-----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, Ot/gqmxOtJDDhqOchehEVNO9TrikIKrkAdv4sVwyshMeNHRm6JUDDukfqC0zbQVM mx1ew6/+qZy5eGH5RCXiTw== 0000891554-97-000287.txt : 19970319 0000891554-97-000287.hdr.sgml : 19970319 ACCESSION NUMBER: 0000891554-97-000287 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970318 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: 1934 Act SEC FILE NUMBER: 001-11135 FILM NUMBER: 97558672 BUSINESS ADDRESS: STREET 1: 500 HUNTMAR PARK DRIVE 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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 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, 1996 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, 1997 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: $79,704,066 as of March 7, 1997 (Price of Common Stock = $3 1/16). Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 24,799,439 shares of Common Stock were outstanding as of March 7, 1997. 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") provides software products supporting storage, management and distribution. These products provide businesses and government organizations with an automated method of electronically storing, managing and distributing large volumes of structured data (text) and unstructured data (diagrams, documents, photos, voice and full-motion video). The Company is a recognized worldwide leader in content and storage management for all unstructured information. Its flagship product, the 1View(TM), suite, manages the storage, access and distribution of any multimedia (or unstructured) data, such as diagrams, documents, photographs, voice, and full-motion video. 1View is a unique solution for use in distributed, high transaction, high volume mission critical applications across legacy, client/server and Internet/intranet based environments. The Company is also a software developer for mainframe and PC based Computer Output to Laser Disk ("COLD") systems and a developer and marketer of storage management software systems. 1View(TM), InfoAccess(TM), Treev+(TM) and the Company logo are trademarks of Network Imaging Corporation. All other product and brand names are trademarks or registered trademarks of their respective companies. United States operations were conducted in Herndon, Virginia (primarily the development, marketing and sales activities of the 1View suite and mainframe COLD products), Minneapolis, Minnesota and Denver, Colorado (PC COLD products). I-1 European operations were conducted primarily in Paris, France (hierarchical storage management ("HSM") software and related storage products and engineering services). 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 its principal products: the 1View software application suite, a family of COLD products, and the Doro-family of products for HSM applications. 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, provide a bridge to "legacy" systems previously used, and allow for easy customization of software systems in comparison to standard file structures. 1View is an independent platform and can work on top of any data base in the marketplace. The 1View suite consists of the following: 1View: Object Manager is an API toolkit that provides a unique solution for storing, managing, and distributing any type of multimedia document object in high transaction, high volume, client/server and Internet/intranet environments. It can manage information that originates from a large variety of sources, including scanned documents, computer output, word processor or spreadfile sheets, audio/voice or full motion clips, and photographic images. 1View: Object Manager helps companies seamlessly and efficiently multimedia-enable existing or new database applications while preserving their investments in legacy information systems, hardware equipment and personnel training. I-2 1View: EDM (Engineering Document Management) is a software product with an application that solves the document management problems unique to engineering organizations. Target customers include manufacturing, utilities, transportation and other engineering-based corporations. It supports a variety of document types including oversized engineering and architectural drawings, project plans, specifications and blueprints-indexing the documents according to end-user criteria. 1View:Workflow is a software product with 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 successful 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 business processes by linking together a variety of people and software elements to automate the flow of documents (objects) throughout an enterprise. 1View: WebMOM (Web Multimedia Object Manager) is a software product that allows companies to build customer Internet/intranet applications easily and cost-effectively using the 1View:Object Manager as a back-end storage repository. It delivers high performance access from Web browsers due to its caching capabilities, while protecting confidentiality of data by linking to Web security mechanisms. Upon requests from Web users, it locates the object, retrieves it, adds a MIME header to it, and finally transfers it back through the Web server to the Web browser. 1View:WebMOM supports all major Web browsers and servers, such as Netscape Navigator, Netscape Web Server, MS Internet Explorer, and MS Internet Information Server. 1View:COLD/ES is a report storage and retrieval system that offers high volume, high speed mission critical print data handling. It lets the user maximize the power and extensive resources of the mainframe computer by off-loading report management operations to a cost-effective dedicated server and its associated high efficiency data storage subsystem. 1View:Unity is a software product that provides a storage and retrieval system for scanned images and other documents. It provides a simple and consistent way to find and view information regardless of its storage location or internal format. In most cases, documents are added to this system using a batch scanning process. 1View:Unity is an end-user application that runs with 1View:Object Manager. 1View:Object Manager handles the physical management of documents as they are being scanned into the system and after they have been stored on storage media while 1View:Unity allows the end-user to organize documents electronically in a structure that is meaningful to the end-user and retrieves information rapidly. I-3 Other 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 disks. Once written permanently to this unalterable 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 in the world. The TREEV Division of the Company's U.S. operations has developed and markets PC-based COLD systems used in over 2,000 community banks. TREEV also markets imaging products to the community bank marketplace including the UNITY product repackaged as TREEV Voyager II. TREEV Division provides "turn-key" hardware and software solutions, maintenance services for its client systems, consulting, training, and high quality optical supplies. The Company's French subsidiary, Dorotech France, S.A., ("Dorotech") headquartered in Paris, develops and markets a family of software products designed for managing large volumes of information and provides professional engineering services. Dorotech's software products include DoroStore, DoroFile, Doro-JB, Dorokey, and Dorodoc (the "DoroStore suite"). The DoroStore suite implements advanced data and storage management solutions for enterprises with complex networks and large numbers of servers and workstations. The capabilities of the DoroStore suite include: 1) centralized administration capability to implement uniform data and storage policies throughout a distributed network, 2) advanced backup and restore processes to protect and secure data from disasters, and provide users with a direct link to retrieving their individual files, 3) On-Line Database Backup/Restore (ODBR) to manage the backup and recovery of databases, 4) advanced archiving methods that allow retrieval of files using keywords, phrases, and date ranges, thereby reducing costly processes involving users and administrators searching for specific files, 5) hierarchical storage management for transparently and automatically storing data onto lower cost storage subsystems, providing virtually limitless network capacity, and 6) full security protection for all operations. The DoroStore suite provides a single utility for administering heterogeneous environments in terms of storage space and data protection across networks on any scale, up to and including the very largest networks. I-4 Product Development The Company's plan to consolidate the various 1View product development groups into a common product development organization was completed in 1996. The unified team now operates under a single senior manager and is located at the company's headquarters in Herndon, VA. This consolidation has resulted in increased synergy and will allow the organization to operate under a common shared strategy which includes both the 1View product suite's technical vision and software development methodology. During 1997, the product development group will be 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, intelligent, multimedia content management solutions enabling our customers and business partners to leverage existing applications and exploit emerging business opportunities across the Internet/intranet. 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 OmniConnect. The company was an early adopter of the Microsoft's ActiveX technology and will continue to migrate the existing toolkits and API 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, COLD and storage management products strategy. Assembly; Sources of Supply The Company assembles its products at its facilities in Herndon, Virginia, Denver, Colorado, and Paris, France. The Company relies exclusively on outside suppliers for the hardware components of its products such as scanners, printers, computers and optical disk drives and jukeboxes. Most parts and components are currently available from multiple sources at competitive prices. To date, the Company has not experienced significant delays in obtaining parts and components, and although there can be no assurance, the Company does not expect to experience such delays in the future. Patents, Trademarks and Copyrights The Company has numerous trademarks and copyrights that are registered in the United States and various foreign countries. Additionally, the Company is pursuing patents on certain key technologies. In general, however, management believes that the competitive position of the Company depends primarily on the skill, knowledge and I-5 experience of Network Imaging's personnel and their ability to develop, market and support software products, and that its business is not 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 license 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 The Company's 1View(TM) product line is the broadest, most innovative solution available for enterprise scaleable 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 FileNet Corporation, Wang, Recognition International, Eastman Kodak and other vendors in the traditional imaging and document management markets. For smaller scale systems in centralized environments with low performance requirements, the competitive issue becomes price or company size and stability. With increasing recognition by companies such as Sybase, Informix, Sun Microsystems, and Microsoft of the unique capability of the Network Imaging product suite, many of those issues have become less important from a competitive perspective. There is, however, the potential for competition from the database, application and storage vendors who in some cases are Network Imaging partners. I-6 The new Universal Server initiatives from Oracle, Informix and IBM all suggest support to store and manage the same multimedia content in markets that Network Imaging serves. Scaleability of content storage requirements, complexity of the environment, i.e., distributed content base, multiplatform, multiple application content access, and cost management of the storage resources (hierarchical storage environments) are real and significant issues in this industry. None of the database vendors completely solve these issues and most of them have recognized that and are working with Network Imaging on large scale system proposals. Importantly, Sybase has entered into a reseller agreement to remarket the 1View(TM) 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. In the future, the systems management companies such as Computer Associates and Tivoli are expected to recognize the need for comprehensive content and storage management for multimedia as a part of their overall systems management architecture. Their option to cooperate or compete will depend on how rapidly they want to enter this market. In a market segment (Internet/intranet) poised for explosive growth, Network Imaging Corporation has significant time to market advantage with their software technology. 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 and indirectly, through value added resellers, system integrators, OEMs, and distributors. The Company maintains sales offices in locations in or near New York, Boston, Washington D.C., Atlanta, Charlotte, Denver, Detroit, Minneapolis, Los Angeles, San Francisco, St. Louis, Dallas, Seattle and in Europe, near Paris, France. The Company has active programs to develop marketing partnerships with vendors of complementary product technologies such as companies who market and manufacture database, application development, systems management, and communication and connectivity middleware. The Company also focuses on vertical market segments which have proven requirements for the Company's product line. These market segments include Telecommunications and Utilities, Finance Banking and Insurance, Healthcare, Manufacturing, and the Public Sector. The Company has developed vertical business development programs in these segments to identify sales opportunities, create product awareness, and develop contacts for the Company's indirect sales channels. The Company has established international marketing strategies to develop international channels of distribution and support the international efforts with Network Imaging's partners. I-7 The Company has an active marketing program which includes direct representation at trade shows, seminars and user group meetings. The partnership programs now include representation with its marketing business partners in their direct marketing programs on a 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 and COLD software products. In connection with its restructuring plan, the Company, during 1995 and 1996, disposed of a number of operating units (the "Divestitures") which were not considered complimentary to the Company's business. As a result of the Divestitures, the Company recorded losses of $921,000 and $9.3 million in 1996 and 1995, respectively. The aggregate consideration received by the Company from the Divestitures was $1.6 million in cash and $4.2 million in notes receivable, of which $320,000 was reserved as uncollectible at December 31, 1996. The Company sold the assets and liabilities of its Symmetrical Technologies, Inc. ("STI") subsidiary in September 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 3, 1997, the Company employed 315 people. I-8 Directors and Executive Officers of the Company The directors and executive officers of the Company are as follows: NAME AGE OFFICE Robert P. Bernardi.... 43 Chairman of the Board and Secretary James. J. Leto........ 52 Director, President and Chief Executive Officer John F. Burton........ 45 Director, Independent Consultant Alan C. Peyser. 62 Director, Independent Consultant Robert Ripp........... 54 Director, Corporate Vice President and Chief Financial Officer, AMP, Inc. Jorge R. Forgues...... 41 Senior Vice President of Finance and Administration and Chief Financial Officer John M. Flowers, Jr... 46 Senior Vice President of Engineering Brian H. Hajost....... 40 Senior Vice President of Integrated Products Mark T. Wasilko....... 43 Senior Vice President of Marketing Robert P. Bernardi was a co-founder of the Company and has been a Director of the Company (and its predecessor) since its inception and Chairman of the Board of Directors since September 1995. Mr. Bernardi served as President of the Company from inception to February 1995 and as Chief Executive Officer from inception to May 1996. 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, with overall management responsibilities including marketing, sales, engineering and finance. Prior to 1984, Mr. Bernardi held various executive management positions with MCI Communications Corporation, Mobil Corporation, Booz, Allen & Hamilton and the MITRE Corporation. Mr. Bernardi was a co-founder, and, from 1984 to 1987, was a Director of PictureTel Corporation, a manufacturer of full-motion videoconferencing systems, and of TranSwitch Corporation, a designer of high-speed telecommunications chips. James J. Leto has been the President, Chief Executive Officer and a Director of the Company since May 1996. Prior to joining the Company, he served as the Chairman and Chief Executive Officer of PRC, Inc., an information technology company, from January 1993 to February 1996, and prior to that time 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 Manger 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. I-9 John F. Burton was appointed to the Board of Directors in September 1995. Mr. Burton was President and Chief Executive Officer of Nat Systems, Inc., a provider of applications development software from August 1995 to September 1996. From January 1995 to August 1995, Mr. Burton was an independent consultant in the applications software field. From March 1992 to January 1995, Mr. Burton served as Chief Executive Officer, and from 1989 to January 1995 as President, Chief Operating Officer and a Director, of Legent Corporation, an independent software vendor. Mr. Burton was co-founder, and from 1984 to 1989 Chief Operating Officer and a Director, of Business Software Technology Inc., a provider of applications management software, which was acquired by Legent in 1989. Prior to 1984, Mr. Burton was Vice President, sales and marketing of Higher Order Software and held senior sales and marketing positions with Cullinet Software. Mr. Burton is also a Director of Banyan Systems, Inc., MapInfo Corporation and Netrix Corporation. Mr. Burton was a founding member of the Northern Virginia High Tech Council. 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 Corporate Vice President and Chief Financial Officer of AMP, Inc., an electronics manufacturer. 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 finance executive from 1964 to 1994. He is a member of the board of directors of ACE, Limited. 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 I-10 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 and was appointed Senior Vice President of Integrated Products in April 1996. From 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 Products Group Vice President Sales Manager, Imaging Technologies Group Vice President Sales and Marketing, and Imaging Technologies Group Senior Vice President Business Unit Manager. Mark T. Wasilko joined the Company in September 1995 and became Senior Vice President of Marketing for the Company in October 1995. From January 1994 to August 1995, Mr. Wasilko was Vice President of Corporate Marketing for Legent Corporation. Prior thereto, Mr. Wasilko was Senior Vice President for Corporate Marketing at Computer Associates International, Inc., an independent software vendor, where he had held a variety of sales and marketing positions since 1982. ITEM 2. PROPERTIES As of March 31, 1997, 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; Chicago, Illinois; Dallas, Texas; Denver, Colorado; Los Angeles, California; Detroit, Michigan; Minneapolis, Minnesota; New York, New York; San Francisco, California; Seattle, Washington; St. Louis, Missouri; Paris, France. The Company's current rent expense under real property leases on an annual basis is approximately $1.6 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. I-11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on November 21, 1996 at which the Stockholders elected five directors, ratified the selection of Ernst & Young LLP as the Company's independent accountants for the fiscal year ended December 31, 1996, and approved an amendment to the 1994 Key Employee Incentive Stock Option Plan that increased the total number of shares for which options may be granted under the plan from 5,000,000 to 6,000,000. The following table sets forth the names of the nominees for director and the votes for and withheld with respect to each such nominee: Nominee For Authority Withheld - ------- --- ------------------ Robert P. Bernardi 16,488,226 909,167 John F. Burton 16,889,226 508,167 James J. Leto 16,889,226 508,167 C. Alan Peyser 16,889,226 508,167 Robert Ripp 16,889,226 508,167 In connection with the ratification of the selection of Ernst & Young LLP as the independent auditors for the Company for the fiscal year ended December 31, 1996, 16,126,689 shares were voted in favor of the ratification, 92,517 were voted against, and 1,166,187 abstained. With respect to the proposal to approve the increase in the number of shares for which options may be granted under the Company's 1994 Key Employee Incentive Stock Option Plan, 15,327,755 shares were voted for the proposal, 1,554,881 were voted against, and 82,475 abstained. I-12 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market System (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 1995 -First Quarter 4 3/4 2 5/8 -Second Quarter 5 7/16 3 1/8 -Third Quarter 73/4 4 7/8 -Fourth Quarter 5 1/8 2 13/16 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 3 13/16 (through March 7) The Company has never paid any dividends on its Common Stock. For the foreseeable future, the Company anticipates continuing to pay dividends to holders of the Company's Series A Preferred Stock. It is anticipated that any earnings that may be generated from the Company's operations and not paid as dividends to holders of the Company's Series A Preferred Stock will be used primarily to finance the growth of the Company. II-1 As of March 10, 1997, the Company had approximately 350 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 7,500 beneficial owners of its Common Stock. In July and August 1995, the Company sold to two investors in a private sale, in reliance of Regulation S under the Securities Act of 1933, 1,791 shares of Series D Preferred Stock and 258 shares of Series E Convertible Preferred Stock for $18.8 million in cash. In March 1996, the Company sold to two investors in a private sale, in reliance of Regulation S under the Securities Act of 1933, 421,040 shares of Common Stock for $1.7 million in cash. In June 1996, the Company sold to 10 investors in a private sale, in reliance of Regulation S under the Securities Act of 1933, 404,611 shares of Common Stock for $1.3 million in cash. ITEM 6. SELECTED FINANCIAL DATA The selected financial data for the five years ended December 31, 1996 are derived from the consolidated financial statements of the Company. The financial statements for the year ended December 31,1996 are derived from the consolidated financial statements which have been audited by Ernst & Young LLP. The financial statements for the four years ended December 31, 1995 have been audited by other independent auditors. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein. Statement of Operations Data (in thousands, except share amounts)
Year Ended December 31, --------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Revenue $39, 477 $ 69,151 $ 67,028 $ 34,069 $ 27,961 Net loss (17,341) (24,963) (39,625) (30,817) (465) Net loss applicable to common shares (21,071) (34,896) (44,121) (31,421) (465) Net loss per common share (1.02) (2.41) (3.56) (4.48) (0.13)
