As filed with the Securities and Exchange Commission on September 9, 1996
Registration No. 333-05285
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
Amendment No. 1
to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Access Solutions International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 3572 05-0426298
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization)
650 Ten Rod Road, North Kingstown, Rhode Island 02852 (401) 295-2691
(Address and telephone number of principal executive offices)
(Address of principal place of business or intended principal place of business)
------------------
CHRISTINE M. MARX, Esq.
Edwards & Angell
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
(201) 376-7700
(Name, address and telephone number of agent for service)
------------------
Please address a copy of all communications to:
RUBI FINKELSTEIN, Esq.
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
(212) 506-5000
------------------
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
------------------
The registrant hereby amends this Registration Statement on such date as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 9, 1996
PROSPECTUS
ACCESS SOLUTIONS INTERNATIONAL, INC.
1,066,667 UNITS
EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK
AND
ONE REDEEMABLE WARRANT
This Prospectus relates to an offering (the "Offering") of 1,066,667 Units
(the "Units"), each Unit consisting of two shares of common stock, $.01 par
value per share ("Common Stock"), and one redeemable common stock purchase
warrant ("Redeemable Warrant") of Access Solutions International, Inc., a
Delaware corporation (the "Company"). The shares of Common Stock and Redeemable
Warrants comprising the Units are separately tradable commencing upon issuance.
Each Redeemable Warrant entitles the registered holder thereof to purchase one
share of Common Stock at an initial exercise price of $ ______ [66 2/3% of the
initial public offering price per Unit], subject to adjustment, at any time from
issuance until ___________________, 2001 [60 months after the date of this
Prospectus]. The Company shall have the right to redeem all, but not less than
all, of the Redeemable Warrants, commencing ____________ , 1997 [12 months after
the date of this Prospectus] at a price of $.05 per Redeemable Warrant on 30
days' prior written notice, provided that the Company shall have obtained the
consent of Joseph Stevens & Company, L.P. (the "Underwriter"), and the average
closing bid price of the Common Stock equals or exceeds 150% of the then
exercise price per share, subject to adjustment, for any 20 trading days within
a period of 30 consecutive trading days ending on the fifth trading day prior to
the date of the notice of redemption. See "Description of Securities --
Redeemable Warrants."
Prior to the Offering, there has been no public market for the Units,
the Common Stock or the Redeemable Warrants, and there can be no assurance that
such a market will develop after the completion of the Offering or, if
developed, that it will be sustained. It is currently anticipated that the
initial public offering price will be $7.50 per Unit. The offering price of the
Units and the exercise price and other terms of the Redeemable Warrants were
determined by negotiation between the Company and the Underwriter and are not
necessarily related to the Company's asset or book values, results of operations
or any other established criteria of value.
(continued on the following page)
<PAGE>
See "Risk Factors," "Description of Securities" and "Underwriting." The Company
has applied to include the Units, the Common Stock and the Redeemable Warrants
on the Nasdaq SmallCap Market ("Nasdaq") under the symbols "ASICU," "ASIC" and
"ASICW," respectively. The Company and the Underwriter may jointly determine,
based upon market conditions, to delist the Units upon the expiration of the
30-day period commencing on the date of this Prospectus.
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" LOCATED ON
PAGE 10 AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATES SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ----------- ---------------- --------------------------- -----------------------
Price to Public Underwriting Discounts (1) Proceeds to Company (2)
- ----------- ---------------- --------------------------- -----------------------
Per Unit $ $ $
- ----------- ---------------- --------------------------- -----------------------
Total (3) $ $ $
- ----------- ---------------- --------------------------- -----------------------
(1) Does not include additional compensation payable to the Underwriter in the
form of a non-accountable expense allowance. In addition, see
"Underwriting" for information concerning indemnification and contribution
arrangements, and other compensation payable to the Underwriter.
(2) Before deducting estimated expenses of $900,000 payable by the Company,
including the Underwriter's non-accountable expense allowance.
(3) The Company has granted to the Underwriter an option (the "Over-Allotment
Option"), exercisable for a period of 45 days after the date of this
Prospectus, to purchase up to 160,000 additional Units upon the same terms
and conditions set forth above, solely to cover over-allotments, if any. If
the Over-Allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Proceeds to Company will be $__________,
$___________ and $__________, respectively. See "Underwriting."
The Units are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify the
Offering and to reject any order in whole or in part. It is expected that
delivery of the Units offered hereby will be made against payment, at the
offices of' Joseph Stevens & Company, L.P., New York, New York, on or about
________________, 1996.
JOSEPH STEVENS & COMPANY, L.P.
The date of this Prospectus is ______________, 1996.
2
<PAGE>
(continued from cover page)
This Prospectus also relates to 750,000 Redeemable Warrants (the
"Selling Securityholder Warrants") and 750,000 shares of Common Stock (the
"Selling Securityholder Shares") issuable upon exercise of the Selling
Securityholder Warrants. The Selling Securityholder Warrants will be issued at
the consummation of the Offering to certain security holders (the "Selling
Securityholders") upon the automatic conversion of certain warrants (the "Bridge
Warrants") issued to the Selling Securityholders in a private financing
consummated in May 1996 (the "Bridge Financing"). Neither the Selling
Securityholder Warrants nor the Selling Securityholder Shares may be sold for a
period of eighteen (18) months from the effective date of the Registration
Statement without the prior written consent of the Underwriter. The Selling
Securityholder Warrants and the Selling Securityholder Shares are not being
underwritten in the Offering. The Company will not receive any proceeds from the
sale of the Selling Securityholder Warrants or the Selling Securityholder Shares
by the holders thereof, although the Company will receive proceeds from the
exercise, if any, of the Selling Securityholder Warrants. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "The Company -- Recent Bridge Financing" and
"Selling Securityholders."
In addition, this Prospectus relates to 100,000 shares of Common Stock
beneficially owned by adult children of the Company's former President and Chief
Executive Officer (the "Selling Shareholders"). The shares of Common Stock held
by the Selling Shareholders are not being underwritten in the Offering. The
shares of Common Stock held by the Selling Shareholders may not be sold for a
period of eighteen (18) months from the effective date of the Registration
Statement without the prior written consent of the Underwriter. The Company will
not receive any proceeds from the sale of the Common Stock held by the Selling
Shareholders. The expenses of the concurrent offering by the Selling
Securityholders and the Selling Shareholders (collectively referred to herein as
the "Holders") will be paid by the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Selling Securityholders."
3
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALL CAP MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. In January 1996, the Company effected a one-to-74
reverse stock split (the "reverse stock split") of the Company's Common Stock.
Except as otherwise noted, all information in this Prospectus: (i) gives effect
to the reverse stock split; (ii) assumes no exercise of the Underwriter's
over-allotment option; (iii) assumes no exercise of the Bridge Warrants; (iv)
assumes no exercise of the Redeemable Warrants included in the Units; (v)
assumes no exercise of the Redeemable Warrants to be exchanged at the
consummation of the Offering for the Bridge Warrants; and (vi) assumes no
exercise of the Underwriter's Warrants. Investors should carefully consider the
information set forth under the heading "Risk Factors."
The Company
Access Solutions International, Inc. (the "Company") develops, assembles,
sells and services optical data storage systems consisting of integrated
computer hardware and software for the archival storage and retrieval of massive
quantities of computer-generated information. The Company believes that its
proprietary computer output to laser disk ("COLD") data storage systems provide
a faster, more reliable and more economical method of storing vast quantities of
computer-generated data than is generally available from other COLD systems or
from traditional data storage methods. The Company's optical data storage
systems, which are marketed under the brand names OAS and GIGAPAGE, are sold
principally to large organizations that need to store and retrieve large
quantities of computer-generated data. Currently, COLD systems developed and
manufactured by the Company are used by companies such as Pershing Securities, a
division of Donaldson Lufkin & Jenrette Inc., Securities Industry Automation
Corporation, Prudential Securities Incorporated, Bank of Boston and Nationwide
Mutual Insurance Company.
The Company's optical data storage systems consist of both hardware and
software products. The hardware component of the systems is the Optical
Archiving System ("OAS") which consists of an optical disk robotic autochanger
and a controller that commands the robotic autochanger to automatically mount
and dismount optical disks in response to instructions received from data
storage and retrieval software. The Company's software is an end-user
application for report storage and retrieval which operates in conjunction with
the Company's OAS hardware component.
When the Company's application software products are integrated with the
OAS, the Company believes that several technological and competitive advantages
are achieved. As compared with other COLD systems, the Company's patented
directory structure and hardware data compression capability enables more data
to be stored on, and retrieved quickly from, an optical disk, thereby maximizing
the performance of the user's system while reducing the cost of storage. The
Company's integrated COLD systems enable an end user to retrieve and view
documents or reports based on a report index, which speeds access to data. The
GIGAPAGE software is designed specifically to optimize access to robotic disk
storage systems, unlike that of most competing systems. It employs sophisticated
caching to make speed of access to the data comparable to that of magnetic disk,
but at a much lower cost of storage. The Company has also developed a
system-level "driver" for optical disk robotics called ODSM.
Business organizations need to archive data for a number of reasons,
including compliance with governmental regulations, retention of historical
records and maintenance of strategically valuable historical business
information. The widespread use of computers has resulted in exponential growth
in the amount of data that must be economically archived and stored while
remaining readily
5
<PAGE>
accessible for retrieval. In the past, organizations have attempted to solve
this problem by using one or more of four traditionally available data storage
and retrieval alternatives: magnetic disk; paper; magnetic tape; and computer
output microfiche or microfilm ("COM"). Each of these traditional storage
methods has inherent disadvantages as an archival storage medium. Magnetic disk
is expensive and subject to data loss upon failure. Paper is manually
cumbersome, bulky and an expensive means of long-term storage. Magnetic tape
provides response times as long as 15 minutes when storing or retrieving data
even when mounting is automated using robotics. COM is cumbersome to access and
time consuming to generate. The storage alternatives of paper, magnetic tape and
COM have nonetheless been used for archiving because of the high cost of the
most popular storage method: magnetic disk (in IBM mainframe terminology, direct
access storage devices ("DASD")). The Company's COLD storage system is an
alternative system which permits the storage of data in a less expensive manner
than with DASD, paper or COM while allowing for quicker retrieval of such data
than is possible with magnetic tape, paper or COM.
The market for COLD storage systems is segmented into the mainframe, PC
(stand-alone or LAN-based), client/server and CD-ROM markets. To expand its
market penetration beyond the IBM-compatible mainframe market segment in which
it currently competes, the Company intends to develop enhancements to its
application software products and further develop certain software products for
use in other COLD systems market segments.
Business organizations that are subject to government regulation of data
retention are the primary prospects for purchases of the Company's products.
According to a 1994 industry report published by Frost & Sullivan, the estimated
aggregate domestic sales of COLD systems in all market segments are projected to
reach approximately $333.9 million, $693.8 million and $986.9 million in l996,
l997 and l998, respectively, and the average annual growth rate in all market
segments of the number of COLD system units sold was projected to be
approximately 48% during the period from l994 to l998. Additionally, the report
forecasted that total product and service revenue in the mainframe segment of
the domestic COLD systems market will be approximately $118.7 million, $120.7
million and $124.7 million in 1996, 1997 and 1998, respectively.
The Company's objective is to become a leading provider of COLD systems. To
achieve this objective, the Company is pursuing a business strategy that
includes the following principal elements:
Identify and Pursue Customers With Large CPUs and Massive Document Storage
and Retrieval Requirements. By targeting its sales and marketing efforts towards
large business entities equipped with mainframe computers, the Company believes
it can maximize its opportunities to encourage the purchase and use of its COLD
systems.
Establish Strategic Alliances. The Company believes that the establishment
of collaborative relationships with certain software companies which produce
complementary products will enable the Company to more effectively market its
products and gain greater access and credibility with prospective customers.
Develop a Network of International Resellers. The Company plans to qualify
international resellers that would enable it to pursue opportunities arising in
the international COLD systems market. The Company believes that the size of the
international COLD systems market is equal to or larger than the domestic COLD
systems market.
6
<PAGE>
Exploit Opportunities in Growth Segments of the COLD Systems Market.
Recognizing that significant opportunities are expected to develop in the
vertical market-specific segments of the COLD systems market, the Company
intends to enter into partnerships with clients to build vertical
market-specific variants of its product, spanning mainframe and client/server
architectures. The Company anticipates such development will enable it to expand
its prospect base and provide enhancements that are not available from its
competitors.
The Offering
Securities offered by the Company: 1,066,667 Units, each Unit consisting of two
shares of Common Stock and one Redeemable
Warrant. The Common Stock and the Redeemable
Warrants will be detachable and separately
transferable immediately upon issuance. Each
Redeemable Warrant entitles the holder
thereof to purchase one share of Common Stock
at an initial exercise price of $_______ [66
2/3% of the initial public offering price per
Unit], subject to adjustment, from the date
of issuance until ________, 2001 [60 months
after the date of this Prospectus].
Commencing 12 months from the date of this
Prospectus, the Company shall have the right
at any time to redeem all, but not less than
all, of the Redeemable Warrants at a
redemption price of $.05 per Redeemable
Warrant, on 30 days' prior written notice,
provided that (i) the average closing bid
price of the Common Stock for any 20 trading
days within a period of 30 consecutive
trading days ending on the fifth trading day
prior to the date of the notice of
redemption, equals or exceeds 150% of the
then exercise price per share, subject to
adjustment, and (ii) the Company shall have
obtained the written consent of the
Underwriter. See "Description of Securities."
Securities offered by Selling 750,000 Redeemable Warrants, which will be
Securityholders and Selling issued to the Selling Securityholders upon
Shareholders: the automatic conversion of the Bridge
Warrants, an aggregate of 750,000 shares of
Common Stock issuable upon exercise of such
Redeemable Warrants and 100,000 shares of
Common Stock which are held by the Selling
Shareholders (collectively, the "Concurrent
Offering"). The Redeemable Warrants and the
shares of Common Stock being registered for
the account of the Holders at the Company's
expense are not being underwritten in the
Offering, but may be offered for resale at
any time on or after the date hereof by the
Selling Securityholders and Selling
Shareholders. The Company will not receive
any proceeds from the sale of these
securities, although it will receive proceeds
from the exercise, if any, of the Redeemable
Warrants. See "Selling Securityholders."
7
<PAGE>
Common Stock Outstanding
before the Offering: 1,510,606 shares (1)
Common Stock to be outstanding
after the Offering: 3,643,940 shares (1)
Redeemable Warrants to be
Outstanding after the Offering: 1,816,667(2)
Use of Proceeds: The Company intends to use the net proceeds
as follows: (i) repayment of indebtedness,
including $1,500,000 incurred in connection
with the Bridge Financing and $290,000 of
bank indebtedness; (ii) approximately
$1,400,000 for research and development for
product modifications to support multiple
platforms, provide device independence and
increase modularity to speed enhancements,
and for external contracting of general and
vertical market-specific software
enhancements; (iii) approximately $850,000
for the expansion of the Company's products
to address the client/server market; (iv)
approximately $1,500,000 to further develop
and enhance the Company's sales and marketing
programs; and (v) the balance for general
corporate purposes, including research and
development, accrued interest and working
capital.
Proposed Trading Symbols on
NASDAQ SmallCap Market: Units: ASICU
Common Stock: ASIC
Redeemable Warrants: ASICW
(1) Excludes 501,763 shares of Common Stock reserved for issuance pursuant to
the Company's 1996 Stock Option Plan (the "1996 Plan"), the 1994 Directors
Stock Option Plan (the "1994 Directors Plan") and certain non-plan options.
Options to purchase an aggregate of 248,351 shares of Common Stock at an
exercise price equal to $3.75 under the 1996 Plan, options to purchase an
aggregate of 1,014 shares of Common Stock at an exercise price of $222
under the 1994 Directors Plan and non-plan options to purchase an aggregate
of 749 shares of Common Stock at exercise prices ranging from $222 to
$399.60 are outstanding as of August 1, 1996. See "Management -- Executive
Compensation -- Stock Option Plans" and "-- Non-Plan Options."
(2) Includes 750,000 Selling Securityholder Warrants.
Summary Financial Information
The summary financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements, the notes thereto and other financial
and statistical information included elsewhere in this Prospectus.
8
<PAGE>
Years Ended June 30,
------------------------------
1995 1996
---- ----
Statement of Operations Data: (in thousands except share and per
share data)
Net sales
Products........................... $ 3,126 $ 1,352
Services........................... 476 635
--- ---
Total net sales................. 3,602 1,987
Cost of sales......................... 1,300 580
----- ---
Gross profit.......................... 2,302 1,407
Operating expenses.................... 4,681 5,358(1)
----- --------
Loss from operations.................. (2,379) (3,951)
Interest expense, net................. 92 190
------ ---
Loss before extraordinary gain........ (2,471) (4,141)
Extraordinary gain on debt restructuring - 320
---------- ------------
Net loss.............................. $ (2,471) $ ( 3,821)
========== ============
Net loss applicable to common stock:
Net loss............................ $ (2,471) $ (3,821)
Accrued dividends on preferred stock (88) (109)
----- -----
$ (2,559) $ (3,930)
========= ============
Net loss per common share:
Loss before extraordinary item...... $ (1.14) $ (1.88)
Extraordinary item.................. - .14
----- ---
$ (1.14) $ (1.74)
============ ==========
Weighted average shares of Common Stock (2). 2,250,259 2,256,150
June 30,
------------------------------------
1995 1996
---- ----
Actual Actual As Adjusted(3)
Balance Sheet Data: (in thousands)
Working capital (deficiency).......... $ (625) $(1,971) $4,193
Total assets.......................... 2,527 2,874 7,384
Total liabilities..................... 2,353 3,533 1,879
Total stockholders' equity (deficit).. (1,914) (659) 5,505
(1) Includes $744,000 of compensation expense for a former officer, including
$424,830 of non-cash expenses associated with the fair value of the stock
issued.
(2) Computed using the weighted average number of shares of Common Stock
outstanding during the period and other potentially dilutive instruments
issued at prices below the assumed initial public offering price during the
twelve month period prior to the date of effectiveness of the Registration
Statement of which this Prospectus forms a part. See Note 1 to the
Financial Statements.
(3) Adjusted to reflect (i) the receipt and initial application of the net
proceeds from the Offering and (ii) the initial application of such net
proceeds to repay the $1,500,000 Bridge Financing and $290,000 of bank
indebtedness, including recognition of non-recurring interest expense of
$136,000 for the unamortized portion of the original issue discount
relating to repayment of the Bridge Notes as defined herein. See "The
Company," "Use of Proceeds" and "Capitalization."
9
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the
securities offered hereby.
Working Capital Deficiencies; History of Losses; Accumulated Deficit;
Ability to Continue as a Going Concern. The Company has a history of limited
working capital and has had working capital deficiencies in each of the fiscal
years ended June 30, 1994, 1995 and 1996. As of June 30, 1994, 1995 and 1996,
the Company had working capital deficiencies of approximately $603,000, $625,000
and $1,971,000, respectively. In addition, except for the fiscal years ended
June 30, 1989, 1990 and 1991, the Company has incurred net losses since its
incorporation in 1986. For the fiscal years ended June 30, 1994, 1995 and 1996,
the Company incurred net losses of approximately $2,500,000, $2,500,000, and
$3,800,000, respectively. There can be no assurance that the Company's
operations will achieve profitability at any time in the future or, if achieved,
sustain such profitability. Although management estimates the Company will have
Federal and state net operating loss carryforwards of approximately $5,100,000
available as of June 30, 1996 to offset future taxable income that may be
generated within the carryforward period, due to various limitations imposed by
the Internal Revenue Service, the utilization of such losses will be limited to
no more than $330,000 per year, if the Offering is consummated. See Note 9 to
the Financial Statements. As of June 30, 1996, the Company had a stockholders'
deficit of $659,000. The Company's independent auditors have included an
explanatory paragraph in their report dated August 2, 1996 on the Company's
Financial Statements stating that the financial statements have been prepared
based on the assumption that the Company will continue as a going concern and
that the Company has suffered recurring losses from operations and has a working
capital deficiency that raises substantial doubt about its ability to continue
as a going concern. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and notes
thereto.
Future Capital Needs; Uncertainty of Additional Funding. Based on its
current operating plan, the Company anticipates that its existing capital
resources together with the proceeds of this Offering will be adequate to
satisfy its capital requirements for a period of at least twelve months from the
date of this Prospectus. Thereafter, additional financing will be necessary for
the continued support of the Company's products. Historically, the Company has
been dependent upon debt and equity financing from its affiliates. There can be
no assurance that the Company's affiliates will continue to make debt or equity
financing available to the Company. A portion of the proceeds of the Offering
will be used to repay certain indebtedness to Malcolm G. Chace, III, a director
and principal stockholder. See "Use of Proceeds" and "The Company -- Recent
Bridge Financing." Additional financing may be either equity, debt or a
combination of debt and equity. An equity financing could result in dilution in
the Company's net tangible book value per share of Common Stock. There can be no
assurance that the Company will be able to secure additional debt or equity
financing or that such financing will be available on favorable terms. In
addition, the Company has agreed not to sell or offer for sale any of its
securities for a period of 18 months following the effective date of this
Registration Statement without the consent of the Underwriter. If the Company is
unable to obtain such additional financing, the Company's ability to repay its
debts and its ability to maintain its current level of operations will be
materially and adversely affected. In such event, the Company will be required
to reduce its overall expenditures, including its research and development
activity, and may default on its obligations. See "Business," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Securities Eligible for Future Sale."
10
<PAGE>
Variable Operating Results; Lengthy Sales Cycles. The Company's operating
results have in the past and may in the future fluctuate significantly depending
upon a variety of factors which vary substantially over time, including industry
conditions; the timing of orders from customers; the timing of new product
introductions by the Company and competitors; customer acceleration,
cancellation or delay of shipments; the length of sales cycles; the level and
timing of selling, general and administrative expenses and research and
development expenses; specific feature needs of customers; and production
delays. A substantial portion of the Company's quarterly revenues are derived
from the sale of a relatively small number of COLD systems which range in price
from approximately $150,000 to $900,000. As a result, the timing of recognition
of revenue from a single order has in the past and may in the future have a
significant impact on the Company's net sales and operating results for
particular financial periods. The decision to purchase a COLD system from the
Company involves a significant commitment of capital by the Company's customers
and generally the consent of a number of internal decision-makers. Therefore,
there are frequently lengthy periods of time between the initiation of customer
contact by the Company and the closing of a sale of the Company's products.
During the lengthy sales cycle for the Company's products, the Company may
expend substantial funds and management effort in anticipation of a sale which
may not occur. These expenditures will adversely affect the Company's revenues
and results of operations. The Company currently is a party to a contract which
provides for a $6,000 per month penalty in the event that an additional software
feature is not delivered by January 1, 1997. There can be no assurances that
delivery will be made by such date.
Dependence on Principal Product. The Company currently derives
substantially all of its revenues from sales of its COLD systems and related
software products and maintenance services. As a result, any factor adversely
affecting sales of the COLD systems would have a material adverse effect on the
Company. The Company's future financial performance will depend in part on its
ability to successfully develop and introduce new and enhanced versions of the
COLD systems and other products. There can be no assurance of the Company's
ability to develop or introduce such systems or products. See "Business --
Products."
Rapid Technological Change; Product Development. The market for the
Company's products is characterized by rapid technological developments,
evolving industry standards, swift changes in customer requirements and frequent
new product introductions and enhancements. The Company currently devotes and
intends to continue to devote substantial resources to research and development
to enhance product features and the Company's proprietary technology and
knowledge. The Company's continued success will be dependent upon its ability to
continue to enhance its existing products and to develop and introduce in a
timely manner new products incorporating technological advances and responding
to customer requirements. To the extent one or more of the Company's competitors
introduces products that more fully address customer requirements, the Company's
business could be adversely affected. There can be no assurance that the Company
will be successful in developing and marketing enhancements to its existing
products or new products on a timely basis or that any new or enhanced products
will adequately address the changing needs of the marketplace. If the Company is
unable to develop and introduce new products or enhancements to existing
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business and operating results could be
adversely affected. From time to time, the Company or its competitors may
announce new products, capabilities or technologies that have the potential to
replace or shorten the life cycles of the Company's existing products. There can
be no assurance that announcements of currently planned or other new products
will not cause customers to delay their purchasing decisions in anticipation of
such products. Such delay could have a material adverse effect on the Company's
business and operating results.
11
<PAGE>
Reliance on Single or Limited Sources of Supply. The Company relies on
single or limited sources for the supply of several components of its products,
including optical disk storage libraries, CPU boards, fiber optic channel
hardware and high-density integrated circuits. The Company does not maintain
supply commitments with any of its suppliers. The loss of any such source, any
disruption in such source's business or failure by it to meet the Company's
needs on a timely basis could cause shortages in component parts and could have
a material adverse effect on the Company's operations. See "Business --
Manufacturing." The Company believes that other sources exist for the components
of its products, although in some instances additional time may be required to
integrate the new sources' products with the Company's production process.
Competition. The computer data storage and retrieval market is highly
competitive and the Company expects such competition to intensify. Certain
competitors of the Company have substantially greater financial, marketing,
development, technological and production resources than the Company. The
Company's major competitors in the COLD systems market include IBM Corporation,
FileTek Corporation, Eastman Kodak Company, Data/Ware Corporation, Anacomp,
Inc., Mobius Management Systems, Inc., Computer Associates International, Inc.,
RSD America, Inc. and Network Imaging Systems Corp. The Company believes that
the competitive factors affecting the market of its products and services
include vendor and product reputation, system features, product quality,
performance and price, as well as the quality of customer support services and
training. The relative importance of each of these factors depends upon the
specific customer involved. There can be no assurance that the Company will be
able to compete successfully in all or any of these areas against current or
future competitors. Moreover, the Company's present or future competitors may be
able to develop products comparable or superior to those offered by the Company,
offer lower price products or adapt more quickly than the Company to new
technologies or evolving customer requirements. In order to be successful in the
future, the Company must respond to technological change, customer requirements
and competitors' current products and innovations. There can be no assurance
that the Company will be able to continue to compete effectively in its present
market segment, in any new market segment into which the Company may expand, or
that future competition will not have a material adverse effect on its business,
operating results and financial condition. See "Business -- Competition."
Recent Turnover in Management. Mr. Hector Wiltshire served as interim
President and Chief Executive Officer from January 1996 through July 1, 1996, at
which time he resigned for health reasons. Mr. Robert Stone was elected
President and Chief Executive Officer August 1, 1996. The election of a new
Chief Executive Officer has inherent risks. If Mr. Stone is unable to work with
the Company's personnel, suppliers or customers, or is unable to become
sufficiently knowledgeable about the Company's technology, he may not provide
needed direction to the Company's growth and development which would likely
materially adversely affect the Company's results of operations and financial
condition. The Company also has commenced a search for a new Chief Financial
Officer. See "Management."
Ability to Manage Growth. As part of its business strategy, the Company
intends to continue to expand its research and development and its sales
operations. This strategy will require expanded customer services and support,
increased personnel throughout the Company, expanded operational and financial
systems and implementation of new control procedures. There can be no assurance
that the Company will be able to attract qualified personnel or successfully
manage expanded operations. Competition for technical personnel in the Company's
industry is intense. As the Company expands, it may from time to time experience
constraints that will adversely affect its ability to satisfy
12
<PAGE>
customer demand in a timely fashion or to provide consistent levels of support
to existing customers. There can be no assurance that the Company will
anticipate all of the changing demands that expansion may place on the Company's
operational, management and financial systems and controls or that the Company
will be able to continue to improve such systems and controls. If the Company's
management is unable to manage growth effectively, the Company's business,
results of operations, financial condition and liquidity could be materially and
adversely affected.
Dependence on Significant Customers. Historically, the Company has sold its
products to a relatively small number of significant customers. Sales to
Nationwide Mutual Insurance Company, Bank of Boston Corporation Technology
Services and Bell Sygma, Inc. accounted for 35%, 22% and 11%, respectively, of
the Company's total net sales during the year ended June 30, 1996. Sales to Bank
of Boston Corporation Technology Services, Chevron Information Technologies,
Inc., Securities Industry Automation Corporation, Prudential Securities
Incorporated, and Bell Sygma, Inc. accounted for 18%, 16%, 15%, 14% and 10%,
respectively, of the total net sales for the year ended June 30, 1995. The loss
of any one of these significant customers or the inability of the Company to
attract new customers could have a material adverse effect on the Company's
operations and financial condition. See "Business -- Customers."
Dependence on Key Personnel. The success of the Company will depend
significantly upon the personal efforts and abilities of its key employees,
particularly Robert H. Stone, President and Chief Executive Officer, Christopher
Neefus, Vice President-Sales, and George H. Steele, Vice President-Product
Marketing. The Company does not have employment contracts with Mr. Neefus or Mr.
Steele, nor does the Company maintain key person life insurance policies on any
personnel. Mr. Stone was elected President and Chief Executive Officer on August
1, 1996. The loss of the services of any of these key employees could have a
material adverse effect on the Company. See "Business -- Employees," "Management
- -- Directors and Executive Officers."
Protection of Intellectual Property. The Company's success depends in
significant part on maintenance and protection of its intellectual property. The
Company attempts to protect its intellectual property rights through a range of
measures, including patents, trade secrets and confidentiality agreements. The
Company has not sought and would be unable to obtain patent protection in any
foreign country for any of its technology currently patented in the United
States. There can be no assurance that the Company will be able to effectively
protect its technology, that others will not be able to develop similar
technology independently or that the Company will have the resources necessary
to adequately protect and enforce rights it may have with respect to its
intellectual property. Although the Company is not aware of any actual or
potential assertions against it, there can be no assurance that third party
claims alleging infringement of intellectual property rights, including
infringement of patents that have been or may be issued in the future, will not
be asserted against the Company. Any assertions of intellectual property claims
could require the Company to discontinue the use of certain processes or to
cease the manufacture, use and sale of infringing products, to incur significant
litigation costs and damages, or to develop noninfringing technology or acquire
licenses to the alleged infringed technology. Litigation may also divert the
efforts of management and technical personnel from other matters. There can be
no assurance that the Company would be able to obtain such licenses on
acceptable terms or to develop noninfringing technology. See "Business --
Intellectual Property."
Absence of Dividends. The Company has not paid any cash dividends on the
Common Stock since its inception and the Company does not anticipate paying cash
dividends in the foreseeable future. See "Dividend Policy."
13
<PAGE>
Broad Discretion of Management in Use of Proceeds; Repayment of
Indebtedness to Insider. Approximately 12% of the estimated net proceeds of the
Offering (approximately 25% if the Underwriter's over-allotment option is
exercised in full) is to be used for general corporate purposes in the
discretion of the Company's management, upon whose judgment the public investors
must depend. In addition, $250,000 of the estimated net proceeds of the Offering
will be paid to Malcolm G. Chace, III, a director and principal stockholder, to
repay the Bridge Notes held by him, plus accrued interest thereon. See "Use of
Proceeds," "The Company" and "Principal Stockholders."
Possible Control by Management; Board and Audit Committee Composition. Upon
completion of the Offering, the executive officers and directors will
beneficially own approximately 21% of the outstanding Common Stock and may be
able to elect all the Company's directors and thereby direct the policies of the
Company. Furthermore, the Company currently has only one director who is not an
employee of the Company or a principal stockholder or an affiliate thereof, and
such director is not a member of the Audit Committee of the Board of Directors.
See "Principal Stockholders" and "Management."
Securities Eligible for Future Sale. Sales of substantial amounts of Common
Stock after the Offering could adversely affect the market price of the
Company's Common Stock. The number of shares of Common Stock available for sale
on the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of more than 98% of the issued and
outstanding shares prior to the Offering have agreed not to sell or otherwise
dispose of any of their shares for a period of 18 months after the date of this
Prospectus (the "Lock-up Period") without the prior written consent of the
Underwriter. The Underwriter may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements. Although the Underwriter does not currently intend to release all of
such securities from the lock-up agreements prior to their expiration, it may
from time to time release all or a portion of securities subject thereto
depending on a securityholder's individual circumstances, as market conditions
permit. Of the 3,643,940 shares of Common Stock that will be outstanding after
the Offering, the 2,133,334 shares sold in this Offering will be freely tradable
without restriction or further registration under the Securities Act, except
that shares owned by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act ("Affiliates"), may generally only be sold in
compliance with applicable provisions of Rule 144. Beginning 90 days following
the date of this Prospectus, approximately 26,064 additional shares will become
eligible for sale in compliance with Rule 144 promulgated under the Securities
Act. A total of approximately 98% of the currently outstanding shares are
subject to lock-up agreements and will be eligible for sale, subject to the
volume limitations of Rule 144, beginning upon the expiration of the Lock-up
Period. In addition, subject to the consent of the Underwriter, the Company
intends to register after the effectiveness of the Offering a total of up to
500,000 shares of Common Stock issued or issuable pursuant to the 1996 Plan. Of
the up to 500,000 shares to be registered, 248,351 shares are subject to
outstanding options as of August 1, 1996, of which options to purchase a total
of 8,351 shares are exercisable. All of the shares subject to such exercisable
options are subject to lock-up agreements. See "Management -- Stock Option
Plans," "Description of Securities," "Securities Eligible for Future Sale" and
"Underwriting."
The Redeemable Warrants underlying the Units offered hereby and the shares
of Common Stock underlying such Redeemable Warrants, upon exercise thereof, will
be freely tradable without restriction under the Securities Act, except for any
Redeemable Warrants or shares of Common Stock purchased by Affiliates, which
will be subject to the resale limitations of Rule 144 under the Securities Act.
In addition, 750,000 New Warrants and the underlying shares of Common Stock and
14
<PAGE>
100,000 shares of Common Stock are being registered in the Concurrent Offering.
Holders of such New Warrants and of such shares of Common Stock have agreed not
to, directly or indirectly, issue, offer to sell, sell, grant an option for the
sale of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose
of (collectively, "Transfer") such shares of Common Stock for a period of 18
months from the effective date of the Registration Statement without the prior
written consent of the Underwriter.
Absence of Public Market; Arbitrary Determination of Offering Price;
Possible Volatility of Stock Price. Prior to this Offering, there has been no
public market for the Units, Common Stock or Redeemable Warrants. Consequently,
the initial public offering price of the Units has been determined by
negotiations among the Company and the Underwriter and bears no relationship to
the price of the Company's securities after this Offering. See "Underwriting."
There can be no assurance that any active public market for the Units, Common
Stock or Redeemable Warrants will develop or be sustained after the Offering, or
that the market price of the Units, Common Stock or Redeemable Warrants will not
decline below the initial public offering price. The trading prices of the
Units, Common Stock and Redeemable Warrants could be subject to wide
fluctuations in response to actual or anticipated quarterly operating results of
the Company, announcements of technological innovations or new applications by
the Company or its competitors and general market conditions, as well as other
events or factors. In addition, stock markets have experienced extreme price and
volume trading volatility in recent years. This volatility has had a substantial
effect on the market price of many technology companies, and has often been
unrelated to the operating performance of those companies. This volatility may
adversely affect the market price of the Units, Common Stock and Redeemable
Warrants.
Dilution. Persons purchasing Units at the initial public offering price
will incur immediate and substantial dilution in the net tangible book value per
share of Common Stock of $2.41 or 64% ($2.26 or 60% if the Underwriter's
over-allotment option is exercised in full). See "Dilution."
Underwriter's Lack of Experience and Potential Influence in the Company.
Although the Underwriter commenced operations in May 1994, it does not have
extensive experience as an underwriter of public offerings of securities. In
addition, the Underwriter is a relatively small firm and no assurance can be
given that the Underwriter will be able to participate as a market maker in the
Units, Common Stock or Redeemable Warrants, and no assurance can be given that
any broker-dealer will make a market in the Units, Common Stock or Redeemable
Warrants. See "Underwriting."
Underwriter's Potential Influence on the Market. It is anticipated that a
significant amount of Units will be sold to customers of the Underwriter.
Although the Underwriter has advised the Company that it intends to make a
market in the Units, Common Stock and Redeemable Warrants, it will have no legal
obligation to do so. The prices and the liquidity of the Units, Common Stock and
Redeemable Warrants may be significantly affected by the degree, if any, of the
Underwriter's participation in the market. No assurance can be given that any
market activities of the Underwriter, if commenced, will be continued. See
"Underwriting."
Continued Quotation on the Nasdaq SmallCap Market; Potential Penny Stock
Classification. The Company has applied to have the Units, Common Stock and
Redeemable Warrants approved for quotation on the Nasdaq SmallCap Market and
believes it will meet the initial listing requirements upon consummation of this
Offering. The Company has no intention to delist the Units immediately after the
minimum inclusion period. However, no assurance can be given that it will be
able to satisfy the criteria for continued quotation on the Nasdaq SmallCap
Market following this Offering.
15
<PAGE>
Failure to meet the maintenance criteria in the future may result in the Units,
Common Stock and Redeemable Warrants not being eligible for quotation. In such
event, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Units, Common Stock and
Redeemable Warrants.
If the Company were removed from the Nasdaq SmallCap Market, trading, if
any, in the Units, the Common Stock or the Redeemable Warrants would thereafter
have to be conducted in the over-the-counter market in the so-called "pink
sheets" or, if then available, Nasdaq's OTC Bulletin Board. As a result, an
investor would find it more difficult to dispose of, and to obtain accurate
quotations as to the value of, such securities.
In addition, if the Units, Common Stock or Redeemable Warrants are delisted
from trading on Nasdaq and the trading price of the Common Stock is less than
$5.00 per share, trading in the Common Stock would also be subject to the
requirements of Rule 15g-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under such rule, broker/dealers who
recommend such low-priced securities to persons other than established customers
and accredited investors must satisfy special sales practice requirements,
including a requirement that they make an individualized written suitability
determination for the purchaser and receive the purchaser's written consent
prior to the transaction. The Securities Enforcement Remedies and Penny Stock
Reform Act of 1990 also requires additional disclosure in connection with any
trades involving a stock defined as a penny stock (generally, according to
recent regulations adopted by the Securities and Exchange Commission (the
"Commission"), any equity security not traded on an exchange or quoted on Nasdaq
that has a market price of less than $5.00 per share, subject to certain
exceptions), including the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. Such requirements could severely limit the market liquidity of the
Units, Common Stock and Redeemable Warrants and the ability of purchasers in the
Offering to sell their securities in the secondary market. There can be no
assurance that the Units, Common Stock and Redeemable Warrants will not be
delisted or treated as a penny stock.
