NETWORK IMAGING CORPORATION
8.0% Convertible Note
$100,000
due July 8, 2002
This Note, dated as of July 9, 1997, is executed by and between Network
Imaging Corporation, a Delaware corporation (the "Company") and Wood Gundy in
trust for RRSP 550 98866 19 (the "Holder"). The Convertible Debentures will not
be registered under the Securities Act of 1933, as amended.
THE COMMON STOCK UNDERLYING THE CONVERTIBLE DEBENTURES WILL BE OFFERED
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE COMMON STOCK IS
RESTRICTED AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S.
PERSONS, AS THAT TERM IS DEFINED BY REGULATION S, UNLESS THE COMMON STOCK IS
REGISTERED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR UNLESS
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS ARE AVAILABLE AND
THE COMPANY IS PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS
IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.
1. Interest.
The Company promises to pay interest of the principal amount of this
Security at the rate of 8.0% per annum. To the extent it is lawful, the Company
promises to pay interest on any interest payment due but unpaid on such
principal amount at a rate of 8.0% per annum compounded semi-annually.
The Company, at its option, shall pay interest in either cash or Common
Stock issued at the lower of either the Conversion Price or the Redemption
Price, as those terms are herein defined.
2. Method of Payment.
The Company shall pay interest, at its sole option, either in cash or
Common Stock on the Convertible Debentures at such time as it receives a notice
to convert or redeem the Convertible Debentures. The Holder must surrender
Convertible Debentures to the Company to collect principal payments.
3. Registrar and Paying Agent.
American Stock Transfer & Trust Company will act as Registrar. The
Company will act as Paying Agent. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holder. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Conversion.
After a period of forty-five (45) days from the date of execution of
this Note up to the date fixed for redemption, the Holder has the right to
convert the Convertible Debentures into Network Imaging Common Stock (the
"Common Stock") at a conversion rate equal to $1.875 (the market price per share
on the date of execution of this Note) (the "Conversion Price"). Until such time
as the Common Stock underlying the Convertible Debentures has been registered,
Holder understands and agrees that any such Common Stock issued to Holder shall
be restricted stock and may not be sold unless and pursuant to an exemption from
the Securities Act of 1933, as amended.
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5. Redemption.
The Convertible Debentures will not be subject to redemption prior to
October 30, 1997.
Redemption by the Holder. On or after October 30, 1997, the Holder
shall have the right to redeem the Convertible Debentures by notifying the
Company. Within one business day of such notification, the Company, at its sole
option, may elect to: (1) redeem the Convertible Debentures at face value plus
accrued interest, or (2) issue Common Stock at a rate equal to ninety percent
(90%) of the previous five trading days average closing bid price on the NASDAQ
National Market System (or the primary exchange where shares are traded) ending
the day prior to the notice date plus any accrued interest. If the Company
elects to issue Common Stock, such shares issued to Holder shall be either
issued pursuant to an exemption under the U.S. Federal securities laws or with
registered and freely tradeable shares.
The Company agrees that upon the first redemption by Holder, the
Company shall instruct Holder as to its method of redemption and such method of
redemption shall continue to be effective upon each subsequent redemption by
Holder until Holder is notified otherwise.
Redemption by the Company. On or after October 30, 1997, and upon
thirty (30) days advance notice to the Holder, the Company shall have the right
to redeem the Convertible Debentures. Within thirty days of such notification,
the Holder may elect to: (1) redeem the Convertible Debentures for cash at face
value plus accrued interest, or (2) have the Company issue Common Stock at a
rate equal to ninety percent (90%) of the previous five trading days average
closing bid price on the NASDAQ National Market System ending the day prior to
the notice date plus any accrued interest. In accordance with the election of
the Holder, the Company has ten days after receipt of the Holder's election to
either make the payment as described herein or deliver the Common Stock to the
Holder.
6. Notice of Redemption.
To effect a redemption, notice shall be sent by facsimile or
forty-eight hour courier to the Holder of each Security to be redeemed at such
Holder's last address as then shown upon the registry books of the Registrar or
to the Company is redeemed by the Holder .
7. Persons Deemed Owners.
The registered Holder of a Security may be treated as the owner of it
for all purposes.