II-2 Balance Sheet Data (in thousands, except share amounts) Year Ended December 31, ------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Total assets $36,730 $49,964 $71,871 $75,519 $13,738 Working capital 9,845 13,454 17,513 45,859 3,823 Long-term debt 88 1,264 2,533 2,125 287 Redeemable preferred stock 9,857 15,478 14,609 15,626 0 Stockholders' equity 11,717 10,185 25,156 42,794 7,044 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, for contracts with significant completion services requiring attainment of customer acceptance, upon customer 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 $39 million in 1996, $69 million in 1995 and $67 million in 1994. The decrease in total revenue in 1996 over 1995 of $30 million, or 43%, resulted from decreases in product revenues of $29.2 million, or 61%, to $18.3 million, and in service revenue of $500,000, or 2%, to $21.1 million. The increase in total revenue in 1995 over 1994 of $2 million, or 3%, resulted from increases in service revenue of $4.5 million, or 26% to $21.6 million, offset by a decrease in product revenue of $2.4 million, or 5% to $47.5 million. The decrease in product revenue in 1996 of $29.2 million 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. II-3 The decrease in product revenue in 1995 of $2.4 million was primarily attributable to the Divestitures, which reduced product revenue by $10.6 million, offset by an increase of $8.2 million in 1View and comparative company product revenue. The increase in 1View product revenue was attributable to licenses provided for a major installation project, involving approximately 40 servers and 3,000 clients, in more than 50 districts of a major telecommunications company. This project accounted for approximately 15 percent of the Company's revenues in 1995. The decrease in service revenue in 1996 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 1View and comparative company service revenue. The increase in 1View and comparative company service revenue was attributable to increased staffing and management emphasis on the professional services business. The increase in service revenue in 1995 of $4.5 million was primarily attributable both to Dorotech, the Company's French subsidiary, and to domestic COLD storage maintenance services. Profit Margins. 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 the Company's internally developed products and due to the dispositions in 1995 of the Company's CAD/CAM resellers. Profit margins for product sales improved in 1995 over 1994 as the cost of products sold decreased from 74% to 62%. The significant increase in product sales margins was also due primarily to the increased sales of the Company's internally developed 1View product suite and the dispositions during 1995 which primarily occurred in the second and third quarters. Profit margins for service sales decreased in 1996 over 1995 as the cost of products sold increased from 61% to 68% of sales. The decrease in service sales margins was primarily attributable to the increased staffing in the professional services business. Profit margins for service sales improved in 1995 as compared to 1994, as the cost of service sales decreased from 67% to 61%. The increase in service sales margins was due primarily to customization and maintenance service sales of the Company's internally developed 1View product suite, an increase in COLD storage maintenance margins and the Divestitures. Research and Development. The Company's expenditures on software research and development activities ("R&D") in 1996 were $8.5 million, of which $2.0 million was capitalized and $6.5 million was expensed. The slight increase in capitalization between 1996 and 1995 was due to 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 $8.7 million, of which $1.7 million was capitalized and $7.0 million was expensed. The Company's expenditures on software research and development activities and for the acquisition of software licenses in 1994 were $11.6 million, of which $7.0 million was capitalized and $4.6 million was expensed. The 48% increase in product development expense from $4.6 million in 1994 to $6.8 million in II-4 1995 was primarily attributable to the general release of the Company's 1View product suite in early 1995, whereas in 1994, the R&D efforts for the 1View product suite were still in the development stage. The net decrease in total R&D expenditures from $11.6 million in 1994 to $8.5 million in 1995, or $3.1 million, was primarily attributable to the Divestitures; a reduced focus on the Company's network attachable storage products, which resulted in a $770,000 reduction in R&D expenditures; an increased focus on Dorotech's engineering services, which resulted in a $810,000 reduction in R&D expenditures; a net $200,000 reduction in software license acquisitions; and, increased domestic engineering services for installation and maintenance of the Company's 1View product suite. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") were $25.0 million, or 63% of revenue, in 1996, $35.7 million, or 52% of revenue, in 1995, $36.8 million, or 55% of revenue, in 1994. The decrease in 1996 compared to 1995 of $10.7 million, or 30% was the result of the Divestitures which accounted for a $8.7 million decrease in addition to a $2.0 million decrease in SG&A expenses from the Company's continuing 1View, COLD and French operations. The decrease in 1995 compared to 1994 of $900,000, or 2%, is due to the Divestitures, which reduced SG&A expense an aggregate of $5.0 million, offset by increases in sales and marketing efforts of $4.1 million, for the comparative companies. 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 Dorotech acquisition 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. Purchased In-Process R & D. In connection with the acquisition of DCR ("TREEV") during 1994, the Company incurred a charge totaling $8.8 million relating to the expensing of purchased in-process research and development. 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 agreements and an aggregate of 175,000 additional shares of Common Stock of the Company, valued at approximately $892,000. Restructuring Charges and Capitalized Software Write-Offs. 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. II-5 During 1995, the Company incurred additional charges under the Plan for items which exceeded its original estimates totaling $297,000. These additional charges were offset by $1.4 million reflecting a decrease in estimated charges for impairment of inventory and maintenance spare parts. During 1995, $322,000 of the 1993 restructuring plan costs were reversed after a release was negotiated from the landlord for vacated property. The Company incurred a $2.0 million restructuring charge in 1994 when establishing the Plan. In conjunction with the 1994 restructuring, the Company also expensed capitalized software of $5.3 million, in 1994, which related to products which were abandoned in favor of the 1View suite. During 1994, $300,000 of costs from the 1993 restructuring plan were adjusted due to changes in estimate. Investment and Interest Income. Net investment and interest income was $309,000 in 1996, $224,000 in 1995 and $579,000 in 1994. The $85,000 increase in net investment and interest income between 1996 and 1995 was primarily attributable to the interest earned for the cash received and invested from the offerings done during the first three quarters of 1996. The $355,000 decrease in net investment and interest income between 1995 and 1994 was primarily attributable to a decrease in cash, cash equivalents and short-term investment balances during the same period and to increased interest expense from capital leases and the lines of credit. Income Taxes. The Company incurred income tax benefits of $68,000, $280,000 and $1.6 million in 1996, 1995 and 1994, respectively. The $68,000 income tax benefit 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. The $1.6 million income tax benefit in 1994 was primarily the result of income tax credits generated by Dorotech's European operations for R&D expenditures and net operating losses generated by Dorotech's and IBZ's European operations. Net Loss. The Company's net loss was $17.3 million in 1996, $25.0 million in 1995 and $39.6 million in 1994. The $7.6 million decrease in net loss between 1996 and 1995 was due to the 1995 losses from the Divestitures of $9.3 million, the $1.6 million settlement with stockholders, and the $10.7 million reduction in SG&A expenses in 1996. These reductions in expenses were offset by a $11.7 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 $14.7 million decrease in net loss between 1995 and 1994 was due primarily to significantly improved margins on product and service sales which contributed to the increased gross profit, of $7.8 million, the 1994 expenses incurred for purchased in-process research and development, of $8.8 million, restructuring charges, of $1.7 million II-6 and capitalized software write-offs, of $8.7 million, offset by the 1995 loss on closure and sales of subsidiaries, of $9.3 million, settlement expenses, of $1.6 million, and reversals of restructuring costs, of $1.4 million. Excluding the impact of the write-off of purchased in-process R&D and the write-off of capitalized software, the entities divested in 1995 and 1996 contributed a net loss of approximately $1.1 million in 1996, $4.3 million in 1995 and $14.4 million in 1994. Net Loss Applicable to Common Shares. Net loss applicable to common shares includes adjustments for dividends, accretion and redemption amounts related to the Company's preferred stock. The net loss applicable to common shares was $21.1 million, or $1.02 per share, in 1996; $34.9 million, or $2.41 per share, in 1995; $44.1 million, or $3.56 per share, in 1994. The decrease in 1995 over 1994 is attributable to the decrease in net loss described above and the reduction in accretion to redemption value of the Series B Preferred Stock of $417,000 offset by the cost of redemption of Series D Preferred Stock of $5.9 million. Liquidity and Capital Resources As of December 31, 1996, the Company had $7.6 million in cash and cash equivalents compared to $9.4 million in cash and cash equivalents and $3.0 million in restricted short-term investments, or a total of $12.4 million, at December 31, 1995. Net working capital decreased to $9.9 million at December 31, 1996 from $13.2 million at December 31, 1995; however, the Company's working capital ratio improved from 1.6:1 to 1.7:1. At December 31, 1996, the Company had outstanding debt of $2.2 million, $2.1 million of which is due within one year. This compares with debt of $6.6 million at December 31, 1995, $5.4 million of which was due within one year. The decrease in debt of $4.4 million primarily arose from net repayments of maturing obligations. See Note 9 to the Consolidated Financial Statements. For 1996, the $1.8 million decrease in cash and cash equivalents resulted from a $11.9 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 $11.9 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 arose with respect 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. II-7 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. The Company negotiated a new line of credit during the fourth quarter of 1996, see Note 9 to the Consolidated Financial Statements. For 1995, the $5.4 million increase in cash and cash equivalents resulted from a $9 million use of cash from operating activities, the generation of $9.6 million from investing activities, and the generation of $4.7 million from financing activities. The $9 million use of cash in operating activities arose primarily from the $25 million net loss offset by $6.3 million in depreciation and amortization charges and a $9.3 million loss on the sale of subsidiaries. The $9.6 million raised from investing activities arose primarily from the sale of short-term investments offset by capitalized software development costs and purchases of fixed assets. The $4.7 million raised from financing activities arose primarily from the $28.1 proceeds from the issuance of Preferred Stocks and the issuance of Common Stock, offset by the $15.6 million redemption cost for the Series D Preferred Stock, $3.2 million in dividend payments on the Series A Preferred Stock, $2.3 million net payments in debt and capital lease financings, and $3.1 million purchase of restricted short-term investments. In 1995, the Company divested seven operating units from which the Company received $1.2 million in cash. As a result of stock offerings in 1996, the Company received proceeds of approximately $16.9 million with offering costs of approximately $500,000. Under the offerings, the Company issued 1,760,285 shares of Common Stock and 1,100 shares of Preferred Stock. The net proceeds of the offerings were used for working capital purposes. The annual dividend requirements on the Company's preferred stocks are as follows: Series A Preferred Stock - $3.2 million (payable quarterly) and Series F Preferred Stock - $665,000 (payable quarterly beginning October 1, 1996). Dividends on the Company's Series H Preferred Stock and Series J Preferred Stock are payable in common stock. The adverse results of operations which the Company experienced in 1996 have been declining and are expected to reverse in 1997. The Company believes that its existing cash, together with the $5.0 million line of credit established in the fourth quarter of 1996 and the anticipated cash flows from 1997 operations, should provide sufficient resources to fund its activities in 1997. ITEM 8. FINANCIAL STATEMENTS The Financial Statements appear at pages F-1 to F-23. II-8 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 independent accountants had been changed to Ernst & Young LLP. II-9 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 June 3, 1997. 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 June 3, 1997. 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 June 3, 1997. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed herewith or incorporated herein by reference: Exhibit No. Description 2.9 -- Agreement and Plan of Reorganization by and among the Company, Dorotech 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 Technologies, 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). 3.1 -- Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.(i) to the Company's registration statement on Form S-1 (Registration No. 33-45721) filed February 13, 1992). 3.2 -- Amendment to Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on September 30, 1993 (incorporated by reference to Exhibit 3.1 to the Company's registration statement on Form SB-2 (Registration No. 33-70444) filed October 15, 1993). 3.3 -- Certificate of Designations for Series A Cumulative Convertible Preferred 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 -- Certificate of Designations for Series E Convertible Preferred Stock filed with the Secretary of the State of Delaware on July 21, (incorporated by reference to Exhibit 2.5 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1995). 3.5 -- Certificates of Designations for Series G Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on December 26, 1995 (incorporated by reference to Exhibit 4.12 to Amendment No. 3 to the Company's Registration Statement on Form S-3 (Registration No. 33-84482) filed January 16, 1996). 3.6 -- Certificates of Designations for Series F-1, F-2, F-3 and F-4 Convertible Preferred Stock filed with the Secretary of State of the State of Delaware on March 29, 1996 (incorporated by reference to Exhibit 3.(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 3.7 -- Certificate of Designations for Series H Convertible Preferred Stock filed with the Secretary of the State of Delaware on July 25, 1996 (incorporated by reference to Exhibit 3(i).a to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996). 3.8 -- Certificate of Designations for Series I Convertible Preferred Stock filed with the Secretary of the State of Delaware on June 28, 1996 (incorporated by reference to Exhibit 3(i).c to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996). 3.9 -- Certificate of Designations for Series J Convertible Preferred Stock filed with the Secretary of the State of Delaware on September 30, 1996 (incorporated by reference to Exhibit 3(i).a to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1996). 3.10 -- By-Laws of the Company as amended and restated as of November 20, 1995 (incorporated by reference to Exhibit 4.3 to Amendment No. 3 to the Company's Registration Statement on Form S-3 (Registration No. 33-84482) filed January 16, 1996). 4.2 -- Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company's registration statement on Form S-1 (Registration No. 33-45721) filed April 10, 1992). 4.3 -- 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). III-2 4.3.a -- 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 reference to Exhibit 4.5 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) (incorporated 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. (incorporated 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). 4.12.a -- 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). 4.13 -- Warrant to purchase 50,000 shares of Common Stock to Oakes, Fitzwilliams & 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). III-3 4.16 -- Form of Warrant issued in connection with February 1992 debt financing (incorporated by reference to Exhibit 4.6.b to the Company's registration 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 Convertible 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 McDonald 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. 4.37 -- Warrant to purchase up to 25,000 shares of Common Stock to Damon Testaverde dated January 31, 1997. 4.38 -- Warrant to purchase 4,000 shares of Common Stock to Susan G. Kaufman dated December 31, 1996. 4.38 --Warrant to purchase 4,000 shares of Common Stock to Susan G. Kaufman dated December 31, 1996. 10.2 -- Employment Agreement 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). 10.4.b -- 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). 10.4.c -- 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). III-4 10.20 -- 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. 10.21 -- Loan Agreement by and between the Company and Fred E. Kassner for a line of credit of $5,000,000 dated December 31, 1996. 11 -- Statement of computation of per share earnings. 21 -- List of subsidiaries. (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during or relating to the fourth quarter of 1996. III-5 INDEX TO FINANCIAL STATEMENTS Page Reports of Independent Accountants F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995 F-4 Consolidated Statements of Operations for the years ended December 31, 1996, 1995 and 1994 F-5 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 F-7 Notes to Consolidated Financial Statements F-8 Report of Independent Auditors Board of Directors Network Imaging Corporation We have audited the accompanying consolidated balance sheet of Network Imaging Corporation (the "Company") as of December 31, 1996, and the related consolidated statement of operations, stockholders' equity and cash flows for the year 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 audit. We conducted our audit 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 audit provides 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 the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Vienna, Virginia February 14, 1997 F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Network Imaging Corporation In our opinion, the accompanying consolidated balance sheet and the related 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 each of the two years in the period ended December 31, 1995, 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 audits. We conducted our audits of these 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 audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP Washington, D.C. March 29, 1996 F-3 NETWORK IMAGING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
December 31, 1996 1995 --------- --------- ASSETS Current assets: Cash and cash equivalents $ 7,601 $ 9,359 Short-term investments - restricted -- 3,052 Accounts and notes receivable, net 13,243 16,300 Inventories 1,503 3,464 Prepaid expenses and other 2,362 3,543 --------- --------- Total current assets 24,709 35,718 Fixed assets, net 2,887 3,769 Long-term notes receivable, net 1,979 1,215 Software development costs and purchased technology, net 3,813 4,630 Goodwill, net 3,237 4,468 Other assets 153 164 --------- --------- Total assets $ 36,778 $ 49,964 ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Current debt maturities and obligations under capital leases $ 2,063 $ 5,365 Accounts payable 3,185 6,201 Accrued compensation and related expenses 1,891 2,638 Deferred revenue 3,789 4,408 Other accrued expenses 3,888 3,652 --------- --------- Total current liabilities 14,816 22,264 Long-term debt and obligations under capital leases 88 1,264 Deferred income taxes 300 773 --------- --------- Total liabilities 15,204 24,301 Commitments Redeemable Series F preferred stock, 1,792,186 shares issued and outstanding 9,857 15,478 Stockholders' equity: Preferred stock, $.0001 par value, 20,000,000 shares authorized; 1,605,675 and 1,605,228 shares issued and outstanding Common stock, $.0001 par value, 50,000,000 shares authorized; 22,896,612 and 18,637,226 shares issued and outstanding 2 2 Additional paid-in-capital 124,429 105,065 Accumulated deficit (113,098) (95,757) Translation adjustment 384 875 --------- --------- Total stockholders' equity 11,717 10,185 --------- --------- Total liabilities and stockholders' equity $ 36,778 $ 49,964 ========= =========
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)
1996 1995 1994 ------------ ------------ ------------ Revenue: Products $ 18,336 $ 47,508 $ 49,867 Services 21,141 21,643 17,161 ------------ ------------ ------------ 39,477 69,151 67,028 ------------ ------------ ------------ Costs and expenses: Cost of products sold 9,953 29,263 36,757 Cost of services provided 14,421 13,135 11,432 Product development 6,500 7,058 4,666 Selling, general and administrative 24,956 35,679 36,765 Exchange fee and gain on sale of asset, net 619 -- -- Purchased in-process research and development -- -- 8,821 Settlement with stockholders -- 1,642 -- Loss on closure and sale of subsidiaries, net 921 9,274 -- Restructuring costs (175) (1,433) 1,654 Capitalized software write-off -- -- 8,743 ------------ ------------ ------------ 57,195 94,618 108,838 ------------ ------------ ------------ Loss before investment and interest income and income taxes (17,718) (25,467) (41,810) Investment and interest income, net 309 224 579 ------------ ------------ ------------ Loss before income taxes (17,409) (25,243) (41,231) Income tax benefit (68) (280) (1,606) ------------ ------------ ------------ Net loss (17,341) (24,963) (39,625) ------------ ------------ ------------ Preferred stock preferences (3,730) (9,933) (4,496) ------------ ------------ ------------ Net loss applicable to common shares $ (21,071) $ (34,896) $ (44,121) ============ ============ ============ Net loss per common share $ (1.02) $ (2.41) $ (3.56) ============ ============ ============ Weighted average shares outstanding 20,681,694 14,502,399 12,391,225 ============ ============ ============
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, 1996, 1995 and 1994 (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, 1993 1,400,000 $ -- 10,542,105 $1 $74,153 ($31,169) ($191) $42,794 Issuance of preferred stock, net of offering costs of $673 205,025 4,453 4,453 Issuance of common stock, net of offering costs of $39 2,786,070 19,184 19,184 Conversion of preferred stock 300,000 2,303 2,303 Accretion of preferred stock (1,286) (1,286) Dividends on preferred stock (3,210) (3,210) Translation adjustment 543 543 Net loss (39,625) (39,625) ---------------- -------------- -------- --------- ---- ------- 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 (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 ================ ============== ======== ========= ==== =======
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)
1996 1995 1994 -------- -------- -------- Cash flows from operating activities: Net loss $(17,341) $(24,963) $(39,625) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 5,793 6,270 6,085 Purchased in-process research and development -- -- 8,821 Restructuring costs (175) (1,433) 1,654 Loss on closure and sale of subsidiaries 921 9,274 -- Impairment of spare parts inventory -- 276 -- Capitalized software write-off -- -- 8,743 Goodwill write-off -- -- 953 Stock Settlement -- 787 -- Realized gain on sale of short-term investments (108) (151) -- Unrealized holding loss on short-term investments -- -- 437 Changes in assets and liabilities: Accounts and notes receivable 1,871 (1,350) (1,174) Inventories 313 988 (2,305) Prepaid expenses and other 937 (1,681) (694) Accounts payable (3,353) (313) 1,433 Accrued compensation and related expenses 54 2,107 (3,540) Deferred revenues (449) 1,521 2,651 Deferred income taxes (246) (331) (1,223) -------- -------- -------- Net cash used in operating activities (11,783) (8,999) (17,784) -------- -------- -------- Cash flows from investing activities: Sale (purchase) of short-term investments 111 12,731 (12,973) Capitalized software development and license costs (1,979) (1,784) (6,966) Purchases of fixed assets (1,068) (1,522) (3,559) Business divestitures/acquisitions and related costs 299 154 (3,640) -------- -------- -------- Net cash (used in) provided by investing activities (2,637) 9,579 (27,138) -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock, net 6,149 8,412 3,057 Proceeds from issuance preferred stock, net 10,791 19,949 4,453 Redemption of Series D preferred stock -- (15,600) -- Cash dividends paid on Series A preferred stock (3,210) (3,210) (2,830) Proceeds from borrowings and purchase of short-term investments, net -- (869) 3,537 Proceeds from sale and leaseback of fixed assets 196 226 2,413 Principal payments on capital lease obligations (913) (817) (87) Principal payments on debt (270) (3,382) (1,526) -------- -------- -------- Net cash provided by financing activities 12,743 4,709 9,017 -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents (81) 81 130 Net (decrease) increase in cash and cash equivalents (1,758) 5,370 (35,775) Cash and cash equivalents at beginning of year 9,359 3,989 39,764 -------- -------- -------- Cash and cash equivalents at end of year $ 7,601 $ 9,359 $ 3,989 ======== ======== ======== Supplemental Cash Flow Information: Interest paid $ 278 $ 712 $ 490 Income taxes paid $ 209 $ 151 $ 401
