: _______________________ Name: _______________________ Its: _______________________ IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. NETWORK IMAGING CORPORATION By: _______________________ Name: _______________________ Its: _______________________ INITIAL INVESTOR: ZANETT LOMBARDIER, LTD. By: _______________________ Name: _______________________ Its: _______________________ IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. NETWORK IMAGING CORPORATION By: _______________________ Name: _______________________ Its: _______________________ INITIAL INVESTOR: ____________________________ BRUNO GUAZZONI IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. NETWORK IMAGING CORPORATION By: _______________________ Name: _______________________ Its: _______________________ INITIAL INVESTOR: THE ZANETT SECURITIES CORPORATION By: _______________________ Name: _______________________ Its: _______________________ EXHIBIT 1 to Registration Rights Agreement [Date] [Name and address of transfer agent] RE: NETWORK IMAGING CORPORATION Ladies and Gentlemen: We are counsel to Network Imaging Corporation, a corporation organized under the laws of the State of Delaware (the "Company"), and we understand that [Name of Investor] (the "Holder") has purchased from the Company (i) shares of the Company's Series L Convertible Preferred Stock (the "Preferred Stock") that are convertible into shares of the Company's common stock, par value $.0001 per share (the "Common Stock") and (ii) warrants (the "Warrants") that are exercisable for shares of Common Stock. The Preferred Stock and Warrants were purchased by the Holder pursuant to a Securities Purchase Agreement, dated as of December 8, 1997, by and among the Company and the signatories thereto (the "Agreement"). Pursuant to a Registration Rights Agreement, dated as of December 8, 1997, by and among the Company and the signatories thereto (the "Registration Rights Agreement"), the Company agreed with the Holder, among other things, to register the Registrable Securities (as that term is defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the "Securities Act"), upon the terms provided in the Registration Rights Agreement. In connection with the Company's obligations under the Registration Rights Agreement, on _____ __, 1997, the Company filed a Registration Statement on Form S-___ (File No. 333- _____________) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities, which names the Holder as a selling stockholder thereunder. [Other customary introductory and scope of examination language to be inserted] Based on the foregoing, we are of the opinion that the Registrable Securities have been registered under the Securities Act. [Other customary language to be included.] Very truly yours, cc: [Name of Investor] EX-10.22 16 KASSNER SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December 29, 1997, by and among Network Imaging Corporation, a corporation organized under the laws of the State of Delaware (the "Company"), with headquarters located at 500 Huntmar Park Drive, Herndon, Virginia 20170 and Fred Kassner ( the "Purchaser"). WHEREAS: A. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("Regulation D"), as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"); B. The Purchaser and the Company executed a line of credit in the amount of $5,000,000 on December 31, 1996 (the "Line of Credit"); C. The Company has requested that the Purchaser convert $4,000,000 of the Line of Credit into equity, and the remaining $1,000,000 shall continue to exist in accordance with all of the terms and conditions of the Line of Credit Agreement dated December 31, 1996 with the exception that it shall be payable with respect to that amount with an interest rate of 8 1/2% per annum due April 1, 1999; D. The Company has requested that the Purchaser convert the Line of Credit into, upon the terms and conditions stated in this Agreement, 4,000 shares of the Company's Series M Convertible Preferred Stock, par value $.0001 per share (the "Series M Stock"), convertible into its common stock, par value $.0001 per share, of the Company (the "Common Stock"). The effective yield under the Series M Stock will be 8 1/2% per annum, payable in kind at the option of the Company. The rights, preferences and privileges of the Preferred Shares, including the terms upon which such Preferred Shares are convertible into shares of Common Stock are set forth in the form of Certificate of Designations, Preferences and Rights attached hereto as Exhibit A (the "Certificate of Designation"). The shares of Common Stock issuable upon conversion of the Preferred Shares or otherwise pursuant to the Certificate of Designation are referred to herein as the "Conversion Shares". The Preferred Shares and the Conversion Shares are collectively referred to herein as the "Securities." NOW, THEREFORE, the Company and the Purchaser hereby agree as follows: 1. PURCHASE AND SALE OF UNITS. a. Purchase of Units. Upon execution of this Agreement, the Purchaser shall be deemed to have purchased from the Company, with no fee or payment due to the Company, 4,000 shares of the Series M Stock. Upon the execution of this Agreement, the Line of Credit shall be reduced to $1,000,000 current and outstanding, plus interest. 