Registration of Shares Underlying the Redeemable Warrants. The Redeemable
Warrants issued in the Offering are not exercisable unless, at the time of
exercise, the Company has distributed a current prospectus covering the shares
of Common Stock issuable upon exercise of such Redeemable Warrants and such
shares have been registered, qualified or deemed to be exempt under the
securities laws of the state of residence of the holder who wishes to exercise
such Redeemable Warrants. In addition, in the event any Redeemable Warrants are
exercised at any time after nine months from the date of this Prospectus, the
Company will be required to file a post-effective amendment and deliver a
current prospectus before the Redeemable Warrants may be exercised. Although the
Company will use its best efforts to have all such shares so registered or
qualified on or before the exercise date and to maintain a current prospectus
relating thereto until the expiration of such Redeemable Warrants, there is no
assurance that it will be able to do so. Holders of Redeemable Warrants who
exercise such Redeemable Warrants at a time the Company does not have a current
prospectus may receive unregistered and, therefore, restricted shares of Common
Stock. Although the Units will not knowingly be sold to purchasers in
jurisdictions in which the Units are not registered or otherwise qualified for
sale, purchasers may buy Redeemable Warrants in the after market or may move to
jurisdictions in which the shares underlying the Redeemable Warrants are not
registered or qualified during the period that the Redeemable Warrants are
exercisable. In this event, the Company would be unable to issue shares to those
persons desiring to exercise their Redeemable Warrants unless and until the
shares and Redeemable Warrants could be qualified for sale in the jurisdiction
in which such purchasers reside, or an exemption from such qualification exists
in such jurisdiction, and holders of Redeemable
16
<PAGE>
Warrants would have no choice but to attempt to sell the Redeemable Warrants in
a jurisdiction where such sale is permissible or allow them to expire
unexercised.
Redemption of Redeemable Warrants. Commencing , 1997 [12 months after the
date of this Prospectus], the Company shall have the right to redeem all, but
not less than all, of the Redeemable Warrants, at a price of $.05 per Redeemable
Warrant on 30 days' prior written notice, provided that the Company shall have
obtained the consent of the Underwriter, and the average closing bid price of
the Common Stock equals or exceeds 150% of the then exercise price per share,
subject to adjustment, for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption. In the event the Company exercises the right to redeem the
Redeemable Warrants, such Redeemable Warrants will be exercisable until the
close of business on the date fixed for redemption in such notice. If any
Redeemable Warrant called for redemption is not exercised by such time, it will
cease to be exercisable and the holder will be entitled only to the redemption
price.
Reduced Probability of Change of Control or Acquisition of Company Due to
Existence of Anti-Takeover Provisions. The Company's Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), contains certain
provisions that reduce the probability of any change of control or acquisition
of the Company. Pursuant to the Restated Certificate, the Board of Directors has
the ability to issue Preferred Stock in one or more series with such rights,
obligations and preferences as the Board of Directors may determine without any
further vote or action by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Although the Company has no present
plans to issue any shares of Preferred Stock, there can be no assurance that it
will not issue Preferred Stock at some future date. Further, certain provisions
of Delaware law could delay or make more difficult a merger, tender offer or
proxy contest involving the Company. While such provisions are intended to
enable the Board of Directors to maximize stockholder value, they may have the
effect of discouraging takeovers which could be in the best interest of certain
stockholders. There is no assurance that such provisions will not have an
adverse effect on the market value of the Company's stock in the future. See
"Description of Securities." In addition, the Company's Restated Certificate
provides that its directors shall not be personally liable to the Company or its
stockholders for monetary damages in the event of a breach of fiduciary duty to
the extent permitted by Delaware law.
17
<PAGE>
THE COMPANY
The Company, which was incorporated in Delaware in 1986 under the name
Aquidneck Systems International, Inc., develops, assembles, sells and services
optical data storage systems consisting of integrated computer hardware and
software for the archival storage and retrieval of massive quantities of
computer-generated information. In June 1996, the Company changed its name to
Access Solutions International, Inc.
The Company's executive offices are located at 650 Ten Rod Road, North
Kingstown, Rhode Island 02852 and its telephone number is (401) 295-2691.
Recent Bridge Financing. On May 28, 1996, the Company consummated a bridge
financing (the "Bridge Financing") pursuant to which it issued an aggregate of:
(i) $1,500,000 in principal amount of promissory notes (the "Bridge Notes")
which bear interest at the rate of 10% per annum and are due and payable upon
the earlier of: (a) the closing of the sale of securities or other financing of
the Company from which the Company or its subsidiary receives gross proceeds of
at least $2,500,000 or (b) May 28, 1997, and (ii) 750,000 warrants (the "Bridge
Warrants"), each Bridge Warrant entitling the holder to purchase one share of
Common Stock at an initial exercise price of $1.50 per share (subject to
adjustment upon the occurrence of certain events) during the three-year period
commencing May 28, 1997. Original issue discount in the amount of $150,000
associated with the Bridge Financing will be amortized to interest expense over
the term of the bridge debt. The net proceeds of approximately $1,390,000 from
the Bridge Financing were used for: (i) repayment of indebtedness in the
principal amount of $85,000 to a director and principal stockholder; (ii)
research and development expenses in the approximate amount of $336,000; (iii)
selling expenses in the approximate amount of $126,000; (iv) sales commissions
in the approximate amount of $65,000; (v) customer support expenses in the
amount of $191,000; and (vi) general working capital purposes. Upon the
consummation of the Offering, each Bridge Warrant will automatically, without
any action by the holder thereof, be converted into a Redeemable Warrant (the
"New Warrant") having terms identical to those of the Redeemable Warrants
underlying the Units offered hereby. The New Warrants and the underlying shares
of Common Stock issuable upon exercise of the New Warrants are being registered
under the Securities Act of 1933, as amended (the "Securities Act"), in the
Registration Statement of which this Prospectus is a part. The Company intends
to use a portion of the proceeds of this Offering to repay the entire principal
amount of, and accrued interest on, the Bridge Notes, including $250,000 plus
accrued interest to Malcolm G. Chace, III, a director and principal stockholder.
See "Use of Proceeds."
Recapitalization. In January 1996, the Company effected a recapitalization
(the "Recapitalization") of its capital without a formal reorganization. As part
of the Recapitalization, the Board of Directors approved the reverse stock
split, negotiated a conversion (the "Conversion") of debt in the amount of
$2,635,415 plus unpaid interest in the amount of $62,129 plus warrants to
purchase 4,240 shares of common stock into 1,041,012 shares of Common Stock and
retained Hector D. Wiltshire as its President and Chief Executive Officer on an
interim basis. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital Resources" and "Certain
Transactions." Following the Recapitalization, approximately 2.2% of the issued
and outstanding Common Stock was held by holders of Common Stock prior to the
Recapitalization and approximately 69% of the issued and outstanding Common
Stock was held by the holders of debt who participated in the Conversion.
Additionally, in January 1996, the Company issued 416,500 shares of Common Stock
to Mr. Wiltshire in consideration for (i) his agreement to serve as the
Company's interim President and Chief Executive Officer; (ii) his agreement to
relinquish
18
<PAGE>
warrants he had acquired in connection with the $500,000 bridge financing he
provided to the Company in September 1995; and (iii) his agreement to loan the
Company $250,000 on a short-term basis. Such shares represent approximately 28%
of the issued and outstanding Common Stock. See "Certain Transactions --
Transactions with Mr. Wiltshire" and Notes 2 and 14 to the Financial Statements.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered by
the Company hereby, after deduction of underwriting discounts, non-accountable
expense allowance and Offering expenses, are estimated to be $6,300,000
($7,344,000 if the Underwriter's over-allotment option is exercised in full),
assuming an initial public offering price of $7.50 per Unit.
The Company intends to use the net proceeds as follows: (i) approximately
$1,500,000 to repay the Bridge Notes, including $250,000 to Malcolm G. Chace,
III, a director and principal stockholder; (ii) approximately $290,000 to repay
all of the Company's outstanding bank indebtedness; (iii) approximately
$1,400,000 for research and development expenses for product modifications to
support multiple platforms, provide device independence and increase modularity
to speed enhancement, and for external contracting of general and vertical
market-specific software enhancements; (iv) approximately $850,000 for the
expansion of the Company's products to address the client/server market; (v)
approximately $1,500,000 to further develop and enhance the Company's sales and
marketing programs; and (vi) the balance for general corporate purposes,
including research and development, accrued interest and working capital. The
following table summarizes the Company's estimated use of the net proceeds:
Approximate Approximate
Application of Proceeds Amount Percentage
Repayment of Bridge Notes $1,500,000 23.8
Repayment of bank indebtedness 290,000 4.6
Research and development 1,400,000 22.2
Product expansion for client/server market 850,000 13.5
Sales and marketing 1,500,000 23.8
General corporate purposes 760,000 12.1
------------ ----
$6,300,000 100%
========== ====
In the event the Underwriter exercises its over-allotment option in full,
the Company will receive an additional $1,044,000, after deduction of the
underwriting discounts and non-accountable expense allowance, and will utilize
those proceeds for general corporate purposes, including research and
development and working capital.
The Bridge Notes bear interest at the rate of 10% per annum and mature on
the earlier of: (i) the closing of a sale of securities or other financing of
the Company from which the Company or its subsidiary receives gross proceeds of
at least $2,500,000 or (ii) May 28, 1997, one year from the date of issuance.
The proceeds of the Bridge Notes were used (i) to repay indebtedness in the
principal amount of $85,000 to Malcolm G. Chace, III, a director and principal
stockholder; (ii) for research and development, selling and customer support
expenses; and (iii) for other general corporate purposes. See "The Company --
Recent Bridge Financing."
The Company anticipates that the proceeds from the Offering, together
with projected cash flow from operations, will be sufficient to fund its
operations for at least 12 months from the date of this Prospectus. Thereafter,
the Company may need to raise additional funds. There can be no assurance that
additional financing will be available or if available will be on favorable
terms. If the
20
<PAGE>
Company is unable to obtain such additional financing, the Company's ability to
maintain its current level of operations will be materially and adversely
affected. See "Risk Factors -- Future Capital Needs; Uncertainty of Additional
Funding."
Pending application of the proceeds of the Offering, the Company intends to
invest the net proceeds in certificates of deposit, money market accounts,
United States government obligations or other short-term interest bearing
obligations of investment grade.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its Common Stock,
presently intends to retain earnings for use in its business and does not
anticipate paying cash dividends in the foreseeable future. The payment of
future cash dividends by the Company on its Common Stock will be at the
discretion of the Board of Directors and will depend on its earnings, financial
condition, cash flows, capital requirements and other considerations as the
Board of Directors may consider relevant, including any contractual prohibitions
with respect to the payment of dividends.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996, actual, and as adjusted to give effect to the sale of the Units
offered hereby by the Company at an assumed initial public offering price of
$7.50 per Unit and the initial application of the net proceeds therefrom. See
"Use of Proceeds."
June 30, 1996
-----------------------
Actual As Adjusted
(in thousands)
Current liabilities.................................. $3,501 $1,847
------ ------
Total long-term debt, excluding current portion...... $ 32 $ 32
------ ----
Stockholders' (Deficit) Equity:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized, -0- outstanding........................ - -
Common Stock, $.01 par value, 8,000,000 shares
authorized (1), 1,511,865 shares issued, actual,
and 3,645,199 shares, as adjusted (2).............. 15 36
Additional paid-in capital........................... 10,600 16,879
Accumulated deficit.................................. (11,256) (11,392)(3)
Less treasury stock (1,259 shares)................. (18) (18)
----------- --------
Total stockholders' (deficit) equity............ (659) 5,505
---------- ---------
Total capitalization............................ $ 2,874 $ 7,384
========= =========
- ----------------
(1) The number of shares authorized was increased to 13,000,000, effective
August 16, 1996.
(2) Excludes 501,763 shares of Common Stock reserved for issuance pursuant to
the Company's 1996 Stock Option Plan (the "1996 Plan"), the 1994 Directors
Stock Option Plan (the "1994 Directors Plan") and certain non-plan options.
Options to purchase an aggregate of 248,351 shares of Common Stock at an
exercise price equal to $3.75 under the 1996 Plan, options to purchase an
aggregate of 1,014 shares of Common Stock at an exercise price of $222
under the 1994 Directors Plan and non-plan options to purchase an aggregate
of 749 shares of Common Stock at exercise prices ranging from $222 to
$399.60 are outstanding as of August 1, 1996. See "Management -- Executive
Compensation -- Stock Option Plans" and "-- Non-Plan Options."
(3) Includes non-recurring interest expense of $136,000 for the unamortized
portion of the original issue discount relating to the repayment of the
Bridge Notes.
22
<PAGE>
DILUTION
"Net tangible book value per share" represents the amount of total tangible
assets of the Company reduced by the amount of total liabilities and divided by
the number of shares of Common Stock outstanding. "Dilution" represents the
difference between the price per share to be paid by new investors for the
shares of Common Stock included in the Units issued in the Offering and the pro
forma net tangible book value per share as of June 30, 1996. At June 30, 1996,
the net tangible book value of the Common Stock was $(1,251,375) in the
aggregate, or $(0.83) per share of Common Stock. After giving effect to the sale
of the shares of Common Stock included in the Units offered hereby (at an
assumed initial public offering price of $3.75 per share, net of estimated
underwriting discounts and Offering expenses, and assuming no exercise of the
Underwriter's over-allotment option), the pro forma net tangible book value of
the Common Stock as of June 30, 1996 would have been $4,912,598 in the
aggregate, or $1.34 per share. This represents an immediate increase in net
tangible book value of $2.17 per share of Common Stock to existing stockholders
and an immediate dilution per share of $2.41 to new investors purchasing shares
of Common Stock in the Offering.
<TABLE>
<CAPTION>
The following table illustrates the dilution per share as described above:
Per Share %
---------------------------
<S> <C> <C> <C>
Assumed public offering price per share of Common Stock.......... $3.75 100%
----
Net tangible book value per share
of Common Stock before the Offering............. $ (.83) (22)
Increase attributable to new investors........... 2.17 58
---- -----
Pro forma net tangible book value per share of Common Stock
after 1.34 (1) 36
---- ----
the Offering.............................................
Dilution per share of Common Stock to new investors.............. $2.41 64%
========= =====
- --------------
(1) If the Underwriter's over-allotment option is exercised in full, the pro
forma net tangible book value at June 30, 1996 after the Offering would be
approximately $5,956,598 or $1.49 per share (40%) and the dilution per
share to new investors would be approximately $2.26 (60%).
</TABLE>
Based on the foregoing assumptions, the following table sets forth, as
of completion of the Offering, the number of shares purchased from the Company,
the total cash consideration paid to the Company and the average price per share
paid by the existing stockholders and by new investors purchasing shares of
Common Stock included in the Units in the Offering (at an assumed initial public
offering price of $3.75 per share):
<TABLE>
<CAPTION>
Shares of Common Total Average Price Per
Stock Acquired Consideration Share of Common
Stock
-------------- ------------ --------------- --------- ---------------------
Number Percent Amount Percent
<S> <C> <C> <C> <C> <C>
Existing Stockholders 1,510,606 41% $ 9,391,617 54% $6.22
New Stockholders 2,133,334 59 8,000,000 46 $3.75
--------- -------- ----------- --
Total 3,643,940 100% $17,391,617 100%
========= ==== =========== ====
</TABLE>
23
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company for
the two years ended June 30, 1995 and 1996. The data has been derived from the
audited financial statements of the Company appearing elsewhere herein. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements, the notes thereto and other financial
and statistical information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------
1995 1996
(in thousands, except share and
per share data)
Statement of Operations Data:
Net sales
<S> <C> <C>
Products............................. $ 3,126 $ 1,352
Services............................. 476 635
----------- ---------
Total net sales............ 3,602 1,987
Cost of sales
Products ............................ 1,115 346
Services............................. 185 234
------------ ---------
Total cost of sales......... 1,300 580
----------- ---------
Gross profit................................ 2,302 1,407
Operating expenses
Selling expenses.......................... 891 843
General and administrative expenses....... 2,034 2,058
Research and development expenses......... 1,756 1,713
Stock compensation expense (1)............ - 744
--------- --------
Total operating expense............. 4,681 5,358
---------- ---------
Loss from operations..................... (2,379) (3,951)
Interest expense, net.................... 92 190
-------------- ----------
Loss before extraordinary gain........... (2,471) (4,141)
----------- ----------
Extraordinary gain on debt restructuring. - 320
------------ ----------
Net Loss............................ $ (2,471) $ (3,821)
========== ==========
Net Loss applicable to common stock:
Net loss.............................. $ (2,471) $ (3,821)
Accrued dividends on preferred stock.. (88) (109)
----------- ----------
$ (2,559) $ (3,930)
========== ==========
Net loss per common share:
Net loss before extraordinary item.... $ (1.14) $ (1.88)
Extraordinary item................... - .14
--------------- ----------
$ (1.14) $ (1.74)
=========== ==========
Weighted average shares of Common Stock(2). 2,250,259 2,256,150
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
June 30,
------------------------------------
1995 1996
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital (deficiency)................ $ (625) $ (1,971)
Total assets................................ 2,527 2,874
Total liabilities........................... 2,353 3,533
Total mandatorily redeemable securities..... 2,088 -
Total stockholders' deficit................. (1,914) (659)
(1) Compensation award to a former officer, including $424,830 of non-cash
expenses associated with the fair value of the stock issued. See Note 14 to
the Financial Statements.
(2) Computed using the weighted average number of shares of Common Stock
outstanding during the period and other potentially dilutive instruments
issued at prices below the assumed initial public offering price during the
twelve month period prior to the date of effectiveness of the Registration
Statement of which this Prospectus forms a part. See Note 1 to the
Financial Statements.
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's sales consist of sales of products and services. Products
sold by the Company consist of COLD systems, software and hardgoods including
replacement disk drives, subassemblies and miscellaneous peripherals. Services
rendered by the Company include post-installation maintenance and support. The
Company recognizes revenue from customers upon installation of COLD systems and,
in the case of COLD systems installed for evaluation, upon acceptance by such
customers of the products. The Company sells extended service contracts on the
majority of the products it sells. Such contracts are one year in duration with
payments received either annually in advance of the commencement of the contract
or quarterly in advance. The Company recognizes revenue from service contracts
on a straight line basis over the term of the contract. The unearned portion of
the service revenue is reflected as deferred revenue. As of June 30, 1996, the
Company had deferred revenue in the amount of $448,492.
The Company's operating results have in the past and may in the future
fluctuate significantly depending upon a variety of factors which vary
substantially over time, including industry conditions; the timing of orders
from customers; the timing of new product introductions by the Company and
competitors; customer acceleration, cancellation or delay of shipments; the
length of sales cycles; the level and timing of selling, general and
administrative and research and development expenses; specific feature needs of
customers; and production delays. A substantial portion of the Company's
quarterly revenues are derived from the sale of a relatively small number of
COLD systems which range in price from approximately $150,000 to $900,000. As a
result, the timing of recognition of revenue from a single product order has in
the past and may in the future have a significant impact on the Company's net
sales and operating results for particular financial periods. This volatility is
counter balanced by the increase in sales of annual service contracts which
generally accompanies an increase in systems sales. The revenue from service
contracts is recognized on a straight line basis over the term of the contract.
The Company's primary operating expenses include selling expenses, general
and administrative expenses and research and development expenses. General and
administrative expenses consist primarily of employee compensation and customer
support expenses. Research and development expenses include compensation paid to
internal research and development staff members and expenses incurred in
connection with the retention of independent research and development
consultants. The Company utilizes its own employees for research and development
functions except in certain circumstances involving product enhancements. In
those circumstances, the Company regularly retains independent experts to
consult and design new software modules which are subsequently evaluated and
tested by the Company's internal research and development staff. Upon successful
testing of such product enhancements, the Company's internal staff integrates
the new products with the Company's existing COLD systems and products. See
"Business -- Research and Development."
The Company has historically incurred net losses and anticipates that
further net losses will be incurred prior to the time, if ever, that the Company
achieves profitability. However, the Company has recently taken certain steps
intended to limit the incurrence of future net losses. Such steps include: (i)
the retention in January 1996 of Hector D. Wiltshire as interim President and
Chief Executive Officer and the subsequent hiring in August 1996 of Robert H.
Stone as President and Chief Executive Officer; (ii) the Recapitalization (see
"The Company--Recapitalization"); (iii) the November
26
<PAGE>
l995 reduction in the Company's workforce from 52 to 30 full-time employees as
of June 30, 1996; (iv) other reductions in overhead costs and expenses; and (v)
the administration of tighter internal controls with respect to preservation of
the integrity of the Company's proprietary software products. The immediate
effect realized by the implementation of these measures was to reduce average
monthly operating expenses during the period from January through June 1996 to
approximately $317,000, exclusive of the cost associated with shares granted to
an officer in January 1996. This represents a 34% reduction in the average
monthly operating expenses as compared to those incurred during the first half
of fiscal 1996. During such period, average operating expenses approximated
$475,000 per month. While no assurance can be given that such steps will be
sufficient to limit losses which may be incurred in the future, the Company
believes that such steps, when fully implemented, may enable the Company to
realize improved operating results. The Company does not believe that these
steps, particularly the reduction in the workforce, have to date or will in the
future materially adversely impact the Company's revenues and earnings. Of the
22 employees terminated, four were salespersons, five were field support
personnel, eight were product development personnel and five were administrative
staff. Many of the sales and field support employees had been hired early in
1995 in anticipation of increased sales which did not materialize. The
terminated product development personnel were working on new products which the
Company determined would not be completed. As a result of the foregoing, the
reduction in workforce has not materially adversely affected the Company's
operations.
Results of Operations
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
The following table presents certain items from the Company's Statement of
Operations, and such amounts as percentages of net sales, for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended June 30, 1995 Year Ended June 30, 1996
------------------------ ------------------------
Net sales
<S> <C> <C> <C> <C>
Products................ $3,126,022 87% $1,352,408 68%
Services................ 476,039 13 634,500 32
------------ -- ------------- --
Total net sales....... 3,602,061 100 1,986,908 100
Cost of sales
Products................ 1,114,963 31 346,157 17
184,744 5 234,229 12
-------- ---- ------- --
Services.....................
Total cost of sales... 1,299,707 36 580,386 29
----------- --- ------- --
Gross profit................. 2,302,354 64 1,406,522 71
Operating expenses
Selling................. 890,868 25 843,312 43
General and administrative 2,033,851 56 2,058,005 104
Research and development 1,755,891 49 1,713,094 86
Stock compensation..... - - 744,000 37
---------- ---- ----------- --
Total operating expenses 4,680,610 130 5,358,411 270
Interest expense, net........ 92,319 3 189,939 10
-------- ----- ------------ -----
Loss before extraordinary gain $(2,470,575) (69%) $(4,141,828) (208)
Extraordinary gain on debt
restructuring................ - - 320,387 16
Net loss..................... $2,470,575) (69%) $(3,821,441) (192)%
============= ======== ============ ======
</TABLE>
Net sales. Net sales decreased from $3,602,061 for year ended June 30, 1995
to $1,986,908 for the year ended June 30, 1996. This decrease was primarily the
result of a delay in completion of software enhancements which resulted in
installation postponements. These enhancements
27
<PAGE>
have now been substantially completed. See "Risk Factors -- Variable Operating
Results; Lengthy Sales Cycle." Net product and service sales were $3,126,022 and
$476,039, respectively, for the year ended June 30, 1995 compared to $1,352,408
and $634,500 for the year ended June 30, 1996. Products sales decreased 57%
during the year ended June 30, 1996 compared to the year ended June 30, 1995.
Service revenue, which increases as the Company's base of installed units
expands, was 33% higher than in the corresponding prior period. Approximately
half of this increase is attributable to an ODSM consulting contract in the
amount of $66,000 that was completed and fully recognized in the second quarter
of fiscal 1996. Service revenue exclusive of revenue generated by this
consulting contract increased 19% over the corresponding period.
Cost of sales. Cost of sales includes component costs, firmware license
costs, labor, travel and certain overhead costs. Costs of sales in the aggregate
decreased 55% from $1,299,707 for the year ended June 30, 1995 to $580,386 for
the year ended June 30, 1996, primarily due to the reduced volume of sales. In
addition, cost of sales as a percentage of sales decreased from 36% for the year
ended June 30, 1995 to 29% for the year ended June 30, 1996. This decrease was
due to negotiated price reductions for the purchase of the Company's optical
hardware and from the sale of higher margin systems.
The cost of product sales decreased 69% from $1,114,963 for the year ended
June 30, 1995 to $346,157 for the year ended June 30, 1996 due to the decrease
in product sales. Cost of product sales as a percentage of product sales
decreased from 36% for the year ended June 30, 1995 to 26% for the year ended
June 30, 1996, a trend that has continued from fiscal 1994, when the cost of
product sales as a percentage of product sales was 72% due to inventory
write-downs and high installation start-up costs. It should not be assumed,
however, that this trend will continue. The cost of services increased by 27%
from $184,744 for the year ended June 30, 1995 to $234,229 for the year ended
June 30, 1996 due to additional service contracts required to support increased
service revenues. Cost of services as a percentage of service revenues decreased
from 39% for the year ended June 30, 1995 to 37% for the year ended June 30,
1996.
Selling expenses. Selling expenses decreased 5% from $890,868 for the year
ended June 30, 1995 to $843,312 for the year ended June 30, 1996. This decrease
was due to the net difference between lower sales commissions, the reduction of
marketing activity and staffing in the second half of fiscal 1996 and increased
trade show activity in the first quarter of fiscal 1996 and higher personnel and
non-recurring recruiting costs incurred in connection with the hiring of a vice
president of sales.
General and administrative expenses. General and administrative expenses
consist of administrative expenses and customer support expenses. Administrative
expenses increased 10% from $1,103,287 for the year ended June 30, 1995 to
$1,216,142 for the year ended June 30, 1996. This increase was primarily due to
costs incurred in connection with a bridge financing and a proposed initial
public offering of Common Stock that was abandoned in December 1995, increased
salary expense from the hiring of a vice president of Business Operations in
January 1995, and costs incurred in connection with the Recapitalization . These
amounts were offset by the termination of two vice presidents in November 1995
and February 1996 and significantly reduced administrative staffing in the
second half of fiscal 1996.
Customer support expenses decreased 10% from $930,564 for the year ended
June 30, 1995 to $841,863 for the year ended June 30, 1996. This decrease was
primarily the result of lower travel expenses resulting from a geographical
redistribution of service engineers to locations with higher demand for service
personnel.
28
<PAGE>
Research and development expenses. Research and development expenses
decreased 2% from $1,755,891 for the year ended June 30, 1995 to $1,713,094 for
the year ended June 30, 1996. This decrease reflected a temporary reduction in
consulting expenses resulting from a change in the primary independent
consulting firm retained by the Company. These costs were offset by payroll
increases necessary to maintain competitive salaries for personnel in the
research and development area and increased depreciation incurred as a result of
computer equipment upgrades. The increase in salary expense was partially offset
by a 31% staffing reduction in November 1995.
Stock compensation expense. The Company incurred a one-time expense
relating to the issuance of 416,500 shares of Common Stock to an officer of the
Company. Compensation expense in the aggregate amount of $744,000 was recognized
in conjunction with this transaction, including a non-cash charge of $424,830,
representing the fair value of the Common Stock as determined by independent
appraisal. The difference represents an accrual of an agreed upon reimbursement
of the potential tax cost of the stock grant to the officer. See "Certain
Transactions -- Transactions with Mr. Wiltshire."
Interest expense, net. Interest expense, net, increased 106% from $92,319
for the year ended June 30, 1995 to $189,939 for the year ended June 30, 1996.
Such expense increased as a result of borrowings under a secured loan, two
bridge loans, accretion on warrants issued in connection with the second bridge
loan and an increase in secured borrowings during the 1995 period. Interest
expense relating to capital leases decreased from $34,885 for the year ended
June 30, 1995 to $28,830 for the year ended June 30, 1996.
Net loss. As a result of the foregoing, the Company's net loss increased
from $(2,470,575) for the year ended June 30, 1995 to $(3,821,441) for the year
ended June 30, 1996.
Liquidity and Capital Resources
The Company had a working capital deficit of $624,608 at June 30, 1995 as
compared to a working capital deficit of $1,971,090 at June 30, 1996.
Total cash used by operating activities during the year ended June 30, 1996
was $2,366,193. The Company's net loss of $3,821,441 included non-cash expenses
aggregating $769,511, the largest of which was the $424,830 charge associated
with the fair value of the stock granted to an officer of the Company. The
principal sources of cash from operating activities were increases in accounts
payable of $228,590, accrued expenses of $208,913, and deferred revenue of
$78,384. The principal use of cash was the reduction in trade accounts
receivable of $399,300 and inventory of $78,384.
Cash used in investing activities for the year ended June 30, 1996 was
$113,084. Additions to fixed assets in the amount of $103,604, and investments
in other assets in the amount of $9,480 constituted the major use of cash in
investing activities.
The Company's operations for fiscal 1996 were funded primarily through
borrowings and equity investments. During this period, the Company raised
approximately $2,668,415 (gross proceeds) from Malcolm G. Chace, III, a director
and principal stockholder, and certain outside investors consisting of (i) a
bridge loan in September 1995 (the "September Bridge Loan") by Mr. Chace and
other private investors (the "September Bridge Loan Investors") in the amount of
$1,300,000 in anticipation of an initial public offering in December 1995 that
was
29
<PAGE>
subsequently abandoned, and (ii) $2,468,415 in borrowings from Mr. Chace. See
"Management," "Principal Stockholders" and "Certain Transactions -- Debt
Transactions with Mr. Chace and his Affiliates." During that period, the Company
also settled an employment bonus obligation in the amount of $180,000 in
exchange for 7,500 shares of Common Stock, and certain consulting fees and
earned sales commissions in the aggregate approximate amount of $20,807 in
exchange for 5,290 shares of Common Stock. See "Management -- Employment
Agreements."
As of June 30, 1996, the Company had indebtedness outstanding under a
short-term secured bank loan in the amount of $290,000. The loan, originally in
the amount of $500,000, was subject to a $70,000 principal reduction in
September 1994 and further reductions of principal in the amount of $10,000 each
month thereafter until maturity. The loan was amended effective June 26, 1996 to
increase the monthly payments to $20,000 commencing July 31, 1996 and to extend
the maturity from June 30, 1996 to September 15, 1996. The Company is
negotiating with the bank to extend the maturity date to October 31, 1996. The
loan is secured by substantially all of the Company's assets. Borrowings
outstanding under the loan accrue interest at a rate equal to the prime rate
plus 2% (10.25% as of June 30, 1996). The Company intends to repay the balance
of this indebtedness with a portion of the net proceeds of the Offering. See
"Use of Proceeds."
In January 1996, the holders of the Company's Series A 10% Cumulative
Convertible Preferred Stock, $.01 par value (the "Preferred Stock"), converted
all of the Company's issued and outstanding Preferred Stock and accrued but
unpaid Preferred Stock dividends in the aggregate approximate amount of
$2,200,000 to Common Stock and effected the reverse stock split. In connection
with the Recapitalization, the Company purchased 897 treasury shares for a cost
of $85,274. Of this amount, $915, representing the fair value of the 897 shares
acquired, was charged to treasury stock and $84,359, representing the excess of
the amount paid over the fair value of the shares, was charged to general and
administrative expenses. The fair value of the shares acquired was determined by
independent appraisal. Additionally, the Company reached an agreement with Mr.
Chace to convert all of the then outstanding indebtedness of the Company held by
him, excluding the September Bridge Loan, in the amount of $1,335,415 into
426,279 shares of Common Stock.
During January and February 1996, the Company also reached agreement with
the September Bridge Loan Investors, including Mr. Chace, to convert bridge
notes in the principal amount of $1,300,000 into 614,733 shares of Common Stock.
The Company intends to utilize the net proceeds from the Offering for (i)
repayment of the Bridge Notes in the approximate amount of $1,500,000; (ii)
repayment of bank indebtedness in the approximate amount of $290,000; (iii)
approximately $1,400,000 for research and development for product modifications
to support multiple platforms, provide device independence and increase
modularity to speed enhancement, and for external contracting of general and
vertical market-specific software enhancements; (iv) approximately $850,000 for
the expansion of the Company's products to address the client/server market; (v)
approximately $1,500,000 to further develop and enhance the Company's sales and
marketing programs; and (vi) the balance for general corporate purposes,
including research and development, accrued interest and working capital. See
"Use of Proceeds" and "Certain Transactions -- Debt Transactions with Mr. Chace
and his Affiliates." The Company has certain obligations under capital and
operating leases. See Note 8 to the Financial Statements.
The Company believes that the estimated net proceeds of the Offering,
together with funds generated from operations, will be sufficient to meet the
Company's working capital requirements for a period of at least twelve months
from the date of this Prospectus. Thereafter, additional
30
<PAGE>
funds will be required. If the Company has insufficient funds from operations,
it will be required to seek additional debt or equity financing. There can be no
assurance that such additional funds can be obtained on acceptable terms, if at
all. If additional funds are not available, the Company's business will be
materially adversely affected. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding" and the Financial Statements and notes
thereto.
The Company has suffered recurring losses from operations, has negative
cash flows from operating activities and has a working capital deficiency. As a
result, the Company's independent auditors in their report dated August 2, 1996
on the Financial Statements have included an explanatory paragraph that
describes factors raising substantial doubt about the Company's ability to
continue as a going concern. See "Risk Factors -- Working Capital Deficiencies;
History of Losses; Accumulated Deficit; Ability to Continue as a Going Concern."
At June 30, 1996, the Company had Federal and state net operating loss
("NOL") carryforwards available to reduce any future taxable income in the
approximate amount of $8,100,000, which expire in various amounts between the
years 2002 and 2010, if not previously utilized. In the event of an ownership
change, as defined in Section 382 of the Internal Revenue Code, utilization of
NOL carryforwards in periods following the ownership change can be significantly
limited. Management believes that the Company has incurred several changes of
ownership under these rules. As a result, utilization of the NOL carryforwards
is subject to various limitations, depending upon the year in which the NOL
originated. As of June 30, 1996, management estimates that approximately
$5,100,000 of the Company's Federal NOL carryforwards will be available to
offset taxable income that may be generated within the carryforward period. Of
this amount, approximately $2,400,000 is available for future utilization
without limitation and the remaining $2,700,000 is subject to a limitation of
approximately $180,000 of utilization per year. However, because the underlying
calculations are complex and are subject to review by the Internal Revenue
Service, these limitations could be adjusted at a later date. In addition, upon
consummation of the Offering, it is expected that another change of ownership
will occur. As a result of this change, management expects that all prior
limitations will remain in place, except that additional limitations will be
imposed on the $2,400,000 NOL carryforward previously available for utilization
without limitation, as described above. Management estimates that the $2,400,000
NOL carryforward will be subject to a limitation of approximately $150,000 of
utilization per year, limiting expected total utilization during the
carryforward period to $2,250,000.
The Company believes that its current corporate infrastructure can
support significant increases in sales without proportionate increases in costs.
However, there can be no assurances that sales will increase or that any cost
advantage will result.
Seasonality and Inflation
To date, seasonality and inflation have not had a material effect on the
Company's operations.
31
<PAGE>
BUSINESS
The Company develops, assembles, sells and services optical data storage
systems consisting of integrated computer hardware and software for the archival
storage and retrieval of massive quantities of computer-generated information.
The Company believes that its proprietary computer output to laser disk ("COLD")
data storage systems provide a faster, more reliable and more economical method
of storing vast quantities of computer generated data than is generally
available from other COLD systems or from traditional data storage methods. The
Company's optical data storage systems, which are marketed under the brand names
OAS and GIGAPAGE, are sold principally to large organizations that have the need
to store and retrieve large quantities of computer-generated data. Currently,
COLD systems developed and manufactured by the Company are used by companies
such as Pershing Securities, a division of Donaldson Lufkin & Jenrette Inc.,
Securities Industry Automation Corporation, Prudential Securities Incorporated,
Bank of Boston and Nationwide Mutual Insurance Company.
Industry Overview
Business organizations need to archive data for a number of reasons,
including compliance with governmental regulations, retention of historical
records and maintenance of strategically valuable historical business
information. The widespread use of computers has resulted in exponential growth
in the amount of data that must be economically archived and stored while
remaining readily accessible for retrieval. In the past, organizations have
attempted to solve this problem by using one or more of four traditionally
available data storage and retrieval alternatives: magnetic disk; paper;
magnetic tape; and computer output microfiche or microfilm ("COM").
Each of these traditional storage methods has inherent disadvantages as an
archival storage medium. Magnetic disk is currently expensive and subject to
data loss upon failure. Paper is a manually cumbersome, bulky and expensive
means of long-term storage. Magnetic tape provides response times as long as 15
minutes when storing or retrieving data even when mounting is automated using
robotics. COM is cumbersome to access and time-consuming to generate. The
storage alternatives of paper, magnetic tape, and COM have nonetheless been used
for archiving because of the high cost of magnetic disk or DASD, traditionally
the most popular storage method.
The Company's Solution: Products and Services
The Company's COLD systems permit both the storage of archival data in a
less expensive manner than with DASD, paper or COM, and quicker retrieval of
such data than is possible with magnetic tape, paper or COM. When combined with
the Company's software, the result is an integrated hardware and software
solution which economically addresses archival storage and on-line retrieval of
large quantities of computer-generated data. The Company believes its solution
also achieves several technological and competitive advantages which are not
available in other COLD systems. As compared to other COLD systems, the
Company's patented directory structure and hardware data compression capability
enables more data to be stored on, and retrieved quickly from, an optical disk,
thereby maximizing the performance of the user's system while reducing the cost
of storage. The Company's integrated COLD systems enable an end user to retrieve
and view documents or reports based on a report index, which speeds access to
data. The GIGAPAGE software is designed specifically to optimize access to
robotic disk storage systems, unlike that of most competing systems. It employs
sophisticated caching to make speed of access to the data comparable to that of
magnetic disk, but at a much lower cost of storage. The Company has also
developed a system-level "driver" for optical disk robotics called ODSM.