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, 1996, 1995 and 1994 Network Imaging Corporation ("Network Imaging" or the "Company") is a developer and marketer of content and storage management software for unstructured information. Its flagship product, the 1View(TM) suite, manages the storage, access and distribution of any multimedia data, such as diagrams, documents, photographs, voice, and full-motion video. 1View is a solution for use in distributed, high transaction, high volume mission critical applications across legacy, client/server and Internet/intranet based environments. The Company is also a software developer for mainframe and PC based Computer Output to Laser Disk ("COLD") systems and a developer and marketer of storage management software systems. In 1996, the Company's operations were approximately evenly divided between the United States and Europe. U.S. operations were conducted in or near 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). 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 debt instruments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 1995, restricted short-term investments are categorized as "available for sale" securities whose carrying amount approximates fair value because of the short-term maturity of the investments. 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(TM) 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. F-8 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. 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. 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 5) 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 life of the products of 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 to ten years. Amortization expense in 1996, 1995 and 1994 was $1.1 million, $1.3 million and $1.2 million, respectively. Accumulated amortization as of December 31, 1996 and 1995 was $3.1 million and $1.9 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. During 1994, the Company determined that goodwill from certain acquisitions was impaired and accordingly expensed $953,000. F-9 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 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 is the applicable local currency. Consequently, for the operation outside the United States, assets and liabilities are 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 operates only within France, exposure to foreign exchange risk is limited. Net loss per common share -- Net loss applicable to common shares includes adjustments for dividends, accretion and redemption amounts related to the Company's preferred stock. Net loss per common share is computed using the weighted average number of common shares and common share equivalents, unless antidilutive, outstanding during the year. 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. 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 F-10 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 therefore, the effect of adopting SFAS 123 did not have impact on its financial position, results of operations or cash flows as of, or for the year ended, December 31, 1996 (see Note 9). Reclassifications -- Certain reclassifications have been made to the prior year financial statements in order to conform to the current year presentation. NOTE 2 - SHORT-TERM INVESTMENTS Restricted short-term investments at December 31, 1995 consisted of certificates of deposit, which served primarily as collateral for the Company's line of credit that was repaid on March 31, 1996. There was no short-term investment balance at December 31, 1996. NOTE 3 - RECEIVABLES Receivables consist of the following: December 31, ------------ 1996 1995 -------- -------- (in thousands) Trade accounts receivable $ 9,814 $ 11,549 Unbilled receivables 3,488 3,538 Notes receivable 2,475 2,808 Employee receivables 112 614 Other receivables 188 539 -------- -------- 16,077 19,048 Allowance for uncollectible accounts receivable (535) (183) Allowance for uncollectible notes receivable (320) (1,350) -------- -------- 15,222 17,515 Less: Current receivables, net (13,243) (16,300) -------- -------- Long-term receivables, net $ 1,979 $ 1,215 ======== ======== The Company's notes receivable balance of $2.5 million at December 31, 1996 includes $1,950,000 of notes resulting from the divestitures of previously owned operating units (the "Divestitures") made during 1995 and 1996 (see Note 6) and $525,000 of notes receivable from former stockholders of a subsidiary acquired in 1994. F-11 NOTE 4 - FIXED ASSETS Fixed assets consist of the following: December 31, ------------ 1996 1995 ------- ------- (in thousands) Computer and office equipment $ 4,953 $ 3,911 Furniture and leasehold improvements 1,131 1,199 Furniture, fixtures and equipment under capital leases 2,482 2,559 ------- ------- 8,566 7,669 Less: Accumulated depreciation (5,679) (3,900) ------- ------- $ 2,887 $ 3,769 ======= ======= Depreciation and amortization expense related to fixed assets in 1996, 1995, and 1994 totaled $1.7 million, $2.1 million, and $1.7 million, respectively. Included in depreciation and amortization expense in 1996, 1995 , and 1994 were $580,000, $704,000, and $150,000 of amortization expense related to capital leases, respectively. NOTE 5 - SOFTWARE DEVELOPMENT AND PURCHASED TECHNOLOGY Capitalized software development and purchased technology consists of the following: December 31, ------------ 1996 1995 -------- -------- (in thousands) Internally developed $ 8,517 $ 7,064 Purchased technology 3,149 2,910 -------- -------- 11,666 9,974 Less: Accumulated amortization (7,853) (5,344) -------- -------- $ 3,813 $ 4,630 ======== ======== During 1996, 1995 and 1994, amortization of capitalized software development and license costs totaled $2.6 million, $2.7 million and $3.0 million, respectively, and was included in cost of products sold. The Company expensed $3.4 million of purchased technology and $721,000 of capitalized software in 1995 due to the Divestitures. During 1994, the Company also charged to expense $8.7 million in capitalized software and purchased technology. The charge includes $5.3 million resulting from the 1994 restructuring plan related to products abandoned. The remaining $3.4 million charge, in 1994, relates to net realizability adjustments. F-12 NOTE 6 - DIVESTITURES OF BUSINESSES During 1996 and 1995, the Company engaged in a series of Divestitures resulting in losses of $921,000 and $9.3 million in 1996 and 1995, respectively. The Company received as consideration from the dispositions, 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 1996 disposition of the Symmetrical Technologies, Inc. subsidiary occurred January 1, 1996. 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, 1996 (in thousands, except share amounts): Revenue $ 37,812 Net loss $(16,251) Net loss per common share $ (0.97) NOTE 7 - OTHER ACCRUED EXPENSES Other accrued expenses consist of the following: December 31, ------------ 1996 1995 ------ ------ (in thousands) Accrued restructuring costs (see Note 12) $ -- $ 324 Accrued preferred dividends 714 527 Accrued income and other taxes 1,667 1,667 Other 1,507 1,134 ------ ------ $3,888 $3,652 ====== ====== F-13 NOTE 8 - BORROWING ARRANGEMENTS Borrowings consist of the following: December 31, ------------ 1996 1995 ------- ------- (in thousands) Lines of credit $ -- $ 3,276 Capital lease obligations bearing interest ranging from 11.7% to 12.7% 957 1,702 Term loans from French government agencies, non-interest bearing, due at various dates through 1997 1,098 1,162 Term notes with financial institutions, bearing interest ranging from 8.8% to 10%, due at various dates through 1997 96 489 ------- ------- 2,151 6,629 Less: Amounts due in one year (2,063) (5,365) ------- ------- Long-term debt and capital lease obligations $ 88 $ 1,264 ======= ======= At December 31, 1996, the Company maintained lines of credit which provided for borrowings up to $6.0 million, of which $5.0 million was issued by a stockholder of the Company and $1.0 million was issued by a French governmental agency. On December 31, 1996, the Company entered into a restricted $5 million line of credit agreement with a stockholder (the "Stockholder line of credit") to finance the buy back of the Series F Preferred Stock. The Stockholder line of credit bears interest at the prime rate (8.25% at December 31, 1996) plus 2% and is secured by the domestic accounts receivable of the Company, $6.4 million at December 31, 1996. In connection with the Stockholder line of credit, which expires on September 30, 1998, the Company issued warrants for the purchase of 129,000 shares of Common Stock. The fair value of the warrants is $192,000 which will be amortized over the term of the Stockholder line of credit as additional interest expense. The Company repaid and terminated its previous line of credit with a bank on March 31, 1996. The French Line of Credit is secured by accounts receivable of the Company's French operations and bears interest at the French interbank monetary market rate (3.29% at December 31, 1996) plus 3%. The line of credit terminates May 31, 1997. At December 31, 1996, there were no borrowings outstanding against the line of credit. The Company leases certain of its furniture and equipment under capital lease arrangements. Future minimum lease payments under these capital leases are: 1997, $925,000; 1998, $88,000; 1999, $10,000 and 2000, $7,000. Of the $1,030,000 total lease payments, $73,000 represents interest. F-14 NOTE 9 - 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 Series A Cumulative Convertible Preferred Stock ("Series A Preferred") stockholders are entitled to cumulative dividends at the rate of $2.00 per year, payable quarterly, and can convert to common stock at a rate of 1.8116 shares of common for each share of Series A Preferred (an effective conversion price of $13.80), subject to adjustment in certain circumstances. In 1996, the Company paid $3.2 million in dividends to the Series A Preferred stockholders. The Series A Preferred stockholders vote as a class to approve or disapprove any issuance of any securities senior to or on parity with the Series A Preferred with respect to dividends or distributions. The Series A Preferred has a liquidation preference of $25.00 per share, plus accumulated unpaid dividends. At December 31, 1996, the Series A Preferred was convertible into 2,907,663 shares of Common Stock. Series E and G Preferred Stock-- The three shares of Series E Convertible Preferred Stock outstanding at December 31, 1995 were converted during 1996 into 10,389 shares of Common Stock. During 1996, all 200 shares of Series G Convertible Preferred Stock were converted into 551,546 shares of Common Stock. Series H and I Preferred Stock -- In June 1996, the Company completed two offerings, one pursuant to Regulation S under the Securities Act of 1933 of 300 shares of Series H Convertible Preferred Stock and warrants to purchase 80,000 shares of Common Stock, and the other pursuant to Regulation D under the Securities Act of 1933 of 300 shares of Series I Convertible Preferred Stock, both at $10,000 per share from which it received net proceeds of $5.9 million. The proceeds have been used for working capital and general corporate purposes. In connection with the sale of the Series I Convertible Preferred Stock, the Company agreed to register the Series I Preferred Stock and the Common Stock issuable upon exercise of the Series I. At December 31, 1996, 40 shares of Series H Preferred Stock had been converted into 116,082 shares of Common Stock and all 300 shares of Series I Preferred Stock had been converted into 1,272,214 shares of Common Stock. At F-15 December 31, 1996, the remaining shares of Series H Preferred Stock were convertible into 885,956 shares of Common Stock. The Series H Preferred Stock has a per share liquidation preference, subordinate to the liquidation preferences of the other series of previously issued and outstanding Preferred Stocks of an amount per share equal to the sum of $10,000 plus 12% per annum simple interest thereon 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 $10,000 by $3.50. Commencing on December 27, 1996, the Company may redeem the shares at the initial purchase price, if the holder does not exercise his conversion rights, and the holder may submit the shares for redemption at that price, in which case the Company may elect to pay the cash redemption price or issue a number of shares of Common stock equal to that price, with the value of the Common Stock being determined by its average closing bid price for the five trading days immediately preceding the notice of redemption (the "Average Bid Price"). The Series H Preferred Stock has a dividend rate of 8% which is payable at the time of conversion or redemption in cash or shares of Common Stock, as elected by the Company, with the value of the Common Stock being determined by the Average Bid Price. The Series I Preferred Stock had a per share liquidation preference, subordinate to the liquidation preferences of the other series of previously issued and outstanding Preferred Stocks, of an amount per share equal to the sum of $10,000 plus an amount equal to accrued but unpaid dividends per share since the date of issuance. Each share was convertible at the option of the holder into the number of shares of Common Stock ("Conversion Shares") determined by dividing an amount equal to the initial purchase price of $10,000 by the lesser of $4.00 and 81% of the average bid price. The Series I Preferred Stock had a dividend rate of 6% which was paid at the time of conversion into shares of Common Stock, as elected by the Company. Series J Preferred Stock -- In September 1996, the Company completed an offering pursuant to Regulation D under the Securities Act of 1933, of 500 shares of Series J Convertible Preferred Stock at $10,000 per share from which it received net proceeds of $5.0 million. The proceeds have been used for working capital and general corporate purposes. In connection with the sale of the Series J Convertible Preferred Stock, the Company agreed to register the Series J Preferred Stock and the Common Stock issuable upon exercise of the Series J. At December 31, 1996, 110 shares of Series J Preferred Stock had been converted into 406,668 shares of Common Stock and the remaining shares of Series J Preferred Stock were convertible into 1,295,372 shares of Common Stock. The Series J Preferred Stock has a per share liquidation preference, subordinate to the liquidation preferences of the other series of previously issued and outstanding Preferred Stocks, of an amount per share equal to the sum of $10,000 plus an amount equal to accrued but unpaid dividends per share since the date of issuance. Each share is convertible at the option of the holder into the number of shares of Common Stock ("Conversion Shares") determined by dividing an amount equal to the initial purchase price of $10,000 by the lesser of $3.13 and 81% of the average bid price. The Company may, commencing on September 30, 1997, require conversion if the Series J F-16 Preferred Stock and underlying Common Stock have been registered under the Securities Act for at least ten trading days. When the Average Bid Price is less than $3.13, the Company, subject to the rights of senior securities regarding redemption, may redeem shares of Series J Preferred Stock submitted for conversion at a price per share equal to the amount determined by multiplying the number of Conversion Shares by the Average Bid Price. The Series J Preferred Stock has a dividend rate of 6% which is payable at the time of conversion or redemption in cash or shares of Common Stock, as elected by the Company. Stock purchase warrants -- The Company has the following warrants outstanding at December 31, 1996:
Shares Warrants Issuable Warrants Exercise Outstanding Upon Issuance Issued Price Range Expiration Dec.31, 1996 Exercise - -------- ------ ----------- ---------- ------------ -------- Pre-IPO 148,993 $1.00 May 1997 33,663 33,663 IPO Units 1,595,000 $5.993 May 1997 654,392 850,710 Placement agents 397,472 $5.71-$14.88 May 1997-Oct. 1998 307,472 467,082 Other 350,334 $3.063-$7.00 Jan. 1997-June 2001 275,334 275,334 Series A preferred 140,000 $22.77 December 1998 140,000 253,624 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 $3.50-$4.00 Nov.-Dec. 2000 179,400 179,400 Series G preferred 40,000 $3.75 December 2000 40,000 40,000 Series H Preferred 80,000 $3.50 June 2001 80,000 80,000 --------- --------- --------- 3,192,667 1,971,729 2,441,281 ========= ========= =========
Stock option plans -- During 1994, 1995 and 1996, the Company granted options to buy Common Stock of the Company under five stock option plans. 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 will not be less than the fair market value at the time of grant. The Company has also issued non-qualified plan options. An aggregate of 9.1 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 for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1995 and 1996, respectively: average risk-free interest rates of 6.6% and 6.7%; dividend yields of 0.0%; volatility factors of the expected market price of the Company's common stock of .63; 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 F-17 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 $35.6 million and $23.1 million for 1995 and 1996, respectively and pro forma loss per share is $2.46 and $1.12 for 1995 and 1996, respectively. The effect of applying SFAS 123 on the 1995 and 1996 pro forma net loss 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: Exercise Options Price ------- ----- Balance, January 1, 1994 3,183,250 $1.00-$12.38 Granted 2,967,000 3.38-12.38 Exercised (321,658) 1.00-7.63 Canceled (560,792) 1.00-12.13 --------- Balance, December 31, 1994 5,267,800 1.00-12.38 Granted 2,486,250 3.32-6.82 Exercised (89,957) 2.25-3.75 Canceled (1,163,769) 2.25-12.38 --------- Balance, December 31, 1995 6,500,324 1.00-12.38 Granted 1,454,000 2.69-4.50 Exercised (88,869) 1.00-3.75 Canceled (851,619) 1.00-6.82 --------- Balance, December 31, 1996 7,013,836 $1.00-$8.75 ========= At December 31, 1996, options to purchase 3,125,102 shares had vested and were exercisable at a weighted average exercise price of $3.90 per share and had a weighted average contractual life of 6.5 years. NOTE 10 - 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 requires the Company to make payments totaling $6.6 million through June 30, 1997, and an additional $3.6 million on January 31, 1998. The $3.6 million payment due on January 31, 1998, is subject to certain acceleration terms that are under the control of the Company. Under the agreement, the outstanding obligation amount will compound at 8% per annum, commencing October 1, 1996. The reduction of the Company's Series F redemption obligation under the terms of the agreement resulted in a $6.0 million increase in stockholders' equity. F-18 NOTE 11 - INCOME TAXES The source of the loss before income taxes was from the following jurisdictions: Year Ended December 31, ----------------------- 1996 1995 -------- -------- (in thousands) U.S. $(16,332) $(23,480) Foreign (1,077) (1,763) -------- -------- $(17,409) $(25,243) ======== ======== The income tax expense (benefit) consists of the following: Year Ended December 31, ----------------------- 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) ======== ======== Deferred tax assets and liabilities are comprised of the following: December 31, ------------ 1996 1995 -------- -------- (in thousands) Deferred tax assets: Net operating losses $ 24,419 $ 12,180 Other 1,659 1,997 -------- -------- Gross deferred tax assets $ 26,078 $ 14,177 ======== ======== Deferred tax liabilities: Software development costs (1,372) (1,661) -------- -------- Gross deferred tax liabilities (1,372) (1,661) Deferred tax asset valuation allowance (24,752) (13,032) -------- -------- $ (46) $ (516) ======== ======== Current deferred tax assets (included in prepaid and other current assets net of valuation allowance) $ 254 $ 257 Non current deferred tax liabilities (300) (773) -------- -------- $ (46) $ (516) ======== ======== F-19 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, ----------------------- 1996 1995 -------- -------- (in thousands) Statutory U.S. tax rate benefit (34.0%) (34.0%) State income taxes, net (4.0) (4.0) Operating losses and tax credits with no current tax benefit 37.5 31.0 Other 0.1 5.9 -------- -------- (0.4%) (1.1%) ======== ======== As of December 31, 1996, the Company had net operating loss and research tax credit carry forwards of approximately $53 million and $913,000, 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 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. Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries. The earnings have been and will continue to be reinvested in those subsidiaries. These earnings could become subject to additional tax if they were remitted as dividends, if they were loaned to the Company or a U.S. affiliate, or if the Company sold its stock in the subsidiaries. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings; however, the Company believes that, due to the operation of the foreign tax credits, any foreign tax credits would largely eliminate any U.S. tax and offset any foreign tax. NOTE 12 - RESTRUCTURING CHARGES AND CAPITALIZED SOFTWARE WRITE-OFFS At December 31, 1996, the Company's 1994 restructuring plan (the "Plan") was complete. In accordance with the Plan, 90 employees had been terminated and/or resigned and the Company's excess leased property was sublet through the lease termination date. Under the Plan, the Company incurred net changes in estimate of $175,000 and $1.4 million in 1996 and 1995, respectively and net restructuring charges of $1.7 million in 1994. In conjunction with the Plan, the Company also expensed capitalized software of $5.3 million in 1994. F-20 NOTE 13 - BUSINESS SEGMENTS The Company sells its products and services through a single industry segment to a wide variety of customers throughout the United States and Western Europe. 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, 1996, 1995 and 1994 (in thousands): United Western States Europe ------ ------ 1996: Revenue $ 21,383 $ 18,094 Net loss (16,332) (1,009) Total assets 22,718 14,060 1995: Revenue $ 38,367 $ 30,784 Net loss (23,531) (1,432) Total assets 30,654 19,310 1994: Revenue $ 37,619 $ 29,409 Net loss (35,360) (4,265) Total assets 43,963 27,908 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. Revenue in 1994 included sales to the U.S. Government and French Government totaling $3.3 million and $7.6 million, respectively. NOTE 14 - 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 $1.6 million, $2.7 million and $2.9 million for the years ended December 31, 1996, 1995, and 1994, respectively. F-21 Future minimum lease payments under non-cancelable operating leases are as follows (in thousands): Year Ending December 31, ------------ 1997 $1,328 1998 1,076 1999 940 2000 363 Thereafter -- ------ $3,707 NOTE 15 - CONTINGENCIES Department of Justice, Securities and Exchange Commission and Company internal investigations -- During November 1996, the Company received a letter from the Securities and Exchange Commission advising the Company that it was terminating an investigation that it had been conducting. In 1994, the Company learned that it was the subject of investigation by the Commission and the U.S. Attorney's Office in the Southern District of New York which the Company understood was focused on certain accounting issues, including questions relating to capitalization of software and pooling-of-interests accounting treatment for certain acquisitions, and certain matters related to activities during the years 1992 and 1993. The Company has had no communications with the U.S. Attorney's Office from the date it received the letter from the SEC. Other -- Dorotech, which was acquired in October 1993, had previously co-guaranteed the lease payment of ATG Gigadisc SA ("ATG"), a former affiliated company, under a sale and leaseback of land and buildings ending April 2007. As part of the December 1996 Series F Preferred Stock redemption agreement (See Note 10), the holder of the Series F Preferred Stock agreed to use best efforts to obtain a release from the landlord. During March 1997, the holder of the Series F Preferred Stock successfully obtained a full and unconditional release of the guarantee obligations of Dorotech. The Company is also subject to other 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. F-22 NOTE 16 - RELATED PARTY TRANSACTIONS The Company has employment and consulting agreements with individuals who are current or former members of the Board of Directors and officers of the Company. The Company has five year agreements with the Chairman of the Board of Directors and Secretary and with the former Chairman of the Board of Directors and his consulting firm. The Company also has a five year consulting agreement with another former Director and his consulting firm. The Company recognized total compensation expense of approximately $715,000 and $898,000 in 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, 1996, there were no borrowings against the line of credit (see Note 8). 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. NOTE 17 - EMPLOYEE PROFIT SHARING PLANS AND 401K PLAN The Company has a mandatory and a voluntary profit sharing plan covering substantially all employees in France. Contributions to the plans are based upon earnings of the French operations. Plan contributions in 1996 totaled $28,000, while there were no contributions made to the plans in 1995 and 1994. The Company also sponsors, in the United States, a 401K plan which covers all full-time employees. Participants in the plan may make contributions of up to fifteen percent of pre-tax annual compensation. The Company may make discretionary matching contributions at the option of the Board of Directors. The Company made no contributions in 1996, 1995 or 1994. F-23 NETWORK IMAGING CORPORATION VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II
Column A Column B Column C Column D Column E - ------------------------------------------------------------------------------------------ ------------ Balance Charged to Balance at Beginning Costs and at End Description of Period Expenses Deductions of Period Allowance for uncollectible accounts receivable Year ended December 31, 1996 183 377 (25) (1) 535 Year ended December 31, 1995 1,441 96 (1,354) (2) 183 Allowance for uncollectible notes receivable Year ended December 31, 1996 1,350 0 (1,030) (1) 320 Year ended December 31, 1995 0 1,350 0 1,350
(1) Uncollectible accounts written off, net of recoveries (2) Reduction due to divestitures 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 18, 1997. 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/ Robert P. Bernardi Secretary and March 18, 1997 - ------------------------ Chairman of the Board Robert P. Bernardi /s/ James J. Leto President and March 18, 1997 - ------------------------ Chief Executive Officer James J. Leto /s/Jorge R. Forgues Senior Vice President of Finance March 18, 1997 - ------------------------ and Administration, Chief Jorge R. Forgues Financial Officer and Treasurer /s/C. Alan Peyser Director March 18, 1997 - ------------------------ C. Alan Peyser /s/John F. Burton Director March 18, 1997 - ------------------------ John F. Burton /s/Robert Ripp Director March 18, 1997 - ------------------------ Robert Ripp EX-4.36 2 FORM OF FACE OF CLASS_ WARRANT CERTIFICATE [FORM OF FACE OF CLASS _ WARRANT CERTIFICATE] [THE CERTIFICATE WILL ALSO CONTAIN A RESTRICTIVE LEGEND] No. WE 100,000 Warrants CLASS _ WARRANT TO PURCHASE COMMON STOCK NETWORK IMAGING CORPORATION This certifies that FOR VALUE RECEIVED Fred Kassner 69 Spring Street, Ramsey, New Jersey 07646 or registered assigns (the "Registered Holder") is the owner of the number of Common Stock Purchase Warrants ("Warrants") specified above. Each Warrant initially entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Certificate and the Warrant Agreement (as hereinafter defined), one (1) fully paid and nonassessable share of Common Stock, par value $.0001 per share ("Common Stock"), of Network Imaging Corporation, a Delaware corporation (the "Company"), at any time, upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse hereof duly executed, at the corporate office of American Stock Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of $3.0625 (the "Purchase Price") in lawful money of the United States of America in cash or by official bank or Company. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of December 31, 1996, by and between the Company and the Warrant Agent. In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price or the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment. Each Warrant represented hereby is exercisable at the option of the Registered Holder, but no fractional shares of Common Stock will be issued. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificates or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants. The Company shall not be obligated to deliver any securities pursuant to the exercise of this Warrant unless a registration statement under the Securities Act of 1933, as amended, with respect to such securities is effective. The Registered Holder may have certain registration rights referred to in the Warrant Agreement. This Warrant shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful. This Warrant Certificate is exchangeable, upon the surrender hereof by the Registered Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall be designated by such Registered Holder at the time of such surrender. Upon due presentment with any tax or other governmental charge imposed in connection therewith, for registration of transfer of this Warrant Certificate at such office, a new Warrant Certificate or Warrant Certificates representing an equal aggregate number of Warrants will be issued to the transferee in exchange therefor, subject to the limitations provided in the Warrant Agreement. Prior to the exercise of any Warrant represented hereby, the Registered Holder shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New Jersey. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted hereon. NETWORK IMAGING CORPORATION By ---------------------------- Dated: ----------------------------- By ---------------------------- [seal] Countersigned: AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent By ---------------------------- [FORM OF REVERSE OF WARRANT CERTIFICATE] SUBSCRIPTION FORM To Be Executed by the Registered Holder in Order to Exercise Warrants The undersigned Registered Holder hereby irrevocably elects to exercise __________ Warrants represented by this Warrant Certificate, and to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in the name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- [please print or type name and address] and be delivered to -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- [please print or type name and address] and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. Dated: X ---------------------------- ------------------------------ ------------------------------ ------------------------------ Address ------------------------------ Taxpayer Identification Number ------------------------------ Signature Guaranteed ------------------------------ -2- ASSIGNMENT To Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED, __________________ ____________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- [please print or type name and address] _______________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints - ------------------------------------------------------------------------------- Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated: X ---------------------------- ------------------------------ Signature Guaranteed ------------------------------ THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE. EX-4.37 3 WARRANT TO SUBSCRIBE FOR COMMON STOCK THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT. Warrant to Subscribe for up to 25,000 shares Warrant to Subscribe for Common Stock of NETWORK IMAGING CORPORATION THIS CERTIFIES that Damon Testaverde ("Holder") has the right to subscribe from Network Imaging Corporation (the "Company"), not up to 25,000 fully paid and nonassessable shares of the Company's Common Stock $.0001 par value per share ("Common Stock"), at a price equal to the market price of the Company's Common Stock on the date that the Company borrows funds pursuant to the Loan Agreement dated as of December 31, 1996 by and between Network Imaging Corporation and Fred E. Kassner subject to adjustment as provided below (the "Exercise Price"), at any time on or before 5:00 pm, U.S. time, on December 31, 2000. The number of warrants Holder may subscribe to is as described in the Agreement for Services dated January 31, 1997 by and between the Company and Holder. The holder of this Warrant agrees with the Company that this Warrant is issued and all rights hereunder shall be held subject to all of the conditions, limitations and provisions set forth herein. 1. Exercise. This Warrant may be exercised as to all or any lesser number of full shares of Common Stock covered hereby upon surrender of this Warrant, with the Subscription Form or a copy thereof attached hereto duly executed, together with the full Exercise Price (as hereinafter defined) in cash, by wire transfer or by certified or official bank check payable in New York Clearing House Funds for each share of Common Stock as to which this Warrant is exercised, at the office of the Company, Network Imaging Corporation, 500 Huntmar Park Drive, Herndon, Virginia 20170-5100, or at such other office or agency as the Company may designate in writing, by overnight mail, with an advance copy of the Subscription Form by facsimile (such surrender and payment hereinafter called the "Exercise of this Warrant"). The "Date of Exercise" of the Warrant shall be defined as the date that the advance copy of the Subscription Form is sent by facsimile to the Company, provided that the original Warrant and Subscription Form are received by the Company within five business days thereafter. The original Warrant and Subscription Form must be received within 5 business days of the Date of Exercise, or the Subscription Form shall be considered void. This Warrant shall be canceled upon its Exercise, and, as soon as practical thereafter, the holder hereof shall be entitled to receive a certificate or certificates for the number of shares of Common Stock purchased upon such Exercise and a new Warrant or Warrants (containing terms identical to this Warrant) representing any unexercised portion of this Warrant. Each person in whose name any certificate for shares of Common Stock is issued shall, for all purposes, be deemed to have become the holder of record of such shares on the Date of Exercise of this Warrant, irrespective of the date of delivery of such certificate. Nothing in this Warrant shall be construed as conferring upon the holder hereof any rights as a shareholder of the Company. 2. Payment of Warrant Exercise Price. Payment of the Exercise Price may be made by any of the following, or a combination thereof, at the election of the Holder: (i) cash, check or wire transfer; or (ii) surrender of this Warrant at the principal office of the Company together with notice of election, in which event the Company shall issue Holder a number of shares of Common Stock computed using the formula: X = Y (A-B)/A where: X = the number of shares of Common Stock to be issued to Holder (not to exceed the number of shares set forth on the cover page of this Warrant, as adjusted pursuant to the provisions of Section 4 of this Warrant). Y = the number of shares of Common Stock for which Warrant is exercisable. A = the Market Price of one share of Common Stock (for purposes of this Section 2(ii), the "Market Price" shall be defined as the closing bid price of the Common Stock for the last trading day preceding the Date of Exercise of this Warrant, as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ"), or if the Common Stock is not traded on NASDAQ, the Closing Bid Price in the over-the-counter market; provided, however, that if the Common Stock is listed on a stock exchange, the Market Price shall be the closing price on such exchange. B = the Exercise Price. 3. Transfer and Registration. Subject to the provisions of Section 7 of this Warrant, this Warrant may be transferred on the books of the Company, wholly or in part, in person or by attorney, upon surrender of this Warrant properly endorsed, with signature. This Warrant shall be canceled upon such surrender and, as soon as practicable thereafter, the person to whom such transfer is made shall be entitled to receive a new Warrant or Warrants as to the portion of this Warrant transferred, and the holder of this Warrant shall be entitled to receive a new Warrant or Warrants as to the portion hereof retained. Registration rights to this warrant shall attached after one (1) year from the date that shares are issued to Holder under this Warrant. 4. Fractional Interests. No fractional shares or scrip representing fractional shares shall be issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the holder hereof may purchase only a whole number of shares of Common Stock. The Company shall make a payment in cash in respect of any fractional shares which might otherwise be issuable upon Exercise of this Warrant, calculated by multiplying the fractional share amount by the closing price of the Company's Common Stock on the Date of Exercise as reported by the NASDAQ National Market or such other exchange on which the Company's Common Stock is principally quoted or traded on. 5. Reservation of Shares. The Company shall at all times reserve for issuance such number of authorized and unissued share of Common Stock (or other securities substituted therefor as herein above provided) as shall be sufficient for Exercise of this Warrant. The Company covenants and agrees that upon Exercise of the Warrant, all shares of Common Stock issuable upon such Exercise shall be duly and validly issued, fully paid, nonassessable and not subject to preemptive rights of any shareholders. 6. Restrictions on Transfer. This Warrant and the Common Stock issuable on Exercise hereof have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred, pledges, hypothecated or otherwise disposed of in the absence of registration or the availability of an exemption from registration under said Act, and any share of Common Stock issued upon Exercise of this Warrant shall bear an appropriate legend to that effect. 7. Benefits of this Warrant. Nothing in this Warrant shall be construed to confer upon any person other than the Company and the holder of this Warrant any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Company and the holder of this Warrant. 8. Applicable Law. This Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the Commonwealth of Virginia. 9. Loss of Warrant. Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. 10. Notice to Company. Notices or demands pursuant to this Warrant to be given or made by the holder of this Warrant to or on the Company shall be sufficiently given or made if sent by certified or registered mail, return receipt requested, postage prepaid, and addressed, until another address is designated in writing by the Company, Network Imaging Corporation, 500 Huntmar Park Drive, Herndon, Virginia 20170-5100, Attention: Chief Executive Officer. IN WITNESS WHEREOF, this Warrant is hereby executed effective as of the date set forth below. Dated as of: December 31, 1996 NETWORK IMAGING CORPORATION By: _______________________________ James J. Leto Title: President and Chief Executive Officer EX-4.38 4 FORM OF FACE OF CLASS_ WARRANT CERTIFICATE [FORM OF FACE OF CLASS _ WARRANT CERTIFICATE] [THE CERTIFICATE WILL ALSO CONTAIN A RESTRICTIVE LEGEND] No. WE 4,000 Warrants CLASS _ WARRANT TO PURCHASE COMMON STOCK NETWORK IMAGING CORPORATION This certifies that FOR VALUE RECEIVED Susan G. Kaufman, 430 East 86th Street, New York, New York 10028 or registered assigns (the "Registered Holder") is the owner of the number of Common Stock Purchase Warrants ("Warrants") specified above. Each Warrant initially entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Certificate and the Warrant Agreement (as hereinafter defined), one (1) fully paid and nonassessable share of Common Stock, par value $.0001 per share ("Common Stock"), of Network Imaging Corporation, a Delaware corporation (the "Company"), at any time, upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse hereof duly executed, at the corporate office of American Stock Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of $3.0625 (the "Purchase Price") in lawful money of the United States of America in cash or by official bank or Company. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of December 31, 1996, by and between the Company and Fred Kassner. In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price or the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment. Each Warrant represented hereby is exercisable at the option of the Registered Holder, but no fractional shares of Common Stock will be issued. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificates or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants. The Company shall not be obligated to deliver any securities pursuant to the exercise of this Warrant unless a registration statement under the Securities Act of 1933, as amended, with respect to such securities is effective. The Registered Holder may have certain registration rights referred to in the Warrant Agreement. This Warrant shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful. This Warrant Certificate is exchangeable, upon the surrender hereof by the Registered Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall be designated by such Registered Holder at the time of such surrender. Upon due presentment with any tax or other governmental charge imposed in connection therewith, for registration of transfer of this Warrant Certificate at such office, a new Warrant Certificate or Warrant Certificates representing an equal aggregate number of Warrants will be issued to the transferee in exchange therefor, subject to the limitations provided in the Warrant Agreement. Prior to the exercise of any Warrant represented hereby, the Registered Holder shall not be entitled to any rights of a stockholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New Jersey. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted hereon. NETWORK IMAGING CORPORATION By ---------------------------- Dated: ----------------------------- By ---------------------------- [seal] Countersigned: AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent By ---------------------------- [FORM OF REVERSE OF WARRANT CERTIFICATE] SUBSCRIPTION FORM To Be Executed by the Registered Holder in Order to Exercise Warrants The undersigned Registered Holder hereby irrevocably elects to exercise __________ Warrants represented by this Warrant Certificate, and to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in the name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- [please print or type name and address] and be delivered to -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- [please print or type name and address] and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. Dated: X ---------------------------- ------------------------------ ------------------------------ ------------------------------ Address ------------------------------ Taxpayer Identification Number ------------------------------ Signature Guaranteed ------------------------------ -2- ASSIGNMENT To Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED, __________________ ____________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- -------------------------------------------------- [please print or type name and address] _______________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints - ------------------------------------------------------------------------------- Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated: X ---------------------------- ------------------------------ Signature Guaranteed ------------------------------ THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE. EX-10.20 5 PURCHASE AGREEMENT PURCHASE AGREEMENT WHEREAS, Network Imaging Corporation ("Network Imaging"), with its principal offices located at 500 Huntmar Park Drive, Herndon, Virginia 20170, issued a class of Series F Preferred Stock (the "Preferred Stock") to CDR Enterprises ("CDRE"), with its principal offices located at 27/29 rue le Peletier, 75009 Paris, France, for a certain sum of money; and WHEREAS, the Preferred Stock consists of one million seven hundred ninety-two thousand one hundred eighty-six (1,792,186) shares; WHEREAS, CDRE wishes to sell the class of Series F Preferred Stock and Network Imaging desires to purchase the Preferred Stock; NOW, THEREFORE, in consideration of the foregoing and of the covenants, promises and agreements set forth herein, Network Imaging and CDRE agree as follows: 1. Purchase and Sale of the Preferred Stock. On the terms and conditions provided in this Agreement, CDRE agrees to sell, and Network Imaging agrees to purchase the shares of Preferred Stock. The price of each of the shares sold and purchased hereunder is as follows: a. Three dollars and fifty cents ($3.50) per share, payable upon transfer (the "First Cash Payment"); and b. the Additional Consideration as defined in Section 2 below. This Agreement shall become effective upon execution (the "Closing Date"). From the Closing Date forward, CDRE shall transfer to Network Imaging, and Network Imaging shall receive from CDRE, the Preferred Stock on the following installments: no less than five hundred thousand (500,000) shares of Preferred Stock on or before January 31, 1997; no less than five hundred thousand (500,000) shares of Preferred Stock on or before March 31, 1997; no less than five hundred thousand (500,000) shares of Preferred Stock on or before May 31, 1997; and the balance no later than June 30, 1997. Page 1 For each installment, Network Imaging shall notify CDRE of the number of shares of Preferred Stock it intends to receive, however in no event shall Network Imaging request less than the number of shares described in the paragraph above, and CDRE shall transfer to Network Imaging the same number of shares upon payment by Network Imaging to CDRE, by means of a wire transfer, of the First Cash Payment in an amount equal to $3.50 multiplied by the same number of shares. 2. Additional Consideration. On the Closing Date, CDRE shall elect, at its sole option, one of the following additional payments: (i) the sum of two dollars ($2.00) in cash for each of the one million seven ninety-two thousand one hundred eighty-six (1,792,186) shares delivered to Network Imaging, and such payment shall be due and payable upon the earlier of (a) the sale of Dorotech, S.A. and the receipt of proceeds by Network Imaging therefrom and (b) January 31, 1998 (the "Second Cash Payment"); or (ii) a warrant to subscribe for one million seven hundred ninety-two thousand one hundred eighty-six (1,792,186) shares of Network Imaging Common Stock at an exercise price of three dollars and fifty cents ($3.50) per share (the "Warrant"), in the form as attached as Exhibit A hereto and incorporated herein by reference, and upon election such Warrant shall be issued by Network Imaging to CDRE as soon as practicable thereafter. In addition, in the event that CDRE elects to receive payment under this Section 2 in the form of a Warrant, and to the extent that CDRE has not fully exercised its right to purchase shares under the Warrant, Network Imaging, upon the earlier of the sale of Dorotech, S.A. or January 31, 1998, shall pay to CDRE in the form of a cash payment, an amount equal to one dollar and fifty cents ($1.50) per share and shall raise the strike price of the Warrant to five dollars ($5.00) per share (the "Alternate Second Cash Payment"). In the event that CDR elects at Closing to take a Warrant for 1,792,186 shares of Network Imaging Common Stock or any portion thereof and then at some point in the future, determines that it would like to modify the election, Network Imaging shall, at its sole discretion, determine whether it chooses to accept or reject any such modification proposal. Notwithstanding anything to the contrary contained in the Agreement, CDRE understands that the issuance of the Warrant to CDRE may result in an ownership interest as that term is defined in the Foreign Bank Holding Company Act (the "Holding Company Act"). If CDRE is deemed to be subject to the Holding Company Act, CDRE shall undertake to complete such actions as are necessary to comply with the Holding Company Act. If CDRE is subject to the Holding Company Act, CDRE may elect to receive a Warrant for only the number of shares that would result in an ownership interest of equal to or less than five percent (5%) of the total number of outstanding shares of Network Imaging; in that case, an amount equal to two dollars ($2.00) multiplied by the number of shares which would have been covered by the Warrant and exceed such percentage of ownership shall be payable in accordance with the payment terms as described in Section 1(b) herein. Page 2 CDRE understands that registration rights for such Warrant shall not attach until such time as described in the Registration Rights Agreement attached as Exhibit B hereto and incorporated herein by reference. Further, CDRE agrees that Network Imaging has a right of first refusal for any sale of the Warrant and/or the shares underlying the Warrant (the "Right of First Refusal"). CDRE agrees that, in the event of a proposed sale of the Warrant (including any part thereof) or any of the underlying shares that it shall inform Network Imaging of the proposed sale and the terms of such proposed sale, and Network Imaging shall have at least thirty (30) days from the date it receives written notification of those terms to determine whether it shall purchase the Warrant and/or the underlying shares. In the event that Network Imaging does not purchase the Warrant and/or the underlying shares or does not notify CDRE of its election within the thirty (30) day period described in this section, CDRE may proceed with the terms of that sale as presented to Network Imaging. If, for any reason, the terms of the proposed sale by CDRE should change, then those terms must be presented to Network Imaging in accordance with the procedures set forth in this Section. Notwithstanding the foregoing, Network Imaging agrees, upon the written request of CDRE, to use its reasonable best efforts to assist CDRE in locating and securing a purchaser for all or any part of the Warrant and/or any of the shares underlying the Warrant. 3. Interest Payments. Network Imaging shall pay to CDRE interest payments on the aggregate principal amounts of the First Cash Payment, or part thereof, and the Second Cash Payment in the amount of eight percent (8%) per annum commencing on October 1, 1996 and continuing until such time as the date of the First Cash Payment, or part thereof, and the Second Cash Payment under Section 1 herein. Such interest is payable to CDRE by the fifteenth day of the month following the end of each calendar quarter. 4. Sale of Dorotech, S.A. Network Imaging and CDRE agree that it is contemplated that at some point in the near future, Network Imaging will sell its wholly owned subsidiary, Dorotech, S.A. As the terms of this Agreement contain payment terms related to the sale of Dorotech, S.A., Network Imaging agrees that it shall use its reasonable best efforts to sell Dorotech, S.A. to an unrelated third party on or before January 31, 1998. 5. Security Relating to Payments from Network Imaging. In the event of a default pursuant to the agreement for payment contained in this Agreement and if such default has not been cured by Network Imaging within five (5) business days after the payment due date, CDRE has the right to realize upon the first ranking pledge on all of the outstanding stock of Dorotech, S.A. held by Network Imaging as such pledge is herein granted to CDRE. As soon as such right arises and CDRE is entitled to realize upon the pledge, CDRE shall be at liberty to require that Network Imaging effect a sale of Dorotech, S.A. and to immediately upon the consummation of such sale remit all amounts due and payable to CDRE. In the event that Network Imaging has not effected a sale of Dorotech, S.A. by January 31, 1998, and Network Imaging is in default of payments under this Agreement, CDRE shall be at liberty to sell the Pledged Securities and withhold all amounts due and payable under the Agreement before paying back the excess money, if any, to Network Imaging; provided however that CDRE shall be at liberty to sell the Pledged Securities, and that all payment obligations of Network Imaging hereunder shall become Page 3 due and payable immediately, in the event that Network Imaging files for protection against its creditors or is declared bankrupt. a. Representations and Warranties. Network Imaging represents and warrants as follows: (i) Title to Pledged Securities. Network Imaging beneficially owns all of the Shares of Dorotech, S.A., a societe anonyme organized under the laws of France (hereinafter the "Pledged Securities"), free and clear of any liens. All of the Pledged Securities have been duly authorized and validly issued, and are fully paid and non-assessable, and are not subject to any options to purchase or similar rights of any Person. Network Imaging is not and will not become a party to or otherwise bound by any agreement, other than this Agreement, which restricts in any manner the rights of any present or future holder of any of the Pledged Securities with respect thereto. (ii) Validity, Perfection and Priority of Security Interests. Network Imaging shall, upon execution of this Agreement, obtain from Dorotech and promptly forward to CDRE a certificate from the Company's Register evidencing the pledge on the Pledged Securities in favor of CDRE. Upon the delivery of this Agreement to CDRE and the delivery by Network Imaging of the said certificate, CDRE will have valid and perfected security interests in the Pledged Securities subject to no prior lien. No registration, recordation or filing with any governmental body, agency or official is required in connection with the execution or delivery of this Agreement or necessary for the validity or enforceability hereof or for the perfection or enforcement of the Pledged Securities. Neither Network Imaging nor any of its subsidiaries has performed or will perform any acts which might prevent CDRE from enforcing any of the terms and conditions of this Agreement or which would limit CDRE in any such enforcement. b. Security Interests. In order to secure the full and punctual payment of the payment obligations of Network Imaging in accordance with the terms thereof, and to secure the performance of all of the obligations of Network Imaging hereunder: (i) Network Imaging hereby assigns and pledges to and with CDRE and grants to CDRE security interests in the Pledged Securities, and all of its rights and privileges with respect to the Pledged Securities, and all income and profit thereon, and all interest, dividends and other payments and distributions with respect thereto, and all of the proceeds of the foregoing (the "Collateral"). (ii) In the event that Dorotech at any time issues any additional or substitute shares of capital stock of any class, Network Imaging will immediately pledge and deposit with CDRE all such shares as additional security for the payment obligations and shall cause the Company's Registrar to deliver to CDRE a Page 4 certificate evidencing such pledge. All such shares constitute Pledged Securities and are subject to all provisions of this Agreement. (iii) The security interests are granted as security only and shall not subject CDRE to, or transfer or in any way affect or modify, any obligation or liability of Network Imaging with respect to any of the Collateral or any transaction in connection therewith. c. Sale of Dorotech, S.A. CDRE agrees that in the event of the sale by Network Imaging of the Pledged Securities, it shall, at the closing of such transaction release the Pledged Securities against receipt from Network Imaging or from the buyer of Dorotech of: (i) the Second Cash Payment, or the Alternate Second Cash Payment, as the case may be, (ii) all Interest Payments remaining due pursuant to Article 4 above, and (iii) in the event that the sale of Dorotech occurs prior to June 30, 1997, the First Cash Payment or part thereof, and the Second Cash Payment, or the Alternate Second Cash Payment, as the case may be, if not previously made. Conversely, CDRE shall then transfer to Network Imaging title to all the shares of Preferred Stock not previously transferred. d. Sale of Dorotech, S.A. by Merger. In the event that Network Imaging operates a sale of Dorotech, as it is contemplated in this Agreement, by other means than a straightforward sale of the shares of that company, such as a merger or partial merger into another company, CDRE shall release the Pledged Securities only against receipt of the payments specified at subsection (c) above. e. Further Assurances. Network Imaging agrees that it will, at its expense and in such manner and form as CDRE may reasonably require, execute, deliver, file, and record any financing statement, specific assignment or other paper and take any other action that may be necessary or desirable, or that CDRE may reasonably request, in order to create, preserve, perfect or validate any security interest or to enable CDRE to exercise and enforce its rights hereunder with respect to any of the Collateral. f. Covenants. Network Imaging shall, until the sale or merger of Dorotech, S.A., as the case may be, refrain from authorizing or causing Dorotech to take any of the following actions without the prior written approval of CDRE, which consent shall not be unreasonably withheld: (1) Borrow except in the normal course of business. (2) Sell or contribute or merger any of its assets to third parties or to affiliates of Network Imaging. (3) Acquire or agree to acquire any assets not planned in the 1997 budget, from third parties or affiliates of Network Imaging. (4) Assume any liabilities except in the normal course of business. Page 5 Notwithstanding the foregoing, no prior written approval shall be necessary for transactions not exceeding one hundred thousand dollars ($100,000) or those entered into in the normal course of business. 