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES The Purchaser represents and warrants to the Company that: a. Investment Purpose. Purchaser is purchasing the Units for Purchaser's own account for investment only and not with a present view towards the public sale or distribution thereof, except pursuant to sales that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act. Purchaser understands that Purchaser must bear the economic risk of this investment indefinitely, unless the Securities are registered pursuant to the Securities Act and any applicable state securities or blue sky laws or an exemption from such registration is available, and that the Company has no present intention of registering any such Securities. Purchaser agrees that any and all disposal(s) of the Securities shall be in accordance with or pursuant to a registration statement or an exemption under the Securities Act. b. Governmental Review. Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. c. Transfer or Resale. Purchaser understands that the Securities have not been and are not being registered under the Securities Act or any state securities laws, and may not be transferred unless (a) subsequently registered thereunder, or (b) Purchaser shall have delivered to the Company an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (c) sold pursuant to Rule 144 promulgated under the Securities Act (or a successor rule) ("Rule 144"); any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder except as otherwise set forth herein. d. Legends. Purchaser understands that the Series M Stock and, until such time as the Conversion Shares have been registered under the Securities Act may be sold by Purchaser pursuant to Rule 144, the certificates for the Securities may bear a restrictive legend in substantially the following form: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. The securities have been acquired for investment and may not be sold, transferred or assigned in the absence of an effective registration statement for the securities under said Act, or an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, that registration is not required under said Act or unless sold pursuant to Rule 144 under said Act. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of such Security is registered under the Securities Act, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the Securities Act or (c) such holder provides the Company with reasonable assurances that such Security can be sold pursuant to Rule 144. Purchaser agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, pursuant to an effective registration statement or in compliance with an exemption from the registration requirements of the Securities Act. In the event the above legend is removed from any Security and thereafter the effectiveness of a registration statement covering such Security is suspended or the Company determines that a supplement or amendment thereto is required by applicable securities laws, then upon reasonable advance notice to Purchaser the Company may require that the above legend be placed on any such Security that cannot then be sold pursuant to an effective registration statement or Rule 144 and Purchaser shall cooperate in the prompt replacement of such legend. Such legend shall be removed when such Security may be sold pursuant to an effective registration statement or Rule 144. b. Enforcement. This Agreement has been duly and validly executed and delivered on behalf of Purchaser and is a valid and binding agreement of Purchaser enforceable in accordance with their terms. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Purchaser that: a. Organization and Qualification. The Company is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary. b. Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and perform this Agreement. c. Expenses. Except as otherwise provided in this Agreement, each party hereto shall be responsible for its own expenses incurred in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith except the Company agrees that it shall be responsible for payment of reasonable legal fees to Purchaser's counsel. d. Financial Information. The Company agrees to send the following reports to the Purchaser until such Purchaser transfers, assigns or sells all of its Securities contemporaneous with filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy statements and any Current Reports on Form 8-K, and all other relevant information on request from Purchaser. e. Reservation of Shares. The Company shall at all times have authorized and reserved for the purpose of issuance a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Series M Stock and issuance of the Conversion Shares in connection therewith and as otherwise required by the Certificate of Designation. f. Corporate Existence. So long as a Purchaser beneficially owns any of the Series M Stock, the Company shall maintain its corporate existence, and in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, the Corporation shall ensure that the surviving or successor entity in such transaction assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith regardless of whether or not the Company would have had a sufficient number of shares of Common Stock authorized and available for issuance in order to effect the conversion of all the Series M Stock as of the date of such transaction. g. Compliance with Certificate of Designation. The Company shall comply with all of the provisions contained in the Certificate of Designation. 