32
<PAGE>
Business Strategy
The Company's objective is to become a leading provider of COLD systems. To
achieve this objective, the Company is pursuing a business strategy which
includes the following principal elements: (i) identify and pursue customers
with large CPUs and massive document storage and retrieval requirements; (ii)
establish strategic alliances; (iii) develop a network of international
resellers; and (iv) exploit opportunities in growth segments of the COLD systems
market.
Identify and Pursue Customers with Large CPUs and Massive Document Storage
and Retrieval Requirements. The Company's sales and marketing efforts are
focused primarily towards business entities that are mandated by government
regulation to maintain extensive data archives. Management believes that such
sales and marketing efforts will encourage the purchase and use of the Company's
products by such businesses. To capitalize on the acceptance of its products by
businesses that are generally recognized as leaders with respect to the early
use of new information technologies, the Company will continue to rely upon
successful product installations for strategic industry-specific references to
foster follow-on sales.
Establish Strategic Alliances. The Company is pursuing strategic alliances
with certain software companies. The Company believes that the establishment of
collaborative relationships with such companies and the integration of products
produced by the Company and such strategic partners will create competitive
advantages for the Company. Such competitive advantages include the opportunity
to access the strategic partner's existing and potential customer base and the
development of products which will provide technological advantages for end
users. The Company believes strategic alliances will give the Company greater
access to the approximately 2,000 IBM-compatible mainframe sites in North
America and others throughout the world.
Develop a Network of International Resellers. The Company believes the
number of IBM-compatible mainframe sites internationally equals or exceeds the
number of sites in the United States. The Company believes that substantially
all of these sites are potential users of COLD systems. It is not practical,
however, for the Company at this stage of its development to attempt to reach
these sites directly as a result of the geographical dispersion, language
barriers and costs associated with such effort. To reach these potential
customers, the Company plans to qualify international resellers to distribute
its products. By expanding its international resale distribution network, the
Company believes it will be in a position to pursue opportunities arising in the
international COLD systems market. GIGAPAGE has already been made bilingual for
a Canadian installation, and can be adapted readily to other languages if
needed.
Exploit Opportunities in Growth Segments of the COLD Systems Market. The
Company's long-term strategic direction is to further develop its software
products towards an open architecture multiplatform implementation. The Company
intends to structure its software products into functional modules which may be
linked together over a network, thereby permitting such products to run on any
computing platform found in a large enterprise. Such developments will create a
transparent, consistent user interface across platforms and allow the specific
functions within the product to be distributed across the enterprise in a
client/server configuration. This will allow each function, or multiple
functions such as data extraction and collection, to occur at the locations
within the enterprise that are operationally most efficient. For example, the
storage component may reside on a mainframe in a data center with all of the
attendant security, management and back-up systems, while the data collection
and extraction modules may be running on a dedicated server in a payment receipt
33
<PAGE>
department at the same time customer service agents are accessing the data from
PCs in a telemarketing center.
Products
COLD Systems
Computer output to laser disk data storage systems are high-density optical
disk storage systems that store, index and retrieve formatted computer output.
COLD systems consist of a controller, an optical disk subsystem and application
software.
Hardware Products
The hardware portion of the Company's solution, the OAS, is a high
capacity, mainframe channel-attached hybrid magnetic/optical disk storage
system, composed of the OAS controller and an optical disk robotic
"autochanger." The OAS controller can direct various types and models of robotic
autochanger systems, which are manufactured by a number of vendors, commanding
such robots to mount and dismount disks automatically as needed in response to
requests from the host software. These autochangers, which the Company purchases
from independent third party suppliers, are installed by the Company as a part
of the integrated system at the customer site. Autochangers of varying
capacities are available to meet the needs of the marketplace, for storage
requirements from 166 million pages to multiple tens of billions of pages.
Autochangers. The entry-level autochanger supports customers with
relatively modest storage volumes. When used in conjunction with the Company's
data compression technology, the capacity of this autochanger is significantly
enlarged. In such instance, the entry-level autochanger will have the capacity
to store over 166 million typical report pages.
Because the optical drives housed within the Company's most commonly
installed autochangers are American National Standards Institute
("ANSI")-standard 5 1/4 inch multifunction drives, the optical disk platters
used within the autochanger may be a mixture of rewritable and write-once
("WORM") types. The rewritable disks are used to store those reports that do not
have to be retained for long time periods. The disks are then re-used when the
useful life of the reports has elapsed. WORM disks preclude modification of
data, as required for data such as securities industry reports subject to the
record retention rules of the Securities and Exchange Commission.
Customer need for greater capacity is addressed by a field-upgradeable
family of autochangers. Middle-range requirements are accommodated by a system
which can store from 590 million to over 1 billion report pages in a compact (3
foot by 3 foot) floor area, while large capacity needs are served by the
Company's largest system, which stores from 860 million to more than 2-1/2
billion pages. Multiple systems may be combined for even greater capacity. The
Company also provides 12 and 14 inch format WORM solutions.
The OAS Control Unit. The control unit of the OAS system is directly
attached to the mainframe via a conventional IBM-compatible interface to an
input-output ("I/O") channel of the IBM-compatible mainframe. The control unit's
dedicated I/O hardware passes data back and forth over the channel between the
mainframe and the optical disk autochanger at up to 3 megabytes per second. The
control unit is an intelligent storage management subsystem, with self-contained
software to track
34
<PAGE>
platter and file locations and automate the movement of disks into and out of
the optical disk drives within the robotic autochanger.
The OAS control unit contains a cache buffer (a large bank of RAM used for
temporary storage when transferring data from one device to another) to permit
data to be exchanged rapidly between the mainframe and the optical disk drives.
In addition, the control unit performs data compression using a patented
hardware-based implementation of the Lempel-Ziv compression algorithm. When this
hardware-based compression is combined with GIGAPAGE's host-based software data
compression, compound compression ratios of 7.5:1 and higher are achieved. The
robustness of the compression capability is illustrated by the fact that on
reports containing redundant data, some users have achieved compression ratios
as high as 40:1. While not reflective of typical reports, this high compression
illustrates the adaptive capabilities of the dual data compression architecture
of GIGAPAGE and the OAS.
Software Products
During the last three years, the Company has developed an application
software product for IBM mainframe systems and GIGAPAGE, which can be installed
in conjunction with the OAS.
GIGAPAGE is an end-user application for report storage and retrieval.
GIGAPAGE stores and retrieves computer-generated reports (such as customer
statements) on various combinations of DASD and optical disk storage. This
enables organizations to eliminate their existing COM systems and reduce staff
used for manual retrieval of microfilm, microfiche and paper reports. Based on
information provided by its customers, the Company believes that a user of a
COLD system developed by the Company may recover its investment in GIGAPAGE
within a period as short as one year after the installation of such COLD system.
Such a return may be realized as a result of the low cost per megabyte
achievable through use of the OAS autochanger system and its hardware data
compression capability. GIGAPAGE also provides its users with the ability to
access report data efficiently, by displaying a retrieved document based upon
criteria established by the user. The Company believes that this creates
competitive advantages for end users who must quickly respond to customer
inquiries. GIGAPAGE changes report access from a slow, cumbersome,
manually-intensive process to a fast, near-line computer-based process. The
Company has successfully installed GIGAPAGE with the OAS at Pershing Securities
(a division of Donaldson Lufkin & Jenrette Inc.), Securities Industry Automation
Corporation, Prudential Securities Incorporated, Bank of Boston and Nationwide
Mutual Insurance Company.
Customer Support and Service
In addition to being a source of revenue generation, the Company believes
that its approach to customer service and support has been and will continue to
be a significant factor in the market acceptance of its products. As a result,
the Company intends to expand its customer service and technical support
organization. Because most of the Company's products are used in complex, large
scale mainframe data centers, the successful implementation and utilization of
the Company's products substantially depends on the Company providing a high
level of customer service, training and support. Consequently, the Company
typically allocates substantial resources to customer installations,
particularly in the first few weeks before and the first several weeks after a
new installation. These resources include field support personnel who assess the
systems operating environment of the customer prior to installation, install and
test the hardware, support the hardware and coordinate the efforts of
third-party service providers that service the Company's installed base of
systems;
35
<PAGE>
systems engineering personnel who install and configure the software components
of the Company's systems, assist the customer in assuring that the other
elements of the customer's data center properly interface with the Company's
system, assist the customer in defining reports to be stored on the Company's
system and in supporting the Company's software; training personnel who train
the customer's data center managers and users on the operation and use of the
Company's system; a 24 hour help desk to field all customer support and service
inquiries; and third-party service organizations with whom the Company contracts
to provide on-site customer response for hardware-related issues.
In the years ended June 30, 1995 and 1996, service revenue generated from
the post-sale maintenance of COLD systems accounted for approximately 13% and
32%, respectively, of the Company's total revenues. Substantially all of the
Company's customers have elected to extend their service contracts with the
Company beyond the one year period that is customarily afforded to customers at
the time of installation of new products. The Company anticipates that its
service-generated revenues will continue to increase as the number of COLD
system installations increases.
As of August 1, 1996, the customer service and support group consisted of 8
employees, 4 of whom are in-house and the remainder in the field. These
personnel provide support for the engineers maintaining customer equipment in
the field and provide the Company with an opportunity to recommend future system
sales to such customers.
Future Development Projects
The Company plans to continue the enhancement of its hardware and software
product offerings in response to both customer feedback regarding desired
product capabilities and analysis of competitive offerings to keep pace with
technological advances. Enhancements recently implemented in the GIGAPAGE system
include improvements to its indexing capabilities and increasing the speed with
which reports can be captured by the system. Increasing retrieval performance to
expand the range of applications into which the system may be introduced is next
on the plan, along with enhancement of the types of reports supported and
expansion of the system's demand print capabilities.
The Company intends to further extend its mainframe-based GIGAPAGE product
by creating strategic alliances with other companies which produce complementary
products. For example, the GIGAPAGE system's report management capability will
be improved through addition of support for report formats used in insurance
industry applications. The mechanism for increasing the GIGAPAGE system's
on-line transaction performance will be through the integration of the Company's
newly-available RAID (redundant array of independent disks) technology, which
capitalizes on the cost benefits achievable through the OAS controller's
integrated hardware data compression capability. The OAS is also expected to
undergo continuous, incremental product improvement, focused on increasing its
aggregate data throughout, increasing the numbers and types of optical drives
and autochangers supported, improving its mainframe fiber optic (ESCON)
connectivity options, and enhancing its RAID system's configuration options and
capacity.
Further enhancements and evolution of the Company's product are anticipated
to occur in connection with the Company's intended development of its software
products to move such products towards an open architecture multiplatform
implementation, to allow the functions within the product to be distributed
across the enterprise in a client/server configuration.
The Company estimates that such developments will cost approximately
$1,400,000, which will be financed with a portion of the net proceeds of the
Offering. See "Risk Factors -- Future
36
<PAGE>
Capital Needs; Uncertainty of Additional Funding," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Marketing
The market for COLD systems is segmented into the mainframe, PC
(stand-alone or LAN-based), client/server and CD-ROM markets. Within each market
segment, product offerings may be divided into two categories: (i) COLD software
packages and (ii) COLD turnkey systems. COLD turnkey systems are generally
comprised of COLD software bundled with a controller and an optical disk system.
Generally, the highest priced COLD systems are those that are mainframe or
client/server based. Additionally, the market for COLD systems includes a
revenue component derived from the service and support of COLD systems products.
A 1994 industry report published by Frost & Sullivan estimated that
domestic COLD systems revenues, including revenues for software, turnkey system
and service support, would approximate $755 million in 1999. In 1989, the
domestic market for COLD systems amounted only to $24.7 million. Growth in the
market has been fostered by an increasing awareness of the performance and
economic benefits which may be achieved through the use of COLD systems
products. The report predicted that growth in the domestic COLD systems market
during the 1994 to 1999 period would be enhanced by the further development of
the client/server and CD-ROM segments of the market. The report further
predicted that client/server based COLD systems would become the dominant
architecture in 1999, outpacing mainframe-based COLD systems sales.
Additionally, the report forecasted that COLD system suppliers with the
capability to provide post-installation service support would benefit as the
number of installed system units increases. Participation in the service side of
the business not only provides COLD system suppliers with incremental revenue
sources but also positions such COLD system suppliers to capitalize on future
systems sales opportunities with those customers for whom the supplier provides
system support.
The Company advertises and markets its products and services through direct
mailings, participation and exhibition of products at industry trade shows,
personal solicitations at businesses which have been identified as likely
purchasers of the Company's products and industry referrals. The Company
believes that its customer support function, which provides pre- and
post-installation training and services to end users, is a significant factor in
the market acceptance of its products. The Company intends to continue to expand
its customer support function as the number of system installations increase.
To explore opportunities in market segments in which it does not currently
compete, the Company has begun to create strategic business alliances and
intends to further develop certain of its software products to facilitate
integration with those of its corporate partners. To access international
markets, the Company plans to qualify international resellers to distribute its
products. To capitalize on opportunities arising in the client/server segment of
the COLD systems market, the Company intends to reconfigure its software
products into functional modules. Additionally, the Company is establishing
collaborative relationships with certain software companies to market its
products more effectively and gain greater access and credibility with
prospective customers.
Customers
Sales to Nationwide Mutual Insurance Company, Bank of Boston Corporation
Technology Services and Bell Sygma, Inc. accounted for 35%, 22% and 11%,
respectively, of the
37
<PAGE>
Company's total net sales in the year ended June 30, 1996. Sales to Bank of
Boston Corporation Technology Services Incorporated, Chevron Information
Technologies, Inc., Securities Industry Automation Corporation, Prudential
Securities Incorporated, and Bell Sygma, Inc. accounted for 18%, 16%, 15%, 14%
and 10%, respectively, of the total net sales for the year ended June 30, 1995.
Representative purchasers of the Company's GIGAPAGE product include
Pershing Securities, a division of Donaldson Lufkin & Jenrette Inc., Securities
Industry Automation Corporation, Bank of Boston and Nationwide Mutual Insurance
Company. While certain of these customers have purchased multiple systems, there
can be no assurance that they will purchase the Company's products in the
future. See "Risk Factors -- Dependence on Significant Customers."
Competition
The computer data storage and retrieval industry is highly competitive and
the Company expects this level of competition to intensify. There are certain
competitors of the Company that have substantially greater financial, marketing,
development, technological and production resources than the Company. The
Company's primary competitors in the GIGAPAGE market are IBM Corporation,
FileTek Corporation, Eastman Kodak Company, Data/Ware Corporation, Anacomp,
Inc., Mobius Management Systems, Inc., Computer Associates International, Inc.,
RSD America, Inc. and Network Imaging Systems Corp. The Company believes that
participants in the data storage and retrieval market compete on the basis of a
number of factors including vendor and product reputation, system features,
product quality, performance and price, and quality of customer support services
and training. The Company positions itself to compete effectively with its
competitors by offering what it believes is superior customer service and
technical support in connection with hardware and software products which
provide certain technological and user application advantages. See "Risk Factors
- -- Competition."
Intellectual Property
Although the Company believes that its continued success will depend
primarily on its continuing product innovation, sales, marketing and technical
expertise, product support and customer relations, the Company believes it also
needs to protect the proprietary technology contained in its products. The
Company holds three United States patents on its directory structure and its
implementation of hardware data compression. The Company relies primarily on a
combination of copyright, trademark, trade secret laws and contractual
provisions to establish and protect proprietary rights in its products. The
Company typically enters into confidentiality and/or license agreements with its
employees, strategic partners, customers and suppliers and limits access to and
distribution of its proprietary information. Despite these precautions, it may
be possible for unauthorized third parties to copy certain portions of the
Company's products, reverse engineer or otherwise obtain and use information the
Company regards as proprietary.
The Company is subject to the risk of litigation alleging infringement of
third-party intellectual property rights. There can be no assurance that third
parties will not assert infringement claims against the Company in the future
with respect to current or future products. Any such assertion, if found to be
true and legally enforceable, could require the Company to pay damages and could
require the Company to develop non-infringing technology or acquire licenses of
technology that is the subject of the asserted infringement, resulting in
product delays, increased costs, or both. See "Risk Factors--Protection of
Intellectual Property."
38
<PAGE>
Assembly
Assembly of the Company's OAS is done at the Company's facility in North
Kingstown, Rhode Island. The Company designs and assembles portions of its COLD
systems which are then integrated at the Company's plant with optical disk
autochanger systems manufactured by a variety of third parties. Production of
the OAS entails testing, assembling and integrating standard and
Company-designed components and subassemblies built by and purchased from
independent suppliers. The Company has one full-time hardware engineer and two
manufacturing personnel. The Company configures and tests the Company-built and
third-party-supplied hardware and software in combinations to meet a wide
variety of customer requirements.
Although the Company generally uses standard parts and components for its
products, certain components, such as CPU boards, ESCON hardware and
high-density integrated circuits, are presently available only from single or
limited sources. The Company has no supply commitments with its vendors and
generally purchases components on a purchase order basis, as opposed to entering
into long-term procurement agreements with vendors. The Company has generally
been able to obtain adequate supplies of components in a timely manner from
current vendors or, when necessary to meet production needs, from alternate
vendors. The Company believes that alternative sources of supply would not be
difficult to develop over a short period of time but that an interruption in
supply or a significant increase in the price of these components could
adversely affect the Company's operating results and business. See "Risk
Factors--Reliance on Single or Limited Sources of Supply."
Research and Development
The COLD market is characterized by rapid technological developments,
evolving industry standards, swift changes in customer requirements and frequent
new product introductions and enhancements. As a result, the Company devotes and
intends to continue to devote substantial resources to research and development
to enhance its proprietary technology and knowledge. The Company utilizes its
own employees for research and development except in certain circumstances
involving product enhancements. In those circumstances, the Company regularly
retains independent experts to consult and to design new software modules. Such
product enhancements are then evaluated and integrated with the Company's
existing products by the Company's internal research and development staff. In
the years ended June 30, 1995 and 1996, the Company spent $1,755,891 and
$1,713,094, respectively, on research and development activities.
Employees
As of August 15, 1996, the Company had 31 full-time employees, including 11
in product development, 4 in sales and marketing, 2 in manufacturing, 1 in data
facilities support, 8 in customer support services and 6 in finance and
administration. The Company considers its relations with its employees to be
satisfactory.
Competition for technical personnel in the Company's industry is intense.
The Company believes that its future success will depend on its continued
ability to attract and retain qualified personnel. See "Risk Factors--Ability to
Manage Growth."
39
<PAGE>
Facilities
The Company's corporate headquarters are located in North Kingstown, Rhode
Island, in a leased facility consisting of approximately 10,300 square feet of
space occupied under a lease expiring in December 1997. The Company also leases
office space in New York City on a short-term basis. The Company believes its
existing facilities are adequate for its present needs.
The Company's bank loan is secured by substantially all of the Company's
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
40
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name and Age Position
Malcolm G. Chace III, 61 (1)(2) Director, Chairman
Hector D. Wiltshire, 54 Director
Robert H. Stone, 46 President, Chief Executive Officer, Director
Thomas E. Gardner, 58 (1)(2) Chief Financial Officer, Treasurer, Director
Marvyn Carton, 77 (1) Director
Matthias E. Lukens, Jr., 46 Vice President - Research & Development
Christopher Neefus, 40 Vice President - Sales
George H. Steele III, 51 Vice President - Marketing
Denis L. Marchand, 43 Financial Controller
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
All directors hold office until the annual meeting of stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Information with respect to the business experience
and affiliations of the directors and the executive officers of the Company is
set forth below. Following the consummation of the Offering, the Company intends
to appoint two directors who are neither officers nor employees of the Company,
Mr. Chace or their affiliates (the "Independent Directors").
Mr. Chace has been Chairman of the Board of the Company since December 1994
and a director of the Company since October 1991. Mr. Chace has been a Vice
President and director of Point Gammon Corporation, a Chace family investment
company, since 1986. Mr. Chace is also Chairman of Mossberg Industries, Inc.
("Mossberg"), a manufacturer of plastic reels principally used by the wire
industry, Chairman of Bank Rhode Island, and a director of Berkshire Hathaway
Company. He previously served as a director of Rhode Island Hospital Trust
National Bank.
Mr. Wiltshire was appointed to the Board of Directors in January 1996 and
served as interim President and Chief Executive Officer of the Company from
January 1996 to July 1, 1996. From 1990 to present, Mr. Wiltshire has served as
President and Chief Executive Officer of Wiltshire Technologies, Inc., a
consulting firm providing strategic planning and capital raising services for
clients in the medical and technology industries. From 1988 to 1990, Mr.
Wiltshire served as President and Chief Executive Officer of Riso, Inc., a
developer and distributor of high speed printing systems. From 1968 to 1988, Mr.
Wiltshire served in various senior positions, including Director of Gestetner
Holdings P.L.C. and President and Chief Executive Officer of Gestetner U.S.A.
and Canada, a manufacturer and distributor of printing and duplicating
equipment. Mr. Wiltshire was responsible for all Gestetner activities in the
Western Hemisphere, including North and South America, and in Japan. Mr.
Wiltshire is a member of the Association of Certified and Corporate Accountants
and the British Computer Society.
41
<PAGE>
Mr. Stone was elected President and Chief Executive Officer of the Company
on August 1, 1996. Prior to joining the Company, Mr. Stone was Director of
Marketing of Standard Duplicating Machines Corporation since June 1994 and prior
to that president of Marketplex, Inc., a marketing services company, since 1982.
From June 1989 to February 1992, Mr. Stone was Director of Product Marketing of
Riso, Inc., a developer and distributor of high speed printing systems.
Mr. Gardner has served as Chief Financial Officer of the Company since
April l996, Treasurer of the Company since May 1994 and has been a director of
the Company since May 1994. Mr. Gardner does not serve full time as the
Company's Chief Financial Officer or Treasurer. Mr. Gardner has also served as
the President of LJT Associates (a planning and financial consulting firm) since
April 1992. From 1979 to October 1992, Mr. Gardner was Senior Vice President at
Rhode Island Hospital Trust National Bank. Mr. Gardner has served on various
Rhode Island and Providence commissions and committees and currently serves as
the Rhode Island Governor's appointee to the Depositors' Economic Protection
Corporation Performance Review Committee. Mr. Gardner, through LJT Associates,
is presently providing consulting services to Point Gammon Corporation.
Mr. Carton has been a director of the Company since 1994. Mr. Carton is a
Director Emeritus of Allen & Company, Incorporated, an investment banking and
financial services company. Mr. Carton began his employment at Allen & Company,
Incorporated in September 1948 and held various positions at Allen & Company,
Incorporated until his retirement in 1991 from the office of Executive Vice
President. Mr. Carton has been a Director of Acquisition Resources Ltd., an oil
and gas company, since 1993, the Chairman of Brown University Third Century Fund
from 1981 to 1987 and Co-Chairman since then. Mr. Carton has also served in the
past as a member of the boards of directors of Syntex Corporation (a
pharmaceuticals company), Frank B. Hall (an insurance and financial services
firm), and American Axle & Manufacturing Co., among others.
Mr. Lukens has been Vice President - Research and Development since January
1996. From April 1994 to January 1996 Mr. Lukens served as the Company's
President and Chief Executive Officer. From April 1992 to May 1994, Mr. Lukens
served as President of WHR Corp., a local and wide area network equipment
compressing router company. From June 1990 to March 1992, Mr. Lukens was
President of Watch Hill Research Inc., a producer of high speed data compressors
for wide area network communications.
Mr. Neefus has been Vice President - Sales of the Company since October
1995. Mr. Neefus was previously employed by Anacomp, Inc., a manufacturer and
distributor of microfiche and microfiche reading equipment, from 1989 to October
1995 where he held various management positions in both the service bureau and
hardware sales divisions, including Region Vice President for the New York/New
Jersey Business Operations. Prior to 1989, Mr. Neefus held various sales
positions, including positions relating to the sale of IBM-compatible mainframe
software solutions.
Mr. Steele has served as Vice President - Marketing since June 1995. Mr.
Steele, a founder of the Company, previously served as Director of Marketing
from April 1988 to June 1995. Mr. Steele is the architect of both the OAS and
GIGAPAGE. Prior to joining the Company, he was program manager of new products
and development for Aquidneck Data Corporation, and President of New England
Data Research, an embedded computer systems development company.
Mr. Marchand has served as Financial Controller of the Company since
September 1994. From July 1993 to September 1994 he was a Firm Administrator for
Rubin, Hay & Gould, P.C., a law firm located in Framingham, MA. From October
1990 through May 1993 he was the financial
42
<PAGE>
controller of the U.S. subsidiary of EWAG Corporation, a high precision grinding
machine manufacturer. Mr. Marchand holds an M.B.A degree from Bryant College, is
a certified internal auditor and has successfully passed the Uniform Certified
Public Accountant's examination.
Board Committees
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee is responsible for reviewing, approving and
recommending to the Board of Directors all compensation arrangements for
executive officers of the Company and for administering the 1996 Plan. The Audit
Committee is responsible for recommending to the Board of Directors the annual
engagement of the independent auditors and for reviewing with the independent
auditors the scope and results of audits, the internal accounting controls of
the Company, audit practices and professional services furnished by the
independent auditors. The Company anticipates that the Independent Directors
will join the Compensation and Audit Committees.
Director Compensation
The Company's directors currently do not receive any cash compensation for
service on the Board of Directors or any committee thereof, but directors may be
reimbursed for certain expenses in connection with attendance at Board or
committee meetings. The Company presently intends to continue this compensation
practice for its directors. However, the Company may reconsider its policy if
additional director compensation is necessary to enable the Company to attract
and retain qualified independent directors.
Search for Chief Financial Officer
The Company has commenced a search for a replacement for Mr. Gardner as the
Company's Chief Financial Officer. Mr. Gardner was appointed as Chief Financial
Officer in April 1996 in contemplation of the Offering. Such search has been
initiated as a result of Mr. Gardner's desire to serve the Company in such
capacity only until such time as a suitable replacement can be identified and
hired.
Executive Compensation
Summary Compensation Table. The following table sets forth certain
information with respect to the compensation paid by the Company for services
rendered during the fiscal year ended June 30, 1996 to the chief executive
officer and the other executive officers of the Company whose compensation
exceeded $100,000 (the "Named Executive Officers").
43
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Securities
Underlying All Other
Name and Principal Position Salary Bonus Options Compensation
<S> <C> <C> <C> <C>
Hector Wiltshire, -- -- -- $744,000(2)
President and Chief Executive
Officer(1)
Matthias E. Lukens, Jr., $127,882 $20,000 1,216 --
President and Chief Executive
Officer (3); Vice President -
Research & Development
George H. Steele, Vice President $ 76,400 -- 676 $85,555(4)
- -
Marketing
Christopher Neefus, Vice $ 89,501 5,000(5) $14,640(4)
President - Sales
- -------------------
(1) Mr. Wiltshire was interim President and Chief Executive Officer from
January 1996 to July 1996.
(2) Includes a non-cash charge of $424,830 representing the fair value of
Common Stock issued to Mr. Wiltshire. See "Certain Transactions -
Transactions with Mr. Wiltshire."
(3) Effective January 2, 1996, Mr. Lukens' duties were changed. Mr. Lukens now
serves as Vice President-Research and Development.
(4) Represents sales commissions paid during fiscal 1996.
(5) Represents a hiring incentive bonus.
</TABLE>
Option Grants in Last Fiscal Year. The following table sets forth certain
information with respect to option grants during the fiscal year ended June 30,
1996 to the Named Executive Officers.
44
<PAGE>
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise or Expiration
Name Granted Fiscal Year Base Price Date
($/SH)
Hector Wiltshire -- -- -- --
Matthias E. Lukens, Jr. 1,216 24% $222 8/11/05
George H. Steele 676 14% $222 8/11/05
Christopher Neefus -- -- -- --
Year-end Option Table. During the fiscal year ended June 30, 1996, none of
the Named Executive Officers exercised any options issued by the Company. The
following table sets forth information regarding the stock options held as of
July 1, 1996 by the Named Executive Officers.
<TABLE>
<CAPTION>
Name Number of Securities Underlying Value of Unexercised In-the-Money-
Unexercised Options at Fiscal Year-End Options at Fiscal Year End
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Hector Wiltshire -- -- -- --
Matthias E. Lukens, Jr. 3,107(1) 1,216(1) (2) (2)
George H. Steele 406(1) 676(1) (2) (2)
Christopher Neefus -- -- -- --
- -------------------
(1) On August 1, 1996, the outstanding options were canceled and new options
were granted. See "Stock Option Plans."
(2) The exercise price of the options outstanding at June 30, 1996 was greater
than the estimated fair market value of the Common Stock on such date. In
the absence of a public trading market, the fair market value was estimated
to be equal to the Company's book value on such date.
</TABLE>
Stock Option Plans
In August 1996, the Company terminated the 1994 Directors Plan, which was a
stock option plan for non-employee directors. There are options outstanding to
purchase 1,014 shares pursuant to the 1994 Directors Plan at an exercise price
of $222 per share. Under the 1994 Directors Plan, upon a director's election to
the Board, the director was automatically awarded an option to purchase 338
shares of Common Stock, at an exercise price equal to 100% of the fair market
value on the date the option was granted. The option was not exercisable until
the director served one full-year term from the date such director was elected.
The option then vested 25% on each of the first through fourth anniversaries of
the date of the grant.
In August 1996, the Company terminated its 1987 Stock Option and Purchase
Plan and 1994 Stock Option Plans (the "Terminated Plans") and adopted the 1996
Plan pursuant to which key employees of the Company, including directors who are
employees, are eligible to receive grants of options to purchase Common Stock,
at the discretion of the Compensation Committee. The Company has reserved
500,000 shares of Common Stock for issuance under the 1996 Plan. Options granted
under the 1996 Plan can be either incentive stock options or non-qualified
options, at the discretion of the Compensation Committee. On August 1, 1996, the
Company canceled the 8,351 options outstanding under the Terminated Plans
(having exercise prices ranging from $74 to $240.50 per share) and granted
options to purchase 248,351 (of which 8,351 are immediately exercisable) shares
of Common Stock at an exercise price equal to $3.75 per share.
45
<PAGE>
Non-Plan Options
From time to time, the Company has issued options to purchase shares of its
Common Stock to certain consultants and in connection with certain equity and
debt financings provided to the Company. As of August 1, 1996, the Company had
non-plan options to purchase 749 shares of Common Stock outstanding; of such
amount, options to purchase 216 shares, 12 shares and 203 shares were held by
Mr. Christopher Ingraham (a former director of the Company), Mr. Lukens and
Mossberg, respectively. Mr. Chace is the Chairman of Mossberg. The non-plan
options are all 100% vested and the exercise price of the options range from
$222 to $399.60 per share. Each of Messrs. Ingraham and Lukens received his
options as compensation for services rendered to the Company as a consultant and
Mossberg received its options in connection with certain debt financing it
provided to the Company.
Employment Agreements
The Company entered into a two-year employment agreement with Mr. Stone
pursuant to which he is employed full-time as the Company's President and Chief
Executive Officer effective August 5, 1996. Pursuant to the terms of the
employment agreement, Mr. Stone receives an annual base salary of $137,500, and
is entitled to bonus compensation (payable within 10 days following the receipt
of the Company's audited financial statements for the fiscal year ended June 30,
1997) calculated as follows: (i) if the Company has a pre-tax profit for fiscal
1997 of $500,000 or less, 5% of such pre-tax profit; and (ii) if the Company has
a pre-tax profit for fiscal 1997 of more than $500,000, 10% of such pre-tax
profit. The bonus will be paid by the grant in August 1996 to Mr. Stone of an
incentive stock option to purchase 10,000 shares of the Common Stock at an
exercise price of $3.75 per share, vesting only if the pre-tax profits for
fiscal 1997 exceed $500,000 and the balance (calculated by subtracting from the
total bonus the amount determined by multiplying any difference between (i) the
market price per share of the Common Stock on June 30, 1997, and (ii) $3.75, by
10,000) in cash. Bonuses for any subsequent fiscal years during which Mr. Stone
is employed will be determined by the Board of Directors. Mr. Stone also was
granted 40,000 incentive stock options under the 1996 Plan, with an exercise
price equal to $3.75, vesting 50% at July 31, 1997 and the remainder at July 31,
1998, so long as he continues to be employed by the Company. Additionally, Mr.
Stone is entitled to participate in any incentive compensation, bonus and stock
option plan established by the Company for the benefit of executive level
employees of the Company to the extent prescribed by the Board of Directors.
Pursuant to the terms of the employment agreement, if Mr. Stone's employment is
terminated by the Board of Directors other than for "cause," he is entitled to
receive severance payments equal to the greater of six months salary or the
balance of his then current salary through June 30, 1997 (or, if such
termination occurs after June 30, 1997, through the last day of the Company's
fiscal year in which such termination occurs). The employment agreement expires
on July 31, 1998, subject to successive automatic one year renewals unless
terminated by the Company at least 90 days prior to the expiration of the term.
Mr. Stone is restricted from competing with the Company and prohibited from
disclosing any confidential information regarding the Company during and
following his period of employment.
The Company has entered into an employment agreement with Mr. Lukens
pursuant to which he is currently employed full-time as the Company's Vice
President-Research and Development. Mr. Lukens began his employment with the
Company in May 1994 as the Company's President and Chief Executive Officer. On
January 2, 1996, Mr. Luken's position and duties were changed to Vice
President-Research and Development. Pursuant to the terms of the employment
agreement, if Mr. Lukens voluntarily terminates his employment with the Company
prior to October 31, 1996 as a result of the change in his position and duties,
he will be entitled to severance benefits equal to six
46
<PAGE>
months salary. The employment agreement expires on August 31, 1997, subject to
successive automatic one year renewals unless terminated by the Company at least
90 days before expiration of the term. Mr. Lukens receives an annual base salary
of $119,000, subject to increase at the discretion of the Compensation
Committee. Additionally, Mr. Lukens is entitled to participate in any incentive
compensation, bonuses and stock options established for the benefit of executive
level employees of the Company as determined by the Board of Directors or the
Compensation Committee. Mr. Lukens is restricted from competing with the Company
and prohibited from disclosing any confidential information regarding the
Company during and following his period of employment.
CERTAIN TRANSACTIONS
Debt Transactions with Mr. Chace and his Affiliates
In November 1994, the Company entered into a secured line of credit with
Mossberg, pursuant to which Mossberg loaned the Company $300,000 secured by
certain accounts receivable of the Company. The line of credit was increased to
$500,000 on December 1, 1994. The interest rate on the outstanding balance of
the line of credit was 9 3/4% per annum for each advance made prior to December
1, 1994 and the prime rate in effect on the date of each advance made on or
after December 1, 1994 plus 2% per annum. The line of credit was repaid and
terminated in February 1995. Mr. Chace, the Chairman of Mossberg, owns 17.15% of
the common stock of Mossberg.
In December 1994, the Company entered into a secured line of credit with
Mr. Chace, pursuant to which Mr. Chace loaned the Company $200,000 secured by
certain accounts receivable of the Company. The interest rate on the outstanding
balance of the line of credit was the prime rate of Fleet National Bank in
effect on the date of each advance plus 2% per annum. The line of credit was
repaid and terminated in January 1995.
In May 1995, the Company entered into a secured line of credit with
Mossberg, pursuant to which Mossberg loaned the Company $200,000 secured by
certain accounts receivable of the Company. The interest rate on the outstanding
balance of the line of credit was the prime rate of Fleet National Bank in
effect on the date of each advance plus 2% per annum. The line of credit was
repaid and terminated in September 1995.
In May 1995, the Company entered into a secured line of credit with
Elizabeth Z. Chace and Christian Nolen, as Trustees u/a/d August 30, 1938 f/b/o
Malcolm G. Chace III ("Trustees"), pursuant to which the Trustees loaned the
Company $250,000 secured by certain accounts receivable of the Company. The
interest rate on the outstanding balance of the line of credit was the prime
rate of Fleet National Bank in effect on the date of each advance plus 2% per
annum. Mr. Chace is the beneficiary of said trust. The line of credit was
increased to $300,000 in June 1995 and the additional $50,000 was immediately
borrowed by the Company. The line of credit was repaid and terminated in
December 1995.
In August 1995, the Company entered into an additional line of credit with
Mr. Chace, pursuant to which Mr. Chace loaned to the Company $1,335,415 at
various dates secured by certain future accounts receivable of the Company. The
interest rate on the outstanding balance of the line of credit was the prime
rate plus 2%. In connection with the Recapitalization, Mr. Chace exchanged the
promissory notes in the aggregate principal amount of $1,335,415 plus $40,759 of
accrued but unpaid interest for 426,279 shares of Common Stock. See "The
Company" and "Management's Discussion
47
<PAGE>
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
In February 1996, the Company borrowed $250,000 from Mr. Chace. Such
borrowings were evidenced by a demand promissory note which bore interest at the
rate of 10.25% per annum. The note was repaid in full in February 1996.
In March 1996, the Company borrowed $250,000 from Mr. Chace. Such
borrowings were evidenced by a demand promissory note which bore interest at the
rate of 10% per annum. This note was exchanged for units in the Bridge
Financing.
In April 1996, the Company borrowed $85,000 from Mr. Chace for working
capital purposes. Such borrowings were evidenced by a demand promissory note
which bore interest at the rate of 10%. The note was repaid in full in May 1996
from the proceeds of the Bridge Financing. See "--Securities Offerings" below.
Agreements with Former Officers and Directors
The Company is a party to a Consulting Agreement dated December 20, 1994
with Mario Briccetti, a former President and Chief Executive Officer of the
Company. Pursuant to the agreement, Mr. Briccetti agreed to provide the Company
with his assistance in matters in which he was involved on behalf of the Company
prior to his termination. Such assistance is to be rendered without
compensation, other than reimbursement of out-of-pocket expenses, except in
those instances requiring out-of-town travel for which he will be compensated
$650 per day. Pursuant to the agreement, in January 1995, Mr. Briccetti: (i)
exercised options to purchase 229 shares of Common Stock at an exercise price of
$74.00 per share, by delivering 76 shares of Common Stock owned by him valued at
$224.00 per share and paying $2.00 in cash for an aggregate exercise price of
$16,929; and (ii) exchanged options to acquire 915 shares of Common Stock
pursuant to the 1987 Plan for options to acquire 915 shares of Common Stock at
an exercise price of $92.50 pursuant to the 1994 Employee Plan. The exchange of
options created a new measurement date and the Company recognized compensation
expense in the amount of $118,517 based on the difference between the exercise
price and the fair market value of the options granted. The Company has no
existing obligations pursuant to this agreement with the exception of payment
for travel expenses and compensation for out of town travel if the Company
engages the services of Mr. Briccetti.