6. Covenants of the Parties. 6.1 Covenants of CDRE. CDRE hereby covenants to Network Imaging that it shall use its best efforts to obtain from COFRACOMI a full and unconditional release for Dorotech, S.A., on terms reasonably satisfactory to its counsel, from any and all obligations under the lease guarantee (cautionnement) dated March 31, 1992 for the ATG Cygnet office space in Toulouse, France; provided however, that the above shall not be construed as an absolute obligation of CDRE to procure such release, but solely to exert its best means to try and obtain the same (obligation de moyens). CDRE hereby covenants that in the event that such release has not been obtained by February 28, 1997, it shall indemnify Network Imaging against half of the sums actually paid out by Dorotech or Network Imaging to COFRACOMI as a result of said lease guarantee being called by COFRACOMI, up to a maximum of four million U.S. dollars ($4,000,000.00). CDRE may choose to fulfill this indemnity by deducting from the First Cash Payment, Second Cash Payment, or the Alternate Second Cash Payment, as the case may be, the sums which become due under this indemnity, and Network Imaging hereby agrees that such setoff shall be satisfactory performance to Network Imaging of the indemnity obligations of CDRE hereunder. Network Imaging shall cause Dorotech to assign to CDRE half of its rights and claims against ATG Cygnet up to the amount for which it shall have been indemnified by CDRE hereunder. This indemnity shall become null and void in the event that Network Imaging defaults on any one of its payment obligations hereunder, and such default has not been cured by Network Imaging within five (5) business days after the payment due date. 6.2 Covenants of Network Imaging. Network Imaging covenants to CDRE that it shall abstain from any contacts or approaches with the Commercial Court in Toulouse or the bankruptcy judge appointed to supervise the ATG Cygnet receivership without the prior written approval of CDRE, and that CDRE shall take full charge and control of such contacts, petitions and actions with the said Court and judge in order to try and gain the above-mentioned release. Page 6 7. Representations and Warranties of the Parties. a. CDRE (i) CDRE represents and warrants to Network Imaging that it has full power and authority to enter into and consummate all transactions contemplated by this Agreement and that all necessary corporate action has been taken to authorize such transactions. (ii) At each delivery as provided in Section 1 above, CDRE represents and warrants that it will transfer to Network Imaging title to the Preferred Stock free and clear of any liens and encumbrances of any kind. b. Network Imaging (i) Network Imaging represents and warrants to CDRE that it has full power and authority to enter into and consummate all transactions contemplated by this Agreement and that all necessary corporate action has been taken to authorize such transactions. 8. Severability. Every provision of this Agreement shall be construed, to the extent possible, so as to be valid and enforceable. If any provision of this Agreement so construed is held by a court of competent jurisdiction to be invalid, illegal or otherwise unenforceable, such provision shall be deemed severed from this Agreement, and all other provisions shall remain in full force and effect. 9. Choice of Law and Venue. This Agreement shall in all respects be governed by and interpreted, construed and enforced in accordance with the laws of the France. Any action between Network Imaging and CDRE will be venued in a state or federal court situated within the Commonwealth of Virginia, and CDRE irrevocably submits itself to the personal jurisdiction of such courts for such purpose. 10. Entire Agreement. This Agreement sets forth the entire agreement and understanding between Network Imaging and CDRE regarding the subject matter hereof and supersedes any prior representations, advertisements, statements, proposals, negotiations, discussions, understandings, or agreements regarding the same subject matter. Both parties acknowledge that they have not been induced to enter into this Agreement by any representations or statements, oral or written, not expressly contained in this Agreement. The terms and conditions of this Agreement shall prevail, notwithstanding any variance or inconsistency with the terms and conditions of any purchase order or other document heretofore or hereafter submitted by either party. This Agreement may not be modified or amended except by a written document signed by the party against whom the same is sought to be enforced. Page 7 11. Counterparts. This Agreement may be executed simultaneously in two counterparts, each of which shall be deemed to be an original, and all of which shall constitute one and the same instrument. This Agreement is executed on this 31st day of December, 1996 between the parties. CDR ENTERPRISES NETWORK IMAGING CORPORATION Signature ______________________ Signature ______________________ Name ___________________________ Name ___________________________ Title __________________________ Title __________________________ Page 8 EX-10.21 6 LOAN AGREEMENT LOAN AGREEMENT LOAN AGREEMENT dated as of December 31, 1996 by and between Network Imaging Corporation a corporation duly organized and validly existing under the laws of the State of Delaware, (the "Borrower") and Fred Kassner, with an address at 69 Spring Street, Ramsey, New Jersey 07446 (the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower has requested the Lender to make loans to the Borrower from time to time pursuant to a credit facility in an aggregate principal amount not to exceed $5,000,000; and WHEREAS, the Borrower wishes to make use of the aforesaid credit facilities for the purchase of the Borrower's Series F Preferred Stock; and WHEREAS, the Lender is willing to extend commitments to make loans pursuant to the credit facility to the Borrower solely for the purpose specified above and on the terms and subject to the conditions set forth herein; and NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, and the grant of a security interest by the Borrower in the Collateral (as hereinafter defined) for the benefit of the Lender, and the other security to be provided to the Lender, the parties hereto hereby agree as follows: Section 1. Definitions. 1.1 Specific Definitions: As used herein, the following terms shall have the following respective meanings: "Advance Date": the Business Day on which the Borrower in their notice to the Lender request that the Lender make a Loan Advance. "Affiliate": as applied to any Person, (a) a spouse of such Person; (b) any relative (by blood, adoption or marriage) of such Person within the third degree; (c) any member, director or executive officer of such Person; (d) any corporation, association, firm or other entity of which such Person, spouse or relative is a member, director or executive officer; and (e) any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person, spouse or relative. "Agreement": this Agreement, as amended from time to time, and after giving effect to all waivers and departures from the terms thereof that have been consented to but only, in the case of each such amendment, waiver or consent, to the extent it complies with the provisions of Section 8.6 hereof. "Amount of the Credit Facility Commitment": at the time of any determination, $5,000,000 in aggregate maximum principal amount which the Lender under its Credit Facility Commitment is obligated to lend to the Borrowers. "Applicable Margin": means in the case of the Credit Facility Note two percent (2%) per annum. "Borrowing Request": the written notice of and request by the Borrowers to the Lender for a Loan Advance under the Credit Facility Commitment, substantially in the form of Exhibit A hereto. "Business Day": any day other than a Saturday, Sunday or other day on which lenders in New York City are authorized to close. "Closing": the consummation of the transactions contemplated by Section 6.1. "Closing Date": the Business Day on which the Initial Funding is made. 2 "Code": the Internal Revenue Code of 1986, together with all amendments from time to time thereto. "Collateral": all of Borrowers now owned or hereafter acquired accounts receivable, as fully set forth in Section 2.11(a) hereof and in a Collateral Security Agreement being executed simultaneously herewith, the terms of which are hereby incorporated herein by reference. "Collateral Security Agreement": as such term is defined in Section 2.11(a) hereof. "Collateral Security Documents": any and all instruments, documents, assignments, mortgages, leasehold mortgages, agreements, financing statements, certificates and other writings delivered to the Lender by the Borrowers to secure the Obligations of the Borrowers under this Agreement, the Note or any other Loan Documents. "Control": the power to exercise control or a controlling influence over the management or policies of any Person, unless such power is solely the result of an official position with any such Person. Any Person who owns beneficially, either directly or through one or more controlled companies, more than 5% of the voting securities of a company or other entity shall be presumed to control such company or entity. "Control Person": any Person that has control over another Person. "Credit Facility Commitment": the obligation of the Lender to make Loan Advances to the Borrower under Section 2.1 (a) hereof in an aggregate amount not to exceed $5,000,000.00 subject to termination or reduction from time to time in accordance with Section 2.1(d) or (e) hereof. "Credit Facility Commitment Termination Date": September 30, 1998. 3 "Credit Facility Loan Advance": a Loan Advance made under the Credit Facility Commitment. "Credit Facility Note": as such term is defined in Section 2.1(b) hereof. "ERISA": the Employee Retirement Income Security Act of 1974, together with all amendments from time to time thereto. "ERISA Affiliate": any trade or business (whether or not incorporated) which is under common control with the Borrowers within the meaning of the regulations promulgated under Section 414 of the Code, including, without limitation, all Subsidiaries. "Event of Default": as such term is defined in Section 7.1 "Generally accepted accounting principles": shall mean, as of the date of any determination with respect thereto, generally accepted accounting principles, as used by the Financial Accounting Standards Board and/or the American Institute of Certified Public Accountants, consistently applied and maintained through the periods indicated. "Immediately Available Funds": funds with good value on the day and in the city in which payment is received. "Indebtedness": with respect to any Person at any time without duplication: (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid (other than accounts payable on normal payment terms to suppliers incurred in the ordinary course of business), (d) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, (e) all capitalized lease obligations of such Person, (f) all obligations of such Person issued or assumed as the deferred purchase price of property or services (other than accounts payable on normal payment terms to suppliers incurred in the ordinary course of business), (g) all obligations of others secured by any Lien on property owned or acquired by such Person, 4 whether or not the obligation secured thereby has been assumed and (h) all guaranties by such Person of Indebtedness of others. "Initial Funding": the initial Loan Advance under the Credit Facility Commitment. "Lien": any security interest, mortgage, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument, in, of or on any of the assets or properties of Borrowers, now owned or hereafter acquired, whether arising by agreement or operation of law. "Loan Advance" or "Loan Advances" or "Advance": a loan or loans under the Credit Facility Commitment. "Loan" or "Loans": an amount or amounts advanced pursuant to Section 2.1 hereof. "Credit Facility Loan" or "Credit Facility Loans," a Loan or Loans made pursuant to the Credit Facility Commitment. "Loan Documents": this Agreement and all agreements, instruments and documents heretofore, herewith or hereafter executed and delivered by Borrower, together with any powers of attorney, consents, assignments, contracts, notices, financing statements and any and all other agreements or writings pursuant to or in aid of any of the foregoing. "Maturity Date": means the Credit Facility Commitment Termination Date. "Note": the Credit Facility Note. "Obligations": all of the Borrower's obligations, liabilities and indebtedness of any and every kind and nature, whether heretofore, now or hereafter owing, arising, due or payable and howsoever evidenced, created, incurred, acquired, or owing, whether primary, secondary, direct, indirect, contingent, fixed or otherwise and whether arising or existing under written agreement, oral agreement or operation of law under, with respect to or in connection with this Agreement, the Note and the other Loan Documents. 5 "Person" any natural person, corporation, partnership, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity. "Prime Rate": shall mean, as determined on a daily basis, the rate per annum established by First Union Bank, N.A. in Paramus, New Jersey from time to time as the reference rate for short-term commercial loans in Dollars to domestic corporate borrowers. "Responsible Officer": the chairman, the president, or any vice president of any Person or with respect to financial matters, the chief financial officer of such Person. "Payments": with respect to Borrower or any Subsidiary of a Borrower, collectively, all dividends or other distributions of any nature (cash, securities, assets or otherwise), and all payments on any class of any equity securities (including, without limitation, warrants, options or rights therefor) issued by such Borrower, whether such securities are now or may hereafter be authorized or outstanding any payment by such Borrower or such Subsidiary of a Borrower on account of the purchase, redemption or retirement of any equity securities (including, without limitation, warrants, options or rights therefor) issued by it and any distribution in respect of any of the foregoing, whether directly or indirectly. "SEC": the Securities and Exchange Commission. "Subsidiary": any corporation of which a majority of the capital stock having ordinary voting power for the election of directors is owned by either Borrower, either directly or through one or more Subsidiaries, or any partnership or joint venture in which such Borrower or any Subsidiary is a general partner. "Unmatured Event of Default": any event which with the lapse of time, determination by the Lender or written notice to Borrowers, or any combination of the foregoing, would constitute an Event of Default. 6 "Unused Amount of the Credit Facility Commitment": at the time of any determination, the amount by which the Amount of the Credit Facility Commitment of the Lender in effect at the time of such determination exceeds the outstanding unpaid principal balance of the Credit Facility Note. 1.2 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made and all financial statements and certificates and reports as to financial matters required to be delivered hereunder shall be prepared in accordance with United States generally accepted accounting principles consistently applied. 1.3 Principles of Construction. In this Agreement, the singular includes the plural and the plural the singular; words imparting any gender include the other gender; references to "Sections" shall be sections of this Agreement unless otherwise specifically provided; and references to Persons include their permitted successors and assigns. Section 2. The Credit. 2.1 Credit Facility Commitment. (a) Amount; Lender's Obligation to Make Certain Loan Advances. Upon the terms and subject to the conditions of this Agreement, the Lender will lend to the Borrower during the period commencing on and after the Closing Date to the earlier of the Credit Facility Commitment Termination Date or the date on which the Credit Facility Commitment shall be terminated in accordance with the terms hereof, as provided herein, in such amounts and at such times as the Borrower shall request, up to but not exceeding the Amount of the Credit Facility Commitment in aggregate principal amount at any one time outstanding. (b) Credit Facility Note. Loan Advances made by the Lender under its Credit Facility Commitment to the Borrower shall be evidenced by a promissory note of the Borrower in the form of 7 Exhibit B hereto (the "Credit Facility Note"), dated the Closing Date, payable by the Borrower, to the order of the Lender in the amount of the Credit Facility Commitment as originally in effect and otherwise duly completed. The aggregate amount of all Loan Advances made by the Lender under its Credit Facility Commitment less all payments of principal thereof shall be the principal amount owing and unpaid on the Credit Facility Note payable to the order of such Lender. The amount and date of each Loan and all payments made on account of the principal thereof, shall be endorsed by the Lender on the Schedule attached to the Note or any continuation thereof. (c) Interest Payable on Credit Facility Note. The Borrower will pay the Lender interest on the outstanding unpaid principal amount of the Credit Facility Note for the period commencing on the date the initial Loan Advance hereunder is made until the Credit Facility Note shall have been paid in full at a per annum rate equal to the Prime Rate from time to time in effect, as adjusted automatically on and as of the effective date of any change in the Prime Rate. Such interest, accrued through the last calendar day of each month on the Credit Facility Note, shall be payable monthly in arrears on the first day of each month that this Agreement is in effect. (d) Mandatory and Permitted Principal Payments of the Credit Facility Note. Subject to Section 7.2 hereof, (i) Mandatory Payments. On the earlier of the Credit Facility Commitment Termination Date or the date on which the Credit Facility Commitment shall be terminated in accordance with the terms hereof, the Borrower shall pay to the Lender the entire unpaid principal balance of the Credit Facility Note, together with all accrued and unpaid interest on the principal balance. (ii) Mandatory Reduction of Credit Facility Commitment. Upon the exercise of any Network Imaging Corporation warrants (provided that the proceeds of such exercise exceeds $50,000) now outstanding or hereafter issued by Borrower, a prepayment in the net amount received by Borrower shall be applied to reduce the amount of the Credit Facility Note; and upon the sale of Dorotech, S.A., a prepayment in the amount of the Loan then-outstanding shall be applied to reduce the amount of the Credit Facility Note. 8 (iii) Permitted Voluntary Repayments. The Borrower shall have the right voluntarily to repay the Credit Facility Note of the Borrower from time to time in whole or in part, on three (3) Business Days' notice to the Lender; provided that each such partial prepayment shall be in the minimum aggregate amount of $250,000.00 together with accrued interest on the amount so prepaid through the date of such prepayment. Such monies shall be paid to the Lender in accordance with the provisions of Section 2.8 hereof. 2.3 Manner of Requesting Under the Commitments. (a) Borrowings Under the Credit Facility Commitment. The Borrower shall give written notice to the Lender of each request for Loan Advances under the Credit Facility Commitment to be made subsequent to the Closing Date not later than 10:00 a.m. (New York time) five (5) Business Days prior to the Advance Date. Each request for Loan Advances under the Credit Facility Commitment shall be in the minimum aggregate principal amount of $50,000.00. Each request for a borrowing hereunder shall be made by delivering a Borrowing Request to the Lender. Subject to compliance with the terms and conditions of this Agreement, including, without limitation, those contained in Sections 6.1 and 6.3(a) hereof, the Lender will make the requested Loan Advance. Subject to the foregoing, the Lender shall make available the proceeds of all Loan Advances requested by the Borrowers by delivery of a check to Borrowers, subject to collection, no later than 2:00 p.m. (New York time) on the relevant Advance Date to such account(s) at such banks(s) as the Borrowers shall designate. (b) Loan Advances for Interest and Fees and Required Principal Payments. The Lender is irrevocably authorized at its option to make Loan Advances under the Credit Facility Commitment, and to remit the proceeds thereof to itself as and for payment of any interest, fees, principal payments, or other compensation or reimbursement as may become due to the Lender under the terms of this Agreement or the other Loan Documents; provided, however, that a Loan Advance for payment of any interest on the Credit Facility Note shall not be made earlier than the day after such payment is due under such Note. In the event that Lender makes such Loan Advances, Lender shall inform Borrower in writing at least two days in advance of such Loan Advance. 9 2.4 Default Interest. If all or any part of the principal or interest on the Note or any fees or other amounts payable to the Lender hereunder or under any of the other Loan Documents shall not be paid when due, whether by acceleration of maturity or otherwise, such past due principal amount, past due interest amount and past due fees, to the extent permitted by applicable law, shall bear interest until such past due amount shall be paid in full at a per annum rate of two percent (2%) above the rate of interest borne by the Note evidencing such past due principal amount or on which such interest amount was past due and, in the case of any past due fees, at a rate of two percent (2%) above the rate of interest borne by the Credit Facility Note for the period during which the same remained unpaid. All such interest shall be payable immediately. 2.6 Intentionally deleted. 2.7 Use of Proceeds of Loan Advances. The proceeds of the Loan shall be used for the purchase of Borrower's Series F Preferred Stock. 2.8 Payments. All payments and prepayments by the Borrowers of principal or interest on the Note, and all fees, charges, expenses and other obligations under any Loan Document payable to the Lender shall be made in Immediately Available Funds not later than 1:00 p.m. (New York time) on the dates called for under any Loan Document at the main office of the Lender's branch of First Union Bank, N.A., ABA number: 031201467, account number: 002300399-5; provided, that the Borrower shall notify the Lender not later than 1:00 p.m. (New York time) on any date on which a payment by the Borrower will be after 11:00 a.m. (New York time). Funds received after 11:00 a.m. (New York time) shall be deemed to have been received by the Lender on the next Business Day. Funds received after 11:00 a.m. also shall be deemed to have been received by the Lender on the next Business Day if the Borrower fail to provide the notice to the Lender required by this Section 2.8. If any payment of principal or interest on the Note, or any fee payable hereunder, becomes due and payable on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in the computation of any interest and fees on such principal payment. All payments and prepayments shall be applied first to unpaid and owing fees, expenses and other obligations of the Borrower under 10 this Agreement and the Note (other than principal and interest), second to accrued and unpaid and owing interest and last to principal. 2.9 Computations. Interest on the Note (and any other amounts payable by the Borrower to the Lender hereunder) shall be computed on the basis of actual days elapsed and a year of 365 days. If any interest payment or other charge or fee payable hereunder exceeds the maximum amount then permitted by applicable law, the Borrower shall be obligated to pay the maximum amount then permitted by applicable law and the Borrower shall continue to pay the maximum amount from time to time permitted by applicable law until all such interest payments and other charges and fees otherwise due hereunder (in the absence of such restraint imposed by applicable law) have been paid in full. 2.11 Grant of Security Interest by the Borrower. In consideration of the Loans to be made hereunder, the Borrower hereby agrees as follows: (a) Grant of Security Interest. To secure the payment and performance of the Borrower's Obligations hereunder and under each of the other Loan Documents, Borrower hereby sells, assigns, conveys, mortgages, pledges, hypothecates, transfers and grants to the Lender, for the benefit of the Lender, its successors, assigns and endorsees, and any other holders of Indebtedness hereunder, a continuing valid, enforceable, first priority Lien upon and perfected security interest in and to all of the accounts receivable, now owned or hereafter acquired by the Borrowers, and wheresoever located, all accessions and additions to, substitutions for, and replacements and products of any of the foregoing properties and interests in property, together with all cash collections from, and all other cash and non-cash proceeds of, any of the foregoing, (the "Collateral") as more fully set forth in a Collateral Security Agreement executed simultaneously herewith (the "Collateral Security Agreement"). (b) Financing Statements. Prior to the execution of this Agreement, Borrower shall have executed and delivered to the Lender, and at any time or times hereafter at the request of the Lender, each Borrower shall execute and deliver, all financing statements, amendments thereto or other documents (and pay the cost of filing or recording the same in all public offices deemed necessary by the Lender), as the Lender may reasonably request, 11 in a form reasonably satisfactory to the Lender, to perfect and maintain the security interests in the Collateral granted by such Borrower to the Lender or otherwise to protect and preserve the Collateral and the security interests therein or to enforce the security interests of the Lender and the holders of the Note in the Collateral. Should Borrower fail to do so, the Lender is authorized to sign any such financing statements or other documents as such Borrower's agent. Borrower further agrees that a carbon, photocopy or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. Borrower shall make appropriate entries upon its books and records disclosing the Lender's Liens in the Collateral. Borrower shall immediately notify the Lender of any loss in the value of the Collateral or any part thereof in the amount of $100,000 in any single instance or in the aggregate. Section 3. Representations and Warranties. Borrower represents and warrants that: 3.1 Organization, Standing, etc. Borrower is a corporation duly organized and validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite power and authority to carry on its business as now conducted, to execute and deliver the Loan Documents executed and delivered by it and to perform all of its obligations under each and all of the foregoing. Borrower is duly qualified and in good standing and is duly authorized to do business as a foreign corporation in each jurisdiction in which the character of the properties owned or leased by it or the business conducted by it makes such qualification necessary. All such jurisdictions are listed in Schedule 3.1. 