4. TRANSFER AGENT INSTRUCTIONS. a. The Company shall instruct its transfer agent to issue certificates, registered in the name of the Purchaser or its nominee, for the Conversion Shares in such amounts as specified from time to time by such Purchaser to the Company upon conversion of the Series M Stock. To the extent and during the periods provided in Section 2(f) and 2(g) of this Agreement, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. b. The Company warrants that no instruction other than such instructions referred to in this Section 4, and stop transfer instructions to give effect to Section 2(f) hereof in the case of all of the Securities prior to registration of the Conversion Shares under the Securities Act, will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement. Nothing in this Section shall affect in any way the Purchaser's obligations and agreement set forth in Section 2(g) hereof to resell the Securities pursuant to an effective registration statement or in compliance with an exemption from the registration requirements of applicable securities law. c. If the Purchaser provides the Company with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from registration, or the Purchaser provides the Company with reasonable assurances that such Securities may be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by the Purchaser. 5. REGISTRATION RIGHTS. The Company agrees that at any time it registers shares of common stock for any other party, it shall promptly notify Purchaser of such pending registration and shall undertake, upon the request of the Purchaser, to register the Conversion Shares. Purchaser shall notify the Company that it seeks to have the Conversion Shares registered within ten days of the Company's notification of a filing to the Purchaser. Notwithstanding the foregoing, the Company shall undertake to file a registration statement to register the Conversion Shares no later than August 1, 1998 and the Company shall keep such registration current and effective thereafter. In the event that the Company does not register the Conversion Shares by August 1, 1998, the Purchaser shall have a demand registration right at the Company's expense. 6. LIQUIDATION PREFERENCE. The Series M Stock shall hold liquidation preference over the Common Stock and the Series K and L Convertible Preferred Stocks of the Company. The Series M Stock shall rank junior to the Series A Convertible Preferred Stock until such time as the Company has effected the conversion of the Series A Convertible Preferred Stock. 7. EXISTING WARRANTS. All warrants to purchase shares of the Company's common stock that are currently held by the Purchaser and Liberty Travel shall be repriced to $1.50, and such warrants shall expire on December 31, 2002. Such modifications to the warrants shall become effective the first business day immediately following execution of this Agreement. The Company agrees that all of the Company's publicly held warrants shall be repriced to $1.50 effective on the first business day immediately following execution of this Agreement. All other terms and conditions of the warrants shall remain unchanged. 8. GOVERNING LAW; MISCELLANEOUS. a. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to contracts made and to be performed in the State of New Jersey. The Company and the Purchaser irrevocably consent to the exclusive jurisdiction of the United States federal courts located in Essex County in the State of New Jersey in any suit or proceeding based on or arising under this Agreement and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. b. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchasers make any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement and no provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Purchasers. f. Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 Attn: General Counsel's Office If to the Purchaser, to such address set forth under such Purchaser's name on the execution page hereto executed by the Purchaser, with an additional copy to Purchaser's counsel. Each party shall provide notice to the other parties of any change in address. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. h. Survival. The Company agrees to indemnify and hold harmless the Purchaser for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations or covenants set forth herein, including advancement of expenses as they are incurred. IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this Agreement to be duly executed as of the date first above written. NETWORK IMAGING CORPORATION By: Name: Title: PURCHASER: Fred Kassner ADDRESS: 69 Spring Street, Ramsey New Jersey 07446 EX-10.23 17 SERIES K LETTER AGREEMENT AGREEMENT AGREEMENT (this "Agreement"), dated as of November 30, 1997, by and among NETWORK IMAGING CORPORATION, a corporation organized under the laws of the state of Delaware (the "Company"), and the undersigned (together with affiliates, the "Initial Investors") WHEREAS A. In connection with that certain Securities Purchase Agreement, dated as of July 28, 1997, by and among the Company and the initial Investors (the "Securities Purchase Agreement') the Company issued and sold to the Initial Investors 3,300 hares of the Company's Series K Convertible Preferred Stock, par value $.0001 per share (the "Preferred Stock"). The rights, preferences and privileges of the Preferred Stock are set forth in the Certificate of Designations, Preferences