From time to time, the Company has issued options to purchase shares of its
Common Stock to certain consultants and in connection with certain equity and
debt financings provided to the Company. As of June 30, 1996 the Company had
non-plan options to purchase 749 shares of Common Stock outstanding; of such
amounts, options to purchase 216 shares, 12 shares and 203 shares were held by
Mr. Ingraham, Mr. Lukens and Mossberg, respectively. Mr. Chace is the Chairman,
President and Chief Executive Officer of Mossberg. The non-plan options are all
100% vested. The exercise price of the options range from $222 to $399.60 per
share. Each of Messrs. Ingraham and Lukens received his non-plan options as
compensation for services rendered to the Company as a consultant and Mossberg
received its non-plan options in connection with certain financing it provided
to the Company. See "Management -- Non-Plan Options."
48
<PAGE>
Securities Offerings
In May 1994, the Company sold 6,757 shares of Common Stock for $148 per
share in cash in a private placement. Manold Company, a general partnership in
which Mr. Chace is a partner, purchased 2,252 shares of Common Stock for an
aggregate purchase price of $333,334. As a result of such sale, the Company was
required, pursuant to anti-dilution provisions in agreements with certain
holders of Common Stock, to issue 5,255 shares of Common Stock to such
stockholders. Prior to this Offering, all rights of such holders to receive
additional shares of Common Stock pursuant to such anti-dilution provisions have
been terminated.
During the second quarter of fiscal 1995, the Company sold 2,671 shares of
Common Stock in a private placement for a total of approximately $593,000 in
cash to certain of the Company's directors and their affiliates. The following
directors and affiliates purchased shares of Common Stock from the Company: Mr.
Carton purchased 338 shares, Mr. Gardner purchased 67 shares, Mr. Ingraham
purchased 13 shares, Manold Company purchased 751 shares, Paul A. Gould
purchased 225 shares, Allen & Company, Inc., a company on whose Board of
Directors Mr. Carton serves, purchased 526 shares and Brown University Third
Century Fund, an entity on whose Board of Directors Mr. Carton serves, purchased
751 shares.
In January 1995, the Company sold 50,000 shares of Preferred Stock for
$2,000,000 in cash in a private placement to the Trustees.
In September 1995, the Company sold 26 units, each unit consisting of a
$50,000 promissory note and a warrant to purchase 265 shares of Common Stock, in
a private placement for a total of $1,300,000 in cash. Among the purchasers, Mr.
Chace purchased 4 units for $200,000 and Mr. Wiltshire purchased 10 units for
$500,000. The promissory notes and warrants subsequently have been either
canceled or exchanged for shares of Common Stock. See "The Company --
Recapitalization."
In connection with the Bridge Financing, Mr. Chace purchased from the
Company five units, each consisting of a $50,000 promissory note and a warrant
to purchase 25,000 shares of Common Stock. A portion of the proceeds of this
Offering will be used to repay the indebtedness incurred in connection with the
Bridge Financing. See "Use of Proceeds." Additionally, upon consummation of this
Offering, Mr. Chace will receive 125,000 New Warrants in exchange for the Bridge
Warrants he had acquired in connection with the Bridge Financing. Mr. Chace is
one of the Selling Securityholders who are offering hereby to sell certain
securities. See "The Company -- Recent Bridge Financing" and "Selling
Securityholders."
Transactions with Mr. Wiltshire
In January 1996, the Company issued 416,500 shares of Common Stock to
Hector D. Wiltshire in consideration for: (i) Mr. Wiltshire's agreement to serve
as the Company's interim President and Chief Executive Officer; (ii) his
agreement to relinquish the warrants he had acquired in connection with the
$500,000 bridge financing he provided to the Company in September 1995; and
(iii) his agreement to lend the Company $250,000 on a short-term basis. As a
result, the Company incurred a compensation expense in the amount of $744,000,
including a non-cash charge of $424,830 representing the fair value of the
Common Stock as determined by independent appraisal. The Company has agreed to
reimburse Mr. Wiltshire for any federal and state income taxes payable by him
associated with the valuation for tax purposes of such Common Stock. See
"Management's Discussion
49
<PAGE>
and Analysis of Financial Condition and Results of Operations -- Results of
Operations." Mr. Wiltshire simultaneously transferred 208,250 shares to each of
his two adult children.
In January 1996, the Company borrowed $250,000 from Mr. Wiltshire. This
loan, secured by certain accounts receivable of the Company, bore interest at
the rate of the prime rate plus 2% per annum (10.25% on February 29, 1996) and
was repaid in full on February 29, 1996. See "-Securities Offerings" above.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of August
1, 1996 by (i) each stockholder who is known by the Company to own beneficially
more than 5% of the Common Stock, (ii) each of the Company's directors, (iii)
the Named Executive Officers, and (iv) all directors and executive officers of
the Company as a group. Unless otherwise indicated, each has sole voting and
investment power with respect to the shares beneficially owned.
Percentage of Common Stock
Shares of
Common Stock Prior to the After the
Name Beneficially Owned Offering Offering(1)
Malcolm G. Chace, III(2)(4) 757,297 50.13%
20.78%
A.I.M. Overseas N.V. 236,500 15.66
6.49
Hector D. Wiltshire - -
Raymond Wiltshire (3) 208,250 13.79
5.71
Sandra Wiltshire (3) 208,250 13.79
5.71
Robert H. Stone - - -
Marvyn Carton (4) 423
* *
Thomas E. Gardner 13,891
* *
George H. Steele (5) 1,142
* *
Matthias E. Lukens, Jr. (6) 3,107
* *
Christopher Neefus - - -
Directors and executive officers 775,978 51.23% 21.27%
as a group (9 persons) (7)
- --------------
* Less than one percent.
(1) Assumes that all Common Stock held by such stockholder is sold in the
Concurrent Offering.
(2) Excludes 203 shares of Common Stock owned of record by Mossberg Industries,
Inc. of which Mr. Chace is the Chairman of the Board of Directors. Mr.
Chace disclaims beneficial ownership of the shares of Common Stock owned of
record by Mossberg Industries, Inc.
(3) Raymond Wiltshire and Sandra Wiltshire are each adult children of Mr.
Hector Wiltshire. See "Selling Securityholders." Mr. Wiltshire disclaims
beneficial ownership of the shares of Common Stock owned of record by each
of Raymond and Sandra Wiltshire.
(4) Includes 85 shares of Common Stock issuable upon exercise of currently
exercisable stock options.
(5) Includes 406 shares of Common Stock issuable upon exercise of currently
exercisable options.
(6) Consists of currently exercisable options to purchase 3,107 shares of
Common Stock.
(7) Includes 4,102 shares of Common Stock issuable upon exercise of currently
exercisable options.
51
<PAGE>
SELLING SECURITYHOLDERS
An aggregate of 750,000 Redeemable Warrants which will be issued to certain
Selling Securityholders in exchange for the Bridge Warrants, together with
750,000 shares of Common Stock issuable upon the exercise of such Redeemable
Warrants, and an additional 100,000 shares of Common Stock are being offered
hereby, at the expense of the Company, for the account of the Selling
Shareholders. See "Securities Eligible for Future Sale." The Bridge Warrants
were issued as part of the Bridge Financing. Sales of such Common Stock, such
Redeemable Warrants and the underlying shares of Common Stock may depress the
price of the Common Stock or Redeemable Warrants in any market that may develop
for such securities.
The following table sets forth information with respect to persons for whom
the Company is registering the Redeemable Warrants and shares of Common Stock
for resale to the public in the Concurrent Offering. Beneficial ownership of
Redeemable Warrants and Common Stock by such Selling Securityholders after the
Offering will depend on the number of securities sold by each Selling
Securityholder in the Concurrent Offering.
<TABLE>
<CAPTION>
Ownership After the Offering and Ownership After the Offering and
Prior to Sales in the Concurrent Offering(1) After Sales in the Concurrent Offering (1)
Redeemable Warrants Common Stock Redeemable Warrants Common Stock
Selling Securityholder Number Percent Number Percent Number Percent Number Percent
- ---------------------- ------- ------- ------- -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Malcolm G. Chace, III 125,000 16.6% 757,213 20.78% -0- -0- 757,213 20.78%
Celeste C. Grynberg 37,500 5.0 -- -- -0- -0- -- --
Stephen J. Nicholas 37,500 5.0 -- -- -0- -0- -- --
Stanley S. Arkin 37,500 5.0 -- -- -0- -0- -- --
Ery W. Kehaya and
Helga L. Kehaya 37,500 5.0 -- -- -0- -0- -- --
Ronald J. Frank 37,500 5.0 -- -- -0- -0- -- --
Lincolnwoods
Investments, LLC 37,500 5.0 -- -- -0- -0- -- --
Joseph Jurgensmeyer 37,500 5.0 -- -- -0- -0- -- --
Barry Lind and Neil
Bluhm 37,500 5.0 -- -- -0- -0- -- --
Daniel R. Lee 37,500 5.0 -- -- -0- -0- -- --
Charles Johnston 37,500 5.0 -- -- -0- -0- -- --
Michael Trokel 125,000 16.6 -- -- -0- -0- -- --
Allen Meisels 125,000 16.6 -- -- -0- -0- -- --
Raymond Wiltshire --- --- 208,250 5.71 --- --- 158,250 4.34
Sandra Wiltshire --- --- 208,250 5.71 --- --- 158,250 4.34
------- ----- ------- ------ --- ------ ------
Total 750,000 100% 1,173,713 32.20% -0- -0- 1,073,713 29.46%
======= ===== ========= ====== ======== ====== ========== ======
- --------------------------
(1) Assuming no purchase by any Holder of Common Stock or Redeemable Warrants
offered in the Offering.
</TABLE>
The securities offered by the Holders are not being underwritten by the
Underwriter. The Holders have agreed not to sell or otherwise dispose of any of
their securities during the Lock-up Period unless the prior consent of the
Underwriter is obtained. With such consent, the Holders may sell the Redeemable
Warrants or the shares of Common Stock at any time on or after the date hereof.
In addition, the Holders have agreed with the Company that, during the period
ending on the second anniversary of the effective date of the Registration
Statement, the holders will not sell such securities other than through the
Underwriter, and that the Holders shall compensate the Underwriter in accordance
with its customary compensation practices. Subject to these restrictions, the
Company anticipates that sales of the Redeemable Warrants or the shares of
Common Stock may be effected from time to time in transactions (which may
include block transactions) in the over-the-counter market, in
52
<PAGE>
negotiated transactions, or a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Holders may effect such transactions by selling the
Redeemable Warrants or the shares of Common Stock directly to purchasers or
through broker-dealers that may act as agent or principals. Such broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the holders or the purchasers of the Redeemable Warrants or the shares of
Common Stock for whom such broker-dealers may act as agents or to whom they sell
as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions).
The Holders and any broker-dealers that act in connection with the sale of
the Redeemable Warrants or the shares of Common Stock as principals may be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and any commission received by them and any profit on the resale
of such securities as principals might be deemed to be underwriting discounts
and commissions under the Securities Act. The Holders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of such securities against certain liabilities, including liabilities arising
under the Securities Act. The Company will not receive any proceeds from the
sales of the Redeemable Warrants or the shares of Common Stock by the Holders,
although the Company will receive proceeds from the exercise of the Redeemable
Warrants. Sales of the Redeemable Warrants or shares of Common Stock by the
Holders, or even the potential of such sales, would likely have an adverse
effect on the market price of the Units, the Redeemable Warrants and Common
Stock.
At the time a particular offer of Redeemable Warrants or the shares of
Common Stock is made, except as herein contemplated, by or on behalf of a
Holder, to the extent required, a Prospectus will be distributed which will set
forth the number of Redeemable Warrants or shares of Common Stock being offered
and the terms of the offering, including the name or names of any underwriters,
dealers or agents, if any, the purchase price paid by any underwriter for shares
purchased from the Holder and any discounts, commissions or concessions allowed
or reallowed or paid to dealers.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the securities of the Company offered by this Prospectus
may not simultaneously engage in market-making activities with respect to such
securities of the Company during the applicable "cooling-off" period (two or
nine days) prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Holders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-6 and 10b-7, in connection with
transactions in such securities, which provisions may limit the timing of
purchases and sales of such securities by the Holders.
53
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 13,000,000 shares
of Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, $.01
par value. Immediately prior to the issuance and sale of the Units pursuant to
this Offering, the Company will have outstanding 1,510,606 shares of Common
Stock held of record by approximately 127 stockholders and no shares of
Preferred Stock.
Description of Units
Each Unit consists of two shares of Common Stock, $.01 par value, and one
Redeemable Warrant, which entitles the holder to purchase one share of Common
Stock at an initial exercise price of $______ [66-2/3% of the initial public
offering price per Unit] (subject to adjustment). The Common Stock and
Redeemable Warrants will be detachable and separately transferable commencing on
the date of issuance. The Company and the Underwriter may jointly determine,
based upon market conditions, to delist the Units upon the expiration of the
30-day period commencing on the date of this Prospectus.
Description of New Warrants and Redeemable Warrants
The Redeemable Warrants, including the New Warrants, will be issued under
and subject to the terms of a Warrant Agreement dated as of _________, 1996
between the Company and Continental Stock Transfer & Trust Company, as warrant
agent (the "Warrant Agent"). The summaries of certain provisions of the Warrant
Agreement hereunder do not purport to be complete and are subject to and are
qualified in their entirety by reference to all of the provisions of the Warrant
Agreement. A copy of the Warrant Agreement is being filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
General
Each Redeemable Warrant will entitle the registered owner thereof (the
"Warrantholder") to purchase one share of Common Stock at an initial exercise
price of $_____ [66-2/3% of the initial public offering price per Unit], subject
to adjustment, commencing on the date of issuance until 5:00 p.m. New York time,
on _______, 2001 [60 months after the date of this Prospectus] (the "Expiration
Date"), unless previously redeemed. Each Redeemable Warrant shall be issued in
registered form and is transferable from and after the date of issuance and
prior to the Expiration Date. Warrantholders are not entitled, by virtue of
being Warrantholders, to receive dividends or to consent to or receive notice as
shareholders in respect of any meeting of shareholders for the election of
directors of the Company or any other matter, or to vote at any such meetings or
to exercise any rights whatsoever as shareholders of the Company. Commencing
______, 1997 [12 months from the date of this Prospectus], the Company shall
have the right at any time to redeem all, but not less than all, of the
Redeemable Warrants at a redemption price of $.05 per Redeemable Warrant, on 30
days' prior written notice, provided that (i) the average closing bid price of
the Common Stock for any 20 trading days in a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption, equals or exceeds 150% of the then exercise price per share, subject
to adjustment, and (ii) the Company shall have obtained the written consent of
the Underwriter.
54
<PAGE>
Adjustments
The exercise price of the Redeemable Warrants and the number of shares of
Common Stock issuable upon exercise of the Redeemable Warrants are subject to
adjustment in certain events including subdivisions or combinations of the
Company's outstanding Common Stock, stock dividends and distributions, mergers
and consolidations.
Amendments
The Board of Directors of the Company, in its discretion, may amend the
terms of the Redeemable Warrants to, among other things, reduce the exercise
price; provided, however, that no amendment adversely affecting the rights of
the holders of the Redeemable Warrants may be made without the approval of the
holders of not less than a majority of the Redeemable Warrants then outstanding.
Exercise of Redeemable Warrants
The Redeemable Warrants may be exercised by surrendering to the Warrant
Agent a warrant certificate duly executed by the Warrantholder or his duly
authorized agent and indicating such Warrantholder's election to exercise all or
a portion of the Redeemable Warrants evidenced by such warrant certificate.
Surrendered warrant certificates must be accompanied by payment of the aggregate
exercise price of the Redeemable Warrants to be exercised, which payment may be
made, at the Warrantholder's option, in cash or by delivery of a cashier's or
certified check or any combination of the foregoing. A current Prospectus must
be in effect in order for holders of Redeemable Warrants to exercise such
Redeemable Warrants. Pursuant to the terms of the Warrant Agreement, the Company
has agreed to maintain a current Prospectus in effect until the Expiration Date.
Upon receipt of duly executed Redeemable Warrants and payment of the
exercise price, the Company shall issue and cause to be delivered, to or upon
the written order of exercising Warrantholders, certificates representing the
number of shares of Common Stock so purchased. If fewer than all of the
Redeemable Warrants evidenced by any warrant certificates are exercised, a new
warrant certificate evidencing the Redeemable Warrants remaining unexercised
will be issued to the Warrantholder.
The Company has authorized and will reserve for issuance a number of shares
of Common Stock sufficient to provide for the exercise of all of the Redeemable
Warrants. When delivered in accordance with the Warrant Agreement, such shares
of Common Stock will be fully paid and nonassessable.
Common Stock
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of a liquidation, dissolution or winding up of
the Company, holders of the Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities and the liquidation preference of
any then outstanding Preferred Stock. Holders of Common Stock have no preemptive
rights and no right to convert their Common Stock into any other securities.
55
<PAGE>
There are no redemption or sinking fund provisions applicable to the Common
Stock. All shares of Common Stock to be issued in connection with this Offering,
upon completion of this Offering, will be fully paid and nonassessable.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of Preferred Stock, par value $.01 per share. Such shares of
Preferred Stock may be issued in one or more series from time to time with such
designations, rights, preferences and limitations as the Board of Directors may
determine. The rights, preferences and limitations of separate series of
Preferred Stock may differ with respect to such matters as may be determined by
the Board of Directors, including, without limitation, the rate of dividends,
method or nature of payment of dividends, terms of redemption, amounts payable
on liquidation, sinking fund provisions, conversion rights and voting rights.
Such undesignated shares could also be used as an anti-takeover device by the
Company since they could be issued with "super-voting rights" and placed in the
control of parties friendly to the current management. The Company has no
present plans to issue any of the designated shares. See "Risk Factors--Reduced
Probability of Change of Control or Acquisition of Company Due to Existence of
Anti-Takeover Provisions."
Registration Rights
Pursuant to the terms of the warrants which the Company has agreed to issue
to the Underwriter at the closing of the Offering (the "Underwriter's
Warrants"), the holders of the Underwriter's Warrants are entitled to certain
rights with respect to the registration of the shares of Common Stock issuable
upon exercise of the Underwriter's Warrants. Subject to certain limitations, if
the Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other security holders during
the seven year period following the closing of the Offering, the holders of the
Underwriter's Warrants are entitled to written notice of the registration and
are entitled to include, at the Company's expense, such shares therein. All
expenses of the holders of the Underwriter's Warrants or the shares of Common
Stock issuable upon its exercise will be borne by the Company. In addition,
during the five year period following the closing of the Offering, the holders
of the Underwriter's Warrants or the shares of Common Stock issuable upon its
exercise may require, subject to certain conditions and limitations, on not more
than one occasion, the Company to use its best efforts to file a registration
statement under the Securities Act with respect to the shares of Common Stock
issuable upon the exercise of the Underwriter's Warrants.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock of the Company is
Continental Stock Transfer & Trust Company.
56
<PAGE>
SECURITIES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding an
aggregate of 3,643,940 shares of Common Stock assuming (i) the issuance by the
Company of 2,133,334 shares of Common Stock included in the Units offered
hereby, (ii) no issuance of shares of Common Stock relating to outstanding
warrants to purchase Common Stock, and (iii) no exercise of outstanding options
to purchase Common Stock. Of these shares, the 2,133,334 shares included in the
Units will be freely tradable without restriction or further registration under
the Securities Act, except for shares held by Affiliates of the Company (whose
sales would be subject to certain limitations and restrictions described below)
and the regulations promulgated thereunder.
The remaining 1,510,606 shares were sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
"restricted securities" within the meaning of Rule 144 under the Securities Act.
Of these shares, 26,064 will become eligible for sale in the public markets
under Rule 144 90 days after the Effective Date. An additional 426,279 and
614,733 of these shares will first become eligible for sale in the public
markets under Rule 144 on August 15, 1997 and September 27, 1997, respectively.
The Redeemable Warrants underlying the Units offered hereby and the shares
of Common Stock underlying such Redeemable Warrants, upon exercise thereof, will
be freely tradable without restriction under the Securities Act, except for any
Redeemable Warrants or shares of Common Stock purchased by an Affiliate, which
will be subject to the resale limitations of Rule 144 under the Securities Act.
In addition, 750,000 Redeemable Warrants, 750,000 shares of Common Stock
underlying such Redeemable Warrants and 100,000 shares of Common Stock are being
registered in the Concurrent Offering. Holders of such Redeemable Warrants have
agreed not to transfer such securities for a period of 18 months from the
effective date of the Registration Statement, without the prior written consent
of the Underwriter. An appropriate legend shall be marked on the face of the
certificates representing such securities.
In addition, without the consent of the Underwriter, the Company has agreed
not to sell or offer for sale any of its securities during the Lock-up Period,
except pursuant to outstanding options and warrants and pursuant to the
Company's existing option plans and no option shall have an exercise price that
is less than the fair market value per share of Common Stock on the date of
grant. An appropriate legend shall be marked on the face of certificates
representing all such securities.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for at least two years is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock (approximately 36,439 shares immediately
after this Offering) or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding such sale, subject to the filing
of a Form 144 with respect to such sale and certain other limitations and
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least three years would
be entitled to sell such shares under Rule 144 without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of the Company, such stockholder's holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate. The Commission has
57
<PAGE>
recently proposed to amend Rule 144 to shorten each of the two-year and
three-year periods by one year.
Sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities.
UNDERWRITING
Joseph Stevens & Company, L.P. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriter on a firm commitment basis all
of the Units offered by the Company hereby.
The Company has been advised by the Underwriter that the Underwriter
initially proposes to offer the Units to the public at the public offering price
set forth on the cover page of this Prospectus and that the Underwriter may
allow to certain dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") concessions not in excess of $ per Unit, of
which amount a sum not in excess of $ per Unit may in turn be reallowed by such
dealers to other dealers. After the commencement of the Offering, the public
offering price, concessions and reallowances may be changed. The Underwriter has
informed the Company that it does not expect sales to discretionary accounts by
the Underwriter to exceed five percent of the securities offered by the Company
hereby.
The Company has granted to the Underwriter an option, exercisable within 45
days of the date of this Prospectus, to purchase from the Company at the
offering price, less underwriting discounts and the non-accountable expense
allowance, all or part of an additional 160,000 Units on the same terms and
conditions of the Offering for the sole purpose of covering over-allotments, if
any.
The Company and the Selling Securityholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act. The Company has agreed to pay to the Underwriter a
non-accountable expense allowance equal to three percent of the gross proceeds
derived from the sale of the Units underwritten, $25,000 of which has been paid
to date.
Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Underwriter, and to
the extent not inconsistent with the guidelines of the NASD and the Rules and
Regulations of the Commission, the Company has agreed to pay the Underwriter a
commission which shall not exceed five percent of the aggregate exercise price
of such Redeemable Warrants in connection with bona fide services provided by
the Underwriter relating to any warrant solicitation. In addition, the
individual must designate the firm entitled to such warrant solicitation fee.
However, no compensation will be paid to the Underwriter in connection with the
exercise of the Redeemable Warrants if (a) the market price of the Common Stock
is lower than the exercise price of the Redeemable Warrants, (b) the Redeemable
Warrants were held in a discretionary account or (c) the Redeemable Warrants are
exercised in an unsolicited transaction. Unless granted an exemption by the
Commission from its Rule 10b-6 promulgated under the Exchange Act, the
Underwriter will be prohibited from engaging in any market making activities
with regard to the Company's securities for the period from nine business days
(or such applicable periods as Rule 10b-6 may provide) prior to any solicitation
of the exercise of the Redeemable Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right the Underwriter may have to receive a fee. As a result, the Underwriter
may be unable to
58
<PAGE>
continue to provide a market for the Company's Units, Common Stock or Redeemable
Warrants during certain periods while the Redeemable Warrants are exercisable.
If the Underwriter has engaged in any of the activities prohibited by Rule 10b-6
during the periods described above, the Underwriter undertakes to waive
unconditionally its rights to receive a commission on the exercise of such
Redeemable Warrants.
Of the 3,643,940 shares of Common Stock to be outstanding upon completion
of the Offering, the holders of more than 98% of the issued and outstanding
shares of Common Stock prior to the Offering have agreed (i) not to Transfer any
securities issued by the Company, including shares of Common Stock or securities
convertible into or exchangeable or exercisable for or evidencing any right to
purchase or subscribe for any shares of Common Stock during the Lock-up Period,
without the prior written consent of the Underwriter and (ii) that, for 24
months following the effective date of the Registration Statement, any sales of
the Company's securities shall be made through the Underwriter in accordance
with its customary brokerage practices either on a principal or agency basis. An
appropriate legend shall be marked on the face of certificates representing all
such securities.
In connection with the Offering, the Company has agreed to issue and sell
to the Underwriter and/or its designees, at the closing of the proposed
underwriting, for nominal consideration, the Underwriter's Warrants to purchase
106,667 Units. The Underwriter's Warrants are exercisable at any time during a
period of four years commencing at the beginning of the second year after their
issuance and sale at a price of $__________ [165% of the offering price of the
Units] per Unit. The shares of Common Stock, Redeemable Warrants, and shares of
Common Stock underlying the Redeemable Warrants issuable upon the exercise of
the Underwriter's Warrant are identical to those offered to the public. The
Underwriter's Warrants contain anti-dilution provisions providing for adjustment
of the number of warrants and exercise price under certain circumstances. The
Underwriter's Warrants grant to the holders thereof and to the holders of the
underlying securities certain rights of registration of the securities
underlying the Underwriter's Warrants.
In connection with the Bridge Financing, the Company paid to the
Underwriter, as placement agent, $75,000 in cash as commissions, a
non-accountable expense allowance of $22,500 and warrants (the "Placement Agent
Warrants") to purchase 150,000 shares of Common Stock at an exercise price of
$1.50 per share commencing May 28, 1997. The Placement Agent Warrants will be
canceled prior to the consummation of the Offering.
The Company has agreed that for five years from the effective date of the
Registration Statement, the Underwriter may designate one person for election to
the Company's Board of Directors (the "Designation Right"). In the event that
the Underwriter elects not to exercise its Designation Right, then it may
designate one person to attend all meetings of the Company's Board of Directors
for a period of five years. The Company has agreed to reimburse the
Underwriter's designee for all out-of-pocket expenses incurred in connection
with the designee's attendance at meetings of the Board of Directors. The
Company has also agreed to retain the Underwriter as the Company's financial
consultant for a period of 24 months from the date hereof and to pay the
Underwriter a monthly retainer of $2,000, all of which is payable in advance on
the closing date set forth in the Underwriting Agreement.
Prior to this Offering, there has been no public market for the Units, the
Common Stock, or the Redeemable Warrants. Accordingly, the initial public
offering price of the Units and the terms of the Redeemable Warrants were
determined by negotiation between the Company and the Underwriter. The factors
considered in determining such prices and terms, in addition to the prevailing
market
59
<PAGE>
conditions, included the history of and the prospects for the industry in which
the Company competes, the market price of the Common Stock, an assessment of the
Company's management, the prospects of the Company, its capital structure and
such other factors that were deemed relevant. The offering price does not
necessarily bear any relationship to the assets, results of operations or net
worth of the Company.
The Underwriter commenced operations in May 1994 and therefore does not
have extensive expertise as an underwriter of public offerings of securities. In
addition, the Underwriter is a relatively small firm and no assurance can be
given that the Underwriter will be able to participate as a market maker in the
Units, the Common Stock or in the Redeemable Warrants, and no assurance can be
given that any broker-dealer will make a market in the Units, the Common Stock
or the Redeemable Warrants.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Available Information."
LEGAL MATTERS
The validity of the Units offered hereby have been passed upon for the
Company by Edwards & Angell (a partnership including professional corporations),
Providence, Rhode Island. Orrick, Herrington & Sutcliffe LLP, New York, New
York, has acted as counsel for the Underwriter in connection with the Offering.
EXPERTS
The financial statements of the Company as of June 30, 1995 and 1996 and
for the years then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, and
given on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2, including amendments thereto, relating to the Units offered hereby, the
Common Stock and Redeemable Warrants included therein, the Selling
Securityholder Warrants, the Common Stock underlying each of the Redeemable
Warrants and the Selling Securityholder Warrants, and the Selling Shareholders
Common Stock. This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete; however, all material information with respect to
such contracts and documents are disclosed in this Prospectus. In each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
For further information with respect to the Company and the securities
offered hereby, reference is made to such Registration Statement, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the public reference facilities maintained by
60
<PAGE>
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and will also be available for inspection and copying at
the regional offices of the Commission located at 7 World Trade Center, New
York, New York 10048 and at Citicorp Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material may also
be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. As a result of the Offering, the Company will be
subject to the informational requirements of the Exchange Act. So long as the
Company is subject to the periodic reporting requirements of the Exchange Act,
it will furnish the reports and other information required thereby to the
Commission. The Company intends to furnish holders of the Units, the Common
Stock and the Redeemable Warrants with annual reports containing, among other
information, audited financial statements certified by an independent accounting
firm. The Company also intends to furnish such other reports as it may determine
or as may be required by law.
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page
Report of Independent Accountants F-2
Balance Sheet F-3
Statement of Operations F-5
Statement of Mandatorily Redeemable Preferred
Stock and Stockholders' Deficit F-6
Statement of Cash Flows F-7
Notes to Financial Statements F-9
F-1
<PAGE>
Report of Independent Accountants
The Board of Directors and Stockholders
Access Solutions International, Inc. (formerly
Aquidneck Systems International, Inc.)
In our opinion, the accompanying balance sheet and the related statements of
operations, of mandatorily redeemable preferred stock and stockholders' deficit
and of cash flows present fairly, in all material respects, the financial
position of Access Solutions International, Inc. (formerly Aquidneck Systems
International, Inc.), at June 30, 1995 and 1996, and the results of its
operations and its cash flows for the years then ended 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has suffered recurring losses from operations and has a working capital
deficiency which raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Price Waterhouse LLP
August 2, 1996
Boston, Massachusetts
F-2
<PAGE>
Access Solutions International, Inc.
Balance Sheet
<TABLE>
<CAPTION>
June 30, June 30,
1995 1996
----------------- ---------------
Assets
Current assets:
<S> <C> <C>
Cash $ 148,842 $ 537,831
Trade accounts receivable, net of
allowance for doubtful accounts of $60,000 and
$50,304, respectively 815,609 426,005
Inventories 590,673 504,450
Prepaid expenses and other current assets 75,388 61,995
--------------- -------------
Total current assets 1,630,512 1,530,281
--------------- -------------
Fixed assets, net 726,944 592,461
--------------- -------------
Other assets:
Deposits and other assets 92,666 90,940
Service contract inventory 76,893 79,549
Deferred financing costs - 581,065
--------------- -------------
Total other assets 169,559 751,554
--------------- -------------
Total assets $ 2,527,015 $ 2,874,296
=============== =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-3
<PAGE>
Access Solutions International, Inc.
Balance Sheet (Continued)
<TABLE>
<CAPTION>
June 30, June 30,
1995 1996
--------------- ----------------
<S> <C> <C>
Liabilities, Mandatorily Redeemable Preferred Stock
and Stockholders' Deficit
Current liabilities:
Note payable - bank $ 440,000 $ 290,000
Notes payable - related parties 375,000 -
Notes payable - bridge - 1,363,973
Current installments of capital lease obligations 181,171 72,562
Accounts payable 466,751 695,341
Accrued expenses 94,805 163,769
Accrued salaries and wages 327,285 467,234
Deferred revenue - prepaid service contracts 370,108 448,492
------------ --------------
Total current liabilities 2,255,120 3,501,371
Capital lease obligations, excluding current installments 97,505 31,974
------------ --------------
Total liabilities 2,352,625 3,533,345
------------ --------------
Mandatorily redeemable preferred stock, Series A, $.01
par value; redemption value of $40 per share;
1,000,000 shares authorized; 50,000 and 0 shares
issued and outstanding, respectively 2,088,462 -
------------ --------------
Commitments (Note 7)
Stockholders' deficit:
Common stock, $.01 par value; 8,000,000
shares authorized; 34,140 and 1,511,865
shares issued, respectively 341 15,119
Additional paid-in-capital 5,428,229 10,599,720
Accumulated deficit (7,325,501) (11,255,832)
------------ --------------
(1,896,931) (640,993)
Treasury stock, at cost (362 and
1,259 shares, respectively) (17,141) (18,056)
------------ --------------
Total stockholders' deficit (1,914,072) (659,049)
------------ --------------
Total liabilities, mandatorily redeemable
preferred stock and stockholders' deficit $2,527,015 $ 2,874,296
============ ==============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-4
<PAGE>
Access Solutions International, Inc.
Statement of Operations
Years Ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
Year Ended
June 30,
------------------------------------------
1995 1996
-------------------- --------------------
<S> <C> <C>
Net sales:
Products $ 3,126,022 $ 1,352,408
Services 476,039 634,500
-------------------- --------------------
Total net sales 3,602,061 1,986,908
-------------------- --------------------
Cost of sales:
Products 1,114,963 346,157
Services 184,744 234,229
-------------------- --------------------
Total cost of sales 1,299,707 580,386
-------------------- --------------------
Gross profit 2,302,354 1,406,522
-------------------- --------------------
General and administrative
expense 2,033,851 2,058,005
Research and development
expense 1,755,891 1,713,094
Selling expense 890,868 843,312
Stock related compensation - 744,000
-------------------- --------------------
Total expenses 4,680,610 5,358,411
-------------------- --------------------
Operating loss (2,378,256) (3,951,889)
Interest income 15,059 11,856
Interest expense - related
party (13,329) (88,181)
Interest expense - other (94,049) (113,614)
-------------------- --------------------
Loss before extraordinary gain (2,470,575) (4,141,828)
Extraordinary gain on debt
restructuring - 320,387
-------------------- --------------------
Net Loss $ (2,470,575) $ (3,821,441)
==================== ====================
Net loss applicable to common stock:
Net loss $ (2,470,575) $ (3,821,441)
Accrued dividends on
preferred stock (88,462) (108,890)
-------------------- --------------------
$ (2,559,037) $ (3,930,331)
==================== ====================
Net loss per common share:
Loss before extraordinary
item $ (1.14) $ (1.88)
Extraordinary item - .14
==================== ====================
$ (1.14) $ (1.74)
==================== ====================
Weighted average number of
common shares 2,250,259 2,256,150
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-5
<PAGE>
Access Solutions International, Inc.
Statement of Mandatorily Redeemable Preferred Stock and Stockholders' Deficit
Years Ended June 30, 1995 and 1996
Mandatorily
Redeemable
Preferred Stock
Shares Amount
------ ------
Balances at June 30, 1994 - $
-
Shares issued in private offerings 50,000 2,000,000
Shares purchased for Treasury - -
Exercise of stock options - -
Compensation associated with award
of stock options - -
Accrued dividends on preferred stock - 88,462
Net loss - -
--------- ----------
Balances at June 30, 1995 50,000 $2,088,462
Accrued dividends on preferred stock - 108,890
Conversion of preferred stock (50,000) (2,197,352)
Conversion of debt, primarily - -
related party
Compensation related to stock grant - -
Shares purchased for treasury - -
Warrants issued with Bridge Notes - -
Net loss - -
--------- ----------
Balances at June 30, 1996 - $ -
========= ==========
<TABLE>
<CAPTION>
Stockholders' Deficit
-----------------------------------------------------------------------------------------------
Additional Total
Common Stock Paid-in Accumulated Treasury Stock Stockholders'
Shares Amount Capital Deficit Shares Amount Deficit
------ ------ ------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1994 31,240 $ 312 $4,699,810 $(4,766,464) 286 $ $ (66,554)
(212)
Shares issued in private offerings 2,671 27 592,973 - - - 593,000
Shares purchased for Treasury - - - - 76 (16,929) (16,929)
Exercise of stock options 229 2 16,929 - - - 16,931
Compensation associated with award
of stock options - - 118,517 - - - 118,517
Accrued dividends on preferred stock - - - (88,462) - - (88,462)
Net loss - - - (2,470,575) - - (2,470,575)
---------- -------- ---------- ------------ --------- ---------- ------------
Balances at June 30, 1995 34,140 $ 341 $5,428,229 $(7,325,501) 362 $(17,141) $(1,914,072)
Accrued dividends on preferred stock - - - (108,890) - - (108,890)
Conversion of preferred stock 7,423 75 2,197,277 - - - 2,197,352
Conversion of debt, primarily 1,053,802 10,538 2,403,549 - - - 2,414,087
related party
Compensation related to stock grant 416,500 4,165 420,665 - - - 424,830
Shares purchased for treasury - - - - 897 (915) (915)
Warrants issued with Bridge Notes - - 150,000 - - - 150,000
Net loss - - - (3,821,441) - - (3,821,441)
---------- -------- ---------- ------------ --------- ---------- -----------
Balances at June 30, 1996 1,511,865 $15,119 $10,599,720 $(11,255,832) 1,259 $(18,056) $ (659,049)
========== ======== =========== ============= ========= ========== =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-6
<PAGE>
Access Solutions International, Inc.
Statement of Cash Flows
Years Ended June 30, 1995 and 1996
Year Ended
June 30,
-------------------------------
1995 1996
------------- --------------
Cash flows from operating activities:
Net loss $(2,470,575) $(3,821,441)
------------- --------------
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 214,264 245,622
Stock option compensation 118,517 -
Stock compensation award - 424,830
Debt restructuring gain - (320,387)
Interest expense settled with
issuance of common stock - 62,129
Provision for doubtful accounts 40,000 (9,696)
Other non-cash expenses - 36,930
Changes in assets and
liabilities:
(Increase) decrease in:
Trade accounts receivable (747,695) 399,300
Inventories (107,045) 83,567
Deposits (8,269) 3,673
Prepaid expenses and
other current assets (57,234) 13,393
Increase (decrease) in:
Accounts payable (81,867) 228,590
Accrued expenses 256,933 208,913
Deferred revenue 280,235 78,384
------------- --------------
Total adjustments (92,161) 1,455,248
------------- --------------
Cash used by operating activities (2,562,736) (2,366,193)
------------- --------------
Cash flows from investing activities :
Additions to fixed assets (254,628) (103,604)
Additions to other assets (680) (9,480)
------------- --------------
Cash used for investing $ (255,308) $ (113,084)
activities
------------- --------------
The accompanying notes are an integral part
of these financial statements.