3.2 Validity. The Loan Documents to which Borrower is a party constitute the legal, valid and binding obligations of Borrower and are enforceable against Borrower in accordance with their terms. The Collateral Security Documents are effective to create a valid first priority perfected security interest in Borrower's Collateral for the benefit of the Lender. The execution, delivery and performance of the Loan Documents by Borrower and the borrowing of moneys hereunder and under the Notes by Borrower and the execution and delivery of any Loan Documents, are within its corporate powers, have been duly authorized in each case by all necessary corporate action, as applicable (including any necessary shareholder approvals and any shareholder approvals required by the terms hereof), do not and 12 will not violate, contravene or conflict with any provision of their respective articles or certificates of incorporation or bylaws or any statute, law, rule or regulation, will not result in the breach of or constitute a default under any document, agreement, contract, license, lease, franchise, permit, indenture or instrument to which Borrower is party or by which Borrower or its respective properties may be bound, and will not, except as contemplated in this Agreement, result in the imposition of any Lien upon any property of Borrower under any existing indenture, mortgage, deed of trust, loan or credit agreement or any other agreement, contract, lease, license, franchise, permit, indenture or instrument by which Borrower is bound or to which Borrower is a party. 3.3 Capitalization; Subsidiaries. Schedule 3.3 correctly sets forth as to Borrower its name, the jurisdiction of its incorporation, its authorized, issued and outstanding capital stock, and any options, warrants or other rights with respect to such capital stock, the total number of such person(s) (and, on thirty days prior request of Lender at any time during the term of the Credit Facility, Borrower will provide the name of such person(s) if more than one the name of each such Person) owning or holding, or owning any rights to acquire, rights to acquire any common stock or other capital stock of the percentage of its common stock and/or other class of capital stock or any partnership interest in, which is owned directly or indirectly by each such person and sets forth each limited partnership in which Borrower is a limited partner and the percentage of its interest therein. Except as set forth on Schedule 3.3, Borrower has no Subsidiaries, and neither Borrower nor any Subsidiary of such Borrower owns any shares of capital stock or any general or limited partnership interest in any other Person. All outstanding shares of capital stock of Borrower and each Subsidiary of Borrower are validly existing, fully paid and non-assessable, and the issuance and sale thereof have been made in compliance with, in all material respects, applicable federal and state securities laws, and, with the exception of Dorotech, S.A. in the case of shares of capital stock of each Subsidiary of either Borrower, are owned by the Borrower free and clear of any liens, encumbrances or other restrictions. Each Subsidiary of a Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the necessary power and authority to carry on its business as now conducted or as proposed to be conducted as contemplated herein and to execute and deliver the Loan Documents executed and delivered by it and to perform all of its obligations and the transactions contemplated thereby under each 13 and all of the foregoing. Each Subsidiary of the Borrower is duly qualified and in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction listed on Schedule 3.1, which jurisdictions are the only jurisdictions in which the character of the properties owned or leased by such Subsidiary, as the case may be, or the business conducted or proposed to be conducted by it makes such qualification necessary. 3.4 Consents and Authorizations. Except for the approvals, authorizations, filings, permits, registrations and consents listed on Schedule 3.4, no consent, license, permit, approval, authorization of, or registration, declaration or filing with, any governmental authority or any other Person or entity (including, without limitation, any lessor under the Leases) is required on the part of Borrower or any Subsidiary of Borrower in connection with (1) the execution and delivery of any of the Loan Documents, or the performance of or compliance with the terms, provisions or conditions hereof or thereof or of any of the Collateral Security Documents or the transactions contemplated by any of them, or (2) the products that Borrower or any Subsidiary of a Borrower processes or sells or the services each performs or their respective properties. 3.5 Compliance with Law. Borrower is in compliance with in all respects and none is in violation of or subject to any liability (contingent or otherwise) on account of any law, including, without limitation, any constitution, statute, treaty, regulation, rule, ordinance, order, writ, injunction or decree (including, but not limited to, ERISA, the Code, any applicable occupational and health or safety law, environmental protection law, or hazardous waste or toxic substances management, handling or disposal law, municipal or state health code and including, but not limited to (a) any restrictions, specifications or requirements pertaining to products that Borrower manufactures, processes or sells or pertaining to the services Borrower performs, (b) the conduct of Borrower's businesses and (c) the use, maintenance or operation of the real and personal properties owned or possessed by Borrower, except for violations which individually or in the aggregate do not have any adverse effect on the ability of Borrower to perform its obligations hereunder, the other Loan Documents, the transactions contemplated hereby or thereby, or on the business, existing, ongoing or proposed operations or the financial condition of Borrower. Borrower is current and in good standing with respect to, all governmental (including municipal) approvals, permits, certificates, filings, 14 licenses, inspections, consents and franchises necessary to continue to conduct its business and to own or lease and operate its properties as heretofore, or as contemplated to be conducted, owned, leased or operated by Borrower and any Subsidiary of a Borrower, as the case may be, or to perform its obligations hereunder or under the other Loan Documents. There are no claims, investigations, litigation, administrative proceedings whether pending or, to Borrower's knowledge, threatened against Borrower, or judgments or orders against Borrower, relating to any hazardous substances, hazardous wastes, discharges, emissions or other forms of pollution relating in any way to Borrower and there are no presently existing facts or circumstances likely to give rise to any such claim, investigation, litigation or administrative proceeding and any hazardous or toxic substances, within the meaning of any applicable statute or regulation, are presently stored or otherwise located on any of the real property leased or owned by Borrower or, to Borrower's knowledge, adjacent parcels of real estate, and, further within the definition of such statutes, no part of the real property leased or owned by a Borrower or, to Borrower's knowledge, adjacent parcels of real estate, including the groundwater located thereon, is presently contaminated by any such substance. 3.6 Financial Data. The most recent audited and unaudited financial statements, as filed with the SEC, copies of which have been furnished to the Lender, fairly presents the financial condition of Borrower as of their respective dates and, subject to changes occurring in the ordinary course of business since their respective dates and to the transactions contemplated hereby, will represent on the Closing Date the financial condition of Borrower and the assets and liabilities and stockholders' equity of the foregoing. The most recent audited consolidated financial statements of Borrower (the "Audited Financial Statements"), as certified by Borrower's independent certified public accountants, true and correct copies of which have been delivered to the Lender, fairly present the financial condition of Borrower on a consolidated basis as of such date and for the periods covered and disclose all material liabilities of Borrower and its subsidiaries required to be disclosed in accordance with generally accepted accounting principles consistently applied. There have been no material adverse changes in Borrower's consolidated financial condition, business, existing or ongoing operations or properties since the date of the Audited Financial Statements. There have been no material adverse changes in Borrower's financial condition, business, existing or ongoing operations or properties since the date of 15 the most recent unaudited financial statement or the Audited Financial Statements, respectively. 3.7 Solvency. Borrower is solvent, will be able to pay its debts as they become due, has capital sufficient to carry on its business as presently conducted and as presently planned to be conducted and all businesses in which it is about to engage, and the Borrower, on a consolidated basis, own property having a value, determined both at fair valuation and at present fair saleable value, greater than the amount required to pay all of its consolidated Indebtedness. 3.8 ERISA. Each plan maintained by Borrower complies with all material applicable requirements of ERISA and of the Code and with all material applicable rulings and regulations issued under the provisions of ERISA and the Code setting forth those requirements. Each Plan maintained by Borrower under or pursuant to which Borrower has any payment or other financial obligation or commitment is listed on Schedule 3.8 and except for such Plans, Borrower has no such obligations or commitments. To the best of Borrower's knowledge and belief, no reportable event (as defined in Section 4043(b), subdivisions (5) or (6) of ERISA or in 29 C.F.R. Sections 2615.21, 2615.22 or 2615.23) (a "Reportable Event") has occurred with respect to any Plan which is subject to title I of ERISA. Borrower has not engaged in any prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of the code) (i) which has not been corrected within the correction period applicable to it under Section 502(i) of ERISA or Section 4975(f) of the Code or (ii) for which an exemption is not applicable or has not been obtained under Section 408 of ERISA or Section 4975 of the Code. Borrower has satisfied all of the funding standards applicable to such Plans under Section 302 of ERISA and Section 412 of the code, and the Pension Benefit Guaranty Corporation ("PBGC") and has not instituted any proceeding, and there exists no event or condition which would constitute grounds for the institution of proceedings, and there exists no event or condition which would constitute grounds for the institution of proceeds by PBGC, to terminate any Plan under Section 4042 of ERISA. There have been no material adverse changes in the Plans since the establishment thereof. Except as indicated on Schedule 3.8, Borrower is not a participant in a pension, health and welfare plan which is a Multiemployer Plan. Borrower is not a party to any action to terminate any Plan or has taken any action to terminate a plan. 16 3.9 Title to Properties; Collateral. Borrower has good and marketable title to all of the Collateral. Borrower has good and sufficient title to its other properties and assets, including all properties and assets included in the Collateral or reflected as owned by it in the most recent unaudited financial statement or the Audited Financial Statements (except those assets disposed of since the date of the most recent unaudited financial statement or the Audited Financial Statements in the ordinary course of business for fair and adequate consideration) and necessary in its present or proposed business and operations. Borrower has all the rights, assets and properties, franchises, authorizations and approvals needed to conduct its business and operations as presently conducted or as contemplated herein and to perform its obligations under the Loan Documents. None of the real property or other properties or assets of any Borrower, is subject to any Lien except for Liens permitted by Section 5.2 or as set forth on Schedule 3.9. 3.10 Investment Company Act. Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 3.11 Tax Returns. All federal, state and local income tax returns which are required to have been filed under any applicable law or regulation by or on behalf of Borrower for all of its taxable periods have been filed. All taxes, assessments, fees and other governmental charges as shown on said returns have been paid when due. Except as set forth on Schedule 3.11, Borrower knows of no proposed tax assessment against it, or any basis therefor. Borrower believes that the liability for taxes shown on the books of Borrower is adequate for the current year and all prior years. Borrower is not a party to or bound by any tax sharing or tax allocation agreement. 3.12 Litigation. Except as listed in Schedule 3.12, there are no actions, proceedings or investigations pending or, to the best knowledge of Borrower, threatened (or any basis therefor known to it), against or affecting Borrower or any Subsidiary, or any order or judgment of any court or other judicial, governmental, administrative or regulatory authority by its terms applicable to Borrower, or a Subsidiary of Borrower, which (i) questions or arises out of the execution, delivery, performance or validity of any Loan Document, or arises out of the Collateral or any action taken or to be taken pursuant hereto or thereto or the transactions contemplated hereby or by any of the other Loan 17 Documents or any of the foregoing agreements, (ii) is applicable to or arises out of the existing, ongoing or proposed operations of Borrower or any Subsidiary of Borrower as contemplated by this Agreement, or (iii) involves any claim or claims (other than any claim or claims which are fully covered by insurance policies which are in full force and effect) in excess of $50,000.00 individually or in the aggregate or would if adversely determined has a material, adverse effect on the condition, financial or otherwise, of Borrower or a Subsidiary of Borrower. 3.13 Other Agreements. Borrower, and each Subsidiary of a Borrower, has fully complied with the terms of, and neither Borrower nor any Subsidiary of a Borrower, is in default under or in breach of any agreement, indenture, contract, option to purchase, right of first refusal, undertaking, mortgage, lease, sublease, license, permit, franchise or commitment to which it is a party or by which it is bound or knows of any dispute regarding any agreement, undertaking, indenture, contract, mortgage, lease, sublease, license, permit or commitment or has received any notice of default thereunder. 3.14 Patents, Licenses, Franchises, etc. Borrower and each Subsidiary of a Borrower owns or has adequate right to use all licenses, patents, patent applications, copyrights, service marks, trademarks and trade names necessary to conduct its business as heretofore conducted and as proposed to be conducted by it as contemplated herein. 3.15 Financial Accounting Practices. Borrower and each Subsidiary of Borrower makes and keeps books, records and accounts which, in reasonable detail, accurately and fairly reflect its transactions and dispositions of its assets and a system of internal accounting controls sufficient to provide reasonable assurance that (a) transactions are executed in accordance with management's general or specific authorization, (b) transactions are recorded as necessary (i) to permit preparation of financial statements in conformity with generally accepted accounting principles and (ii) to maintain accountability for assets, (c) access to assets is permitted only in accordance with management's general or specific authorization and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 18 3.16 Employee Controversies. There are no strikes, or labor or other controversies pending or, to the best knowledge of Borrower threatened or anticipated between Borrower and any of its employees, or between any Subsidiary of Borrower and any of its employees, other than any in the ordinary course of business which are not, in any individual case or in the aggregate, material to the financial condition and business or proposed business of Borrower or such Subsidiary. 3.17 Places of Business. As of the date hereof, the principal place of business and chief executive office of Borrower are as set forth in Section 8.3 hereof and the signature pages hereto. As of the date hereof, the books and records of Borrower and all of its records of account are located at the principal place of business and chief executive office of Borrower. Borrower conducts its business only from the locations, and the real property leased by the Borrower pursuant to the Leases are located only at the locations, listed on Schedule 3.17. 3.18 Other Names. The business of Borrower has not been conducted under any corporate, trade or fictitious name other than those names listed on Schedule 5.13. 3.19 Indebtedness and Liabilities, Liens. Except for the Indebtedness and Guaranties listed on Schedule 3.19, neither Borrower nor any Subsidiary of a Borrower has any Indebtedness (except liabilities for trade payables incurred in the ordinary course of business, payment of which is not in default). Except for the Liens set forth on Schedule 3.19 or permitted under Section 5.2 hereof, neither Borrower nor any Subsidiary of a Borrower has created or granted or suffers to exist any Liens on its assets or properties. 3.20 Investments. Except as disclosed in Schedule 12, neither Borrower nor any Subsidiary of a Borrower has any investment in any Person and is not engaged in any joint venture or partnership with any other Person. 3.21 Adverse Contracts. Neither Borrower nor any Subsidiary of a Borrower is a party to, nor is Borrower or any Subsidiary of a Borrower nor any of its property subject to or bound by, any long term lease, forward sales or purchase contract or futures contract, covenant not to compete or other agreement which has an 19 adverse effect or is likely to have an adverse effect on its financial condition, results of operations or business as presently conducted or proposed to be conducted. 3.22 Fixed Assets; Insurance. Borrower and each of its Subsidiaries maintains the equipment, fixtures and real estate owned or leased by it (including the Subleases) in accordance with all applicable laws, rules, regulations and orders and in good working order. Each Borrower maintains insurance of such kind and in amounts necessary and appropriate in connection with its business and operations, as provided in Section 5.5 hereof, or required to be maintained pursuant to the terms of the Collateral Security Agreement. 3.23 Accurate and Complete Disclosure. No representation or warranty made by Borrower under any of the Loan Documents and no statement made in any financial statement, certificate, report, exhibit or document furnished pursuant to or in connection with any of the Loan Documents is false or misleading in any material respect (including by omission of material information necessary to make such representation, warranty or statement not misleading). Borrower has disclosed to the Lender in writing all information known to it which adversely affects the business, existing or ongoing or proposed operations or financial condition of such Borrower and any Subsidiary of Borrower or the ability of the Borrower or of any such Subsidiary to perform their obligations under any Loan Document. 3.24 Representations and Warranties in Collateral Security Documents; Survival. Borrower hereby confirms all representations and warranties made by Borrower in any of the Collateral Security Documents, which representations and warranties are hereby incorporated herein. All representations and warranties of any Borrower contained in this Agreement and any of the other Loan Documents shall survive the execution and delivery of this Agreement for as long as any Obligation of the Borrowers to the Lender and any other holder of the Indebtedness hereunder shall remain unpaid. Section 4. Affirmative Covenants. From the Closing Date for so long as the Credit Facility Note remains outstanding or any other Obligation of Borrower hereunder remains unpaid, Borrower, will, unless the Lender shall otherwise consent in advance in writing: 20 4.1 Financial Statements. Keep proper books of record and account in which full and true entries will be made of all dealings or transactions of or in relation to the business and affairs of the Borrower, all Subsidiaries of the Borrower, and their businesses in accordance with generally accepted accounting principles consistently applied and will: (a) Furnish or cause to be furnished to the Lender: (i) as soon as available but within three (3) business days after a Responsible Officer of a Borrower shall have obtained knowledge of the occurrence of an Event of Default and/or an Unmatured Event of Default, the written statement of the chief financial officer, chief operating officer, chief executive officer or treasurer of Borrower setting forth the details of each such Event of Default or Unmatured Event of Default which has occurred and is continuing and the action which the Borrower propose to take with respect thereto; (ii) a copy of Borrower's quarterly report on Form 10-Q upon the earlier of: (a) its filing with the SEC or (b) within sixty (60) days after the end of the first three (3) fiscal quarters of each fiscal year of the Borrower accompanied at the end of each fiscal quarter by a certificate of a Responsible Officer of Borrower, addressed to the Lender, in each case substantially in the form of Exhibit I hereto (a "Compliance Certificate"), stating that no Event of Default and/or no Unmatured Event of Default has come to the attention of such Responsible Officer which was continuing at the end of such fiscal period or on the date of his certificate, or, if such an Event of Default or Unmatured Event of Default has come to his attention and was continuing at the end of such fiscal period or on the date of his certificate, indicating the nature of such Event of Default or Unmatured Event of Default and the action which such Borrower proposes to take with respect thereto; (iii) Upon the earlier of (a) its filing with the SEC or (b) within ninety (90) days after the end of each fiscal year, a copy of Borrower's Annual Report on Form 10-K, which shall include financial statements consisting in each case of consolidated statement of profit and loss and a consolidated balance sheet and statement of stockholder's equity of Borrowers and their Subsidiaries, as at the end of such fiscal year, 21 commencing December 31 1996, certified (without adverse opinions, scope limitations or qualifications with respect to (A) the continuance of the Borrower and each of it's Subsidiaries, as going concerns and (B) departures from generally accepted accounting principles) by independent certified public accountants of recognized national standing and reputation selected by the Borrower and acceptable to the Lender and expressly acknowledging and permitting reliance thereon by the Lender, accompanied by (a) a certificate of Borrower's President and Chief Financial Officer addressed to the Lender stating that no Event of Default has come to their attention which was continuing at the end of such fiscal year or on the date of their certificate, or, if such an Event of Default has come to their attention, the certificate shall indicate the nature of such Event of Default and the action which the Borrower proposes to take with respect thereto and (b) the Compliance Certificates of Responsible Officers of the Borrower setting forth, in addition, in the applicable Compliance Certificates whether or not since the end of the prior fiscal year there has been any material adverse change in the condition (financial or otherwise), properties, business or results of operations of the Borrower and its Subsidiaries taken as a whole. (b) from time to time such other information regarding the business, affairs and financial condition of the Borrower and its Subsidiaries and as the Lender may reasonably request. 4.2 Existence. Maintain (and cause each Subsidiary to maintain) its corporate existence in good standing under the laws of the jurisdiction of its incorporation and its right to transact business in each jurisdiction in which the character of the properties owned or leased by it or the business conducted by it makes such qualification necessary and the failure to so qualify would have, individually or in the aggregate, a material adverse effect on the business, existing or ongoing operations or financial condition of Borrower or any Subsidiary of Borrower. 4.3 Compliance with Laws, etc. Comply with all applicable laws, rules, regulations and orders (including, without limitation, the Code and any applicable tax law, product safety law, occupational safety or health law, environmental protection or pollution control law, building regulations, hazardous waste or toxic substances management, handling or disposal law, and including any state, local or municipal health, or zoning laws and regulations) in all respects (including, but not limited to, 22 compliance in respect of products that it manufactures, processes or sells or services it performs, the conduct of its business or use, maintenance or operation of the real and personal properties owned or possessed by it), such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments and governmental charges imposed upon it or upon its real or personal property except to the extent contested in good faith by appropriate proceedings with respect to which appropriate reserves have been established. 