and Rights of the Preferred Stock in the form attached hereto as Exhibit A (the "Certificate of Designation"). Capitalized terms used and not otherwise defined herein shall have the meaning ascribed thereto in the Certificate of Designation. B. Pursuant to the Certificate of Designation, the Initial Investors have the right to require the Company to redeem the shares of Preferred Stock held by such Initial Investors in certain circumstances set forth in the Certificate of Designation (the "Redemption Rights"). C. The Company desires to induce the Initial Investors to agree not to exercise certain of the Redemption Rights as described herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledge, the Company and the Initial Investors hereby agree as follows: 1. The Initial Investors agree not to exercise their right to require the Company to effect a redemption of their outstanding shares of Preferred Stock upon a Redemption Event specified in Article VIII.A.(i) of the Certificate of Designation so long as the Company pays to each of the Initial Investors within five (5) business days of the occurrence of such Redemption Event, as liquidated damages for the decrease in the value of the Preferred Stock (and the shares of the Company's Common Stock issuable upon conversion thereof) which will result from the occurrence of such Redemption Event, an amount (the "Damages Amount") equal to twenty-five percent (25%) of the aggregate Face Amount of the shares of Preferred Stock then held by each such Initial Investor. The Damages Amount shall be payable at the Company's option, in cash or shares of Common Stock that have been registered by the Company under the Securities Act for resale by the Initial Investors (based upon a price per share of Common Stock equal to fifty percent (50%) of the lowest Closing Price of the Common Stock on any single trading day during the ten (10) consecutive trading day period ending on the trading day immediately preceding the date of such Redemption Event). The Company represents and warrants that it has reserved, and agrees to keep reserved, 3,000,000 shares of Common Stock to satisfy its obligation with respect to the Damages Amount. In the event that the number of shares required to be issued by the Company with respect to the Damages Amount exceeds 3,000,000 shares of Common Stock and the Company does not have a sufficient number of shares of Common Stock authorized and available for issuance to satisfy its obligation with respect to the Damages Amount, the Company shall issue and deliver to the Initial Investors all 3,000,000 shares of Common Stock so reserved for such purpose and, upon such issuance, the Initial Investors shall have no right of redemption upon a Redemption Event specified in Article VIII.A.(i) of the Certificate of Designation, but shall retain all other remedies to which they may be entitled at law of in equity. 2. The Initial Investors agree not to exercise their right under Article V.B. of the Certificate of Designation to require the Company to effect a redemption of their outstanding shares of Preferred Stock so long as (i) the Company has not, at any time, decreased the Reserved Amount below 12,500,000 shares of Common Stock, (ii) the Company shall have taken immediate action following he applicable Authorization Trigger Date (including, if necessary, seeking shareholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to 200% of the number of shares of Common Stock then issuable upon conversion of the outstanding Preferred Stock; and (iii) the Company continues to use its good faith best efforts (including the resolicitation of shareholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to 200% of the number of shares of Common Stock then issuable upon conversion of the outstanding Preferred Stock. The parties hereby agree that the Company will be deemed to be using "its good faith best efforts" to increase the Reserved Amount so long as it solicits shareholder approval to authorize the issuance of additional shares of Common Stock not less than three (3) times during each twelve month period following the applicable Authorization Trigger Date during which any shares of Preferred Stock remain outstanding. 3. (a) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in the State of Delaware. The Company irrevocably consents to the jurisdiction of the United States federal courts and the state courts located in the City of New York in the State of New York in any suit or proceeding based on or arising under this Agreement and irrevocably agrees that all claims in respect of such suit or proceeding based on pr arising under this Agreement and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company, mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the Initial Investor's right to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit of proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. (c) Except as expressly provided herein, all of the terms and provisions of the Certificate of Designation shall continue in full force and effect and nothing contained herein shall be deemed to constitute a waiver by the Initial Investors of any of their rights under the Certificate of Designation, the Securities Purchase Agreement, the Registration Rights Agreement or any other agreement among the Company and the Initial Investors. (d) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. NETWORK