F-7
<PAGE>
Access Solutions International, Inc.
Statement of Cash Flows (continued)
Years Ended June 30, 1995 and 1996
Year Ended
June 30,
-------------------------------
1995 1996
------------- --------------
Cash flows from financing activities:
Proceeds from sale of common stock $ 593,000 $ -
Proceeds from sale of preferred 2,000,000 -
stock
Proceeds from the exercise of
stock options 2 -
Proceeds from related party loans 1,715,940 2,468,415
Repayments of related party loans (1,340,940) (1,258,000)
Proceeds from bridge loans - 2,413,971
Issuance of warrants 150,000
Repayments on capital lease
obligations (150,629) (174,140)
Repayments of note payable - bank (60,000) (150,000)
Purchase of treasury stock (915)
Deferred financing costs - (581,065)
------------- --------------
Cash provided by financing
activities 2,757,373 2,868,266
------------- --------------
Net (decrease) increase in cash (60,671) 388,989
Cash, beginning of year 209,513 148,842
------------- --------------
Cash, end of year $ 148,842 $ 537,831
============= ==============
The accompanying notes are an integral part
of these financial statements.
F-8
<PAGE>
Notes to Financial Statements
1. Business purpose and significant accounting policies
Business
Access Solutions International, Inc. (formerly Aquidneck Systems
International, Inc.) (the "Company") develops, assembles, sells and
services optical data storage systems consisting of integrated computer
hardware and software for the archival storage and retrieval of
computer-generated information. The Company's optical data storage systems
are sold principally to large organizations that need to store and retrieve
large quantities of computer-generated data. To date, the Company's
customers primarily operate in the financial services and insurance
industries.
The Company has suffered recurring losses from operations as it continued
to develop its products and infrastructure and has a net working capital
deficit at June 30, 1996. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The Company has recently
made significant reductions in overhead costs and completed a
recapitalization which eliminated substantially all of the Company's
long-term indebtedness. These actions have reduced the Company's breakeven
point. The Company is actively recruiting qualified candidates to
complement its existing management team and is planning to enhance certain
of its software products. The Company is also planning to establish
collaborative relationships with vendors and customers which will create
new opportunities to foster sales of its products and services. The Company
has obtained $1.5 million of short-term financing net of expenses of
approximately $110,000 (see Note 7) and is anticipating consummating an
initial public offering ("IPO") of securities including its common stock.
The Company anticipates improved financial performance based upon a reduced
breakeven point, a more focused management team and increased sales
resulting from product enhancements and collaborative relationships.
Accordingly, the financial statements do not include any adjustments
relating to the recoverability of assets and classification of liabilities
or any other adjustments that might be necessary should the Company be
unable to continue as a going concern.
In January 1996 the Company completed a recapitalization (see Note 2) which
included a reverse stock split in which each share of issued common stock
was converted into 1/74th of a share of common stock. Accordingly, all
references in these financial statements to number of shares, per share
amounts (other than par value) and stock option data have been
retroactively restated to give effect to this reverse split.
A summary of significant accounting policies used by the Company in the
preparation of these financial statements is as follows:
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist primarily
of components used in production, finished goods held for sale and for
service needs, and optical disk storage libraries purchased from third
party vendors for resale to the Company's customers as part of integrated
systems. Base stock service inventories are maintained at customer
locations
F-9
<PAGE>
Notes to Financial Statements(continued)
as required under service contracts and are amortized over a four-year
period using the straight-line method subject to acceleration in the event
of impairment or obsolescence.
The Company's products consist of integrated computer hardware and
software. Rapid technological change and frequent new product introductions
and enhancements could result in excess inventory quantities over current
requirements based on the projected level of sales. No estimate can be made
of a range of amounts of loss that are reasonably possible should such
technological developments be realized.
Fixed assets
Fixed assets are stated at cost. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the
assets. The estimated useful life of all fixed assets is 5 years.
Revenue recognition
Product revenues include the sale of optical archiving systems, software
licenses and miscellaneous peripheral hardware.
Revenue from the sale of optical archiving systems and software licenses is
recognized when the system is installed and only insignificant
post-installation obligations remain. In the case of systems installed
subject to acceptance criteria, revenue is recognized upon acceptance of
the system by the customer. Revenue from hardware upgrades is recognized
upon shipment.
Service revenues include post-installation software and hardware
maintenance and consulting services.
The Company provides the first year of software maintenance to customers as
part of the software license purchase price and recognizes the revenue upon
installation of the software. Costs associated with initial year
maintenance are not significant and enhancements provided during this
period are minimal and are expected to be minimal. All software maintenance
contracts after the first year are billed in advance of the service period
and revenues are deferred and recognized ratably over the contract term.
Hardware maintenance is billed for varying terms, and is deferred and
recognized ratably over the term of the agreement. Revenues from consulting
services are recognized upon customers' acceptances or during the period in
which services are provided if customer acceptance is not required and such
amounts are fixed and determinable.
Software development costs
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional material amounts
of development costs are capitalized and amortized over the economic life
of the related product in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed. Costs capitalizable subject to technological
feasibility have not been significant to date.
F-10
<PAGE>
Notes to Financial Statements(continued)
Income taxes
Income taxes are accounted for in accordance with the Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires an asset and liability method of accounting for deferred income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates in
effect for the year in which those differences are expected to be recovered
or settled.
Net loss per share
Net loss per share is computed based on the weighted average number of
shares of common stock. Common stock equivalents have not been included in
the computation because their effect would be antidilutive. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
stock or other potentially dilutive instruments issued at prices below the
estimated public offering price per share during the twelve month period
prior to the filing or subsequent to the balance sheet date but before the
effective date of the initial public offering have been included in the
calculation as if outstanding for all periods presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the period reported.
Actual results could differ from those estimates.
Reliance on single or limited sources of supply
The Company currently purchases all of its optical disk storage libraries,
CPU boards, fiber optic channel hardware and high-density integrated
circuits from single or limited sources. Although there are a limited
number of manufacturers of these components, management believes that other
suppliers could provide similar products on comparable terms. Total or
partial loss of any such source, however, could cause a delay in
manufacturing and a possible loss of sales, which would affect operating
results adversely.
Deferred financing costs
Legal and other costs incurred in conjunction with a planned initial public
offering of securities will be charged to paid-in capital when the offering
is consummated. If the offering is withdrawn, these capitalized costs will
be charged to expense.
Recent accounting pronouncements
In March 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of
("Statement 121"). Statement 121 addresses the accounting for the
impairment of long-lived assets, certain identifiable
F-11
<PAGE>
Notes to Financial Statements(continued)
intangibles and goodwill related to those assets to be held and used. It
also addresses the accounting for long-lived assets and certain
identifiable intangibles to be disposed of. Statement 121 establishes
guidance for recognizing and measuring impairment losses and requires that
the carrying amount of impaired assets be reduced to fair value. Statement
121 will be effective for the Company's fiscal year beginning July 1, 1996.
The Company does not expect the adoption of Statement 121 to have a
material impact on the Company's financial condition, results of operations
or liquidity.
In October 1995 the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("Statement 123").
Statement 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages (but does
not require) all entities to adopt that method of accounting for all of
their employee stock compensation plans. Entities electing to remain with
the accounting in APB Opinion 25, Accounting for Stock Issued to Employees,
must make pro forma disclosures of operating results and, if presented,
operating results per share, as if the fair value based method of
accounting defined in Statement 123 had been applied. Statement 123 will be
effective for the Company's fiscal year beginning July 1, 1996. The Company
has not determined whether the fair value based method will be adopted.
2. Recapitalization (including related party transactions)
In January 1996 the Company effected several changes to its debt and equity
capital. The changes included a reverse stock split in which each share of
issued common stock was converted into 1/74th of a share of common stock.
In September 1995 the Company sold 26 units, each unit consisting of a
$50,000 promissory note and a warrant to purchase 265 shares of common
stock at a price per share of $220. The value of the warrants was
insignificant. The total proceeds from the private placement were
$1,300,000. In January 1996 the promissory notes and warrants plus unpaid
interest in the amount of $21,370 were converted into 614,733 shares of
common stock of the Company. A director of the Company was among the
private investors who received shares of the Company in the exchange. Total
interest expense on these promissory notes was $55,562, of which $21,370
was satisfied through the issuance of shares. The Company recognized an
extraordinary gain relating to the portion of the debt restructuring
involving non-related parties. The extraordinary gain of $320,387 was based
on the difference between the fair value of the equity interest granted,
$289,476 and the carrying amount of the non-related party debt, $609,863.
The fair value of the equity interest granted was determined by independent
appraisal.
In January 1996 a director of the Company exchanged the balance due him
under a line of credit agreement totalling $1,335,415 plus unpaid interest
of $40,759 for 426,279 shares of common stock of the Company. Total
interest expense on this line of credit was $40,759, all of which was
satisfied through the issuance of shares.
The Company converted all of its outstanding Series A preferred stock into
7,423 shares of common stock as described in Note 13.
F-12
<PAGE>
Notes to Financial Statements(continued)
In conjunction with the recapitalization, the Company purchased 897 shares
of common stock from certain shareholders. The shareholders surrendered
certain anti-dilution rights they had previously obtained in a May 1993
private placement offering. The total amount paid by the Company for the
purchase of these shares and shareholder rights was $85,274 which amount
represents a return of proceeds previously invested by the shareholders. Of
this amount, $915, representing the fair value of the 897 shares acquired,
was charged to treasury stock and $84,359, representing the excess of the
amount paid over the estimated fair value of the shares, was charged to
general and administrative expenses. The fair value of the shares acquired
was determined by independent appraisal.
3. Inventories
Inventories consist of the following:
June 30, 1995 June 30, 1996
Production inventory $ 389,201 $ 470,715
Service inventory 134,193 113,284
Consigned inventory 144,172 -
------------ ---------------
667,566 583,999
Inventory for service contracts (76,893) (79,549)
------------ ---------------
Inventory available for sale $ 590,673 $ 504,450
============ ===============
Consigned inventory at June 30, 1995 consisted of an installed optical data
storage system at a customer site which was awaiting customer acceptance.
In accordance with the Company's revenue recognition accounting policy
described in Note 1, revenue from this sale was recognized in fiscal 1996
upon acceptance of the system by the customer. Inventory required at
customer sites under service contacts is excluded from current assets as it
is not expected to be consumed in the next year.
F-13
<PAGE>
Notes to Financial Statements(continued)
4. Fixed assets
Fixed assets consist of the following:
June 30, 1995 June 30, 1996
Computers and office
equipment $ 740,701 $763,168
Furniture and fixtures 37,326 38,261
Purchased computer
software 149,866 195,773
Computer equipment held
under capital leases 526,954 561,249
------------- --------------
1,454,847 1,558,451
Accumulated depreciation
and amortization (727,903) (965,990)
------------- --------------
Net fixed assets $ 726,944 $592,461
============= ==============
Depreciation and amortization expense was $208,580 and $238,087 during
fiscal 1995 and fiscal 1996, respectively.
5. Note payable to bank
Indebtedness outstanding under a short-term bank loan was $440,000 and
$290,000 at June 30, 1995 and June 30, 1996, respectively. Interest is
payable monthly at the bank's prime rate (8.25% at June 30, 1996) plus 2%.
The borrowings are secured by substantially all assets of the Company. The
loan requires a reduction of principal in the amount of $20,000 at each
month end until September 15, 1996 when the balance is payable in full. As
a result of the variable attributes of this loan, the carrying amount
approximates fair value.
6. Notes payable - related parties
In November 1994 the Company entered into a line of credit with a
corporation pursuant to which that corporation loaned the Company $300,000
secured by certain accounts receivable of the Company. The line of credit
was increased to $500,000 on December 1, 1994. The interest rate on the
outstanding balance of the line of credit was 9.75% per annum for each
advance made prior to December 1, 1994 and the prime rate in effect on the
date of each advance made on or after December 1, 1994 plus 2% per annum.
The line of credit was repaid and terminated in February 1995. A director
of the Company is the Chairman of that corporation.
In December 1994 the Company entered into a line of credit with a director
pursuant to which the Company borrowed $200,000 secured by certain accounts
receivable of the Company. The interest rate on the outstanding balance of
the line of credit was the prime
F-14
<PAGE>
Notes to Financial Statements(continued)
rate in effect on the date of each advance plus 2% per annum. The line of
credit was repaid and terminated in January 1995.
In May 1995 the Company entered into a line of credit with a corporation
pursuant to which the Company borrowed $200,000 secured by certain accounts
receivable of the Company. The interest rate on the outstanding balance of
the line of credit was the prime rate in effect on the date of each advance
plus 2% per annum. The balance outstanding was $100,000 at June 30, 1995.
The line of credit was repaid and terminated in September 1995. A director
of the Company is the Chairman of that corporation.
In May 1995 the Company entered into a line of credit with a trust pursuant
to which the Trustees loaned the Company $250,000 secured by certain
accounts receivable of the Company. The interest rate on the outstanding
balance of the line of credit was the prime rate in effect on the date of
each advance plus 2% per annum. The line of credit was increased to
$300,000 in June 1995 and the balance outstanding was $275,000 at June 30,
1995. The line of credit was repaid in July 1995. The Company made several
additional borrowings and repayments under this line of credit throughout
fiscal 1996. The final repayment was made in December 1995 when the line of
credit was terminated. A director of the Corporation is the beneficiary of
said trust.
In August 1995 the Company entered into a line of credit agreement with a
director pursuant to which the Company borrowed $1,335,415 at various
dates. This amount was partially secured by certain future accounts
receivable of the Company. Interest on the outstanding balance of the line
of credit was payable at the prime rate plus 2%. In connection with the
restructuring described in Note 2, the director subsequently exchanged all
indebtedness due under the line of credit in the principal amount of
$1,335,415, plus $40,759 of unpaid interest, for 426,279 shares of common
stock.
In February 1996 the Company borrowed $250,000 from a director. Such
borrowings were evidenced by a demand promissory note which bore interest
at the rate of 10.25% per annum. The note, which was secured by certain
accounts receivable, was repaid in full in February 1996.
In March 1996 the Company borrowed $250,000 from a director. Such
borrowings were secured by certain accounts receivable and were evidenced
by a demand promissory note which bore interest at the rate of 10% per
annum. The note was converted to a bridge loan on May 28, 1996.
In April 1996 the Company borrowed $85,000 from a director for working
capital purposes. The borrowing was evidenced by a demand promissory note
which bore interest at the rate of 10% per annum. The note was repaid on
May 31, 1996.
7. Notes payable - bridge financing
On May 28, 1996 the Company consummated a bridge financing pursuant to
which it issued an aggregate of $1,500,000 principal amount of promissory
notes which bear interest at 10% per annum. The notes are due and payable
on the earlier of the closing of
F-15
<PAGE>
Notes to Financial Statements(continued)
the sale of securities or other financing of the Company from which the
Company receives gross proceeds of at least $2,500,000 or May 28, 1997. In
conjunction with the bridge financing the Company issued 750,000 warrants.
Each warrant entitles the holder to purchase one share of common stock for
$1.50 during the three year period commencing May 28, 1997. The Company has
estimated the value of the warrants to be $150,000. This amount has been
recorded as paid-in capital and is being accreted to interest expense over
the term of the bridge financing. Upon consummation of a public offering
each warrant will automatically convert to a warrant with the same terms
and conditions as the warrants issued in conjunction with the public
offering. The March 31, 1996 $250,000 note payable to a director was
converted to promissory notes issued in conjunction with this financing.
8. Leases
Operating
The Company leases building space for office and plant facilities. In
February 1996 the Company renegotiated the lease, extending it at
substantially the same rate through December 31, 1997. Under the revised
terms either party may terminate the lease with 60 days notice after
December 31, 1996. Total rent expense for the years ended June 30, 1995 and
1996 amounted to approximately $62,000 and $82,000, respectively.
The Company's remaining obligation under the building lease through the
lease extension is approximately $102,000.
Capital
The Company leases certain computer equipment under two capital lease
obligations totalling $104,536 at June 30, 1996. The related assets are
included in fixed assets. Amortization expense related to leased assets was
approximately $104,000 and $112,000 for the years ended June 30, 1995 and
June 30, 1996, respectively. Accumulated amortization related to leased
assets was $289,106 at June 30, 1996.
Obligations under the capital leases are recorded at the present value of
future minimum lease payments using the interest rate implicit in the lease
agreements. As of June 30, 1996 the future minimum annual lease payments,
together with the present value of the net minimum annual lease payments
under the capital leases, are as follows:
F-16
<PAGE>
Notes to Financial Statements(continued)
Period ending
June 30, 1997 $ 78,680
June 30, 1998 27,314
June 30, 1999 6,828
---------------
112,822
Less: amount representing interest 8,286
---------------
Present value of net minimum lease payments 104,536
Less: current portion 72,562
---------------
Long-term portion of obligation under
capital leases $ 31,974
===============
9. Income taxes
On July 1, 1993 the Company prospectively adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("Statement
109"). In connection with the adoption, the Company recorded a deferred tax
asset of $1,405,000, primarily comprised of the potential tax benefit
associated with the Company's net operating loss ("NOL") carryforwards. At
the same time, the Company recorded a valuation allowance of $1,405,000
since based on the weight of available evidence, it was more likely than
not that the deferred tax assets would not be realized. The adoption of
Statement 109 did not have a material impact on the financial statements.
The Company has not recorded a provision for income taxes in the years
ended June 30, 1995 or 1996 because no net current or deferred benefit is
recognizable for net losses incurred in those years.
The tax effects of NOL carryforwards and temporary differences that give
rise to the deferred tax assets and liabilities at June 30, 1995 and 1996
are as follows:
F-17
<PAGE>
Notes to Financial Statements(continued)
June 30,
1995 1996
---- ----
Deferred tax assets:
Net operating loss $2,700,000 $ 3,240,00
carryforwards
Research and development costs
capitalized for tax purposes - 617,000
Compensation related reserves 30,200 24,000
Provision for doubtful accounts 24,000 20,100
Inventory 71,800 88,800
-------------- --------------
2,826,000 3,989,900
Deferred tax liabilities:
Fixed assets (1,600) (1,600)
Valuation allowance (2,824,400) (3,988,300)
-------------- --------------
Net deferred tax asset $ - $ -
============== ==============
Statement 109 requires that a valuation allowance be established for
deferred tax assets, if based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax asset
will not be realized. The Company has determined that a valuation allowance
is required in light of its history of operating losses since its
inception.
At June 30, 1996 the Company has Federal and state NOL carryforwards
available to reduce future taxable income of approximately $8,100,000,
which expire in various amounts between the years 2002 and 2010, if not
previously utilized. In the event of an ownership change, as defined under
Section 382 of the Internal Revenue Code, utilization of NOL carryforwards
in the period following the ownership change can be significantly limited.
Management believes that the Company has incurred several changes of
ownership under these rules. As a result, utilization of the NOLs is
subject to various limitations, depending upon the year in which the NOL
originated. As of June 30, 1996 management estimates that approximately
$5,100,000 of the Company's Federal NOL carryforwards will be available to
offset taxable income that may be generated within the carryforward period.
Of this amount, approximately $2,400,000 is available for future
utilization without limitation. The other $2,700,000 is subject to a
limitation of approximately $180,000 of utilization per year. However,
because the limitation calculations are complex and subject to review by
the Internal Revenue Service, these limitations could be adjusted at a
later date.
In addition, in the event the Company consummates a public offering of
common stock, it is expected that another change of ownership will occur.
As a result of this change, management expects that all prior limitations
will remain in place, except that additional limitations will be imposed on
the $2,400,000 NOL carryforward previously available for utilization
without limitation, as described above. Management estimates that the
$2,400,000 NOL carryforward will be subject to a limitation of
approximately $150,000 of utilization per year, limiting expected total
utilization during the carryforward period to approximately $2,250,000.
F-18
<PAGE>
Notes to Financial Statements(continued)
10. Stock options
In 1987 the Company adopted an employee and director stock option plan (the
"1987 Plan"), pursuant to which the Company made grants of options through
November 1994. As of June 30, 1996, there were options outstanding to
purchase 1,921 shares under the 1987 Plan. In November 1994 the Company
adopted a new employee stock option plan (the "1994 Employee Plan") and a
stock option plan for non-employee directors (the "1994 Directors Plan").
The Company has reserved a number of shares of common stock for the 1994
Employee Plan equal to the difference between 12,162 and the number of
shares issuable upon the exercise of options outstanding from time to time
under the 1987 Plan. As of June 30, 1996 there were options outstanding to
purchase 6,430 shares under the 1994 Employee Plan. In addition, the
Company has reserved 2,027 shares for the 1994 Directors Plan. As of June
30, 1996 there were options outstanding to purchase 1,014 shares under the
1994 Directors Plan. The Company has also granted options from time to time
to consultants and in connection with equity and debt offerings. These
options were granted at exercise prices which were not less than the fair
market value of the common stock on the date the option was granted. As of
June 30, 1996 there were non-plan options outstanding to purchase 749
shares. Both the 1987 Plan and the 1994 Plan provide for the grant of
incentive stock options and non-qualified stock options. Incentive stock
options under both plans must be granted at an exercise price not less than
the fair market value of the common stock on the date the option is
granted. Non-qualified stock options under the 1987 Plan must be granted at
exercise prices not less than 50% of the fair market value of the common
stock on the date the option is granted, while non-qualified stock options
under the 1994 Plan must be granted at exercise prices not less than the
fair market value of the common stock on the date the option is granted.
Options must be exercised within ten (10) years from grant, except for
incentive stock options issued to 10% stockholders which must be exercised
within five (5) years from grant. Options outstanding under the 1987 Plan
and the 1994 Employee Plan vest at the rate of 20% on the first anniversary
of the date of grant and 5% at the end of each additional three-month
period of service. Options under the 1994 Directors Plan vest ratably over
four years. Non-plan options vest in accordance with the terms of the
particular option agreement. The range of vesting periods under non-plan
options is from zero to three years.
As of June 30, 1996 the Company had outstanding stock options to purchase
10,114 common shares:
Option Exercise Price Options
Per Share Outstanding
--------------------------
$ 74.00 799
119.88 186
148.00 82
222.00 8,344
240.50 401
351.50 14
399.60 288
----------
Total 10,114
==========
F-19
<PAGE>
Notes to Financial Statements(continued)
The following is a summary of stock option activity for the years ended
June 30, 1995 and 1996:
1995 1996
Outstanding, beginning of period 8,381 11,278
Granted during period 4,792 5,021
Cancelled during period (1,666) (6,185)
Exercised during period (229) -
---------- ---------
Outstanding, end of period 11,278 10,114
========== =========
During fiscal 1995 the Company granted options to acquire 915 shares of
common stock at an exercise price of $92.50 pursuant to the 1994 Employee
Plan to a former officer of the Company in exchange for an equivalent
number of options previously granted to that officer under the 1987 Plan.
The exchange of options created a new measurement date and the Company
recognized compensation expense in the amount of $118,517 based on the
difference between the adjusted exercise price and the fair market value of
the options granted. These options to acquire 915 shares were subsequently
cancelled during 1996.
In August 1996 the Company terminated the 1994 Directors' Plan.
In August 1996 the Company terminated its 1987 Stock Option and Purchase
Plan and 1994 Stock Option Plans (the "Terminated Plans") and adopted the
1996 Plan pursuant to which key employees of the Company, including
directors who are employees, are eligible to receive grants of options to
purchase Common Stock, at the discretion of the Compensation Committee. The
Company has reserved 500,000 shares of Common Stock for issuance under the
1996 Plan. Options granted under the 1996 Plan can be either incentive
stock options or non-qualified options, at the discretion of the
Compensation Committee. On August 1, 1996 the Company cancelled the 8,351
options outstanding under the Terminated Plans (having exercise prices
ranging from $74 to $240.50 per share) and granted options to purchase
248,351 (of which 8,351 are immediately exercisable) shares of Common Stock
at an exercise price equal to $3.75 per share.
F-20
<PAGE>
Notes to Financial Statements(continued)
11. International sales and major customers
The Company sells optical archiving systems and related licenses for
software products to customers domestically and internationally.
International sales have all been denominated in U.S. dollars and were
$772,000 and $214,000 in the years ended June 30, 1995 and 1996,
respectively. The Company's sales to Canada represented 10% and 11% of
total revenues for the year ended June 30, 1995 and 1996, respectively.
Sales to five customers represented 18%, 16%, 15%, 14% and 10% of revenue
for the year ended June 30, 1995. Sales to three customers accounted for
35%, 22% and 11% of revenues for the year ended June 30, 1996.
12. Proceeds from sales of common stock
During the second quarter of fiscal 1995 the Company sold 2,671 shares in a
private placement of common stock for a total of $593,000.
13. Mandatorily redeemable preferred stock
In January 1995 the Company sold 50,000 shares of Series A preferred stock,
$.01 par value, in a private placement to a trust for the benefit of one of
the Company's directors. The selling price of $40 per share resulted in
gross proceeds of $2,000,000. The Series A preferred stock had certain
preferred liquidation, dividend and other rights, and was convertible into
common stock upon consummation of an initial public offering of at least
$4,000,000, at a rate of .135 shares of common stock for each share of
Series A preferred stock. Dividends on the Series A preferred stock were
cumulative at a rate of $4 per share annually. Unpaid dividends at June 30,
1995, in the amount of $88,462 are charged to accumulated deficit in the
statement of mandatorily redeemable preferred stock and stockholders'
equity (deficit).
During the year ended June 30, 1996 the Company converted all of these
shares and accumulated dividends on the preferred shares in the amount of
$197,352 into 7,423 shares of common stock.
14. Supplemental disclosures of cash flow information
Cash paid for interest for the years ended June 30, 1995 and 1996 was
approximately $104,000 and $130,000, respectively.
During the year ended June 30, 1996 there were a number of transactions in
which the Company issued common stock without receiving any cash proceeds.
As discussed in Note 13, the Company issued 7,423 shares of common stock in
exchange for outstanding preferred stock and accumulated unpaid dividends
in the aggregate amount of $2,197,352. In conjunction with the
recapitalization discussed in Note 2, the Company issued 1,041,012 shares
of common stock in forgiveness of debt totalling $2,697,544. In January
1996, the Company issued 416,500 shares of common stock to an officer.
Compensation expense in the aggregate amount of $744,000 was recognized in
conjunction with this transaction including a non-cash charge of $424,830,
representing the fair value of the common stock as determined by
independent appraisal. The
F-21
<PAGE>
Notes to Financial Statements(continued)
Company also issued 12,790 shares of common stock to various related
parties (including 7,500 shares issued to a former officer of the Company)
in satisfaction of services rendered to the Company totalling $36,930.
In addition, during the twelve months ended June 30, 1995 and 1996 the
Company acquired approximately $37,000 and $34,000, respectively, of
computer equipment under capital leases.
F-22
<PAGE>
======================================== ==================================
No underwriter, dealer, salesperson or
any other person has been authorized to
give any information or to make any
representations other than those
contained in this Prospectus and, if
given or made, such information or
representations must not be relied upon Access Solutions
as having been authorized by the Company International, Inc.
or the Underwriter. Neither the delivery
of this Prospectus nor any sale made
hereunder shall, under any
circumstances, create any implication
that there has been no change in the 1,066,667 Units
affairs of the Company since the date Each Unit Consisting
hereof or that the information contained of
herein is correct as of any date Two Shares of Common Stock
subsequent to the date hereof. This and
Prospectus does not constitute an offer One Redeemable Warrant
to sell or a solicitation of an offer to
buy any securities offered hereby by
anyone in any jurisdiction in which such
offer or solicitation is not authorized
or in which the person making such offer
or solicitation is not qualified to do
so or to anyone to whom it is unlawful
to make such offer or solicitation.
--------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary
Risk Factors
The Company
Use of Proceeds
Capitalization
Dilution
Dividend Policy
Selected Financial Data
Management's Discussion and Analysis --------------------
of Financial Condition and Results
of Operations PROSPECTUS
Business
Management --------------------
Certain Transactions
Principal Stockholders
Selling Securityholders JOSEPH STEVENS & COMPANY, L.P.
Description of Securities
Securities Eligible for Future Sale
Underwriting
Legal Matters __, 1996
Experts
Additional Information
Index to Financial Statements F-1
Until , 1996, all dealers effecting
transactions in the registered
securities, whether or not participating
in this distribution, may be required to
deliver a Prospectus. This delivery
requirement is in addition to the
obligation of dealers to deliver a
Prospectus when acting as underwriters
and with respect to their unsold
allotments or subscriptions.
======================================== ==================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
Offering described in this Registration Statement. All amounts are estimated
except the registration and NASD fees.
Registration fee $ 7,224
NASD fee 2,610
NASDAQ SmallCap Market application fee 1,500
Printing costs for Registration Statement, Prospectus, stock 75,000
certificates and related documents
Accounting fees and expenses 250,000
Legal fees and expenses 250,000
Blue sky fees and expenses 40,000
Transfer Agent and Registrar fees and expenses 5,000
Miscellaneous 28,666
-----------
Total $ 660,000
==========
All of the above expenses of the Offering will be paid by the Company.
<PAGE>
Item 27. Exhibits and Financial Schedules.
(a) Exhibits
Exhibit
Number Description of Exhibit
------- ----------------------
1(a) Form of Underwriting Agreement
3(a) Amended and Restated Certificate of Incorporation
3(c) Redeemable Warrant Agreement (with form of redeemable warrant
attached)
4(b) Amendment to Loan Agreement by and between the Company and Fleet
National Bank, as amended, dated June 26, 1996
4(c) Form of Common Stock Certificate
5 Opinion of Edwards & Angell
10(d) The Company's 1996 Stock Option Plan
10(f)(i) Letter agreement dated July 18, 1996 amending the Employment Agreement
dated as of September 1995 between the Company and Matthias E. Lukens,
Jr.
10(j)(i) Termination of Registration Rights Agreement dated January 16, 1996 by
and between the Company and Thomas E. Gardner (successor to the Trust)
10(m)(i) First Amendment dated June 1995 to the Loan Agreement dated as of May
9, 1995 by and between the company and Elizabeth Z. Chace and
Christian Nolan, Trustees
10(v)(i) Letter agreement dated August 20, 1996, amending the Subscription
Agreement between Thomas Gardner, Leslie A. Gardner and the Company
dated September 1994.
10(x) Underwriter's Warrant Agreement
10(y) Financial Advisory and Consulting Agreement
10(z) Letter agreement dated June 14, 1996 between the Company and Hector D.
Wiltshire
10(aa) Employment Agreement dated as of July 31, 1996 between the Company and
Robert H. Stone
10(bb) Promissory Note dated as of February 6, 1996 between the Company and
Malcolm G. Chace III
II-2
<PAGE>
23(a) Consent of Price Waterhouse LLP
23(b) Consent of Edwards & Angell (included in Exhibit 5)
27 Financial Data Schedule
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, Access
Solutions International, Inc. certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form SB-2 and
authorized this amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of North
Kingstown, State of Rhode Island, on this 9th day of September, 1996.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By /s/ Robert H. Stone
-------------------------------------------
Robert H. Stone
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed by the following persons
in the capacities indicated on September 9, 1996.
Signatures Title
- ---------- -----
/s/ Malcolm G. Chace III Director, Chairman of the Board
- --------------------------------------
Malcolm G. Chace III
/s/ Robert H. Stone President and Chief Executive
- --------------------------------------- Officer, Director
Robert H. Stone
* Company Controller and Chief
- --------------------------------------- Accounting Officer
Denis L. Marchand
/s/ Thomas E. Gardner
- ---------------------------------------
Thomas E. Gardner Chief Financial Officer and Director
*
- ---------------------------------------
Hector D. Wiltshire Director
*
- ---------------------------------------
Marvyn Carton Director
*By /s/ Thomas E. Gardner
- ---------------------------------------
Thomas E. Gardner
As Attorney-in-fact
II-4
<PAGE>
Exhibit 1.a
1,066,667 UNITS, EACH
UNIT CONSISTING OF TWO SHARES OF
COMMON STOCK AND ONE REDEEMABLE WARRANT
ACCESS SOLUTIONS INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
New York, New York
_________, 1996
JOSEPH STEVENS & COMPANY, L.P.
33 Maiden Lane, 8th Floor
New York, New York 10038
Ladies and Gentlemen:
Access Solutions International, Inc., a Delaware corporation (the
"Company"), confirms its agreement with Joseph Stevens & Company, L.P. ("JSLP")
(hereinafter referred to as "you" or the "Underwriter"), with respect to the
sale by the Company and the purchase by the Underwriter of 1,066,667 units (the
"Units"), each Unit consisting of two (2) shares of the Company's common stock,
$.01 par value (the "Common Stock"), and one (1) redeemable warrant (the
"Redeemable Warrants"). Each Redeemable Warrant is exercisable for one share of
Common Stock. The Common Stock and Redeemable Warrants will be separately
tradeable upon issuance and are hereinafter referred to as the "Firm Units". The
Redeemable Warrants are exercisable commencing ________________, 1996 [the
effective date of the Registration Statement] until _____________, 2001 [60
months from the effective date of the Registration Statement], unless previously
redeemed by the Company, at an initial exercise price equal to $__________ [66
2/3% of the initial public offering price per Unit] per share, subject to
adjustment. The Redeemable Warrants may be redeemed by the Company, in whole,
and not in part, at a redemption price of five cents ($.05) per Redeemable
Warrant at any time commencing ______________, 1997 [12 months after the
effective date of the Registration Statement] on 30 days' prior written notice
provided that the average closing bid price of the Common Stock equals or
exceeds 150% of the then exercise price per share (subject to adjustment) for
any twenty (20) trading days within a period of thirty (30) consecutive trading
days ending on the fifth (5th) trading day prior to the date of the notice of
redemption. Upon the Underwriter's request, as provided in Section 2(b) of this
Agreement, the Company shall also issue and sell to the Underwriter up to an
additional 160,000 Units for the
<PAGE>
purpose of covering over-allotments, if any. Such 160,000 Units are hereinafter
collectively referred to as the "Option Units." The shares of Common Stock
issuable upon exercise of the Redeemable Warrants are hereinafter referred to as
the "Warrant Shares." The Company also proposes to issue and sell to the
Underwriter or its designees warrants (the "Underwriter's Warrants"), pursuant
to the underwriter's warrant agreement (the "Underwriter's Warrant Agreement"),
for the purchase of an additional 106,667 Units. The redeemable common stock
purchase warrants issuable upon exercise of the Underwriter's Warrants are
hereinafter sometimes referred to herein as the "Underwriter's Redeemable
Warrants." The shares of Common Stock issuable upon exercise of the
Underwriter's Warrants and the shares of Common Stock issuable upon exercise of
the Underwriter's Redeemable Warrants are hereinafter collectively referred to
as the "Underwriter's Shares." The Underwriter's Redeemable Warrants and the
Underwriter's Shares are sometimes referred to herein as the "Underwriter's
Securities." Further, an additional 750,000 Redeemable Warrants (and the 750,000
shares of Common Stock underlying such Redeemable Warrants) (collectively, the
"Selling Security Holders' Securities") are being registered for the account of
certain selling security holders in connection with this offering which are not
being underwritten by the Underwriter. The Firm Units, the Option Units, the
Underwriter's Warrants, the Underwriter's Redeemable Warrants, the Underwriter's
Shares, the Warrant Shares and the Selling Security Holders' Securities are
hereinafter collectively referred to as the "Securities" and are more fully
described in the Registration Statement and the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and covenants and agrees with, the Underwriter as of the date
hereof, and as of the Closing Date (hereinafter defined) and the Option Closing
Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and amendments thereto,
on Form SB-2 (Registration No. 333-05285), including any related preliminary
prospectus or prospectuses (each a "Preliminary Prospectus"), for the
registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not file
any other amendment to such registration statement which the Underwriter shall
have objected to in writing after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time it becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to, those documents or that information incorporated by reference
therein) and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430A of the rules and regulations under the
Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
2
<PAGE>
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or the Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus and the Registration Statement
and the Prospectus, at the time of filing thereof, conformed with the
requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement nor the Prospectus, at the
time of filing thereof, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that this representation and warranty
does not apply to statements made or statements omitted in reliance upon and in
conformity with written information furnished to the Company with respect to the
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or the Prospectus. The Company has filed all reports, forms or other
documents required to be filed under the Act and the Exchange Act and the
respective Rules and Regulations thereunder, and all such reports, forms or
other documents, when so filed or as subsequently amended, complied in all
material respects with the Act and the Exchange Act and the respective Rules and
Regulations thereunder.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date and each Option Closing Date, if any,
and during such longer period as the Prospectus may be required to be delivered
in connection with sales by the Underwriter or a dealer, the Registration
Statement and the Prospectus will contain all statements which are required to
be stated therein in accordance with the Act and the Rules and Regulations, and
will conform to the requirements of the Act and the Rules and Regulations; and,
at and through such dates, neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided, however, that
this representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriter expressly for use in the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation. The Company is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations require such qualification
or licensing, except where the failure to so qualify will not have a material
adverse effect on the Company. The Company does not own, directly or indirectly,
an interest in any corporation, partnership, trust, joint venture or other
business entity. The Company has all requisite power and authority (corporate
and other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or
3
<PAGE>
regulatory officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease its
properties and conduct its business as described in the Prospectus except where
the failure to have any such authorizations will not have a material adverse
effect on the Company; the Company is and has been doing business in compliance
in all material respects with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and with all federal, state,
local and foreign laws, rules and regulations to which it is subject; and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company. The disclosure in the Registration Statement concerning the effects of
federal, state, local and foreign laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all respects
and do not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement (as defined in
Section 1(ff) hereof of this Agreement) and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company on or
prior to the Closing Date and each Option Closing Date, if any, conform or, when
issued and paid for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holder of any security of the Company
or any similar contractual right granted by the Company. The Securities to be
sold by the Company hereunder and pursuant to the Underwriter's Warrant
Agreement and the Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable and conform to
the descriptions thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the Securities,
when delivered by the Company, will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof and the Underwriter's Warrant
Agreement of the Securities to be sold by the Company hereunder and thereunder
to the Underwriter, the Underwriter will acquire good and marketable title to
such Securities, free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or
4
<PAGE>
equity of any kind whatsoever asserted against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the Company.