4.4 ERISA. At all times maintain each of its Plans in compliance with all material applicable requirements of ERISA and of the Code and with all material applicable rulings and regulations issued under the provisions of ERISA and the Code and will not and not permit any of its ERISA Affiliates to (a) engage in any transaction in connection with which the Borrowers would be subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, (b) fail to make full payment when due of all amounts which, under the provisions of any Plan, the Borrower is required to pay as contributions thereto, or permit to exist any accumulated funding deficiency (as such term is defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, or (c) fail to make any payments to any Multiemployer Plan that the Borrowers may be required to make under any agreement relating to such Multiemployer Plan or any law pertaining thereto. 4.5 Assets and Insurance. At all times keep and maintain, and cause each Subsidiary of the Borrower to keep and maintain, all of its property and assets in good order and repair and to keep its assets and business covered by insurance with reputable and financially sound insurance companies against such hazards (including, without limitation, product liability and interruption of business operations) and in such amounts as is required by terms of any Collateral Security Document, any law or as is customarily maintained by Persons similarly situated. Without limiting the generality of the foregoing, the Borrower shall obtain, maintain and keep in full force and effect, with all premiums paid thereon, the following insurance with respect to any real property owned or leased by the Borrower (the "Real Property") and each Subsidiary (the "Real Property") and all fixtures, equipment and improvements located thereon (the "Improvements"); 23 (a) insurance upon all Improvements against loss or damage by fire, lightning and other risks customarily covered by standard "all risk" and extended coverage endorsements, together with theft, vandalism and malicious mischief endorsements, all in such amounts as may from time to time be reasonably required by the Lender, the Lender hereby agreeing that at this time a blanket policy in the amount of $6,000,000, covering each item of Real Property and the Improvements thereon, shall be sufficient; (b) comprehensive general public liability insurance against claims for bodily injury, death and/or property damage occurring in, on or about the Real Property or any part thereof, with combined single limit coverage satisfactory to the Lender (which shall initially be at least equal to $5,000,000.00 with respect to any one (1) person, accident or occurrence); (c) business interruption insurance covering the loss from a total or partial suspension of the Borrowers' business for a period of at least twelve (12) months after the casualty; (d) insurance upon the Real Property and Improvements against such other casualties and contingencies as the Lender may from time to time reasonably require, in amounts acceptable to the Lender, all in such manner and form as may be satisfactory to the Lender. 4.6 Government Authorizations; Third Party Consents, etc. Obtain and maintain, and cause each Subsidiary of the Borrower to obtain and maintain, in force all authorizations, consents, approvals, licenses, permits, franchises, exemptions and other actions by, and all registrations, qualifications, designations, declarations and other filings with, any government, governmental or other official body, agency or authority or any other Person or entity necessary or advisable in connection with execution and delivery of this Agreement or any other Loan Document, the consummation of the transactions herein or therein contemplated, or the performance of or compliance with the terms and conditions hereof or thereof, to ensure the legality, validity, enforceability and admissibility in evidence hereof or thereof (including those listed in Schedule 4.6 or as may be otherwise requested by the Lender) and to ensure that there is no adverse effect on the conduct of its business. 24 4.7 Contracts. Comply, and cause each subsidiary to comply, with all agreements, contracts and documents, undertakings, commitments, franchises, licenses, permits or instruments to which it is a party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound. 4.3 Change in Business. Continue, and cause each Subsidiary of the Borrower to continue, to engage in its business substantially as operated during the present and preceding year, except as otherwise contemplated herein, and not engage in any unrelated business. 4.9 Litigation. Notify the Lender in writing of all litigation, proceedings or investigations before any governmental, administrative or regulatory agencies against or affecting Borrower or Subsidiary of a Borrower or any order or judgment of any court or other judicial, administrative or regulatory authority by its terms applicable to Borrower or Subsidiary of a Borrower which (a) in any way questions or challenges any of the Loan Documents, or (b) involves a claim in excess of $50,000.00 in any one instance or in the aggregate (other than a claim fully covered by insurance policies in full force and effect) or may have an adverse effect on the business existing, ongoing or proposed operations or financial condition of the Borrower, or any Subsidiary of the Borrower, stating the nature and status thereof. 4.10 After Acquired Receivables. Promptly upon acquiring any accounts receivable or any rights or interests therein, whether now existing or hereafter acquired, arising out of in connection with the sale or lease of goods, the rendering of services or otherwise, cause such accounts receivable or such right or interest in such accounts receivable to be subject to a valid first priority Lien and perfected security interest in favor of the Lender in order to secure all liabilities and obligations of the Borrower under this Agreement, the Note and the other Loan Documents and Borrower shall execute and deliver financing statements, reasonably satisfactory to the Lender to effect the imposition of such Lien(s), and pay all costs in connection herewith. Such after acquired accounts receivable shall constitute Collateral hereunder. 25 4.11 Sale of Assets. With respect to any sale of assets permitted hereunder and under the Collateral Security Documents, the proceeds of the sale or other disposition of assets shall be used only in the business and operations of the Borrower, subject to the terms and conditions of this Agreement. 4.12 Obligations. The Borrower shall keep and maintain and perform each and every one of its agreements and obligations under this Agreement, the Note and the other Loan Documents and shall pay the Note in accordance in accordance with its terms. Section 5. Negative Covenants. From the Closing Date for so long as the Credit Facility Note remains outstanding or any other obligation of Borrower hereunder remains unpaid, Borrower and the Subsidiaries of the Borrowers will not: 5.1 Indebtedness. Issue, create, incur, assume or become liable with respect to (or agree to issue, create, incur, assume or become liable with respect to), or permit to remain outstanding, any Indebtedness, except: (a) Indebtedness under the Note, this Agreement and the other Loan Documents; and (b) Funded Indebtedness permitted under Section 5.4 hereof. 5.2 Liens. Create, incur, assume or suffer to exist, any Lien, or enter into, or make any commitment to enter into, any arrangement for the acquisition of any property through conditional sale, lease-purchase or other title retention agreements with respect to any property now owned or hereafter acquired by the Borrowers (including, without limitation, the other Collateral), except: (a) Liens in favor of the Lender securing Indebtedness now or hereafter owing to the Lender; and (b) Other Liens existing on the Closing Date specifically described in Schedule 10 and/or 11 (and not required to be released as a condition to any Loan Advances; 26 5.3 Loans, Advances, Investments, Joint Ventures, Guaranties and Contingent Liabilities. Except for loans to employees not to exceed $25,000.00 in any single instance or $250,000.00 in the aggregate, make or permit to remain outstanding any loan or advance or extension of credit to any other Person or directly or indirectly guarantee, endorse, be or become contingently liable for or enter into any contract which is, in economic effect, substantially equivalent to a guaranty of the obligations of any other Person or own, purchase or make any commitment to purchase the securities of any corporation or own, purchase or make any commitment to purchase for cash or any consideration, any obligations, other securities, the business or integral part of the business of any other Person or enter into a joint venture or partnership with any other Person, except by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business. 5.4 Funded Indebtedness. Incur, assume, or in any manner become liable in respect of, any Indebtedness for borrowed money other than: (1) the Note; (2) Subordinated Debt with maturities no earlier than the Note; and (3) capitalized leases. 5.5 Leases. Enter into leases, subleases, use or occupancy agreements as a tenant, lessee, subtenant or sublessee or sublessor, licensee or licenser, except with the prior written consent of Lender, which shall not be unreasonably withheld or delayed; no consent shall be required for leases for spaces leased for use only by Borrower's sales representatives and a new leased space for its headquarters. 5.6 Disposition of Assets. Sell, convey, assign, transfer, lease (or enter into any commitment to do so) or otherwise dispose of all or any substantial or material part of its properties or assets or rights, tangible or intangible (whether in one or a series of transactions), except (a) sales to customers in the ordinary course of business for fair and adequate consideration, and (b) the leasing of personal property to any Subsidiary as lessee or sublessee in the ordinary course of business for fair and adequate consideration. Lender has been advised that Borrower's Dorotech Subsidiary is for sale. 5.7 Merger and Consolidation; Charter Documents Capital Stock. Acquire all or substantially all of the assets of any other Person or merge or consolidate or enter into any analogous 27 reorganization or business combination transaction with any other Person without Lender's written consent which consent shall not be unreasonably withheld or dissolve or liquidate its business or corporate or partnership existence, or make public or private offerings of its capital stock in excess of $8 million, or make any material amendment to its articles or certificate of incorporation or by-laws (a copy of any amendment thereof shall, in any event, be promptly delivered to the Lender). 5.8 Transactions With Affiliates. Enter into or carry out any transaction with (including, without limitation, directly or indirectly, purchasing property or services from or selling property or services to or making loans or extensions of credit to) any Affiliate or any Control Person (including any corporation or partnership) of the Borrowers other than in the ordinary course of business. 5.9 Other Business. Engage in any business unrelated to its current or proposed businesses as contemplated herein, engage in any transaction out of the ordinary course of business or engage in any transaction which adversely affects its ability to pay its Obligations hereunder or under the other Loan Documents or Section 5.6. 5.10 Disposal of Collateral. Sell, lease, transfer or otherwise dispose of any of the Collateral to any Person except as expressly permitted in accordance with the terms of the Collateral Security Documents or Section 5.6 hereof. 5.11 Compensation and Plans. Pay or provide any compensation, bonuses or fringe benefits to any of its officers or assume or incur any liability under any employee benefit plans or the Plans not in the reasonable course of business. 5.12 Fiscal Year End. Change its fiscal year end from that in effect as of the Closing Date, without the prior written consent of Lender, which shall not be unreasonably withheld. 5.13 Subsidiaries. Own, acquire or create any Subsidiary other than the Subsidiaries identified in Schedule 4 or a Permitted Subsidiary without the prior written consent of Lender, which shall not be unreasonably withheld. For purposes of this 28 Agreement, a "Permitted Subsidiary" shall mean and include a wholly owned Subsidiary of a Borrower formed following the Closing Date for a legitimate business purpose of Borrowers provided that such Subsidiary agrees in writing to be bound by the terms of this Agreement and the other Loan Documents. 5.14 Other Names. Without fifteen (15) days prior written notice to the Lender conduct its business under any trade or fictitious name other than the duly registered names listed on Schedule 9. 5.15 Restriction on Advances Under Credit Facility. Permit the Indebtedness to the Lender to exceed eighty percent (80%) of eligible accounts receivable net of reserves, established on the books of Borrowers. "Eligible Accounts Receivable" means, on any date of determination, those accounts receivable which are one hundred fifty (150) days past due or less, provided that if forty percent (40%) or more of an accounts receivable debtor's account balance is more than one hundred fifty (150) days past due, then no portion of the accounts receivable from such debtor shall be included in "Eligible Accounts Receivable." For the purposes of this Agreement, Borrowers' Subsidiaries' accounts are deemed ineligible accounts receivable. Section 6. Conditions Precedent. 6.1 Initial Funding. The obligation of the Lender to make the Initial Funding on the Closing Date shall be subject to the satisfaction, on or before the Closing Date, of each and every one of the following conditions with respect to each of the Borrower: (a) The following documents, certificates and opinions, each in form and substance satisfactory to the Lender and its counsel, shall have been delivered to the Lender by the Borrower: (i) the Borrowing Request with respect to the initial Advance to be made hereunder, together with a letter of direction from the Borrower with respect to the disbursement of funds pursuant to the Initial Funding; (ii) the Credit Facility Note payable to the order of the Lender, 29 duly executed by Borrower; (iii) Intentionally deleted (iv) the Collateral Security Agreement and all financing statements, agreements, and other instruments required by the Lender to create, perfect or continue the perfected status of such security interest or otherwise to effectuate the transactions contemplated by the Collateral Security Documents, with respect to which Borrower shall pay the fees or amounts to be paid as recording and filing fees or shall provide evidence reasonably satisfactory to the Lender of arrangements to pay the same; (v) completed requests for information or other evidence satisfactory to the Lender that the financing statements and other instruments delivered to the Lender pursuant to Section 6.1(a)(iv), have been filed in all appropriate filing offices, and that such filed financing statements perfect a security interest in favor of the Lender in the property described therein; (vi) a copy of the resolutions (duly adopted in accordance with the applicable requirements of law and the charter documents and by-laws of such corporation) of the Board of Directors of Borrower authorizing or ratifying the execution, delivery and performance of this Agreement, the Note, the Loan Documents and any other instrument or document hereunder or under any Loan Document to which such Borrower is a party and the transactions contemplated hereby and thereby, certified in each case by the Secretary or an Assistant Secretary of the corporation; (vii) a copy of a certificate signed by the Secretary or an Assistant Secretary of Borrower as to the incumbency and specimen signature of each person authorized to execute and deliver this Agreement, the Note, any of the other Loan Documents and any other instrument or agreement hereunder and under any other Loan Document; (viii) Intentionally deleted. (ix) Intentionally deleted. 30 (x) a copy of the articles or certificate of incorporation of Borrower, as certified as of a recent date by the Secretary of State of its jurisdiction of incorporation and a copy of the certificate of the Secretary, an Assistant Secretary or authorized representative of Borrower certifying to the true and complete copies of its respective articles or certificate of incorporation and bylaws as amended to the Closing Date; (xi) certified copies of all documents evidencing all necessary consents or approvals by governmental authorities or of other Persons or entities with respect to the execution, delivery and performance of this Agreement, the Note, any other Loan Documents and the transactions contemplated hereby and thereby, as listed on Schedule 6 and all other consents and approvals as may be reasonably requested by the Lender; (xii) currently dated long-form certificates of the Secretary of State of the state of incorporation or organization of Borrower and each Subsidiary of a Borrower and of each jurisdiction in which either Borrower or such Subsidiary is qualified to do business, certifying as to the legal existence and good standing, of such Borrower and each such Subsidiary (this contingency may be fulfilled pursuant to Subparagraph 6.2); (xiii) a certificate of the chief executive or chief financial officer of Borrower certifying that (A) immediately prior to the Initial Funding, there has been no material adverse change in the financial condition, business, existing or ongoing operations or properties of the Borrower since the Borrower's last audited financial statement, (B) all representations and warranties set forth in Section 3 hereof are true and correct in all respects on the date of the Closing Date as though made on and as of the date of the Closing Date, (C) all covenants, agreements and obligations to be performed by or on behalf of the Borrower hereunder have been performed, and (D) on the date of Closing Date, after giving effect to the Initial Funding, no Event of Default or Unmatured Event of Default shall have occurred or will exist; (xiv) the written opinion of counsel to the Borrower, addressed to the Lender, as to the matters and to the effect set forth respectively in Exhibit E and F hereto; 31 (xv) certificates of insurance with respect to the insurance referred to in Section 4.5 hereof, naming the Lender as additional named insured; (xvi) all other certificates, orders, authorizations, consents, affidavits, schedules, instruments, security agreements, financing statements, mortgages and other documents which are provided for hereunder in form and substance satisfactory to the Lender, or which the Lender may reasonably request. (b) The following conditions shall exist: (i) the Lender shall have received not later than five (5) Business Days preceding the Closing Date the Borrowing Request with respect to the Initial Funding; (ii) the Lender shall be reasonably satisfied as to the truth and accuracy of each of the matters set forth in the certificate referred to in Section 6.1(a)(xiii); (iii) payment shall have been made to, and received by, the Lender of all expenses of the Lender and by counsel to the Lender of the fees and expenses of counsel to the Lender as provided in Section 8.4 hereof or otherwise in the amounts requested by the Lender to be paid on the Closing Date; it is agreed that the fees for work performed by Lender's counsel in connection with the closing of the Loan shall be paid in the form of 4000 three year warrants of Borrower, exercisable at $3.00 per share; (iv) no litigation or other proceedings by or against Borrower shall have been commenced or threatened which would have a material adverse effect on Borrower or which seeks to prohibit the execution and delivery of this Agreement or any of the other Loan Documents or the transactions contemplated hereby or thereby; (v) no Event of Default or Unmatured Event of Default shall have occurred and be continuing under Section 7 hereof or under the terms of any Indebtedness of Borrower. 6.2 Waiver of Initial Funding Conditions. In the event that any of the conditions contained in Section 6.1 or Section 6.3 hereof, as the case may be, shall not have been satisfied on the Closing 32 Date, the Lender may expressly waive or defer in writing any of said conditions in its sole discretion. Unless otherwise provided in writing, any such waived or deferred conditions must be fulfilled to the Lender's satisfaction within 30 days of the Closing Date, failing which an Event of Default shall be deemed to have occurred. 6.3 Subsequent Loan Advances Under the Credit Facility Commitments and the Term Loan Commitments. After the Closing Date, the obligation of the Lender to make Loan Advances to the Borrower under the Credit Facility Commitments shall be subject to the satisfaction, on or prior to the date of the making of such Advance, of each and every one of the following conditions, in addition to the conditions set forth in Section 6.1 hereof: (a) With respect to each and every Loan Advance prior to the Credit Facility Commitment Termination Date: (i) The Lender shall have received a Borrowing Request in accordance with Section 2.1 hereof; (ii) No Event of Default or Unmatured Event of Default shall have occurred and be continuing or will exist upon making of the requested Loan Advance; (iii) Except as permitted by this Agreement or as otherwise consented to in writing by the Lender prior to the making of the Loan Advance, the representations and warranties contained in Sections 3.1 through 3.24, both inclusive, shall be true and correct in all respects with the same force and effect as if made on and as of the date of the requested Loan Advance except that (i) the representations and warranties contained in Section 3.6 shall pertain to the most recent financial statements furnished by the Borrowers to the Lender pursuant to Section 4.1, and (ii) the representations contained in Section 3.12 shall pertain to said representations and warranties as supplemented by information furnished by the Borrowers to the Lender pursuant to Section 4.9 hereof; (iv) The Lender shall have received a certificate of a Responsible Officer of each Borrower as to the matters set forth 33 in Section 6.1(a)(xiii); (v) The Lender shall have received all additional Collateral Security Documents and instruments satisfactory to the Lender to perfect and continue its security interest in the Collateral, and all taxes and recording or filing fees with respect thereto shall have been paid or provided for by the Borrower; and (vi) The Lender shall have received all other certificates, orders, authorizations, schedules, instruments, financing statements and other documents in form and substance satisfactory to the Lender or which the Lender may reasonably request. Section 7. Events of Default; Remedies. 7.1 Events of Default. "Event of Default" shall mean the occurrence or existence of one or more of the following events, whatever the reason, whether voluntary, involuntary or effected by operation of law, namely: (a) Default in the payment when due, whether by acceleration of maturity or otherwise, of any principal of the Credit Facility Note; or (b) Default in the payment when due, whether by acceleration of maturity or otherwise, of any interest on the Credit Facility Note or of any fee or other sum payable to the Lender under this Agreement or any other Loan Document; or (c) Default by either Borrower in the performance or observance of any agreement, covenant, condition, provision or term contained in Sections 4.2, 5.1, 5.2, 5.3, 5.4, 5.6, 5.7, 5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.14 or 5.15 of this Agreement; or (d) Default by Borrower in the performance of any other agreement, covenant, condition, provision or term contained in this Agreement (other than those set forth above in this Section 7.1) which shall remain unremedied for fifteen days or more; or 34 (e) Any representation or warranty made by (i) Borrower herein, by any Person other than the Lender in any other Loan Document, or in any certificate, schedule, statement, report, notice or writing furnished by or on behalf of Borrower or other Person to the Lender, or (ii) any Subsidiary in any Loan Document or in any certificate, schedule, statement, report, notice or writing furnished by or on behalf of such Subsidiary to the Lender shall be untrue or misleading in any respect on the date as of which the facts set forth are stated or certified; or (f) Any creditor or representative of any creditor of Borrower or a Subsidiary of Borrower shall become entitled to declare any Indebtedness for borrowed money owing on any bond, debenture, note or other evidence of Indebtedness of Borrower or any Subsidiary thereof to be due and payable prior to its expressed maturity, whether or not such Indebtedness is actually declared to be immediately due and payable, or any such Indebtedness becomes due and payable prior to its expressed maturity by reason of any default by Borrower or any Subsidiary thereof in the performance or observance of any obligation or condition and such default shall not be promptly cured or waived, or any such Indebtedness becomes due by its terms and shall not be promptly paid or extended; or (g) Borrower, or any Subsidiary thereof, shall become insolvent or fail generally to pay its debts as they mature or shall apply for, consent to, or acquiesce in the appointment of a trustee, custodian or receiver thereof or the property thereof; or, in the absence of such application, consent or acquiescence, a trustee, custodian or receiver shall be appointed for Borrower, or any Subsidiary of Borrower or for any part of the property of either; or any Borrower, or any Subsidiary of a Borrower, shall make an assignment for the benefit of creditors; or (h) Borrower, or any Subsidiary of a Borrower is voluntarily or involuntarily dissolved or is the subject of any bankruptcy, reorganization, debt arrangement or other proceedings under any bankruptcy or insolvency law; or any dissolution or liquidation proceeding shall be instituted by or against Borrower or any Subsidiary of a Borrower, and, if instituted against Borrower or any Subsidiary shall be consented to or acquiesced in by it, shall not have been dismissed within sixty days or a final order for relief shall have been entered against it; or 35 (i) There shall be entered against Borrower or any Subsidiary thereof one or more judgments or decrees in an aggregate amount as to a Borrower and any Subsidiary at any one time outstanding in excess of $100,000, excluding those judgments or decrees that shall have been satisfied, vacated, discharged, stayed or bonded pending appeal within sixty days from the entry thereof or with respect to which (and to the extent that) the Person against which any such judgment or decree shall have been entered is fully insured (excluding applicable deductibles) and with respect to which the insurer has admitted not denied or disclaimed in writing its liability for the full amount thereof; or (j) Any execution or attachment shall be issued whereby any substantial part of the property of Borrower or any Subsidiary shall be taken or attempted to be taken and the same shall not have been vacated or stayed within sixty days after the issuance thereof; or (k) (i) A reportable event as defined in Section 4043(b), subdivision (4), of ERISA shall have occurred with respect to any Plan and the PBGC shall have determined that said agent constitutes or requires a termination of the Plan under Title IV of ERISA and at any time following thirty days after such determination the insured benefits payable under such Plan exceed the value of the assets of such Plan by more than $50,000.00; or (ii) A reportable event as defined in Section 4043(b), subdivision (5), of ERISA shall have occurred with respect to any Plan or application shall have been filed for a waiver of the failure to meet minimum funding standards under Section gl2 of the Code; or (iii) A reportable event as defined in Section 4043(b), subdivision (6), of ERISA shall have occurred with respect to any Plan; or (iv) Borrower or any of its ERISA Affiliates shall have engaged in any prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of the Code) in connection with which such Borrower or any of its ERISA Affiliates would be subject to either a civil penalty assessed pursuant to either Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, in either case in an amount exceeding $50,000 and either (1) the prohibited 36 transaction shall not have been corrected within the correction period applicable to it under Section 02(i) of ERISA or Section 4975(b) of the Code, or (2) an exemption shall not be applicable or have been obtained under Section 408 of ERISA or Section 4975 of the Code; or (v) The PBGC shall have terminated any Plan under Title IV of ERISA or Borrower shall have received notice from the PBGC of the intention of the PBGC to terminate any Plan or to appoint a Trustee to administer any Plan, which notice shall not have been withdrawn within sixty days of the date thereof; or (vi) The maximum amount of liability that could be asserted against Borrower under Sections 4062, 4063 or 4064 of ERISA with respect to any Plan if such Plan terminated or with respect to any Plan terminated prior to the date hereof, shall exceed the value of the assets of such Plan allocable to such liability by more than $50,000; or (vii) Borrower or any of its ERISA Affiliates as an employer under a Multiemployer Plan, shall have made a complete or partial withdrawal from such Multiemployer Plan and the plan sponsor of such Multiemployer Plan shall have notified such withdrawing employer that such employer has incurred a withdrawal liability in an annual exceeding $100,000; or (l) Borrower or any Subsidiary is enjoined, restrained, or in any way prevented by the order of any court or any administrative or regulatory agency from conducting all or a material part of its business and such order shall not be vacated or stayed within twenty days after the issuance thereof; or (m) Default by Borrower or any Subsidiary in the performance of any agreement, covenant, condition, provision or term contained in any other Loan Document which is not cured within the cure period, if any, in such other Loan Document; or (n) Any Collateral Security Document shall, at any time, cease to be in full force and effect or shall be judicially declared null and void, or the validity or enforceability thereof shall be contested by Borrower or any Subsidiary of a Borrower executing the same, or the Lender shall cease to have a valid and perfected. 