8. Agreement to File Registration Statement to Register the Common Stock.
If the Company determines that it cannot issue shares pursuant to an
exemption under the U.S. Federal securities laws, then it shall undertake to
file within thirty (30) days, a registration statement on the appropriate form
with the U.S. Securities and Exchange Commission to register the Common Stock no
earlier than sixty (60) days after the execution of this Note. The Company
further agrees that it shall use its best efforts to have such registration
statement declared effective within one hundred twenty (120) days of its initial
filing with the U.S. Securities and Exchange Commission.
9. Warrants.
A five-year warrant (the "Warrant") to purchase 20,000 shares of Common
Stock at $1.875 per share (the "Warrant Shares") for each million dollars of
debt shall be issued to each Holder. The Warrants shall be substantially in the
form of Exhibit D hereto.
It is understood and agreed that the Warrants and the Warrant Shares
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have not been registered under the Act, and that the Warrants may not be
exercised by or on behalf of any U.S. Person unless the Warrant Shares have been
registered under the Act and any applicable state securities law in the United
States or exemptions from such registration are available. It is a condition to
the exercise of the Warrants that (a) any Warrant Shares issuable upon such
exercise will not be delivered within the United States except in circumstances
constituting an "offshore transaction" (as defined in Rule 902(i) of Regulation
S under the Act) or unless such shares have been registered under the Act or an
exemption from registration is available, and (b) the holder exercising the
Warrants must deliver to the Company (i) a written certification, attached
hereto as Exhibit E, that such holder is not a U.S. Person and (ii) if requested
by the Company, a written opinion of counsel, acceptable in form and substance
to the Company's counsel, to the effect that the Warrants and the Warrant Shares
issuable upon the exercise thereof have been registered under the Act and any
applicable state securities law in the United States or are exempt from
registration thereunder.
10. Subordination to Senior Indebtedness on Collateral.
Payment of principal, premium, if any, and interest on the Convertible
Debentures is subordinated to the prior payment in full of all senior
indebtedness. For purposes of this Note, senior indebtedness, and such senior
indebtedness is held by Xxxx X. Xxxxxxx who holds a line of credit with the
Company, has a first ranking pledge, up to five million dollars plus interest,
on the now owned or hereafter acquired accounts receivable, inventory, and the
intellectual property of the 1 View software products and a second ranking
pledge on the stock of Dorotech, S.A. Holders of the 8% Convertible Note shall
be secured with a second ranking pledge, up to three million dollars plus
interest, on the now owned or hereafter acquired accounts receivable, inventory
and the intellectual property of the 1 View software and a third ranking pledge
on the stock of Dorotech, S.A.
The Company agrees that it shall file within thirty (30) days of the
date of execution of this Note any and all appropriate security liens on the
collateral described in the paragraph above, including financing statements
pursuant to the Uniform Commercial Code that shall be filed in the state of
Virginia to secure the interests of the Holder in the collateral.
11. Repurchase at Option of Holder Upon a Change of Control.
If there is a Change of Control, the Company shall be required to offer
to purchase on the Repurchase Date all outstanding Convertible Debentures at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Repurchase Date. Holders of the Convertible
Debentures will receive a Repurchase Offer from the Company prior to any related
Repurchase Date and may elect to have such Convertible Debentures purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below.
12. Successors.
When a successor assumes all the obligations of its predecessor under
the Convertible Debentures, the predecessor will be released form those
obligations (except with respect to any obligations that arise from or as a
result of such transaction).
13 Defaults and Remedies.
If an event of default occurs and is continuing other than an event of
default relating to certain events of bankruptcy, insolvency or reorganization,
then in every case, unless the principal of all of the Convertible Debentures
shall have already become due and payable, the Holders of 25% in aggregate
principal amount of Convertible Debentures then outstanding may declare all the
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Convertible Debentures to be due and payable immediately.
14. No Recourse Against Others.
No director or indirect partner, employee, stockholder or officers, as
such, past, present or future, of the Company or any successor corporation or
any Subsidiary or any of the Company's Affiliates shall have any personal
liability in respect of the obligations of the Company under the Convertible
Debentures by reason of his, her or its status as such partner, stockholders,
director, officer or employee. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Convertible Debentures.
15. Use of Proceeds.
Network Imaging agrees that the use of proceeds under this Convertible
Note shall only be used for operational purposes and shall not be used to make
any dividend payments to the Series A Preferred shareholders nor to make
payments to CDRE pursuant to the re-purchase of the Series F Preferred stock.