(f) The audited financial statements of the Company and the notes thereto
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus fairly present the financial position, income, changes in
stockholders' equity and the results of operations of the Company at the
respective dates and for the respective periods to which they apply. Such
financial statements have been prepared in conformity with generally accepted
accounting principles and the Rules and Regulations, consistently applied
throughout the periods involved. There has been no adverse change or development
involving a material adverse prospective change in the condition, financial or
otherwise, or in the earnings, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus;
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conform in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. The financial
information set forth in the Prospectus under the headings "Prospectus Summary,"
"Capitalization," "Selected Financial Data" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" fairly presents, on
the basis stated in the Prospectus, the information set forth therein and such
financial information has been derived from or compiled on a basis consistent
with that of the audited financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local and foreign taxes
for which it is liable, including, but not limited to, withholding taxes and
amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (ii) has established adequate reserves
for such taxes which are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or on
behalf of the Underwriter in connection with (i) the issuance by the Company of
the Securities, (ii) the purchase by the Underwriter of the Securities from the
Company, (iii) the consummation by the Company of any of its obligations under
this Agreement or the Underwriter's Warrant Agreement, or (iv) resales of the
Securities in connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not limited
to, general liability, property, personal and product liability insurance, and
surety bonds which insure the Company and its employees against such losses and
risks generally insured against by comparable businesses. The Company (i) has
not failed to give notice or present any insurance claim with respect to any
insurable matter under the appropriate insurance policy or surety bond in a due
and timely manner, (ii) does not have any disputes or claims against any
underwriter of such insurance policies or surety bonds, nor has the Company
failed to pay any premiums due and payable thereunder, or (iii) has not failed
to comply with all material conditions contained in such insurance policies and
surety bonds. To the best of the Company's knowledge, there are no facts or
5
<PAGE>
circumstances under any such insurance policy or surety bond which would relieve
any insurer of its obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those pertaining to environmental or similar matters), domestic or
foreign, pending or threatened against (or, to the best of the Company's
knowledge, circumstances that may give rise to the same), or involving the
properties or business of, the Company which (i) questions the validity of the
capital stock of the Company, this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement (as defined in
Section 1(gg) hereof) or of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement, (ii) is required
to be disclosed in the Registration Statement which is not so disclosed (and
such proceedings as are summarized in the Registration Statement are accurately
summarized in all respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, earnings, prospects, stockholders' equity,
value, operations, properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, to enter into this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement and the Consulting
Agreement and to consummate the transactions provided for in such agreements;
and each of this Agreement, the Underwriter's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement have been duly and properly authorized,
executed and delivered by the Company. Each of this Agreement, the Underwriter's
Warrant Agreement, the Warrant Agreement and the Consulting Agreement
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles in any motion,
legal or equitable, and except as obligations to indemnify or contribute to
losses may be limited by applicable law). None of the Company's issue and sale
of the Securities, execution or delivery of this Agreement, the Underwriter's
Warrant Agreement, the Warrant Agreement or the Consulting Agreement, its
performance hereunder and thereunder, its consummation of the transactions
contemplated herein and therein, or the conduct of its business as described in
the Registration Statement and the Prospectus and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (i) the
certificate of incorporation or by-laws of the Company, (ii) any material
license, contract, indenture, mortgage, lease, deed of trust, voting trust
agreement, stockholders' agreement, note, loan or credit agreement or other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which it is
or may be bound or to which its properties or assets (tangible or intangible)
are or may be subject, or (iii) any material statute, judgment, decree, order,
rule or regulation applicable to the
6
<PAGE>
Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing with,
any arbitrator, court, regulatory body, administrative agency, government agency
or other body, domestic or foreign, is required for the issuance of the
Securities pursuant to the Prospectus and the Registration Statement, this
Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement, the
performance of this Agreement, the Underwriter's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement and the transactions contemplated hereby
and thereby, except such as have been obtained under the Act, state securities
laws and the rules of the National Association of Securities Dealers, Inc. (the
"NASD") in connection with the Underwriter's purchase and distribution of the
Securities.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company, and
constitute legal, valid and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any motion, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law). The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2; and there are no agreements, contracts or
other documents which are required by the Act to be described in the
Registration Statement or filed as exhibits to the Registration Statement which
are not described or filed as required; and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to be
copies.
(n) Subsequent to the respective dates as of which information is set forth
in the Registration Statement and the Prospectus, and except as may otherwise be
indicated or contemplated herein or therein, the Company has not (i) issued any
securities or incurred any liability or obligation, direct or contingent, for
borrowed money, (ii) entered into any transaction other than in the ordinary
course of business, or (iii) declared or paid any dividend or made any other
distribution on or in respect of any class of its capital stock; and, subsequent
to such dates, and except as may otherwise be disclosed in the Prospectus, there
has not been any material adverse change in the capital stock, debt (long or
short term) or liabilities of the Company or any material change in the
condition, financial or otherwise, earnings, prospects, stockholders' equity,
value, operations, properties, business or results of operations of the Company.
(o) No default exists in the due performance and observance of any term,
covenant or condition of any material license, contract, indenture, mortgage,
lease, deed of trust,
7
<PAGE>
voting trust agreement, stockholders' agreement, note, loan or credit agreement
or any other agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company is a party or
by which the Company is or may be bound or to which the property or assets
(tangible or intangible) of the Company is or may be subject.
(p) The Company is in compliance in all material respects with all federal,
state, local and foreign laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours. To
the best of the Company's knowledge, there are no pending investigations
involving the Company by the United States Department of Labor or any other
governmental agency responsible for the enforcement of any federal, state, local
or foreign laws, rules and regulations relating to employment. There is no
unfair labor practice charge or complaint against the Company pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or threatened against or involving the Company, or
any predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists or is imminent.
(q) The Company does not maintain, sponsor or contribute to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan" or a "multiemployer plan," as such terms are defined in Sections
3(2), 3(l) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not maintain
or contribute, now or at any time previously, to a defined benefit plan, as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code which could subject the Company
to any tax penalty on prohibited transactions and which has not adequately been
corrected. Each ERISA Plan is in compliance with all material reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401(a), stating that such ERISA Plan and the attendant trust are
qualified thereunder. The Company has never completely or partially withdrawn
from a "multiemployer plan."
(r) Neither the Company, nor to the best knowledge of the Company, any of
its employees, directors, stockholders or affiliates (within the meaning of the
Rules and Regulations), has taken or will take, directly or indirectly, any
action designed to or which has constituted or which might be expected to cause
or result in, under the Exchange Act or otherwise, the stabilization or
manipulation of the price of any security of the Company, whether to facilitate
the sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, none of the trademarks, trade
names, service marks, service names, copyrights, patents and patent
applications, and none of the licenses and rights to the foregoing, presently
owned or held by the Company are in dispute or are
8
<PAGE>
in conflict with the right of any other person or entity. The Company (i) owns
or has the right to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, all trademarks, trade names, service marks,
service names, copyrights, patents and patent applications, and licenses and
rights with respect to the foregoing, used in the conduct of its business as now
conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any trademark, trade name, service mark, service name, copyright, patent or
patent application. There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or to the best of the Company's knowledge, threatened (or
circumstances that may give rise to the same) against the Company which
challenges the exclusive rights of the Company with respect to any trademarks,
trade names, service marks, service names, copyrights, patents, patent
applications or licenses or rights to the foregoing used in the conduct of its
business.
(t) The Company owns or licenses and has the right to use all trade
secrets, know-how (including all unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, technology,
designs, processes, works of authorship, computer programs and technical data
and information that are material to the development, manufacture, operation and
sale of all products and services sold or proposed to be sold by the Company,
free and clear of and without violating any right, lien, or claim of others,
including, without limitation, former employers of its employees.
(u) Except as disclosed in the Prospectus, the Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever,
other than liens for taxes not yet due and payable.
(v) Price Waterhouse LLP, whose reports are filed with the Commission as a
part of the Registration Statement, are independent certified public accountants
as required by the Act and the Rules and Regulations.
(w) 98% of the holders of the securities of the Company and each director
and officer of the Company has executed an agreement (collectively, the "Lock-Up
Agreements") pursuant to which he, she or it has agreed, (i) for a period
extending eighteen (18) months following the effective date of the Registration
Statement, not to, directly or indirectly, offer, offer to sell, sell, grant an
option for the purchase or sale of, transfer, assign, pledge, hypothecate or
otherwise encumber (whether pursuant to Rule 144 of the Rules and Regulations or
otherwise) any securities issued or issuable by the Company, whether or not
owned by or registered in the name of such persons, or dispose of any interest
therein, without the prior written consent of the Underwriter and, (ii) for a
period extending twenty-four (24) months following the effective date of the
Registration Statement, that all sales of such securities issued by the Company
shall be made through the
9
<PAGE>
Underwriter in accordance with its customary brokerage policies. The Company
will cause its transfer agent to mark an appropriate legend on the face of stock
certificates representing all of such securities and place "stop transfer"
orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriter's compensation, as determined by the NASD.
(y) The Units, the Common Stock, the Underwriter's Shares, the
Underwriter's Redeemable Warrants and the Redeemable Warrants have been approved
for quotation on The Nasdaq SmallCap Market ("Nasdaq").
(z) Neither the Company nor, to the best knowledge of the Company, any of
its directors, officers, stockholders, employees, agents or any other person
acting on behalf of the Company has, directly or indirectly, given or agreed to
give any money, gift or similar benefit (other than legal price concessions or
royalties to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or any official or
employee of any governmental agency or instrumentality of any government
(domestic or foreign) or instrumentality of any government (domestic or foreign)
or any political party or candidate for office (domestic or foreign) or any
other person who was, is or may be in a position to help or hinder the business
of the Company (or assist the Company in connection with any actual or proposed
transaction) which (i) might subject the Company or any other such person to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (ii) if not given in the past, might have had
a material and adverse effect on the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company, or (iii) if not
continued in the future, might materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt Practices Act
of 1977, as amended.
(aa) The Company confirms as of the date hereof that it is in compliance
with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act
Relating to Disclosure of Doing Business with Cuba, and the Company further
agrees that if it or any affiliate commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
10
<PAGE>
(bb) Except as set forth in the Prospectus, to the best of the Company's
knowledge, no officer, director or stockholder of the Company, and no affiliate
or associate (as these terms are defined in the Rules and Regulations) of any of
the foregoing persons or entities, has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which the Company may be bound.
Except as set forth in the Prospectus under "Certain Transactions," there are no
existing agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company and any officer, director or any person listed in the "Principal
Stockholders" section of the Prospectus or any affiliate or associate of any of
the foregoing persons or entities.
(cc) The minute books of the Company have been made available to the
Underwriter, contain a summary of all material actions of the directors and
stockholders of the Company since the time of its incorporation, and reflect all
transactions referred to in such minutes accurately in all material respects.
(dd) Except and to the extent described in the Prospectus, no holder of any
securities of the Company or of any options, warrants or other convertible or
exchangeable securities of the Company has the right to include any securities
issued by the Company in the Registration Statement or any registration
statement to be filed by the Company or to require the Company to file a
registration statement. Except as set forth in the Prospectus, no person or
entity holds any anti-dilution rights with respect to any securities of the
Company.
(ee) Any certificate signed by any officer of the Company and delivered to
the Underwriter or to Underwriter's Counsel (as defined in Section 4(d) herein),
shall be deemed a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
(ff) The Company has entered into a warrant agreement, substantially in the
form filed as Exhibit 3(c) to the Registration Statement (the "Warrant
Agreement"), with Continental Stock Transfer & Trust Company, in form and
substance satisfactory to the Underwriter, with respect to the Redeemable
Warrants and providing for the payment of warrant solicitation fees contemplated
by Section 4(w) hereof. The Warrant Agreement has been duly and validly
authorized by the Company and, assuming due execution by the parties thereto
other than the Company, constitutes a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law).
(gg) The Company has entered into a financial advisory and consulting
agreement substantially in the form filed as Exhibit 10(y) to the Registration
Statement (the
11
<PAGE>
"Consulting Agreement") with the Underwriter, with respect to the rendering of
consulting services by the Underwriter to the Company. The Consulting Agreement
has been duly and validly authorized by the Company and assuming due execution
by the parties thereto other than the Company, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law).
(hh) The Company has filed a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and such Form 8-A has been
declared effective by the Commission.
(ii) Each Redeemable Warrant that is a Selling Security Holders' Security
has been automatically converted into a Redeemable Warrant without any action by
the holder thereof and all of such Redeemable Warrants, as converted (and the
shares of Common Stock underlying such Redeemable Warrants, as converted), have
been registered in the Registration Statement.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter, and the Underwriter agrees
to purchase from the Company, the Firm Units at a price equal to $____ per Unit
[90% of the initial public offering price].
(b) In addition, on the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriter to purchase
all or any part of the Option Units at a price equal to $________ per Unit [90%
of the initial public offering price]. The option granted hereby will expire
forty-five (45) days after (i) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (ii) the date of this Agreement if the Company has elected
to rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Units upon notice by the Underwriter to the Company
setting forth the number of Option Units as to which the Underwriter is then
exercising the option and the time and date of payment and delivery for any such
Option Units. Any such time and date of delivery (an "Option Closing Date")
shall be determined by the Underwriter, but shall not be later than seven (7)
full business days after the exercise of said option, nor in any event prior to
the Closing Date, unless otherwise agreed upon by the Underwriter and the
Company. Nothing herein contained shall obligate the Underwriter to exercise the
option granted hereby. No Option Units shall be delivered unless the Firm Units
shall be simultaneously delivered or shall theretofore have been delivered as
herein provided.
12
<PAGE>
(c) Payment of the purchase price for, and delivery of certificates for,
the Firm Units shall be made at the offices of the Underwriter at 33 Maiden
Lane, New York, New York 10038, or at such other place as shall be agreed upon
by the Underwriter and the Company. Such delivery and payment shall be made at
10:00 a.m. (New York City time) on , 1996 or at such other time and date as
shall be agreed upon by the Underwriter and the Company but not less than three
(3) nor more than seven (7) full business days after the effective date of the
Registration Statement (such time and date of payment and delivery being herein
called the "Closing Date"). In addition, in the event that any or all of the
Option Units are purchased by the Underwriter, payment of the purchase price
for, and delivery of certificates for, such Option Units shall be made at the
above mentioned office of the Underwriter or at such other place as shall be
agreed upon by the Underwriter and the Company. Delivery of the certificates for
the Firm Units and the Option Units, if any, shall be made to the Underwriter
against payment by the Underwriter of the purchase price for the Firm Units and
the Option Units, if any, to the order of the Company by New York Clearing House
funds. Certificates for the Firm Units and the Option Units, if any, shall be in
definitive, fully registered form, shall bear no restrictive legends and shall
be in such denominations and registered in such names as the Underwriter may
request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Units and the Option Units, if any, shall be made available to the
Underwriter at such offices or such other place as the Underwriter may designate
for inspection, checking and packaging no later than 9:30 a.m. on the last
business day prior to the Closing Date or the relevant Option Closing Date, as
the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter or its designees the Underwriter's Warrants for an aggregate
purchase price of $.0001 per warrant, which warrants shall entitle the holders
thereof to purchase an aggregate of an additional 106,667 Units. The
Underwriter's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement at
a price equaling one hundred and twenty percent (120%) of the initial public
offering price of the Units. The Underwriter's Warrant Agreement and the form of
the certificates for the Underwriter's Warrant shall be substantially in the
form filed as Exhibit 10(x) to the Registration Statement. Payment for the
Underwriter's Warrants shall be made on the Closing Date.
3. Public Offering of the Units. As soon after the Registration Statement
becomes effective as the Underwriter deems advisable, the Underwriter shall make
a public offering of the Firm Units and such of the Option Units as the
Underwriter may determine (other than to residents of or in any jurisdiction in
which qualification of the Units is required and has not become effective) at
the price and upon the other terms set forth in the Prospectus. The Underwriter
may from time to time increase or decrease the public offering price after
distribution of the Units has been completed to such extent as the Underwriter,
in its sole discretion, deems advisable. The Underwriter may enter into one or
more agreements as the Underwriter, in its sole discretion, deems advisable with
one or more broker-dealers who shall act as dealers in connection with such
public offering.
13
<PAGE>
4. Covenants and Agreements of the Company. The Company covenants and
agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or the
Exchange Act before termination of the offering of the Securities to the public
by the Underwriter of which the Underwriter shall not previously have been
advised and furnished with a copy, or to which the Underwriter shall have
objected or which is not in compliance with the Act, the Exchange Act and the
Rules and Regulations; provided that the Company may file such amendment or
supplement over the objection of the Underwriter if the Company is advised by
counsel that a failure to file such amendment or supplement will give rise to a
violation of any applicable federal or state securities law.
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Underwriter and confirm the same in writing, (i) when
the Registration Statement, as amended, becomes effective, when any
post-effective amendment to the Registration Statement becomes effective and, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A, (ii) of the
issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding the outcome of which may result in the suspension
of the effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of any proceedings for that
purpose, (iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification of any of
the Securities for offering or sale in any jurisdiction or of the initiation, or
the threatening, of any proceeding for that purpose, (iv) of the receipt of any
comments from the Commission, and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities regulatory authority shall enter a stop order or suspend such
qualification at any time, the Company will make every effort to obtain promptly
the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) with the Commission, or transmit the Prospectus
by a means reasonably calculated to result in filing the same with the
Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if
applicable and if consented to by the Underwriter, pursuant to Rule 424(b)(4) of
the Rules and Regulations) within the time period specified in Rule 424(b)(1)
(or, if applicable and if consented to by the Underwriter, Rule 424(b)(4)).
(d) The Company will give the Underwriter notice of its intention to file
or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use in
connection with the offering of any of the Securities which differs
14
<PAGE>
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Underwriter with copies of any such amendment or supplement
a reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement to which the
Underwriter or Orrick, Herrington & Sutcliffe, its counsel ("Underwriter's
Counsel"), shall object; provided that the Company may file such amendment or
supplement over the objection of the Underwriter's Counsel if the Company is
advised by counsel that a failure to file such amendment or supplement will give
rise to a violation of any applicable federal or state securities law.
(e) The Company shall endeavor in good faith, in cooperation with the
Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriter may reasonably designate to permit
the continuance of sales and dealings therein for as long as may be necessary to
complete the distribution contemplated hereby, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered under the
Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act, the Exchange Act and the Rules and
Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriter's Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
prospectus to comply with the Act, the Company will notify the Underwriter
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriter's Counsel as provided in Section
4(d) hereof, and the Company will furnish to the Underwriter copies of such
amendment or supplement as soon as available and in such quantities as the
Underwriter may request.
(g) As soon as practicable, but in any event not later than forty five (45)
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company
15
<PAGE>
shall make generally available to its security holders, in the manner specified
in Rule 158(b) of the Rules and Regulations, and to the Underwriter, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least twelve (12) consecutive months after the effective
date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof, the Company
will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) of
earnings and will deliver to the Underwriter:
i) concurrently with furnishing such quarterly reports to the
Commission statements of income of the Company for such quarter in the form
furnished to the Company's stockholders and certified by the Company's
principal financial and accounting officer;
ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity
and cash flows of the Company for such fiscal year, accompanied by a copy
of the report thereon of the Company's independent certified public
accountants;
iii) as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
v) every press release and every material news item or article of
interest to the financial community in respect of the Company or its
affairs which was released or prepared by or on behalf of the Company; and
vi) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its business which the Underwriter
may request.
During such seven-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
16
<PAGE>
(i) The Company will maintain a transfer and warrant agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for the Units, the Common
Stock and the Redeemable Warrants.
(j) The Company will furnish to the Underwriter, without charge and at such
place as the Underwriter may designate, copies of each Preliminary Prospectus,
the Registration Statement and any pre-effective or post-effective amendments
thereto (one of which will be signed and will include all financial statements
and exhibits), the Prospectus, and all amendments and supplements thereto,
including any prospectus prepared after the effective date of the Registration
Statement, in each case as soon as available and in such quantities as the
Underwriter may reasonably request.
(k) On or before the effective date of the Registration Statement, the
Company shall provide the Underwriter with originally-executed copies of duly
executed, legally binding and enforceable Lock-Up Agreements which are in form
and substance satisfactory to the Underwriter. On or before the Closing Date,
the Company shall deliver instructions to its transfer agent authorizing such
transfer agent to place appropriate legends on the certificates representing the
securities of the Company subject to the Lock-Up Agreements and to place
appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of eighteen (18) months
commencing on the effective date of the Registration Statement, and except as
contemplated by this Agreement, it and its present and future subsidiaries will
not, without the prior written consent of the Underwriter (i) issue, sell,
contract or offer to sell, grant an option for the purchase or sale of, assign,
transfer, pledge, distribute or otherwise dispose of, directly or indirectly,
any shares of capital stock or any option, right or warrant with respect to any
shares of capital stock except pursuant to stock options or warrants issued on
the date hereof, and (ii) file any registration statement for the offer or sale
of securities issued or to be issued by the Company or any present or future
subsidiaries.
(m) Neither the Company nor any of its officers, directors, stockholders or
affiliates (within the meaning of the Rules and Regulations) will take, directly
or indirectly, any action designed to stabilize or manipulate the price of any
securities of the Company, or which might in the future reasonably be expected
to cause or result in the stabilization or manipulation of the price of any such
securities.
(n) The Company shall apply the net proceeds from the sale of the
Securities offered to the public in the manner set forth under "Use of Proceeds"
in the Prospectus. Except as disclosed in the Prospectus, no portion of the net
proceeds will be used, directly or indirectly, to acquire any securities issued
by the Company.
(o) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such
17
<PAGE>
reports, forms and documents will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act and the Rules and
Regulations.
(p) The Company shall furnish to the Underwriter as early as practicable
prior to each of the date hereof, the Closing Date and each Option Closing Date,
if any, but no later than two (2) full business days prior thereto, a copy of
the latest available unaudited interim financial statements of the Company
(which in no event shall be as of a date more than thirty (30) days prior to the
date hereof, the Closing Date or the relevant Option Closing Date, as the case
may be) which have been read by the Company's independent public accountants, as
stated in their letters to be furnished pursuant to Section 6(k) hereof.
(q) The Company shall cause the Units, the Common Stock and the Redeemable
Warrants to be quoted on Nasdaq and, for a period of seven (7) years from the
date hereof, use its best efforts to maintain the Nasdaq quotation of the Units,
the Common Stock and the Redeemable Warrants to the extent outstanding.
(r) For a period of five (5) years from the Closing Date, the Company shall
at the request of the Underwriter, furnish or cause to be furnished to the
Underwriter and at the Company's sole expense, (i) daily consolidated transfer
sheets relating to the Units, the Common Stock and the Redeemable Warrants and
(ii) a list of holders of all of the Company's securities.
(s) For a period of five (5) years from the Closing Date, the Company
shall, at the Company's sole expense, (i) promptly provide the Underwriter, upon
any and all requests of the Underwriter, with a "blue sky trading survey" for
secondary sales of the Company's securities, prepared by counsel to the Company,
and (ii) take all necessary and appropriate actions to further qualify the
Company's securities in all jurisdictions of the United States in order to
permit secondary sales of such securities pursuant to the "blue sky" laws of
those jurisdictions, provided that such jurisdictions do not require the Company
to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty (30) days
after the effective date of the Registration Statement, the Company agrees to
take all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and Moody's OTC Manual and to continue such inclusion
for a period of not less than seven (7) years.
(u) Without the prior written consent of the Underwriter, the Company
hereby agrees that it will not, for a period of eighteen (18) months from the
effective date of the Registration Statement, (i) adopt, propose to adopt or
otherwise permit to exist any employee, officer, director, consultant or
compensation plan or arrangement permitting the grant, issue, sale or entry into
any agreement to grant, issue or sell any option, warrant or other contract
right (x) at an exercise price that is less than the greater of 50% of the
initial public offering price of the Units set forth herein and the fair market
value per share of Common Stock on the date of grant or sale or (y) to any of
its executive officers or directors or to any holder of five percent (5%) or
more of the Common Stock or any holder of five percent (5%) or more of the
Common Stock as the result of
18
<PAGE>
the exercise or conversion of equivalent securities, including, but not limited
to options, warrants or other contract rights and securities convertible,
directly or indirectly, into shares of Common Stock; (ii) permit the maximum
number of shares of Common Stock or other securities of the Company purchasable
at any time pursuant to options, warrants or other contract rights to exceed
214,189 shares of Common Stock; (iii) permit the existence of stock appreciation
rights, phantom options or similar arrangements; or (iv) grant any options,
warrants or other contract rights or securities convertible, exercisable or
exchangeable directly or indirectly into securities of the Company for any
consideration other than cash.
(v) Until the completion of the distribution of the Units to the public and
during any period during which a prospectus is required to be delivered, the
Company shall not, without the prior written consent of the Underwriter, issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(w) For a period of five (5) years after the effective date of the
Registration Statement, the Company shall cause one (1) individual selected by
the Underwriter, subject to the good faith approval of the Company, to be
elected to the Board of Directors of the Company (the "Board"), if requested by
the Underwriter. In the event the Underwriter shall not have designated such
individual at the time of any meeting of the Board or such person has not been
elected or is unavailable to serve, the Company shall notify the Underwriter of
each meeting of the Board. An individual selected by the Underwriter shall be
permitted to attend all meetings of the Board and to receive all notices and
other correspondence and communications sent by the Company to members of the
Board. The Company shall reimburse the Underwriter's designee for his or her
out-of-pocket expenses reasonably incurred in connection with his or her
attendance of the Board meetings.
(x) Commencing one year from the date hereof, to pay the Underwriter a
warrant solicitation fee equal to five percent (5%) of the exercise price of the
Redeemable Warrants, payable on the date of the exercise thereof on terms
provided in the Warrant Agreement. The Company will not solicit the exercise of
the Redeemable Warrants through any solicitation agent other than the
Underwriter. The Underwriter will not be entitled to any warrant solicitation
fee unless the Underwriter provides bona fide services in connection with any
warrant solicitation and the investor designates, in writing, that the
Underwriter is entitled to such fee.
(y) For a period equal to the lesser of (i) seven (7) years from the date
hereof, and (ii) the sale to the public of the Underwriter's Securities, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Forms SB-2 or S-1 (or other appropriate form) for the
registration under the Act of the Underwriter's Securities.
(z) For a period of twenty four (24) months after the effective date of the
Registration Statement, the Company shall not restate, amend or alter any term
of any written employment, consulting or similar agreement entered into between
the Company and any officer, director or key employee as of the effective date
of the Registration Statement in a manner which is
19
<PAGE>
more favorable to such officer, director or key employee, without the prior
written consent of the Underwriter.
(aa) The Company will use its best efforts to maintain the effectiveness of
the Registration Statement for a period of five years after the date hereof.
5. Payment of Expenses.
(a) The Company hereby agrees to pay (such payment to be made, at the
discretion of the Underwriter, on the Closing Date and any Option Closing Date
(to the extent not paid on the Closing Date or a previous Option Closing Date))
all expenses and fees (other than fees of Underwriter's Counsel) incident to the
performance of the obligations of the Company under this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement, including, without
limitation, (i) the fees and expenses of accountants and counsel for the
Company, (ii) all costs and expenses incurred in connection with the
preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) of the Registration Statement
and the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage, overnight delivery or courier charges
with respect thereto) and delivery of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement, and agreements with selected dealers, and
related documents, including the cost of all copies thereof and of each
Preliminary Prospectus and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Underwriter and such dealers as the
Underwriter may reasonably request, in such quantities as the Underwriter may
reasonably request, (iii) the printing, engraving, issuance and delivery of the
Securities, (iv) the qualification of the Securities under state or foreign
securities or "blue sky" laws and determination of the status of such securities
under legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, and reasonable disbursements and fees of
counsel in connection therewith, (v) advertising costs and expenses, including,
but not limited to costs and expenses in connection with "road shows,"
information meetings and presentations, bound volumes and prospectus memorabilia
and "tombstone" advertisement expenses, (vi) costs and expenses in connection
with due diligence investigations, including, but not limited to, the fees of
any independent counsel or consultants, (vii) fees and expenses of a transfer
and warrant agent and registrar for the Securities, (viii) applications for
assignments of a rating of the Securities by qualified rating agencies, (ix) the
fees payable to the Commission and the NASD, and (x) the fees and expenses
incurred in connection with the listing of the Securities on Nasdaq and any
other exchange.
(b) If this Agreement is terminated by the Underwriter in accordance with
the provisions of Section 6, Section 10(a) or Section 11 hereof, the Company
shall reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the reasonable fees and disbursements of
Underwriter's Counsel, less any amounts already paid pursuant to Section 5(c)
hereof.
20
<PAGE>
(c) The Company further agrees that, in addition to the expenses payable
pursuant to Section 5(a) hereof, it will pay to the Underwriter on the Closing
Date by certified or bank cashier's check, or, at the election of the
Underwriter, by deduction from the proceeds of the offering of the Firm Units, a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Firm Units, twenty-five
thousand dollars ($25,000) of which has been paid to date by the Company. In the
event the Underwriter elects to exercise the overallotment option described in
Section 2(b) hereof, the Company further agrees to pay to the Underwriter on
each Option Closing Date, by certified or bank cashier's check, or, at the
Underwriter's election, by deduction from the proceeds of the Option Units
purchased on such Option Closing Date, a non-accountable expense allowance equal
to three percent (3%) of the gross proceeds received by the Company from the
sale of such Option Units.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date and each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date and each Option Closing Date, if
any, of the statements of officers of the Company made pursuant to the
provisions hereof; the performance by the Company on and as of the Closing Date
and each Option Closing Date, if any, of its covenants and obligations
hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not later than
12:00 p.m., New York time, on the date of this Agreement or such later date and
time as shall be consented to in writing by the Underwriter, and, at the Closing
Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriter's Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Units and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriter of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, is material, or omits to state a
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances in which they were made not misleading, or that the Prospectus, or
any supplement thereto, contains an untrue statement of fact which, in the
Underwriter's opinion, is material, or omits to state a fact which, in the
Underwriter's opinion, is material and is required to
21
<PAGE>
be stated therein or is necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall have received
from Underwriter's Counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and such other related matters as the Underwriter may
request and Underwriter's Counsel shall have received such papers and
information as they may request in order to enable them to pass upon such
matters.
(d) The Underwriter shall have received the favorable opinion of Edwards &
Angell, counsel to the Company, dated the Closing Date, addressed to the
Underwriter, in form and substance satisfactory to Underwriter's Counsel, to the
effect that:
i) the Company (A) is a validly existing corporation and is in good
standing under the laws of its jurisdiction of incorporation, (B) is duly
qualified and licensed and in good standing as a foreign corporation in
each jurisdiction in which its ownership or leasing of any properties or
the character of its operations requires such qualification or licensing,
except where the failure to so qualify will not have a material adverse
effect on the Company, and (C) has all corporate requisite power and
authority and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates and permits of and from all governmental
regulators, officials and bodies (including, without limitation, those
having jurisdiction over environmental or similar matters), to own or lease
its properties and conduct its business as described in the Prospectus
except where the failure to so qualify will not have a material adverse
effect on the Company; the Company is and has been doing business in
compliance in all material respects with all such authorizations,
approvals, orders, licenses, certificates and permits obtained by it from
governmental regulators, officials and agencies and all federal, state,
local and foreign laws, rules and regulations to which it is subject; and
the Company has not received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company. The disclosure in the Registration
Statement concerning the effects of federal, state, local and foreign laws,
rules and regulations on the Company's business as currently conducted and
as contemplated are correct in all material respects and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading;
ii) the Company does not own, directly or indirectly, an interest in
any corporation, partnership, joint venture, trust or other business
entity;
22
<PAGE>
iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
except as set forth in the Prospectus, the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities,
except for this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement and as described in the Prospectus. The Securities and
all other securities issued or issuable by the Company conform, or when
issued and paid for, will conform, in all respects to the descriptions
thereof contained in the Registration Statement and the Prospectus. All
issued and outstanding securities of the Company have been duly authorized
and validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto and are not
subject to personal liability by reason of being such holders; and none of
such securities were issued in violation of the preemptive rights of any
holders of any security of the Company or any similar contractual right
granted by the Company. The Securities to be sold by the Company hereunder
and under the Underwriter's Warrant Agreement and the Warrant Agreement are
not and will not be subject to any preemptive or other similar rights of
any stockholder, have been duly authorized and, when issued, paid for and
delivered in accordance with the terms hereof and thereof, will be validly
issued, fully paid and non-assessable and conform to the descriptions
thereof contained in the Prospectus; the holders thereof will not be
subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the
Securities has been duly and validly taken; and the certificates
representing the Securities are in due and proper form. The Underwriter's
Warrants constitute valid and binding obligations of the Company to issue
and sell, upon exercise thereof and payment therefor, the number and type
of securities of the Company called for thereby. Upon the issuance and
delivery pursuant to this Agreement, the Underwriter's Warrant Agreement
and the Warrant Agreement of the Securities to be sold by the Company
hereunder and thereunder, the Underwriter will acquire good and marketable
title to such Securities, free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever asserted against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the Company. No
transfer tax is payable by or on behalf of the Underwriter in connection
with (A) the issuance by the Company of the Securities, (B) the purchase by
the Underwriter of the Securities from the Company, (C) the consummation by
the Company of any of its obligations under this Agreement, the
Underwriter's Warrant Agreement or the Warrant Agreement, or (D) resales of
the Securities in connection with the distribution contemplated hereby;
iv) the Registration Statement is effective under the Act, and, if
applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and no stop order suspending the use of
the Preliminary Prospectus, the Registration Statement or the Prospectus or
any part of any thereof
23
<PAGE>
or suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending, threatened or, to such counsel's knowledge, contemplated under the
Act;
v) each of the Preliminary Prospectus, the Registration Statement, and
the Prospectus and any amendments or supplements thereto (other than the
financial statements and schedules and other financial and statistical data
included therein, as to which no opinion need be rendered) comply as to
form in all material respects with the requirements of the Act and the
Rules and Regulations;
vi) to such counsel's knowledge, (A) there are no agreements,
contracts or other documents required by the Act to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration
Statement and the Prospectus and filed as exhibits thereto, and the
exhibits which have been filed are correct copies of the documents of which
they purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
agreements, contracts and other documents to which the Company is a party
or by which it is bound are accurate and fairly represent the information
required to be shown by Form SB-2; (C) there is no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or governmental
proceeding (including, without limitation, those pertaining to
environmental or similar matters), domestic or foreign, pending or
threatened against or involving the properties or business of, the Company
which (I) is required to be disclosed in the Registration Statement which
is not so disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all respects), or (II)
questions the validity of the capital stock of the Company or of this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement or
the Consulting Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with any of the foregoing; (D) no
statute or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and (E) there is
no action, suit or proceeding pending or threatened against or affecting
the Company before any court, arbitrator or governmental body, agency or
official (or any basis thereof known to such counsel) in which there is a
reasonable possibility of an adverse decision which may result in a
material adverse change in the condition, financial or otherwise, or the
earnings, prospects, stockholders' equity, value, operation, properties,
business or results of operations of the Company taken as a whole, which
could adversely affect the present or prospective ability of the Company to
perform its obligations under this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement or which in
any manner draws into question the validity or enforceability of this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement or
the Consulting Agreement;
24
<PAGE>
vii) the Company has full legal right, power and authority to enter
into each of this Agreement, the Underwriter's Warrant Agreement, the
Warrant Agreement and the Consulting Agreement and to consummate the
transactions provided for herein and therein; and each of this Agreement,
the Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement has been duly authorized, executed and delivered by
the Company. Each of the Underwriter's Warrant Agreement, the Warrant
Agreement and the Consulting Agreement and certain provisions of this
Agreement assuming due authorization, execution and delivery by each other
party thereto, constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited
by applicable law). None of the Company's execution or delivery of this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement and
the Consulting Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein, or the
conduct of its business as described in the Registration Statement and the
Prospectus and any amendments or supplements thereto, conflicts with or
will conflict with or results or will result in any breach or violation of
any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction
or equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (A) the certificate of
incorporation or bylaws of the Company, (B) any license, contract,
indenture, mortgage, lease, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or any other
agreement or instrument known to us evidencing an obligation for borrowed
money, or any other agreement or instrument to which the Company is a party
or by which it is or may be bound or to which its properties or assets
(tangible or intangible) are or may be subject, (C) any statute applicable
to the Company or (D) any judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any
of their activities or properties;
viii) no consent, approval, authorization or order of, and no filing
with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign (other than such as
may be required under "blue sky" laws, as to which no opinion need be
rendered), is required in connection with the issuance of the Securities
pursuant to the Prospectus, the Registration Statement, this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement,
25
<PAGE>
or the performance of this Agreement, the Underwriter's Warrant Agreement,
the Warrant Agreement and the Consulting Agreement and the transactions
contemplated hereby and thereby;
ix) the properties and business of the Company conform to the
description thereof contained in the Registration Statement and the
Prospectus; and the Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
stated in the Prospectus to be owned or leased by it, in each case free and
clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind
whatsoever, other than those referred to in the Prospectus and liens for
taxes not yet due and payable;
x) the Company is not in breach of, or in default under, any term or
provision of any material license, contract, indenture, mortgage, lease,
deed of trust, voting trust agreement, stockholders' agreement, note, loan
or credit agreement or any other agreement or instrument known to such
counsel evidencing an obligation for borrowed money, or any other agreement
or instrument known to such counsel to which the Company is a party or by
which it is or may be bound or to which its property or assets (tangible or
intangible) are or may be subject; and the Company is not in violation of
any term or provision of (A) its certificate of incorporation or by-laws,
(B) any authorization, approval, order, license, certificate, franchise or
permit of any governmental or regulatory official or body, or (C) any
judgement, decree, order, statute, rule or regulation to which it is
subject;
xi) the statements in the Prospectus under "Prospectus Summary," "The
Company," "Risk Factors," "Business," "Management," "Principal
Stockholders," "Certain Transactions," "Shares Eligible For Future Sale,"
and "Description of Securities" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are correct in all
material respects;
xii) to such counsel's knowledge, the persons listed under the caption
"Principal Stockholders" in the Prospectus are the respective "beneficial
owners" (as such phrase is defined in Rule 13d-3 under the Exchange Act) of
the securities set forth opposite their respective names thereunder as and
to the extent set forth therein;
xiii) except as disclosed in the Prospectus, no person, corporation,
trust, partnership, association or other entity has the right to include
and/or register any securities of the Company in the Registration
Statement, require the Company to file any registration statement or, if
filed, to include any security in such registration statement;
26
<PAGE>
xiv) assuming due authorization, execution and delivery by the parties
thereto, the Lock-Up Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against such parties and any subsequent
holder of the securities subject thereto in accordance with their terms.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company and representatives of
the independent public accountants for the Company, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus and related matters and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Preliminary
Prospectus, the Registration Statement or the Prospectus, on the basis of the
foregoing, no facts have come to the attention of such counsel which lead them
to believe that either the Registration Statement or any amendment thereto, at
the time such Registration Statement or amendment became effective, or the
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, as of the date of the Preliminary Prospectus and the Prospectus, and as
of the date of such opinion, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they were
made, not misleading (it being understood that such counsel need express no
opinion with respect to the financial statements and schedules and other
financial and statistical data included in the Preliminary Prospectus, the
Registration Statement or the Prospectus, or any supplements or amendments
thereto).