37 security interest having the priority contemplated thereunder in all of the Collateral described therein, other than by action or inaction of the Lender; or (o) [Intentionally deleted.] (p) There occurs any uninsured damage to, or loss, theft, or destruction of, any of the Collateral in excess of $100,000.00; or (q) Commencing with the third quarter of 1997, the Borrowers on a consolidated basis shall have had a net operating loss for any fiscal quarter and the Lender shall have given the Borrowers ninety (90) days' notice of his determination to treat such net operating loss as an Event of Default hereunder which notice shall be given not later than one-hundred and fifty (150) days after the end of the applicable quarter provided that Lender receives financials for said quarter as required hereunder, but no later than ninety (90) days from the end of the quarter; or (r) The Borrower shall terminate the employment of James J. Leto, unless Lender shall waive such default. 7.2 Remedies. If (A) any Event of Default under Subparagraphs 7.1(f),(g) or (h) shall occur, the Credit Facility Commitment of the Lender shall automatically terminate and the outstanding principal of the Credit Facility Note and all accrued interest thereon and all other obligations of the Borrower to the Lender under this Agreement, the Credit Facility Note and the other Loan Documents shall automatically become immediately due and payable, or (B) any other Event of Default shall occur (except for a default under Paragraph 7.1(d)) and be continuing after five (5) days written notice to Borrower, then the Lender may: (i) declare by written notice that the Credit Facility Commitment has been terminated, whereupon the Credit Facility Commitment and shall be terminated and (ii) declare the outstanding principal of the Credit Facility Note, the accrued interest thereon and all other obligations of the Borrower to the Lender under this Agreement, the Credit Facility Note and the other Loan Documents, to be forthwith due and payable, whereupon the Credit Facility Note, all accrued interest thereon and all such obligations shall immediately become due and payable, in each case without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything in this Agreement, in 38 the Credit Facility Note or the other Loan Documents to the contrary notwithstanding. In addition, upon the occurrence of an Event of Default, the Lender may enforce any and all rights under any Loan Documents, including, without limitation, the Collateral Security Documents. Upon the occurrence of an Event of Default, the Lender shall have, in addition to any other rights and remedies contained in this Agreement, the Credit Facility Note, or any of the other Loan Documents, all of the rights and remedies of a secured party under the Uniform Commercial Code of Virginia, Delaware and New York, or any other applicable laws, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by law. In addition to all such rights and remedies, the sale, lease or other disposition of the Collateral, or any part thereof, by the Lender after an Event of Default may be for cash, credit or any combination thereof, and the Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price, may set off the amount of such purchase price against the Obligations hereunder and under the other Loan Documents then owing. Any sales of the Collateral may be adjourned from time to time with or without notice. Section 8. Miscellaneous. 8.1 No Waiver. No failure on the part of the Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement, or the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or the other Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 8.2 Accounting. Except as otherwise expressly provided herein or unless the Lender otherwise consents in writing, all financial statements furnished to the Lender under this Agreement, all computations and determinations required to be made pursuant to this Agreement shall be made in accordance with generally accepted accounting principles consistently applied. If any changes in accounting principles consistently applied or in practices from those used in the preparation of the audited 39 financial statements referred to in Section 3.6 hereof are hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or any successor thereto or agencies with similar functions), which results in a change in the method of accounting in the financial statements required to be furnished to the Lender hereunder or in the calculation of financial covenants, standards or terms contained in any Loan Documents, the parties hereto agree to enter into negotiations to amend such provisions so as to reflect equitably such changes to the end that the criteria for evaluating Borrower's financial condition and performance will be the same after such changes as they were before such changes; if the parties fail to agree on the amendment of such provisions, the Borrower will continue to furnish financial statements in accordance with applicable accounting principles and practices in effect immediately prior to the Closing Date and to perform all financial covenants and observe all financial standards and terms in accordance with applicable accounting principles and practices in effect immediately prior to such changes. 8.3 Notices. Except as otherwise specifically provided for herein, all notices and other communications provided for herein shall be in writing and faxed (with telephonic confirmation of receipt), sent by Federal Express or comparable overnight delivery service, mailed by registered or certified mail, postage prepaid, return receipt requested or delivered to the intended recipient at the "Address for Notices" specified below or on the signature pages hereof, as provided in this Section 8.3; or, as to any party, at such other address as shall be designated in writing by such party in a notice to the other parties: (i) if to the Lender: 69 Spring Street Ramsey, New Jersey 07446 Fax No.: (201) 934-3617 Telephone No.: (201) 934-3750 Copy to: Susan G. Kaufman, Esq. 69 Spring Street Ramsey, New Jersey 07446 40 Fax No: (201) 934-3617 Telephone No.: (201) 934-3626 (ii) if to the Borrower: Network Imaging Corp. 500 Huntmar Park Drive Herndon, VA 20170-5100 Fax No. 703-478-0147 Tele No. 703-478-2260 Attention: Chief Financial Officer with copies to: Julia A. Bowen, Esq. Network Imaging Corporation 500 Huntmar Park Drive Herndon, Virginia 20170 Telephone : (703) 904-3109 Fax: (703) 478-0147 or at such other address, fax or telephone number as either of the Borrowers or the Lender may hereafter specify in writing for such purpose in a notice to the other specifically captioned "Notice of Change of Address", and be effective or deemed delivered or furnished (i) if given by mail, on the third Business Day after such communication is deposited in the mail, addressed as above provided, (ii) if given by fax, when such communication is transmitted to the appropriate number determined as above provided in this Section 8.3 or on the signature pages hereof and the appropriate answer-back is received or receipt is otherwise acknowledged, (iii) if given by overnight delivery service, one Business Day following delivery thereof to an authorized representative of such service addressed as above provided, and (iv) if delivered personally, when so delivered to the Person or to the holder of the office specified as the Person or office holder to whose attention communications are to be given, except that notice of a change of address, telex, telecopier or telephone number, and notices to the Lender under Sections 2 and 7 hereof, shall not be effective, and materials furnished to the Lender pursuant to the terms hereof shall not be deemed furnished, until received, and, in the case of the Lender, such notices, pursuant to Sections 2 and 7 hereof, shall not be deemed received until physically received by the Lender. 41 8.4 Expenses; Taxes; Attorneys' Fees; etc. Borrower agrees to pay or cause to be paid and to save the Lender harmless against liability for the payment of all out-of-pocket expenses, including, but not limited to, reasonable fees and expenses of counsel for the Lender incurred from time to time, (a) arising in connection with the preparation, execution, delivery and performance of this Agreement, the other Loan Documents and any other documents, instruments or transactions pursuant to or in connection herewith or therewith, whether incurred by the Lender before or after the Closing Date, (b) reasonable fees and expenses relating to any requested amendments, waivers or consents to this Agreement, the other Loan Documents or any other such documents, instruments or transactions, (c) fees and expenses arising in connection with the Lender's enforcement or preservation of rights under this Agreement or the other Loan Documents or any other such documents or instruments, including, but not limited to, such expenses as may be incurred by the Lender in the collection of the outstanding Credit Facility Note. The Borrower agrees to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter reasonably determined by the Lender to be payable in connection with this Agreement, the other Loan Documents or any other documents, instruments or transactions pursuant to or in connection herewith or therewith, and the Borrower agrees to save the Lender harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying such taxes, fees or impositions. All such expenses, taxes or attorneys' fees shall be payable to the Lender on thirty (30) days notice to Borrower. 8.5 Indemnification. (a) In consideration of the Credit Facility Commitment, the Borrower (provided that so long as the Borrower has undertaken and is pursuing the defense of any such action, suit or proceeding as hereinabove provided, all counsel fees and expenses incurred by Lender or such other Person in connection therewith shall be borne by Lender and Borrower shall have no obligation hereunder to reimburse Lender therefor) agree, to indemnify and defend the Lender, his agents or employees, from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, deficiencies, interest, judgments, costs or expenses incurred by them or any of them arising out of or by reason of any investigation, litigation or other proceeding brought or threatened, arising out of or by reason of their execution of any Loan Documents and the transactions contemplated hereby and thereby, including, but not limited to, any use 42 effected or proposed to be effected by either Borrower or any Subsidiary of a Borrower of the proceeds of the Loan Advances, but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Lender and its officers, agents and employees, including, but without limitation, amounts paid in settlement, court costs, and reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding. The Lender shall notify Borrower promptly (and in any event, within ten (10) Business Days) of its receipt of any claim by a third party of any matter as to which indemnification is sought under this Section 8.5. The Borrowers shall have the right to defend, compromise or settle any such action, suit or proceeding with counsel of its choosing reasonably acceptable to Lender. (b) All obligations of the Borrower under this Section 8.5 shall survive any termination of this Agreement or repayment of all Obligations. (c) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in clause (a) above is for any reason held to be unenforceable against the Borrower, or is otherwise unavailable, the Borrower and the Lender agrees to contribute to the aggregate losses, claims, judgments, costs, damages and liabilities (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Borrower from Persons other than the Lender who may also be liable for contribution, the Borrower hereby agree to seek contribution from such Persons) to which the Borrower and the Lender may be subject in such proportion as reflects not only the relative fault of the Borrower and the Lender, but also any relevant equitable considerations. In addition, the Borrower agree to reimburse the Lender and each other Person specified above in this clause (c) for all expenses (including reasonable legal fees) as they are incurred by the Lender or any such other Person in connection with Lender investigating, preparing or defending any such action or claim, whether or not in connection with pending or threatened litigation in which the Lender or any such other Person is a party; provided that so long as the Borrower has undertaken and is pursuing the defense of any such action, suit or proceeding as hereinabove provided, all counsel fees and expenses incurred by Lender or such other person in connection therewith shall be borne by Lender and Borrower shall have no obligation hereunder 43 to reimburse Lender therefor. The indemnity, contribution and expense reimbursement obligations the Borrower has under this Section 8.5 shall be in addition to any liability the Borrower may otherwise have hereunder. For purposes of this clause (c), each Person, if any, who is an agent or employee of the Lender shall have the same rights to contribution as the Lender. 8.6 Amendments, etc. Any provision of this Agreement may be amended, modified or waived only by an instrument or instruments in writing signed by the Borrower and the Lender, and any consent of the Lender hereunder must be in a writing signed by the Lender. 8.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and endorsees except that Borrowers may not assign its rights or obligations hereunder or under the Credit Facility Note. Lender shall have the right to assign his obligations under this Agreement to a corporation, which may be a limited liability company, provided Lender shall guarantee such successor's obligations to make the advances hereunder. 8.8 Marshalling; Payments Set Aside. The Lender shall be under no obligation to marshall any assets in favor of the Borrower or any other Person or against or in payment of the Credit Facility Note. To the extent that Borrower make a payment or payments to the Lender or the Lender enforces its security interests or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy, insolvency or similar law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 8.9 Set-Off. In addition to any rights and remedies of the Lender provided by law, the Lender shall have the right, without prior notice to Borrower, any such notice being expressly waived by Borrower, upon the filing of a petition under any of the provisions of the federal bankruptcy act or amendments thereto, 44 by or against, or the occurrence of an Event of Default with respect to, the making of an assignment for the benefit of creditors by, the application for the appointment, or the appointment, of any receiver of, or of any of the property of, the issuance of any execution against any of the property of, the issuance of a subpoena or order, in supplementary proceedings, against or with respect to any of the property of, or the issuance of a warrant of attachment against the property of Borrower, to set-off and apply against any Indebtedness, whether matured or unmatured, of the Borrower to the Lender, any amount owing from the Lender to the Borrower, at or at any time after, the happening of any of the above-mentioned events, and the aforesaid right of set-off may be exercised by the Lender against the Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receivers, or execution, judgment or attachment creditor of the Borrower, or against anyone else claiming through or against, the Borrower or such trustee in Bankruptcy, debtor in possession, assignee for the benefit of creditors, receivers, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by the Lender prior to the making, filing or issuance, or service upon the Lender of, or of notice of, any such petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant. The Lender agrees promptly to notify the Borrower, after any such set-off and application made by the Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. 8. 10 SUBMISSION TO JURISDICTION; WAIVER OF JURY AND BOND. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF ESSEX, STATE OF NEW JERSEY, AND IRREVOCABLY AGREES THAT SUBJECT TO THE LENDER'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS AND EACH BORROWER WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED TO IT AT THE ADDRESS SET FORTH IN SECTION 8.3 HEREOF OR ON THE SIGNATURE PAGES HEREOF AND THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO THE BORROWER'S ADDRESS BY THE BORROWER'S AGENT AS SET FORTH BELOW. BORROWER HEREBY IRREVOCABLY APPOINTS NETWORK IMAGING 45 CORPORATION'S GENERAL COUNSEL OR SUCH OTHER PERSON AS THE BORROWER REASONABLY SELECT FOLLOWING WRITTEN NOTICE TO THE LENDER (OR IN THE EVENT THE BORROWERS FAIL TO SELECT A REPLACEMENT AGENT WITHIN TEN (10) DAYS OF THE DATE OF SUCH NOTICE SUCH AGENT AS THE LENDER SHALL SELECT), AS ITS AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OR ANY PROCESS WITHIN THE STATE OF NEW YORK. ALL OF THE PARTIES HERETO ACKNOWLEDGE THAT THE EXPENSES AND TIME REQUIRED FOR A TRIAL BY JURY EXCEED THE EXPENSES AND TIME REQUIRED FOR A BENCH TRIAL AND THEREFORE, THE PARTIES HERETO WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY, AND WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE LENDER. NOTHING CONTAINED IN THIS SECTION 8 SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST EITHER BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. 8.11 Section Titles. The section titles contained in this Agreement shall be without substantive meaning or content of any kind whatsoever and shall not govern the interpretation of any of the provisions of this Agreement. 8.12 Continuing Effect. This Agreement, the Lender's security interests in the Collateral and each other Loan Document shall continue in full force and effect as long as any Indebtedness hereunder shall be owed to the Lender, and (even if there shall be no Indebtedness outstanding) so long as the Credit Facility Commitment shall not have expired or been terminated. 8.13 Reliance by the Lender. All covenants, agreements, representations and warranties made herein and in any other Loan Document by Borrower shall, notwithstanding any investigation by the Lender, be deemed to be material to and to have been relied upon by the Lender and shall survive the execution and delivery of this Agreement. 8.14 Survival. The obligations of the Borrower under Sections 8.4, 8.5 and 8.7 shall survive the repayment of the Credit Facility or the Term Note, as the case may be, and the termination of the Credit Facility Commitment. 8.15 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one 46 and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 8.16 Governing Law and Construction. This Agreement, the Note and each other Loan Document shall be governed by, and construed in accordance with, the laws of New Jersey. Whenever possible, each provision of this Agreement, the Note and each other Loan Document and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective and valid under such applicable law, but, if any provision of this Agreement, the Note or each other Loan Document or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited or invalid under such applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement, the Note and each other Loan Document or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto. The parties shall endeavor in good-faith negotiations to replace any invalid, illegal or unenforceable provisions with a valid provision the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provision. In the event of any conflict within, between or among the provisions of this Agreement, the Note or any other Loan Document or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto, the provisions giving the Lender the greater right shall govern. 8.17 Equitable Relief. Borrower recognizes that, in the event Borrower fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy at law may prove to be inadequate relief to the Lender and, accordingly, each Borrower agrees that each of the Lender, if the Lender so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving irreparable damages. 8.18 Entire Agreement This Agreement, including all exhibits and other documents attached hereto or incorporated by reference herein, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other understandings, oral or written, with respect thereto. 47 8.19 Further Assurances. Borrower agrees to do such further acts and things and to execute and deliver to the Lender such additional assignments, agreements, powers and instruments, as the Lender may reasonably require or deem advisable to carry into effect the purposes of this Agreement or to better assure and confirm unto the Lender its rights, powers and remedies hereunder. 8.20 Highest Lawful Rate. Anything herein to the contrary notwithstanding, the obligations of the Borrower on the Note payable to the Lender shall be subject to the limitation that payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent that contracting for or receipt thereof would be contrary to provisions of any law applicable to the Lender limiting the highest rate of interest which be lawfully contracted for, charged or received by the Lender. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. - ------------------------------ FRED KASSNER Address for Notices: 69 Spring Street Ramsey, New Jersey 07446 Fax No.: (201) 934-3617 Telephone No. (201) 934-3750 Attention: Fred Kassner with copies to: Susan G. Kaufman, Esq. 69 Spring Street Ramsey, New Jersey 07446 Telephone No. (201) 934-3626 48 /s/ Fred Kassner - ------------------------------ FRED KASSNER Address for Notices: 69 Spring Street Ramsey, New Jersey 07446 Fax No.: (201) 934-3617 Telephone No. (201) 934-3750 Attention: Fred Kassner with copies to: Susan G. Kaufman, Esq. 69 Spring Street Ramsey, New Jersey 07446 - Telephone No. (201) 934-3626 NETWORK IMAGING CORPORATION By: /s/ [illegible] - ------------------------------ Name: Title: Address for Notices: 500 Huntmar Park Drive Herndon VA 20170-5100 Telephone No. (703) 478-2660 Fax No. (703) 478-0147 Attention: Jorge R. Forgues with copies to: Julia A. Bowen, Esq. 500 Huntmar Drive Herndon, VA 20170-5100 49 EX-11 7 STATEMENT OF COMPUTATION OF EARNINGS NETWORK IMAGING CORPORATION AND SUBSIDIARIES Exhibit 11 COMPUTATION OF EARNINGS PER SHARE In thousands, except share amounts
Years ended December 31, 1996 1995 1994 ---------------- --------------- ------------- PRIMARY: Net loss $ (21,071) $ (34,896) $ (44,121) ================ =============== ============= Shares: Weighted average shares outstanding 20,681,694 14,502,399 12,391,225 Net common stock equivalents from stock purchases warrants and stock options 1/ 1/ 1/ ---------------- --------------- ------------- Weighted average shares outstanding, as adjusted 20,681,694 14,502,399 12,391,225 ---------------- --------------- ------------- Loss per share - primary 1/ $ (1.02) $ (2.41) $ (3.56) ================ =============== ============= FULLY DILUTED: Net loss $ (21,071) $ (34,896) $ (44,121) ================ =============== ============= Shares: Weighted average shares outstanding 20,681,694 14,502,399 12,391,225 Net common stock equivalents from stock purchases warrants and stock options 1/ 1/ 1/ Conversion of Convertible Preferred Stock and Redeemable Preferred Stock 1/ 1/ 1/ ---------------- --------------- ------------- Weighted average shares outstanding, as adjusted 20,681,694 14,502,399 12,391,225 ---------------- --------------- ------------- Loss per share - fully diluted 1/ $ (1.02) $ (2.41) $ (3.56) ================ =============== =============
1/ Net loss per share computed excluding common stock equivalents which are considered anti-dilutive. EX-21 8 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 Dorotech, S.A. EX-27 9 FDS --
5 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 7,601 0 16,077 (855) 1,503 24,455 8,566 (5,679) 36,524 14,816 0 9,857 0 2 11,717 36,524 39,477 39,477 24,374 24,374 32,821 0 (309) (17,409) (68) (17,341) 0 0 0 (21,071) (1.02) 0
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