16. Right of First Refusal on Future Regulation S Offerings.
In the event that Network Imaging shall propose a Regulation S
transaction in the future, until such time as all of Debentures described herein
have been converted, Network Imaging shall not conduct such an offering without
first offering the transaction to the Holder who shall have five (5) days to
elect to proceed with such a transaction.
17. The Holder represents and warrants that he is neither a citizen nor a
resident of the United States, and if the Holder is a corporation or a
partnership, the corporation or partnership is not organized or incorporated
under the laws of the United States.
Signatures
IN WITNESS WHEREOF, the parties hereto have cause this Note to be duly executed
as of this 9th day of July 1997.
Network Imaging Corporation
By:
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Name:
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Title:
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Holder:
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Xxxx Shoom
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Convertible Debenture purchased by
the Company, check the box:
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If you want to elect to have only part of this Convertible Debenture
purchased by the Company, state the amount you want to be purchased:
$ -----------------
Date: Signature:
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[FORM OF] ASSIGNMENT
I or we assign this Security to
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(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of the assignee
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and irrevocably appoint agent to transfer this Security on the books
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of the Company. The agent may substitute another to act for him.
Date: Signed:
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(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee. *
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*Participant in a recognized Signature Guarantee Medallion Program (or other
signature acceptable to the Trustee).
EXHIBIT B
FORM OF CONVERSION NOTICE
To: Network Imaging Corporation
$100,000
8.0% Convertible Subordinated Notes due July 8, 2002
The undersigned owner of this Convertible Debenture hereby:
(i) irrevocably exercises the option to convert this Debenture, or the portion
hereof below designated, for shares of Common Stock of Network Imaging
Corporation in accordance with the terms of this Convertible Debenture and (ii)
directs that such shares of Common Stock deliverable upon the conversion, be
issued and delivered tot he registered holder hereof unless a different name has
been indicated below. If shares are to be delivered registered in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Convertible Debenture.
Dated
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Signature
Fill in for registration of shares if to be delivered, and
of Convertible Debentures if to be issued, otherwise
than to and in the name of the registered holder.
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Social Security or other
Taxpayer Identifying Number
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(Name)
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(Street Address)
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(City, State and Zip Code)
(Please print name and address)
Principal amount to be converted: (if less than all)
$ --------------------------------------
Signature Guarantee.*
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*Participant in a recognized Signature Guarantee Medallion Program
EXHIBIT C
FORM OF REDEMPTION NOTICE
To: Network Imaging Corporation
$100,000
8.0% Convertible Subordinated Notes due July 8, 2002
The undersigned owner of this Convertible Debenture hereby:
(i) irrevocably exercises the option to redeem this Debenture, or the portion
hereof below designated, for shares of Common Stock of Network Imaging
Corporation in accordance with the terms of this Convertible Debenture and (ii)
directs that such shares of Common Stock deliverable upon the conversion, be
issued and delivered tot he registered holder hereof unless a different name has
been indicated below. If shares are to be delivered registered in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Convertible Debenture.
Dated
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Signature
Fill in for registration of shares if to be delivered, and
of Convertible Debentures if to be issued, otherwise
than to and in the name of the registered holder.
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Social Security or other
Taxpayer Identifying Number
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(Name)
-------------------------------
(Street Address)
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(City, State and Zip Code)
(Please print name and address)
Principal amount to be converted: (if less than all)
$ --------------------------------------
Signature Guarantee.*
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*Participant in a recognized Signature Guarantee Medallion Program
EXHIBIT E
WRITTEN CERTIFICATION FROM HOLDER
Holder, hereby certifies to Network Imaging that the Common Stock
underlying the Convertible Debentures and/or the Warrants issued to Holder,
pursuant to a sale, an offer for sale or a transfer have not been sold, offered
for sale or transferred to a "U.S. Person" as that term is defined under United
States Federal securities laws and/or any state securities laws that may be
application to the transaction.
I hereby certify to the accuracy of the statements made herein.
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Holder
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Date
SCHEDULE TO 8.0% Convertible Note
$100,000
due July 8, 2002
The following Notes were issued pursuant to the transaction related to
Convertible debt in the amount of $1,800,000:
(a) ten (10) Notes were issued, each in the amount of $100,000, to Wood Gundy
in trust for RRSP 000 0000000; and
(b) eight (8) Notes were issued, each in the amount of $100,000, to Gundyco
in trust for RRSP 550 99119 12.