In rendering such opinion, such counsel may rely (a) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriter's Counsel) of
other counsel acceptable to Underwriter's Counsel, familiar with the applicable
laws; and (b) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriter's Counsel, if requested. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord. The opinion
of such counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Underwriter and
they are justified in relying thereon. Such opinion shall also state that
Underwriter's Counsel is entitled to rely thereon.
(e) The Underwriter shall have received the favorable opinion of Pennie &
Edmonds, patent counsel to the Company, dated the Closing Date, addressed to the
Underwriter, in substantially the form attached as Schedule A to this Agreement.
27
<PAGE>
(f) At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinions of Edwards & Angell, counsel to the Company, and
Pennie & Edmonds, patent counsel to the Company, dated the relevant Option
Closing Date, addressed to the Underwriter and in form and substance
satisfactory to Underwriter's Counsel confirming, as of the Option Closing Date,
the statements made by Edwards & Angell and Pennie & Edmonds, in their
respective opinions delivered at the Closing Date.
(g) On or prior to each of the Closing Date and each Option Closing Date,
if any, Underwriter's Counsel shall have been furnished with such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in Section 6(c)
hereof, or in order to evidence the accuracy, completeness or satisfaction of
any of the representations, warranties or conditions of the Company herein
contained.
(h) Prior to the Closing Date and each Option Closing Date, if any, (i)
there shall have been no material adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or the
earnings, stockholders' equity, value, operations, properties, business or
results of operations of the Company, whether or not in the ordinary course of
business, from the latest dates as of which such matters are set forth in the
Registration Statement and the Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and the Prospectus; (iii) the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any securities
(other than the Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there shall not
have been any change in the capital stock, debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise) from the
latest dates as of which such matters are set forth in the Registration
Statement and the Prospectus; (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and the Prospectus; (vi) no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, stockholders' equity, value,
operations, properties, business or results of operations of the Company taken
as a whole, except as set forth in the Registration Statement and Prospectus;
and (vii) no stop order shall have been issued under the Act with respect to the
Registration Statement and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(i) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant
28
<PAGE>
Option Closing Date, as the case may be, to the effect that each of such persons
has carefully examined the Registration Statement, the Prospectus and this
Agreement, and that:
i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with
all agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such
Closing Date or Option Closing Date, as the case may be;
ii) No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of each of such
person's knowledge, are contemplated or threatened under the Act;
iii) The Registration Statement and the Prospectus and, if any, each
amendment and each supplement thereto contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus or any amendment or supplement thereto includes
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading and
neither the Preliminary Prospectus nor any supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; and
iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (A) the Company has
not incurred any material liabilities or obligations, direct or contingent;
(B) the Company has not paid or declared any dividends or other
distributions on its capital stock; (C) the Company has not entered into
any transactions not in the ordinary course of business; (D) there has not
been any change in the capital stock or long-term debt or any increase in
the short-term borrowings (other than any increase in short-term borrowings
in the ordinary course of business) of the Company; (E) the Company has not
sustained any material loss or damage to its property or assets, whether or
not insured; (F) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the foregoing which is
required to be set forth in an amended or supplemented Prospectus which has
not been set forth; and (G) there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been set
forth.
29
<PAGE>
References to the Registration Statement and the Prospectus in this Section 6(i)
are to such documents as amended and supplemented at the date of such
certificate.
(j) By the Closing Date, the Underwriter will have received clearance from
the NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(k) At the time this Agreement is executed, the Underwriter shall have
received a letter, dated such date, addressed to the Underwriter and in form and
substance satisfactory in all respects (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) to the
Underwriter and Underwriter's Counsel, from Price Waterhouse LLP:
i) confirming that they are independent certified public accountants
with respect to the Company within the meaning of the Act and the Rules and
Regulations;
ii) stating that it is their opinion that the financial statements of
the Company included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the Act
and the Rules and Regulations and that the Underwriter may rely upon the
opinion of Price Waterhouse LLP with respect to such financial statements
and supporting schedules included in the Registration Statement;
iii) stating that, on the basis of a limited review which included a
reading of the latest unaudited interim consolidated financial statements
of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the board
of directors of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting matters
and other specified procedures and inquiries, nothing has come to their
attention which would lead them to believe that (A) the unaudited
consolidated financial statements and supporting schedules of the Company
included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the Rules and Regulations or are not fairly presented in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited consolidated financial
statements of the Company included in the Registration Statement, or (B) at
a specified date nor more than five (5) days prior to the effective date of
the Registration Statement, there has been any change in the capital stock
or long-term debt of the Company, or any decrease in the stockholders'
equity or net current assets or net assets of the Company as compared with
amounts shown in the June 30, 1996 balance sheet included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting
forth the amount of such change or decrease, and (C) during the period from
June 30, 1996 to a specified date not more than five
30
<PAGE>
(5) days prior to the effective date of the Registration Statement, there
was any decrease in net revenues, net earnings or net earnings per share of
Common Stock, in each case as compared with the corresponding period
beginning June 30, 1995, other than as set forth in or contemplated by the
Registration Statement, or, if there was any such decrease, setting forth
the amount of such decrease;
iv) setting forth, at a date not later than five (5) days prior to the
effective date of the Registration Statement, the amount of liabilities of
the Company (including a break-down of commercial paper and notes payable
to banks);
v) stating that they have not during the immediately preceding five
(5) year period brought to the attention of any of the Company's management
any material "weakness," as defined in Statement of Auditing Standard No.
60, "Communication of Internal Control Structure Related Matters Noted in
an Audit," in any of the Company's internal controls;
vi) stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus, in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work sheets, of the Company and excluding any
questions requiring an interpretation by legal counsel, with the results
obtained from the application of specified readings, inquiries and other
appropriate procedures (which procedures do not constitute an audit in
accordance with generally accepted auditing standards) set forth in the
letter and found them to be in agreement; and
vii) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriter may reasonably request.
(l) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received from Price Waterhouse LLP a letter, dated as of
the Closing Date or the relevant Option Closing Date, as the case may be, to the
effect that (i) it reaffirms the statements made in the letter furnished
pursuant to Section 6(k), (ii) if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that Price Waterhouse LLP
has carried out procedures as specified in clause (v) of Section 6(k) hereof
with respect to certain amounts, percentages and financial information as
specified by the Underwriter and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(m) On each of Closing Date and Option Closing Date, if any, there shall
have been duly tendered to the Underwriter the appropriate number of Securities.
31
<PAGE>
(n) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriter pursuant to Section 4(e) hereof shall have been
issued on either the Closing Date or the Option Closing Date, if any, and no
proceedings for that purpose shall have been instituted or shall be
contemplated.
(o) On or before the effective date of the Registration Statement, the
Company shall have executed and delivered to the Underwriter the Underwriter's
Warrant Agreement, substantially in the form filed as Exhibit _____ to the
Registration Statement. On or before the Closing Date, the Company shall have
executed and delivered to the Underwriter the Underwriter's Warrants in such
denominations and to such designees as shall have been provided to the Company.
(p) On or before Closing Date, the Securities shall have been duly approved
for quotation on Nasdaq, subject to official notice of issuance.
(q) On or before Closing Date, there shall have been delivered to the
Underwriter all of the Lock-Up Agreements, in form and substance satisfactory to
Underwriter's Counsel.
(r) On or before the Closing Date, the Company shall have (i) executed and
delivered to the Underwriter the Consulting Agreement, substantially in the form
filed as Exhibit _____ to the Registration Statement and (ii) paid the
Underwriter $48,000 representing the retainer fee pursuant to the Consulting
Agreement.
(s) On or before the effective date of the Registration Statement, the
Company and Continental Stock Transfer & Trust Company shall have executed and
delivered to the Underwriter the Warrant Agreement, substantially in the form
filed as Exhibit 3(c) to the Registration Statement.
(t) At least two (2) full business days prior to the date hereof, the
Closing Date and each Option Closing Date, if any, the Company shall have
delivered to the Underwriter the unaudited interim consolidated financial
statements required to be so delivered pursuant to Section 4(p) of this
Agreement.
If any condition to the Underwriter's obligations hereunder to be fulfilled
prior to or at the Closing Date or at any Option Closing Date, as the case may
be, is not so fulfilled, the Underwriter may terminate this Agreement or, if the
Underwriter so elects, it may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each Underwriter (for
purposes of this Section 7, "Underwriter" shall include the officers, directors,
partners, employees, agents and counsel of the Underwriter), and each person, if
any, who controls the Underwriter
32
<PAGE>
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions, proceedings,
investigations, inquiries and suits in respect thereof), whatsoever (including
but not limited to any and all costs and expenses whatsoever reasonably incurred
in investigating, preparing or defending against such action, proceeding,
investigation, inquiry or suit, commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act or any other statute
or at common law or otherwise or under the laws of foreign countries, arising
out of or based upon (A) any untrue statement or alleged untrue statement of a
material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any application or
other document or written communication (in this Section 7, collectively
referred to as "applications") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the NASD, Nasdaq or any securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances in which they were made); or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this Section 7(a) shall be in addition to any liability which the Company may
have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the Company, each
of its directors and officers and each person, if any, who controls the Company
within the meaning of the Act, to the same extent as the foregoing indemnity
from the Company to the Underwriter but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto or in
any application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to any Underwriter by such
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or the Prospectus directly relating to the transactions effected by the
Underwriter in connection with the offering contemplated hereby. The Company
acknowledges that the statements with respect to the public offering of the
Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriter expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriter for inclusion
33
<PAGE>
in any Preliminary Prospectus, the Registration Statement or the Prospectus. The
indemnity agreement in this Section 7(b) shall be in addition to any liability
which the Underwriter may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 7, notify each party against whom indemnification is to be
sought in writing of the commencement thereof (but the failure to so notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 7 (except to the extent that it has been prejudiced in any
material respect by such failure) or from any liability which it may have
otherwise). In case any such action, investigation, inquiry, suit or proceeding
is brought against any indemnified party, and it notifies an indemnifying party
or parties of the commencement thereof, the indemnifying party or parties will
be entitled to participate therein, and to the extent it or they may elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, an indemnified party shall have the right to employ its own counsel
in any such case but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying parties in connection
with the defense of such action, investigation, inquiry, suit or proceeding at
the expense of the indemnifying party, (ii) the indemnifying parties shall not
have employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to one or all of the
indemnifying parties (in which event the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action, investigation, inquiry,
suit or proceeding or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle, compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action, investigation, inquiry, suit or proceeding), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such claim, action,
investigation, suit or proceeding and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party. Anything in this Section 7 to the contrary notwithstanding,
an indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent; provided, however, that such
consent may not be unreasonably withheld.
34
<PAGE>
(d) In order to provide for just and equitable contribution in any case in
which (i) an indemnified party makes a claim for indemnification pursuant to
this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigation, inquiry, suit or proceeding in respect thereof) (A) in
such proportion as is appropriate to reflect the relative benefits received by
each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriter is the indemnified party, the relative benefits received by
the Company, on the one hand, and the Underwriter, on the other, shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting discounts
received by the Underwriter hereunder, in each case as set forth in the table on
the cover page of the Prospectus. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriter, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions, investigation, inquiry, suit or proceeding in respect
thereof) referred to in the first (1st) sentence of this Section 7(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7(d), the Underwriter
shall not be required to contribute any amount in excess of the underwriting
discount applicable to the Securities purchased by the Underwriter hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
12(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7(d),
each person, if any, who controls the Company or the Underwriter within the
meaning of the Act, each officer and director of the Company shall have the same
rights to contribution as the Company or the Underwriter, as the case may be,
subject in each case to this Section 7(d). Any party entitled to contribution
will, promptly after receipt of notice of commencement of any action,
investigation, inquiry, suit or proceeding against such party in respect to
which a claim for contribution may be made against another party or parties
under this Section 7(d), notify such party or parties from whom contribution may
be sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have hereunder or otherwise than under this Section 7(d), or to the
extent that such party or parties were not adversely affected by such omission.
35
<PAGE>
Notwithstanding anything in this Section 7 to the contrary, no party will be
liable for contribution with respect to the settlement of any action,
investigation, inquiry, suit or proceeding effected without its written consent.
The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
8. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company contained in this Agreement, or contained in certificates of officers of
the Company submitted pursuant hereto, shall be deemed to be representations,
warranties, covenants and agreements at the Closing Date and each Option Closing
Date, if any, and such representations, warranties, covenants and agreements of
the Company, and the respective indemnity and contribution agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive the termination of this Agreement or the issuance and delivery of the
Securities to the Underwriter.
9. Effective Date. This Agreement shall become effective at 10:00 a.m., New
York City time, on the next full business day following the date hereof, or at
such earlier time after the Registration Statement becomes effective as the
Underwriter, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Underwriter of telegrams to securities
dealers releasing such shares for offering or the release by the Underwriter for
publication of the first newspaper advertisement which is subsequently published
relating to the Securities.
10. Termination.
(a) Subject to Section 10(b) hereof, the Underwriter shall have the right
to terminate this Agreement: (i) if any domestic or international event or act
or occurrence has materially adversely disrupted, or in the Underwriter's
opinion will in the immediate future materially adversely disrupt, the financial
markets; or (ii) if any material adverse change in the financial markets shall
have occurred; or (iii) if trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, the
Commission or any governmental authority having jurisdiction over such matters;
or (iv) if trading of any of the securities of the Company shall have been
suspended, or if any of the securities of the Company shall have been delisted,
on any exchange or in any over-the-counter market; or (v) if the United States
shall have become involved in a war or major hostilities, or if there shall have
been an escalation in an existing war or major hostilities, or a national
emergency shall have been declared in the United States; or (vi) if a banking
moratorium shall have been declared by any state or federal authority; or (vii)
if a moratorium in foreign exchange trading shall have been declared; or (viii)
if the Company shall have sustained a material or substantial loss by fire,
flood, accident, hurricane, earthquake, theft, sabotage or other calamity or
malicious act which, whether or not such
36
<PAGE>
loss shall have been insured, will, in the Underwriter's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (ix) if there
shall have been such a material adverse change in the conditions or prospects of
the Company, or if there shall have occurred any outbreak or escalation of
hostilities or any calamity or crisis or there shall have been such a material
adverse change in the general market, political or economic conditions, in the
United States or elsewhere, as in the Underwriter's judgment would make it
inadvisable to proceed with the offering, sale and/or delivery of the
Securities.
(b) If this Agreement is terminated by the Underwriter in accordance with
the provisions of Section 6 or Section 10(a) hereof, the Company shall promptly
reimburse and indemnify the Underwriter for all its actual out-of-pocket
expenses, including the reasonable fees and disbursements of Underwriter's
Counsel, less amounts previously paid pursuant to Section 5(c) hereof. In
addition, the Company shall remain liable for all reasonable "blue sky" counsel
fees and expenses and "blue sky" filing fees. In addition, the Company shall
remain liable for all "blue sky" counsel fees and expenses and "blue sky" filing
fees. Notwithstanding any contrary provision contained in this Agreement, any
election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 6 and 10(a) hereof), and whether or not this
Agreement is otherwise carried out, the provisions of Section 5 and Section 7
shall not be in any way be affected by such election or termination or failure
to carry out the terms of this Agreement or any part hereof.
11. Default by the Company. If the Company shall fail at the Closing Date
or any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Units to be purchased on an Option Closing Date, the Underwriter may, at
its option, by notice from the Underwriter to the Company, terminate the
Underwriter's obligation to purchase Option Units from the Company on such date)
without any liability on the part of any non-defaulting party other than
pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant
to this Section 11 shall relieve the Company from liability, if any, in respect
of such default.
12. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at Joseph Stevens & Company, L.P., 33 Maiden Lane, 8th Floor, New
York, NY 10038, Attention: Mr. Joseph Sorbara, with a copy to Orrick, Herrington
& Sutcliffe, 666 Fifth Avenue, New York, New York 10103, Attention: Rubi
Finkelstein, Esq. Notices to the Company shall be directed to the Company at
Access Solutions International, Inc., 650 Ten Rod Road, North Kingstown, RI
02852, Attention: Robert H. Stone, President and Chief Executive Officer, with a
copy to Edwards & Angell, 2700 Hospital Trust Tower, Providence, RI 02903,
Attention: Christine M. Marx, Esq.
13. Parties. This Agreement shall inure solely to the benefit of, and shall
be binding upon, the Underwriter, the Company and the controlling persons,
directors and officers
37
<PAGE>
referred to in Section 7 hereof, and their respective successors, legal
representatives and assigns, and no other person shall have or be construed to
have any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provisions herein contained. No purchaser of
Units from the Underwriters shall be deemed to be a successor by reason merely
of such purchase.
14. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement, the Underwriter's Warrant
Agreement and the Consulting Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof and
thereof. This Agreement may not be amended except in a writing signed by the
Underwriter and the Company.
38
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:__________________________________
Name:
Title:
Confirmed and accepted as of
the date first above written.
JOSEPH STEVENS & COMPANY, L.P.
By:_______________________________________
Name:
Title:
39
<PAGE>
Exhibit 3.a
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
of
ACCESS SOLUTIONS INTERNATIONAL, INC.
Access Solutions International, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "General Corporation Law"), does hereby certify:
FIRST: That the Corporation was incorporated on December 11, 1986 under the
name "Aquidneck Systems International, Inc.";
SECOND: Pursuant to Sections 242 and 245 of the General Corporation Law,
this Amended and Restated Certificate of Incorporation (the "Restated
Certificate of Incorporation") restates, integrates and further amends the
provisions of the Certificate of Incorporation of the Corporation;
THIRD: The amendments and the restatement of the certificate of
incorporation herein certified have been duly adopted by the stockholders in
accordance with the provisions of Sectin 228, 242 and 245 of the General
Corporation Law of the State of Delaware. Prompt written notice of the adoption
of the amendments and of the restatement of the certificate of incorporation
herein certified has been given to those stockholders who have not consented in
writing thereto, as provided in Section 228 of the General Corporation Law of
the State of Delaware.
FOURTH: The text of the Certificate of Incorporation is hereby restated and
further amended to read in its entirety as follows:
ARTICLE ONE
NAME
The name of the Corporation is Access Solutions International, Inc.
ARTICLE TWO
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is The Corporation Trust Company, Corporation Trust Tower, 1209 Orange
Street, Wilmington,
<PAGE>
Delaware 19801 and the name of the registered agent at such address is CT
Corporation System, Inc.
ARTICLE THREE
PURPOSE
The nature of the business and the purposes to be conducted and promoted by
the Corporation shall be to research, develop, manufacture, market and sell
computer subsystems designed to store and retrieve computer data on laser
optical disks and related products, and to conduct any lawful business, to
promote any lawful purpose, and to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE FOUR
CAPITAL STRUCTURE
4.1 Authorized Shares. The total number of shares of stock, $.01 par value,
which the Corporation shall have authority to issue is Fourteen Million
(14,000,000) shares, of which One Million (1,000,000) shares shall be preferred
stock, $.01 par value, and Thirteen Million (13,000,000) shares shall be Common
Stock, $.01 par value.
4.2 Preferred Stock. The Board of Directors is hereby authorized, subject
to any limitations prescribed by law and the provisions of this Restated
Certificate of Incorporation, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the voting
powers (if any), designations, preferences and relative, participating, optional
or other specified rights of the shares of each such series ad the
qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to any such series of
Preferred Stock shall include, but not be limited to, its determination of the
following:
(i) the number of shares constituting that series and the distinctive
designation of that series; (ii) the dividend rate, if any, on the shares
of that series, and whether dividends shall be cumulative, and, if so, from
which date or dates, and the relative rights of priority, if any, of
payment of dividends on shares of that series, and any preferences to or
provisions in relation to the
2
<PAGE>
dividends payable on any other class or classes or on any other series of
stock, and any limitations, restrictions or conditions on the payment
thereof; (iii) whether that series shall have voting rights in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights; (iv) whether that series shall have conversion or exchange
privileges, and, if so, the terms and conditions of such conversion or
exchange privileges, including provision for adjustment of the conversion
or exchange rate in such events as the Board of Directors shall determine;
(v) whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates as the Board of Directors
shall determine; (vi) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund; (vii) the rights of the shares of that series
in the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, and the relative rights of priority, if any,
of payment with respect to the shares of that series; and (viii) any other
relative rights, preferences and limitations of that series.
Shares of any series of Preferred Stock that have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted or exchanged for shares of stock of any
other class or classes, shall have the status of authorized and unissued shares
of Preferred Stock of the same series and may be reissued as a part of the
series of which they were originally a part or may be reclassified and reissued
as part of a new series of Preferred Stock or as part of any other series of
Preferred Stock, all subject to the conditions or restrictions on issuance set
forth in this Article FOUR and in the resolution or resolutions adopted by the
Board of Directors for providing for the issue of any such series of Preferred
Stock.
4.3 Voting Rights. Except as otherwise provided by the Board of Directors
in accordance with paragraph 4.2 above in respect of any series of Preferred
Stock, all voting rights
3
<PAGE>
of the Corporation shall be vested exclusively in the holders of the Common
Stock who shall be entitled to one vote per share. There shall be no cumulative
voting.
4.4. No Pre-emptive or Subscription Rights. No holder of Common Stock or of
any series of Preferred Stock shall be entitled as a matter of right to
subscribe for or purchase, or have any pre-emptive right with respect to, any
part of any new or additional issue of stock of any class whatsoever, or of
securities convertible into any stock of any class whatsoever, whether now or
hereafter authorized and whether issued for cash or other consideration or by
way of dividend.
4.5 Dividends; Distributions. Subject to the provisions of the General
Corporation Law and the rights of the holders of any preferred stock then
outstanding, dividends may be paid on the Common Stock at such times and in such
amounts as the Board of Directors shall determine. Upon the dissolution,
liquidation or winding up of the Corporation, after any preferential amounts to
be distributed to the holders of the Preferred Stock then outstanding have been
paid or declared and set apart for payment and subject to the rights of the
holders of any preferred stock then outstanding, the holders of Common Stock
shall be entitled to receive all remaining assets of the Corporation available
for distribution to its stockholders ratably and in proportion to the number of
shares held by them.
ARTICLE FIVE
PERPETUAL EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE SIX
LIABILITY OF STOCKHOLDERS
The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
ARTICLE SEVEN
MANAGEMENT
All corporate powers of the Corporation shall be exercised by the Board of
Directors except as otherwise by law or herein provided.
4
<PAGE>
(a) The business and affairs of the Corporation shall be managed by
and under the direction of the Board of Directors;
(b) Directors need not be stockholders of the Corporation;
(c) The number of directors which shall constitute the whole Board of
Directors of the Corporation shall be such as from time to time shall be
fixed by, or in the manner provided in, the By-laws, but in no case shall
the number be less than three. The directors shall be elected by a majority
vote of the holders of the Common Stock, voting as a single class, each
director to be voted individually;
(d) Subject to any limitation contained in the By-laws, the Board of
Directors may make By-laws, and from time to time may alter, amend or
repeal any By-laws, but any By-laws made by the Board of Directors may be
altered, amended or repealed by the stockholders by the affirmative vote of
the holders of a majority of the stock entitled to vote thereon. If such
action is to be taken at a meeting of stockholders, notice that an
amendment of the By-laws is to be considered and acted upon must be
inserted in the notice or waiver of notice of such meeting;
(e) The Board of Directors shall have power from time to time to fix
and determine and to vary the amount of the working capital of the
Corporation, to direct and determine the use and disposition thereof, to
set apart out of any funds of the Corporation available for dividends a
reserve or reserves for any proper purposes and to abolish any such reserve
in the manner in which it was created;
(f) The Board of Directors may from time to time determine whether and
to what extent and at which times and places and under what conditions and
regulations the accounts and books of the Corporation, or any of them,
shall be open to the inspection of the stockholders, and no stockholder
shall have any right to inspect any account, book or document of the
Corporation except as conferred by statute or as authorized by the Board of
Directors;
(g) In the absence of fraud, no contract or other transaction between
the Corporation and any other corporation, and no act of the Corporation
shall in any way be affected or invalidated by the fact that any of the
directors of the Corporation are pecuniarily or otherwise interested in, or
are directors or officers of, such other
5
<PAGE>
corporation; and, in the absence of fraud, any director, individually, or
any firm of which any director may be a member, may be a party to, or may
be pecuniarily or otherwise interested in, any contract or transaction of
the Corporation; provided, in any case, that the fact that the director or
such firm is so interested shall be disclosed or shall have been known to
the Board of Directors or a majority thereof; and any director of the
Corporation who is also a director or officer of any such other
corporation, or who is also interested, may be counted in determining the
existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize any such contract, act or transaction and
may vote thereat to authorize any such contract, act or transaction, with
like force and effect as if he were not such director or officer of such
other corporation, or not so interested;
(h) Any contract, act or transaction of the Corporation or of the
directors may be ratified by a vote of a majority of the shares having
voting powers at any meeting of stockholders, or at any special meeting
called for such purpose, and such ratification shall, so far as permitted
by law and by this Restated Certificate of Incorporation, be as valid and
as binding as though ratified by every stockholder of the Corporation; and
(i) Meetings of stockholders may be held outside the State of
Delaware, if the By-laws so provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside of the
State of Delaware at such place or places as may be from time to time
designated by the Board of Directors.
ARTICLE EIGHT
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation from time
to time and at any time in the manner now or hereafter prescribed by statute;
and all rights herein conferred upon the stockholders are granted subject to
this reservation.
6
<PAGE>
ARTICLE NINE
LIMITATION OF LIABILITY OF DIRECTORS
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, that the foregoing clause shall not apply to any
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation, or (iv) for any transaction
from which the director derived an improper personal benefit. The foregoing
sentence notwithstanding, if the General Corporation Law is hereafter amended to
authorize further limitations of the liability of a director of a corporation,
then a director of the Corporation, in addition to the circumstances in which a
director is not personally liable set forth in the preceding sentence, shall not
be liable to the fullest extent permitted by the General Corporation Law as so
amended. Any repeal or modification of the foregoing provisions of this Article
Nine by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
ARTICLE TEN
INDEMNIFICATION
The Corporation shall indemnify and hold harmless any director, officer,
employee or agent of the Corporation from and against any and all expenses and
liabilities that may be imposed upon or incurred by such person in connection
with, or as a result of, any proceeding in which such person may become
involved, as a party or otherwise, by reason of the fact that such person is or
was such a director, officer, employee or agent of the Corporation or any
subsidiary or parent of the Corporation, whether or not such person continues to
be such at the time such expenses and liabilities shall have been imposed or
incurred, to the fullest extent permitted by the laws of the State of Delaware,
as they may be amended from time to time.
7
<PAGE>
IN WITNESS WHEREOF, Access Solutions International, Inc. has caused this
Amended and Restated Certificate of Incorporation to be executed and attested to
this 16th day of August, 1996.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By: /s/ Robert H. Stone
__________________________________
Robert H. Stone, President
{SEAL}
Attest: /s/ Louise Henry
______________________________________
Louise Henry, Assistant Secretary
8
<PAGE>
Exhibit 3.c
===============================================================================
ACCESS SOLUTIONS INTERNATIONAL, INC.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
----------------
WARRANT AGREEMENT
DATED AS OF ______________, 1996
===============================================================================
<PAGE>
WARRANT AGREEMENT, dated this ___ day of __________ 1996 [the effective
date of the Registration Statement], by and between ACCESS SOLUTIONS
INTERNATIONAL, INC., a Delaware corporation (the "Company"), and CONTINENTAL
STOCK TRANSFER & TRUST COMPANY.
WITNESSETH:
WHEREAS, in connection with (i) the offering (the "Offering") to the public
of 1,066,667 units (the "Units"), each Unit consisting of two shares of the
Company's common stock, $.01 par value per share (the "Common Stock"), and one
redeemable warrant (the "Warrants"), such redeemable warrant entitling the
holder thereof to purchase one share of Common Stock, (ii) the over-allotment
option granted to Joseph Stevens & Company, L.P., the underwriter (the
"Underwriter") in the Offering to purchase up to an additional 160,000 Units
(the "Over-Allotment Option"), (iii) the sale to the Underwriter of warrants
(the "Underwriter's Warrants") to purchase up to 106,667 Units and (iv) 750,000
Warrants to be issued upon consummation of the Offering and registered for the
account of certain security holders of the Company in exchange for certain
warrants issued in connection with the Company's bridge financing consummated in
May 1996 (the "Bridge Financing"), the Company will issue up to 2,083,334
Warrants (subject to increase as provided herein);
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent (as defined in Section 1(r)
hereof) to act on behalf of the Company, and the Warrant Agent is willing to so
act, in connection with the issuance, registration, transfer and exchange of
certificates representing the Warrants and the exercise of the Warrants.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the Underwriter,
the holders of certificates representing the Warrants and the Warrant Agent, the
parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Commission" shall mean the Securities and Exchange Commission.
(c) "Common Stock" shall have the meaning set forth in Section 8(d) hereof.
(d) "Company" shall have the meaning assigned to such term in the first
(1st) paragraph of this Agreement.
(e) "Corporate Office" shall mean the office of the Warrant Agent at which
at any particular time its principal business in New York, New York shall be
administered, which office is located on the date hereof at 2 Broadway, New
York, New York 10004.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Date" shall mean, subject to the provisions of Section 5(b)
hereof, as to any Warrant, the date on which the Warrant Agent shall have
received both (i) the Warrant Certificate representing such Warrant, with the
exercise form thereon duly executed by the Registered Holder (as defined in
Section 1(m) hereof) thereof or his attorney duly authorized in writing, and
(ii) payment in cash or by check made payable to the Warrant Agent for the
account of
2
<PAGE>
the Company of an amount in lawful money of the United States of America equal
to the applicable Purchase Price (as defined in Section 1(k) hereof).
(h) "Initial Warrant Exercise Date" shall mean __________, 1996 [the
effective date of the Registration Statement].
(i) "Initial Warrant Redemption Date" shall mean __________, 1997 [the date
twelve (12) months after the effective date of the Registration Statement].
(j) "NASD" shall mean the National Association of Securities Dealers, Inc.
(k) "Purchase Price" shall mean, subject to modification and adjustment as
provided in Section 8 hereof, $__________ per Share [66-2/3% of the IPO price
per Unit].
(l) "Redemption Date" shall mean the date (which may not occur before the
Initial Warrant Redemption Date) fixed for the redemption of the Warrants in
accordance with the terms hereof.
(m) "Registered Holder" shall mean the person in whose name any certificate
representing the Warrants shall be registered on the books maintained by the
Warrant Agent pursuant to Section 6(b) hereof.
(n) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the board of directors of such corporation or corporations
(regardless of whether or not at the time the stock of any other class or
classes of such corporation shall have or may have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
(o) "Transfer Agent" shall mean Continental Stock Transfer & Trust Company,
of New York, New York or its authorized successor.
3
<PAGE>
(p) "Underwriter's Warrant Agreement" shall mean the agreement dated as of
__________, 1996 between the Company and the Underwriter relating to and
governing the terms and provisions of the Underwriter's Warrants.
(q) "Underwriting Agreement" shall mean the underwriting agreement dated
_______________, 1996 [the effective date of the Registration Statement] between
the Company and the Underwriter relating to the purchase for resale to the
public of 1,066,667 Units (without giving effect to the Over-Allotment Option).
(r) "Warrant Agent" shall mean Continental Stock Transfer & Trust Company
of New York, New York or its authorized successor.
(s) "Warrant Certificate" shall mean a certificate representing each of the
Warrants substantially in the form annexed hereto as Exhibit A.
(t) "Warrant Expiration Date" shall mean, unless the Warrants are redeemed
as provided in Section 9 hereof prior to such date, 5:00 p.m. (New York time) on
__________, 2001 [the day before the 5th (60 month) anniversary of issuance] or,
if such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then 5:00 p.m. (New York time) on the next following
day which in the State of New York is not a holiday or a day on which banks are
authorized to close, subject to the Company's right, prior to the Warrant
Expiration Date, with the consent of the Underwriter, to extend such Warrant
Expiration Date on five (5) business days prior written notice to the Registered
Holders.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) One Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Purchase Price
therefor from the Initial
4
<PAGE>
Warrant Exercise Date until the Warrant Expiration Date one (1) share of Common
Stock upon the exercise thereof, subject to modification and adjustment as
provided in Section 8 hereof.
(b) Upon execution of this Agreement, Warrant Certificates representing
1,066,667 Warrants to purchase up to an aggregate of 1,066,667 shares of Common
Stock (subject to modification and adjustment as provided in Section 8 hereof),
shall be executed by the Company and delivered to the Warrant Agent.
(c) Upon exercise of the Over-Allotment Option, in whole or in part,
Warrant Certificates representing up to 160,000 Warrants to purchase up to an
aggregate of 160,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Underwriter's Warrants as provided therein,
Warrant Certificates representing 106,667 Warrants to purchase up to an
aggregate of 106,667 shares of Common Stock (subject to modification and
adjustment as provided in Section 8 hereof and in the Underwriter's Warrant
Agreement), shall be countersigned, issued and delivered by the Warrant Agent
upon written order of the Company signed by its Chairman of the Board, President
or a Vice President and by its Treasurer or an Assistant Treasurer or its
Secretary or an Assistant Secretary.
(e) Upon consummation of the Offering, Warrant Certificates representing
750,000 Warrants, issued to certain security holders of the Company in exchange
for certain warrants issued in connection with the Bridge Financing, entitling
the holders thereof to purchase up to an aggregate of 750,000 shares of Common
Stock (subject to modification and adjustment as provided in Section 8) shall be
executed by the Company and delivered to the Warrant Agent.
(f) From time to time, up to the Warrant Expiration Date, the Warrant Agent
shall countersign and deliver Warrant Certificates in required denominations of
one or whole
5
<PAGE>
number multiples thereof to the person entitled thereto in connection with any
transfer or exchange permitted under this Agreement. No Warrant Certificates
shall be issued except (i) Warrant Certificates initially issued hereunder, (ii)
Warrant Certificates issued upon any transfer or exchange of Warrants, (iii)
Warrant Certificates issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7 hereof, (iv) Warrant
Certificates issued pursuant to the Underwriter's Warrant Agreement (including
Warrants in excess of the 106,667 Underwriter's Warrants issued as a result of
the antidilution provisions contained in the Underwriter's Warrant Agreement)
and (v) at the option of the Company, Warrant Certificates in such form as may
be approved by its Board of Directors, to reflect any adjustment or change in
the Purchase Price, the number of shares of Common Stock purchasable upon the
exercise of a Warrant or the redemption price therefor.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage. The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates).
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or any Vice President and by its Treasurer or
an Assistant
6
<PAGE>
Treasurer or its Secretary or an Assistant Secretary, by manual signatures or by
facsimile signatures printed thereon, and shall have imprinted thereon a
facsimile of the Company's seal. Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose unless
so countersigned. In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer of the Company before
the date of issuance of the Warrant Certificates or before countersignature by
the Warrant Agent and issue and delivery thereof, such Warrant Certificates,
nevertheless, may be countersigned by the Warrant Agent and issued and delivered
with the same force and effect as though the officer of the Company who signed
such Warrant Certificates had not ceased to hold such office.
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples thereof may
be exercised commencing at any time on or after the Initial Warrant Exercise
Date, but not after the Warrant Expiration Date, upon the terms and subject to
the conditions set forth herein (including the provisions set forth in Sections
5 and 9 hereof) and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date, provided that the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder thereof or
his attorney duly authorized in writing, together with payment in cash or by
check made payable to the Warrant Agent for the account of the Company of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price, have been received by the Warrant Agent. The person entitled to
receive the securities deliverable upon such exercise shall be treated for all
purposes as the holder of such securities as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date and in any
event within five (5) business days after such date, the Warrant Agent, on
7
<PAGE>
behalf of the Company, shall cause to be issued to the person or persons
entitled to receive the same a Common Stock certificate or certificates for the
shares of Common Stock deliverable upon such exercise, and the Warrant Agent
shall deliver the same to the person or persons entitled thereto. Upon the
exercise of any Warrants, the Warrant Agent shall promptly notify the Company in
writing of such fact and of the number of securities delivered upon such
exercise and, subject to Section 4(b) hereof, shall cause all payments in cash
or by check made payable to the order of the Company in respect of the Purchase
Price to be deposited promptly in the Company's bank account or delivered to the
Company.
(b) At any time upon the exercise of any Warrants after one year and one
day from the date hereof, the exercise of which Warrants has been solicited by
the Underwriter as evidenced by the Warrant Certificate so exercised, the
Warrant Agent shall, on a daily basis, within two business days after such
exercise, notify the Underwriter, its successors or assigns of the exercise of
any such Warrants and shall, on a weekly basis (subject to collection of funds
constituting the tendered Purchase Price, but in no event later than five
business days after the last day of the calendar week in which such funds were
tendered), for services rendered by the Underwriter to the Registered Holders of
the Warrants then being exercised, remit to the Underwriter an amount equal to
five percent (5%) of the Purchase Price of such Warrants then being exercised
unless the Underwriter shall have notified the Warrant Agent that the payment of
such amount with respect to such Warrant is violative of the General Rules and
Regulations promulgated under the Exchange Act, or the rules and regulations of
the National Association of Securities Dealers, Inc. ("NASD") or applicable
state securities or "blue sky" laws, or the Warrants are those underlying the
Underwriter's Warrants, in which event the Warrant Agent shall have to pay such
amount to the Company; provided, that, the Warrant Agent shall not be obligated
to pay
8
<PAGE>
any amounts pursuant to this Section 4(b) during any week that such amounts
payable are less than $1,000 and the Warrant Agent's obligation to make such
payments shall be suspended until the amount payable aggregates $1,000, and
provided further, that, in any event, any such payment (regardless of amount)
shall be made not less frequently than monthly.