IMAGING CORPORATION By: Name: Title: INITIAL INVESTORS: ZANNETT LOMBARDIER, LTD. By: Name: Title: CAPITAL VENTURES INTERNATIONAL By: Name: Title: EX-10.24 18 LETTER FROM ZANETT, CAPITAL VENTURES & GUAZZONI Zanett Lombardier, Ltd. c/o The Zanett Securities Corporation Tower 49, 31st Floor 12 East 49th Street New York, NY 10017 Capital Ventures International c/o Susquehanna Securities Trading GmbH Oberlindau 7 60323 Frankfurt am Main Bruno Guazzoni c/o The Zanett Securities Corporation Tower 49, 31st Floor 12 East 49th Street New York, NY 10017 December 8, 1997 Network Imaging Corporation 500 Huntmar Park Drive Herndon, VA 20170 Dear Ladies and Gentlemen: Zanett Lombardier, Ltd., Capital Ventures International and Bruno Guazzoni (individually, a "Purchaser" and, collectively, the "Purchasers") have purchased 3,250 shares of Series L Preferred Convertible Stock ("Series L Stock") from Network Imaging Corporation ("Company") under that Securities Purchase Agreement among the Company and the Purchasers dated December 8, 1997 ("Securities Purchase Agreement"). Under the Securities Purchase Agreement, the Purchasers have the right to purchase 3,000 additional shares of Series L Stock from the Company pursuant to the terms of the Securities Purchase Agreement. Pursuant to Section VII(B)(ii) of the Certificate of Designations, Preferences and Rights of Series L Convertible Preferred Stock of Network Imaging Corporation ("Series L Certificate"), each holder of the Series L Stock has the right, under certain conditions, to require the Company to issue shares of the Company's Common Stock, par value $.0001 per share ("Common Stock"), at a conversion price equal to the average of the Closing Price, as defined in the Series L Certificate, for the five consecutive trading days (subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such five trading day period) preceding the date of the holder's written notice to the Company of its election to receive shares of Common Stock pursuant to that Section, without regard to the limitation set forth in Section IV(C)(i) of the Series L Certificate. The Purchasers hereby agree, on behalf of themselves and on behalf of all subsequent holders of shares of Series L Stock, that, while the Company's Common Stock is listed on either the Nasdaq National Market or the Nasdaq SmallCap Market and until the issuance of the shares of Common Stock issuable on conversion of and otherwise in connection with the shares of Series L Stock is approved by the holders of Common Stock in accordance with the provisions of Nasdaq Rule 4460(i), the Company cannot be required to issue 20% or more of the number of shares of Common Stock outstanding on December 7, 1997 on conversion of and/or otherwise in connection with the Series L Stock. Sincerely, ZANETT LOMBARDIER, LTD. By:_________________________________ Name:_______________________________ Title:________________________________ CAPITAL VENTURES INTERNATIONAL By:_________________________________ Name:_______________________________ Title:________________________________ ------------------------------------ Bruno Guazzoni EX-21 19 SUBSIDIARIES SUBSIDIARIES None. EX-27.1 20 FDS FOR NETWORK IMAGING 12/31/97
5 This schedule contains summary financial information extracted from SEC Form 10-K and is qualified in its entirety by reference to such financial statements as of and for the year ended December 31, 1997. 0000883946 NETWORK IMAGING CORPORATION 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 3,816 0 11,095 (2,148) 722 21,215 6,928 (4,763) 26,860 11,235 0 6,548 0 3 7,966 26,860 35,806 35,806 22,008 22,008 24,851 0 286 (11,339) 0 (11,339) 0 0 0 (14,310) (0.57) (0.57) Report of Ernst & Young LLP, Independent Auditors The Board of Directors We have audited the consolidated financial statements of Network Imaging Corporation (a Delaware Corporation) as of December 31, 1997 and 1996, and for the years then ended and have issued our report thereon dated February 27, 1998 (included elsewhere herein). Our audits also included the financial statement schedule listed in Item 14(d) of this Annual Report (Form 10-K). The schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole presents fairly, in all material respects, the information set forth therein. /s/ Ernst & Young LLP Vienna, Virginia February 27, 1998 Valuation and Qualifying Account and Reserve Network Imaging Corporation Balance at Additions Balance at Beginning of Charged to Due to End of Period Expense Acquisitions Deductions Period Classification Allowance for uncollectible Accounts Receivable Year Ended Dec 31, 1995 1441 96 1354 183 Year Ended Dec 31, 1996 183 219 25 377 Year Ended Dec 31, 1997 377 673 0 1050 Allowance for Uncollectible Notes Receivable Year Ended Dec 31, 1995 0 1350 1350 Year Ended Dec 31, 1996 1350 0 875 475 Year Ended Dec 31, 1997 475 623 1098
EX-27.2 21 FDS FOR NETWORK IMAGING 12/31/96
5 This schedule contains summary financial information extracted from SEC Form 10-K and is qualified in its entirety by reference to such financial statements as of and for the year ended December 31, 1996. 0000883946 NETWORK IMAGING CORPORATION 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 7,601 0 16,077 (855) 1,503 24,709 8,566 (5,679) 36,778 14,816 0 9,857 0 2 11,715 36,778 39,477 39,477 25,854 25,854 31,341 0 (309) (17,409) (68) (17,341) 0 0 0 (21,071) (1.02) (1.02)
-----END PRIVACY-ENHANCED MESSAGE-----