(c) The Company shall not be obligated to issue any fractional share
interests or fractional warrant interests upon the exercise of any Warrant or
Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fractional interest shall be eliminated by rounding
any fraction down to the next full share or Warrant, as the case may be, or
other securities, properties or rights.
SECTION 5. Reservation of Shares, Listing, Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon the exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that, upon exercise of the Warrants and payment of the Purchase Price
for the shares of Common Stock underlying the Warrants, all shares of Common
Stock which shall be issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable, free from all preemptive or similar rights,
and free from all taxes, liens and charges with respect to the issuance thereof,
and that upon issuance such shares shall be listed or quoted on each securities
exchange, if any, on which the other shares of outstanding Common Stock are then
listed or quoted, or if not then so listed or quoted on each place (whether the
Nasdaq Stock Market, Inc., the NASD Over-the-Counter Electronic Bulletin Board,
the National Quotation Bulletin Board "Pink Sheets" or otherwise) on which the
other shares of outstanding Common Stock are listed or quoted.
9
<PAGE>
(b) The Company covenants that if any securities reserved for the purpose
of exercise of Warrants hereunder require registration with, or approval of, any
governmental authority under any federal securities law before such securities
may be validly issued or delivered upon such exercise, then the Company will
file a registration statement under the federal securities laws or a
post-effective amendment to a registration statement, use its best efforts to
cause the same to become effective, keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Act, to the Registered Holder exercising
the Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities law or if the Company
receives a letter from the staff of the Commission stating that it would not
take any enforcement action if such registration is not effected). The Company
will use its best efforts to obtain appropriate approvals or registrations under
the state "blue sky" securities laws of all states in which Registered Holders
reside. Warrants may not be exercised by, nor may shares of Common Stock be
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants, or the issuance or delivery of any shares of Common Stock upon
exercise of the Warrants; provided, however, that if shares of Common Stock are
to be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the Transfer
Agent to requisition from time to time certificates representing shares of
Common Stock or other
10
<PAGE>
securities required upon exercise of the Warrants, and the Company will comply
with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants or may be transferred in
whole or in part. Warrant Certificates to be so exchanged shall be surrendered
to the Warrant Agent at its Corporate Office, and the Company shall execute and
the Warrant Agent shall countersign, issue and deliver in exchange therefor the
Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof. Upon due presentment for registration of
transfer of any Warrant Certificate at such office, the Company shall execute
and the Warrant Agent shall issue and deliver to the transferee or transferees a
new Warrant Certificate or Certificates representing an equal aggregate number
of Warrants.
(c) With respect to any Warrant Certificates presented for registration of
transfer, or for exchange or exercise, the subscription or assignment form, as
the case may be, on the reverse thereof shall be duly endorsed or be accompanied
by a written instrument or instruments of subscription or assignment, in form
satisfactory to the Company and the Warrant Agent, duly executed by the
Registered Holder thereof or his attorney duly authorized in writing.
(d) No service charge shall be made for any exchange or registration of
transfer of Warrant Certificates. However, the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
11
<PAGE>
(e) All Warrant Certificates surrendered for exercise or for exchange shall
be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof of each Warrant represented
thereby (notwithstanding any notations of ownership or writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes and shall
not be affected by any notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and (in the case of loss,
theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal number of Warrants. Applicants for a
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. Adjustments to Purchase Price and Number of Securities.
(a) Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Purchase Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(b) Stock Dividends and Distributions. In case the Company shall pay a
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Purchase Price shall
forthwith be proportionately decreased.
12
<PAGE>
An adjustment made pursuant to this Section 8(b) shall be made as of the record
date for the subject stock dividend or distribution.
(c) Adjustment in Number of Securities. Upon each adjustment of the
Purchase Price pursuant to the provisions of this Section 8, the number of
securities issuable upon the exercise at the adjusted Purchase Price of each
Warrant shall be adjusted to the nearest whole number by multiplying a number
equal to the Purchase Price in effect immediately prior to such adjustment by
the number of securities issuable upon exercise of the Warrants immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Purchase Price.
(d) Definition of Common Stock. For the purpose of this Agreement, the term
"Common Stock" shall mean (i) the class of stock designated as Common Stock in
the Certificate of Incorporation of the Company as may be amended or restated as
of the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value. In the event the Company shall after the date hereof issue Common Stock
with greater or superior voting rights than the shares of Common Stock
outstanding as of the date hereof, each Holder, at its option, may receive upon
exercise of any Warrant either shares of Common Stock or a like number of such
securities with greater or superior voting rights.
(e) Merger or Consolidation or Sale.
(i) In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock), the corporation formed by such consolidation
or surviving such merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the holder of each Warrant then
13
<PAGE>
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation, merger, sale or transfer by a Holder of the number of shares
of Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
(ii) In the event of (A) the sale by the Company of all or substantially
all of its assets, or (B) the engagement by the Company or any of its affiliates
in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of Rule 13e-3 of
the General Rules and Regulations under the Exchange Act or (C) a distribution
to the Company's stockholders of any cash, assets, property, rights, evidences
of indebtedness, securities or any other thing of value, or any combination
thereof, the Holders of the unexercised Warrants shall receive notice of such
sale, transaction or distribution twenty (20) days prior to the date of such
sale or the record date for such transaction or distribution, as applicable,
and, if they exercise such Warrants prior to such date, they shall be entitled,
in addition to the shares of Common Stock issuable upon the exercise thereof, to
receive such property, cash, assets, rights, evidence of indebtedness,
securities or any other thing of value, or any combination thereof, on the
payment date of such sale, transaction or distribution.
(f) No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made if the amount of said adjustment shall be less than
ten cents (10 cents) per share of Common Stock, provided, however, that in such
case any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together
14
<PAGE>
with any adjustment so carried forward, shall amount to at least ten cents
(10 cents) per share of Common Stock.
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the Company may (but
only with the prior written consent of the Underwriter), on thirty (30) days'
prior written notice, redeem all of the Warrants, in whole and not in part, at a
redemption price of five cents ($.05) per Warrant; provided, however, that
before any such call for redemption of Warrants can take place, the (i) average
closing bid price for the Common Stock, as reported by the National Association
of Securities Dealers Automated Quotation System, or (ii) if not so quoted, as
reported by any other recognized quotation system on which the Common Stock is
quoted, shall have for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth (5th) trading day prior to the
date on which the notice contemplated by Sections 9(b) and 9(c) hereof is given,
equalled or exceeded 150% of the then exercise price per share of Common Stock
(subject to adjustment in the event of any stock splits or other similar events
as provided in Section 8 hereof).
(b) In case the Company shall exercise its right to redeem all of the
Warrants, it shall give or cause to be given notice to the Registered Holders of
the Warrants, by mailing to such Registered Holders a notice of redemption,
first class, postage prepaid, at their last address as shall appear on the
records of the Warrant Agent. Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Underwriter or its successors or assigns a similar notice telephonically and
confirmed in writing, together with a list of the Registered Holders (including
their respective addresses and number of
15
<PAGE>
Warrants beneficially owned by them) to whom such notice of redemption has been
or will be given.
(c) The notice of redemption shall specify (i) the redemption price, (ii)
the date fixed for redemption, which shall in no event be less than thirty (30)
days after the date of mailing of such notice, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price shall be paid, (iv)
that the Underwriter is the Company's exclusive warrant solicitation agent and
shall receive the commission contemplated by Section 4(b) hereof and (v) that
the right to exercise the Warrant shall terminate at 5:00 p.m. (New York time)
on the business day immediately preceding the date fixed for redemption. The
date fixed for the redemption of the Warrants shall be the "Redemption Date" for
purposes of this Agreement. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of the proceedings
for such redemption except as to a holder (A) to whom notice was not mailed or
(B) whose notice was defective. An affidavit of the Warrant Agent or the
Secretary or Assistant Secretary of the Company that notice of redemption has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New York
time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
(e) The Company shall indemnify the Underwriter and each person, if any,
who controls the Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from
16
<PAGE>
the registration statement or prospectus referred to in Section 5(b) hereof to
the same extent and with the same effect (including the provisions regarding
contribution) as the provisions pursuant to which the Company has agreed to
indemnify the Underwriter contained in Section 7 of the Underwriting Agreement.
(f) Five business days prior to the Redemption Date, the Company shall
furnish to the Underwriter (i) opinions of counsel to the Company, dated such
date and addressed to the Underwriter, and (ii) a "cold comfort" letter dated
such date addressed to the Underwriter, signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities, including, without
limitation, those matters covered in Sections 6(d), 6(e) and 6(k) of the
Underwriting Agreement.
(g) The Company shall as soon as practicable after the Redemption Date, and
in any event within 15 months thereafter, make "generally available to its
security holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
Redemption Date.
(h) The Company shall deliver within five business days prior to the
Redemption Date copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to such registration statement and
permit the Underwriter to do such investigation, upon
17
<PAGE>
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as the Underwriter
shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a ministerial capacity
for the Company and the Underwriter, and its duties shall be determined solely
by the provisions hereof. The Warrant Agent shall not, by issuing and delivering
Warrant Certificates or by any other act hereunder, be deemed to make any
representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and non-assessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in
18
<PAGE>
this Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own gross negligence
or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company or the Underwriter) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board of Directors, President or any Vice President (unless
other evidence in respect thereof is herein specifically prescribed). The
Warrant Agent shall not be liable for any action taken, suffered or omitted by
it in accordance with such notice, statement, instruction, request, direction,
order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; the Company further agrees to indemnify the Warrant Agent and hold it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own gross negligence or willful misconduct), after giving
thirty (30) days' prior written notice to the Company. At least fifteen (15)
days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered
19
<PAGE>
Holder of each Warrant Certificate at the Company's expense. Upon such
resignation the Company shall appoint in writing a new warrant agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a bank or trust company having a capital and surplus, as shown
by its last published report to its stockholders, of not less than ten million
dollars ($10,000,000) or a stock transfer company doing business in New York,
New York. After acceptance in writing of such appointment by the new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the warrant agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning Warrant Agent. Not later than
the effective date of any such appointment, the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged, any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent or
any new warrant agent shall be a successor warrant agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph.
20
<PAGE>
Any such successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed to the Company and to the Registered Holders of
each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two (2) years from the
date of exercise any Warrant Certificate received by it upon such exercise.
SECTION 11. Modification of Agreement.
The Warrant Agent and the Company may by supplemental agreement make any
changes or corrections in this Agreement (a) that they shall deem appropriate to
cure any ambiguity or to correct any defective or inconsistent provision or
manifest mistake or error herein contained, or (b) that they may deem necessary
or desirable and which shall not adversely affect the interests of the holders
of Warrant Certificates; provided, however, that this Agreement shall not
otherwise be modified, supplemented or altered in any respect except with the
consent in writing of the Registered Holders holding not less than sixty-six and
two-thirds percent (66-2/3%) of the Warrants then outstanding; provided,
further, that no change in the number or nature of the securities purchasable
upon the exercise of any Warrant, and no change that increases the Purchase
Price of any Warrant, other than such changes as are specifically set forth in
this Agreement as originally executed, shall be made without the consent in
writing of each Registered Holders affected by such change. In addition, this
Agreement may not be modified, amended or supplemented without the prior written
consent of the Underwriter or its successors or assigns, other than to cure any
21
<PAGE>
ambiguity or to correct any defective or inconsistent provision or manifest
mistake or error herein contained or to make any such change that the Warrant
Agent and the Company deem necessary or desirable and which shall not adversely
affect the interests of the Underwriter or its successors or assigns.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been made or given when delivered or
mailed first-class postage prepaid or delivered to a telegraph office for
transmission, if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company at Access Solutions International, Inc., 650 Ten Rod
Road, North Kingstown, RI 02852, Attention: Robert H. Stone, President and Chief
Executive Officer, or at such other address as may have been furnished to the
Warrant Agent in writing by the Company; and if to the Warrant Agent, at its
Corporate Office. Copies of any notice delivered pursuant to this Agreement
shall be delivered to Joseph Stevens & Company, L.P., 33 Maiden Lane, 8th Floor,
New York, NY 10038, Attention: Joseph Sorbara, Chief Executive Officer, or at
such other address as may have been furnished to the Company and the Warrant
Agent in writing.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to conflicts of laws rules
or principals.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
Registered Holders from time to time of Warrant Certificates or any of them.
Except as hereinafter stated, nothing in this Agreement is
22
<PAGE>
intended or shall be construed to confer upon any other person any right, remedy
or claim or to impose upon any other person any duty, liability or obligation.
The Underwriter is, and shall at all times irrevocably be deemed to be, a
third-party beneficiary of this Agreement, with full power, authority and
standing to enforce the rights granted to it hereunder.
SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ACCESS SOLUTIONS INTERNATIONAL, CONTINENTAL STOCK TRANSFER &
INC. TRUST COMPANY, INC.
As WARRANT AGENT
BY:________________________________ BY:_______________________________
NAME: NAME:
TITLE: TITLE:
23
<PAGE>
EXHIBIT A
No. W ___________ VOID AFTER ____________________, 2001
_________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
ACCESS SOLUTIONS INTERNATIONAL, INC.
CUSIP_____
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. One 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 fully paid and non-assessable share of Common Stock, $.01 par
value per share, of Access Solutions International, Inc., a Delaware corporation
(the "Company"), at any time from _____________, 1996 [the effective date of the
Registration Statement] and prior to the Expiration Date (as hereinafter
defined) upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company, 2 Broadway, New York, New
York 10004, as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $__________ [66-2/3 of the initial public offering
price per Unit] subject to adjustment (the "Purchase Price"), in lawful money of
the United States of America in cash or by check made payable to the Warrant
Agent for the account of the Company.
This Warrant Certificate is, and each Warrant represented hereby is, issued
pursuant to and subject in all respects to the terms and conditions set forth in
the Warrant Agreement (the "Warrant Agreement"), dated __________, 1996 [the
effective date of the Registration Statement], by and between the Company and
the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and 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 interests will be issued. In the case of
the exercise of less than all of the Warrants represented hereby, the Company
shall cancel this Warrant Certificate upon the surrender hereof
A-1
<PAGE>
and shall execute and deliver a new Warrant Certificate or Warrant Certificates
of like tenor, which the Warrant Agent shall countersign, for the balance of
such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2001 [the day before the 5th (60 month) anniversary of the issuance
of the Warrant]. If such date shall in the State of New York be a holiday or a
day on which banks are authorized to close, then the Expiration Date shall mean
5:00 p.m. (New York time) on the next day which in the State of New York is not
a holiday or a day on which banks are authorized to close.
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 (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
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 and payment of any tax or other
charge imposed in connection therewith or incident thereto, 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.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, in whole and not in part, at a redemption
price of $.05 per Warrant, at any time commencing __________, 1997 [twelve (12)
months from issuance] provided that the average closing bid price for the
Company's Common Stock, as reported by the National Association of Securities
Dealers Automated Quotation System (or, if not so quoted, as reported by any
other recognized quotation system on which the price of the Common Stock is
quoted), shall have, for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth (5th) trading day prior to the
date on which the Notice of Redemption (as defined below) is given, equalled or
exceeded 150% of the then exercise price per share (subject to adjustment in the
event of any stock splits or other similar events). Notice of redemption (the
"Notice of
A-2
<PAGE>
Redemption") shall be given not later than the thirtieth (30th) day before the
date fixed for redemption, all as provided in the Warrant Agreement. On and
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to this Warrant except to receive the $.05 per Warrant upon
surrender of this Certificate.
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, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
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.
Dated: ___________, 1996
ACCESS SOLUTIONS INTERNATIONAL,
INC.
[SEAL]
By:________________________________
Name:
Title:
ATTEST:
By:________________________________
Name:
COUNTERSIGNED: Title:
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY, as Warrant Agent
By: _________________________
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
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 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.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. If the exercise of this Warrant was solicited by Joseph Stevens &
Company,L.P., please check the following box []
2. The exercise of this Warrant was solicited by . []
3. If the exercise of this Warrant was not solicited, please check the
following box. []
Dated: ______________________ X_________________________________
_________________________________
_________________________________
Address
___________________________________
Social Security or Taxpayer
Identification Number
____________________________________
Signature Guaranteed
____________________________________
A-4
<PAGE>
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,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
A-5
<PAGE>
Exhibit 4.b
June 26, 1996
Aquidneck Systems International, Inc.
c/o Dennis Marchand, Controller
650 Ten Rod Road
North Kingstown, RI 02852
Re: Fleet National Bank's ("Bank") loan to Aquidneck Systems
International, Inc. ("Borrower") in the original principal balance of
$500,000.00 dated February 23, 1993, as amended (the "Note") sometimes
referenced herein as the "Loan".
Gentlemen:
This letter shall serve as an amendment to the Letter Agreement dated September
25, 1995. As we have agreed, the maturity date of the referenced Note shall be
modified herein from June 30, 1996 to September 15, 1996. Also, the required
monthly principal amortization shall be modified from $10,000.00 to $20,000.00
effective with the July 31, 1996 scheduled payment.
Except as modified herein, all other terms and conditions that exist under the
Forbearance Agreement dated October 21, 1994 and other loan documents governing
the Loan remain in full force and effect.
If you agree with the terms of this amendment of the above referenced Note,
please acknowledge below and return this letter to my office by close of
business on June 28, 1996.
Very truly yours,
Fleet National Bank
/s/ Thomas M. Contois By: /s/ Thomas H. Dolan
_____________________________ ______________________________
Thomas M. Contois Thomas H. Dolan
Assistant Vice President Assistant Vice President
Agreed to and accepted on this 18th day of June, 1996.
Aquidneck Systems International, Inc.
By: /s/ Thomas E. Gardner
______________________________
Thomas E. Gardner
its President (Acting COO)
cc: Thomas J. Flanagan, II, Vice President
Exhibit 4.c
Number Shares
C -
COMMON STOCK COMMON STOCK
ACCESS SOLUTIONS INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 004317 10 3
THIS CERTIFIES that [ ]is the owner of [ ] FULLY PAID AND NON-ASSESSABLE
SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF ACCESS SOLUTIONS
INTERNATIONAL, INC. transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
_____________________________
Assistant Secretary
Corporate Seal
_____________________________
President
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, N.J.) Transfer Agent and Register
By_______________________________
Authorized Officer
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT _____ Custodian______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gift to Minors
of survivorship and not as Act ___________________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
Attorney to transfer the said Stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated: __________________________
___________________________________
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
_________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
Exhibit 5
September 9, 1996
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Dear Ladies and Gentlemen:
We have acted as counsel for Access Solutions International, Inc., a
Delaware corporation (the "Company"), in connection with the proposed initial
public offering by the Company of up to 1,226,667 Units (the "Units"), each Unit
consisting of two shares of Common Stock, $.01 par value (the "Common Stock"),
and one redeemable common stock purchase warrant (the "Redeemable Warrant").
In connection with this opinion, we are familiar with the corporate
proceedings of the Company and we have examined the Company's Amended and
Restated Certificate of Incorporation and the Registration Statement on Form
SB-2 (No. 333-05285), as amended, filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Registration
Statement"), relating to the above-mentioned proposed public offering. In
addition, we have examined such corporate records, certificates and other
documents, and reviewed such questions of law, as we have deemed necessary or
advisable in order to enable us to render the opinion contained herein.
Based upon the foregoing, we are of the opinion that the the Units, the
Common Stock and the Redeemable Warrants, when issued and delivered in the
manner and for the consideration stated in the Prospectus constituting a part of
the Registration Statement, will be legally issued, fully paid and
non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the use of our name in the Registration Statement and the
Prospectus constituting a part thereof.
Very truly yours,
EDWARDS & ANGELL
By:/s/John E. Ottaviani
_________________________________
John E. Ottaviani
Partner
Exhibit 10.d
ACCESS SOLUTIONS INTERNATIONAL, INC.
1996 STOCK OPTION PLAN
Adopted: August 1, 1996
Effective Date: August 1, 1996
Approved by Stockholders: August 1, 1996
<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
1996 STOCK OPTION PLAN
Section 1.
Title
This plan shall be known as the "Access Solutions International, Inc. 1996
Stock Option Plan."
Section 2.
Purpose
The purposes of the Access Solutions International, Inc. 1996 Stock Option
Plan (the "Plan") are to further the long-term growth in earnings of Access
Solutions International, Inc. (the "Corporation") by providing a method of
granting options to purchase the Common Stock of the Corporation, to encourage
stock ownership by officers and key management employees of the Corporation, to
provide an incentive for such persons to expand and improve the profits and
prosperity of the Corporation, and to assist the Corporation in attracting key
personnel.
Section 3.
Definitions
3.1 "Board" means the Board of Directors of the Corporation.
3.2 "Committee" means the committee appointed by the Board to administer
the Plan, which shall be comprised, in the discretion of the Board, of two or
more Directors, each of whom is either a "disinterested person" or a
"non-employee director" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, as in then in effect on the date of
determination or as applicable.
3.3 "Common Stock" means shares of the common stock of the Corporation,
$0.01 par value.
<PAGE>
3.4 "Corporation" means Access Solutions International, Inc., a Delaware
corporation.
3.5 "Disability" means inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a continuous period of not less than twelve months, as determined
pursuant to Section 22(e)(3) of the Internal Revenue Code.
3.6 "Employee" means a full-time, salaried employee of any Participating
Corporation, including an officer of any Participating Corporation.
3.7 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
3.8 "Incentive Stock Option" means an Option that is an "incentive stock
option" as defined in Section 422(b) of the Internal Revenue Code.
3.9 "Internal Revenue Code" means the United States Internal Revenue Code
of 1986, or any of its successors, and applicable rules and regulations
promulgated thereunder, each as amended through the date of adoption of the
Plan, or as each may in the future be amended and applicable to the Plan.
3.10 "Non-Qualified Stock Option" means an Option that is not an Incentive
Stock Option.
3.11 "Option" means any option granted under the Plan, including both
Incentive Stock Options and Non-Qualified Stock Options.
3.12 "Option Agreement" means any agreement pursuant to the Plan between
the Corporation and a Participant regarding any Option.
2
<PAGE>
3.13 "Optionee" means a Participant to whom an Option has been granted and
who has delivered to the Corporation or a Participating Corporation a signed
Option Agreement pursuant to Section 6.6 of the Plan.
3.14 "Option Shares" means shares of stock of the Corporation that are
issued or may be required to be issued upon exercise of an Option and shares
that are issued thereafter with respect to such shares, including shares issued
by reason of a stock split, consolidation, dividend, stock exchange,
recapitalization, reclassification or the like.
3.15 "Participant" means a person to whom an Option has been granted.
3.16 "Participating Corporation" means the Corporation and any present or
future parent or subsidiary of the Corporation that: (a) the Board elects to
treat as a Participating Corporation and (b) agrees to be a Participating
Corporation.
3.17 "Plan" means this Access Solutions International, Inc. 1996 Stock
Option Plan, and all amendments, modifications or supplements thereto.
Section 4
Stock Reserved for Options
4.1 Subject to adjustment in accordance with the provisions of Section 14.1
of the Plan, the maximum number of shares of Common Stock to be reserved for
issuance upon the exercise of Options granted under the Plan shall be 500,000
shares of Common Stock.
4.2 Any or all of the shares subject to Options under the Plan may be
authorized but unissued shares of Common Stock, or issued shares of Common Stock
that have been or shall have been reacquired by the Corporation, as the Board
shall from time to time determine.
3
<PAGE>
4.3 If any Option shall expire or terminate for any reason without having
been exercised in whole or in part, the unpurchased shares of Common Stock that
were subject to the Option shall again be available for the purposes of the
Plan.
Section 5.
Eligibility
5.1 The Board may grant Options to those key employees whom the Board, in
its sole discretion, identifies as being in a position which enables such
employees to materially contribute to the continued growth, development and
future financial success of any Participating Corporation.
5.2 A director of any Participating Corporation who is not also an Employee
of that or any other Participating Corporation shall not be eligible to receive
an Incentive Stock Option.
Section 6.
Grants of Options
6.1 Subject to the limitations of the Plan, the Board may, after
consultation with and consideration of the recommendations of management and the
Committee as the Board deems desirable, select from eligible Employees certain
Participants to be granted Options and determine the time when each such Option
shall be granted and such other terms of each Option. The Board shall clearly
designate and identify each Option at the time it is granted as either an
Incentive Stock Option or a Non-Qualified Stock Option, as the case may be.
6.2 The Board may grant both Incentive Stock Options and Non-Qualified
Stock Options to the same Employee, provided that the exercise of one such
Option does not in any way affect the Employee's right to exercise the other.
4
<PAGE>
6.3 Nothing contained in the Plan shall be construed to limit the right of
a Participating Corporation to grant options otherwise than under the Plan for
any corporate purpose, including the acquisition, by purchase, lease, merger,
consolidation or otherwise, of the business or assets of any corporation or
other entity.
6.4 The date of granting of an Option shall be the date that the Board
shall have granted the Option or such other date as the Board, in its
discretion, may specify at the time that it grants such Option.
6.5 Upon granting an Option, the Corporation shall notify the Employee to
whom the Option shall have been granted and shall deliver to such Employee a
written Option Agreement. Delivery of an Option Agreement shall be deemed to
occur when personally delivered to the Participant or when sent by Federal
Express or other comparable delivery system to the Participant.
6.6 An Option shall expire thirty (30) days after delivery to the Employee
of the Option Agreement unless an Option Agreement shall have been signed by the
Employee to whom the Option is granted and returned to the Corporation within
such period.
Section 7.
Purchase Price
7.1 The purchase price of Option Shares granted under an Incentive Stock
Option shall be one hundred percent (100%) of the fair market value of the
Option Shares on the date the Incentive Stock Option is granted, or such greater
amount as the Board, in its discretion, may fix. If shares of Common Stock shall
then be traded on a national securities exchange, such fair market value shall
not be less than the mean of the highest and lowest sales price of the Common
5
<PAGE>
Stock upon such exchange on the day on which the Incentive Stock Option shall
have been granted, or if no sale shall have been made on such day, upon the next
preceding day upon which such a sale shall have been made. If shares of Common
Stock shall then be traded "over the counter", such fair market value shall not
be less than the mean between the dealer "bid" and "ask" prices quoted by a
recognized specialist of the Common Stock on the date upon which the Incentive
Stock Option shall have been granted, or if no such quotation shall have been
made on such day, on the next preceding day on which such a quotation shall have
been made. If the shares of Common Stock are not traded either over-the-counter
or on a national securities exchange at the time that an Incentive Stock Option
is granted, the Board shall determine such fair market value.
7.2 The purchase price of Option Shares granted under an Incentive Stock
Option to an employee who owns, immediately prior to the grant of such Incentive
Stock Option, stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of a Participating Corporation, shall be at
least one hundred ten percent (110%) of the fair market value of the Common
Stock at the time that such Incentive Stock Option is granted. The provisions of
Section 424(d) of the Internal Revenue Code shall control the determination of
the percentage of stock ownership for purposes of this Section 7.2.
7.3 The purchase price of Option Shares granted under a Non-qualified Stock
Option shall be determined by the Board, operating in its sole and exclusive
discretion, without regard to the provisions of Sections 7.1 and 7.2.
6
<PAGE>
Section 8.
Term of Options
8.1 The Committee, in its discretion, may prescribe in the Option Agreement
the period during which Options may be exercised, provided that an Option shall
not be exercisable more than ten (10) years from the date upon which it is
granted, and, provided further, that an Incentive Stock Option granted to an
Employee described in Section 7.2 above shall not be exercisable more than five
(5) years from the date upon which it is granted.
8.2 In the Option Agreement, the Committee, in its discretion, may
prescribe any conditions or events upon which the period during which an Option
may be exercised may be shortened or terminated.
Section 9.
Exercise of Options
9.1 Subject to the provisions of Section 9.3, the Committee, in its
discretion, may prescribe in the Option Agreement the manner in which, the
number and size of the installments (which need not be equal) for which, and the
contingencies upon which an Option may be exercised during its term.
9.2 No Option or installment thereof shall be exercisable except in respect
of whole shares. Fractional share interests shall be disregarded, except that
they may be accumulated. If an Optionee does not purchase all the shares that
the Optionee shall be entitled to purchase in any given installment period, or
if a fractional share interest shall remain, then the Optionee's right to
purchase the remaining shares or fractional shares shall continue until
expiration of such Option.
7
<PAGE>
No less than one hundred (100) shares may be purchased at one time unless the
number purchased is the total number that may then be purchased under the
Option.
9.3 During any calendar year, to the extent that the aggregate fair market
value of the Common Stock (determined in accordance with the provisions of
Section 7.1 of the Plan as of the time of the grant of the Incentive Stock
Option) with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during such calendar year (under this Plan and all
similar plans of the Participating Corporation by which the Optionee is employed
and its parent or subsidiary corporations) exceeds One Hundred Thousand Dollars
($100,000), then such option shall be treated as a Non-Qualified Option. In
making such determination, Options shall be taken into account in the order in
which they are granted.
9.4 Except as otherwise provided in Sections 9.5, 9.6 and 9.7, no Incentive
Stock Option may be exercised unless, at the time of the exercise, the Optionee
is an Employee or the Optionee's status as an employee with a Participating
Corporation shall have terminated for reason other than cause within the
preceding ninety (90) days. Incentive Stock Options granted under the Plan shall
not be affected by any change of nature of the Optionee's employment so long as
the Optionee continues to be an Employee. Option Agreements may contain such
provisions as the Committee may approve with reference to the effect of approved
leaves of absence.
9.5 If the holder of an Incentive Stock Option retires at the normal
retirement date as prescribed from time to time under any policy of the
Participating Corporation by which he is employed then in effect, or at any
other date with the consent of such Participating Corporation, such holder may
exercise his Incentive Stock Option at any time within three (3) months after
8
<PAGE>
such retirement, to the extent of the number of shares that he shall have been
entitled to purchase on the date of his retirement.
9.6 If the holder of an Incentive Stock Option ceases to be employed by a
Participating Corporation because of Disability, he may exercise his Incentive
Stock Option within twelve (12) months from the date of such termination of his
employment as a result of his Disability, to the extent of the number of shares
that he shall have been entitled to purchase on the date his employment
terminated.
9.7 If the holder of an Incentive Stock Option dies (a) while he is an
Employee, (b) within three (3) months after termination of his employment on
account of his retirement, or (c) within twelve (12) months after termination of
his employment on account of Disability, his legatee or legatees or his personal
representatives or distributees (collectively, "Legal Representatives") may
exercise the holder's Incentive Stock Option within twelve (12) months from date
of death, to the extent of the number of shares that the holder shall have been
entitled to purchase on the date of death.
9.8 The Committee, in its discretion, shall determine the extent, if any,
to which the holder of a Non-Qualified Stock Option may exercise said Option
upon his termination as an Employee, retirement or Disability, or to which a
Legal Representative of a deceased holder of a Non-Qualified Stock Option may
exercise said Option after the death of the holder.
Section 10.
Payment for Option Shares
10.1. Upon exercise of an Incentive Stock Option, the purchase price of the
Common Stock subject to such Incentive Stock Option shall be paid in full: (i)
in cash or by certified or
9
<PAGE>
bank cashier's check, (ii) by transfer to the Corporation by the Optionee of
Common Stock of the Corporation owned by the Optionee which on the date of such
a transfer has a fair market value equal to the purchase price of the Option
Shares or (iii) by an combination of methods of (i) and (ii). The Committee may
prescribe additional methods of payment to the extent permitted by applicable
law. Unless otherwise determined by the Committee, the Optionee may engage in a
successive exchange (or series of exchanges) in which the Common Stock which the
Optionee is entitled to receive upon exercise of an option may be simultaneously
utilized as payment for the exercise of an additional Option or Options.
10.2 The means of payment for Option Shares purchased under a Non-Qualified
Stock Option shall be determined by the Committee, operating in its sole
discretion, without regard to the provisions of Section 10.1.
10.3 The proceeds received from a sale of Option Shares pursuant to
exercise of Options shall be added to the general funds of the Corporation and
used for such of its corporate purposes as the Board shall determine.
10.4 No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the purchase price of the Option Shares is received by
the Corporation.
Section 11.
Administration of the Plan
11.1 The Plan shall be administered by the Committee.
11.2 Subject to the express provisions of the Plan, the Committee, in its
sole discretion, shall have the plenary authority to: (a) make recommendations
to the Board with respect to the individuals to whom, and the time or times at
which, Options shall be granted; the type of Option
10
<PAGE>
to be granted; the number of shares of Common Stock to be subject to each
Option; the class of shares of Common Stock to be subject to each Option; and
the purchase price of the Common Stock subject to each Option; (b) interpret the
Plan; (c) prescribe, amend and rescind rules and regulations relating to the
Plan; (d) determine the terms, conditions and provisions of all Option
Agreements entered into pursuant to the Plan (which need not be identical); and
(e) make all other determinations necessary or advisable for administration of
the Plan.
11.3 The Committee's determinations of all matters referred to the
Committee's discretion shall be final and conclusive. In making such
determinations, the Committee may take into account such factors as the
Committee, in its discretion, may deem relevant, including the nature of the
services rendered by the individuals involved and the present and potential
contributions of such individuals to the success of the Corporation.
11.4 No member of the Board or the Committee, nor of the board of directors
of any Participating Corporation, nor any officer, director, employee or agent
of the Corporation or any Participating Corporation, shall be liable for any
action or determination made, or other action taken, in good faith with respect
to the Plan or any Option.
Section 12.
Transferability of Options
12.1 No Incentive Stock Option granted under the Plan shall be transferable
by the Participant other than by will or the laws of descent or distribution.
12.2 The Committee, operating in its sole and exclusive discretion, shall
determine the restrictions, if any, on transferability of Non-Qualified Stock
Options, without regard to the provisions of Section 12.1.
11
<PAGE>
12.2 If deemed necessary or appropriate by the Committee, each Option
Agreement may contain such provisions consistent with this Plan as the
Committee, in its discretion, may determine to be appropriate for restriction on
the transfer and redemption by the Corporation, or other disposition, of all
Option Shares received by the Optionee (or his legal representatives),
notwithstanding any tax consequences to the Optionee of such redemption or other
disposition.
Section 13.
Certain Participant Rights
13.1 The holder of an Option shall have none of the rights of a shareholder
of the Corporation with respect to the Option Shares until such shares shall
have been issued to him upon exercise of his Option in accordance with the terms
of the Plan.
13.2 Subject to such rules and regulations as the Committee may prescribe,
including the right of the Committee to limit the types of designations which
are acceptable for purposes of the Plan, each Participant who shall be granted
an Option under the Plan may designate a beneficiary or beneficiaries and may
change such designation from time to time by filing a written designation of
beneficiaries with the Committee on a form to be prescribed by it, provided that
no such designation shall be effective unless so filed prior to the death of
such Participant.
13.3 Neither the establishment of the Plan, the granting of Options, nor
the payment of any benefits hereunder nor any action of the Corporation, any
Participating Corporation, the Board or the Committee shall be held or construed
to confer upon any person any legal right to be continued in the employ of the
Corporation, any Participating Corporation, or its subsidiaries, each of which
expressly reserves the right to discharge any Employee whenever the interest of
any such company in its sole discretion may so require without liability to such
company, the
12
<PAGE>
Board or the Committee except as to any rights which may be expressly conferred
upon such Employee under the Plan.
13.4 The Corporation shall not be required to segregate any cash or any
shares of Common Stock which may at any time be represented by Options and the
Plan shall constitute an "unfunded" plan of the Corporation. No Employee shall
have voting or other rights with respect to shares of Common Stock prior to the
delivery of such shares. The Corporation shall not, by any provisions of the
Plan, be deemed to be a trustee of any Common Stock or any other property, and
the liabilities of the Corporation or any Participating Corporation to any
Employee pursuant to the Plan shall be those of a debtor pursuant to such
contract obligations as are created by or pursuant to the Plan, and the rights
of any Employee, former Employee or beneficiary under the Plan shall be limited
to those of a general creditor of the Corporation.
13.5 No shares shall be delivered pursuant to any exercise of an Option
until the requirements of such laws and regulations as may be deemed by the
Committee to be applicable thereto are satisfied.
Section 14.
Adjustments Upon Changes in Capitalization and Change in Control
14.1 Except to the extent such a change would cause compensation payable to
a Participant to fail to satisfy Section 162 of the Internal Revenue Code and
regulations promulgated thereunder, in the event that the Board shall determine
that any stock dividend, extraordinary cash dividend, recapitalization, stock
split, reverse stock split, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
13
<PAGE>
corporate event affects the Common Stock such that an adjustment is required to
preserve the benefits or potential benefits intended to be made available under
this Plan, the Board shall, in its sole discretion, and in such manner as the
Board may deem equitable, adjust any or all of (1) the number and kind of shares
which thereafter may be optioned under the Plan, (2) the number and kind of
shares subject to outstanding Options, and (3) the option price with respect to
any of the foregoing and/or, if deemed appropriate, make provision for a cash
payment to a Participant. The number of shares subject to any Option as so
adjusted shall always be a whole number.
14.2 (a) In the case of a Change in Control (as defined below) of the
Corporation, each Option then outstanding shall (unless the Board determines
otherwise) immediately be nonforfeitable and exercisable in full.
(b) Any determination by the Board made pursuant to this Section 14.2 may
be made as to all outstanding Options specified by the Board, and all such
determinations shall be made in cases covered by subsections (c)(i) or (ii)
below, prior to or as soon as practicable after the occurrence of such event and
in the cases covered by subsection (c)(iii) below, prior to the occurrence of
such event.
(c) A Change in Control shall occur if:
(i) any "person" or "group of persons", as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act, directly or indirectly
purchases or otherwise becomes the "beneficial owner" (as defined in Rule
13d-4 of the Exchange Act) or has the right to acquire such beneficial
ownership (whether or not such right is exercisable immediately, with the
passage of time, or subject to any condition) of
14
<PAGE>
voting securities representing fifty percent (50%) or more of the combined
voting power of all outstanding voting securities of the Corporation; or
(ii) the stockholders of the Corporation shall approve an agreement to
merge or consolidate the Corporation with or into another corporation as a
result of which less than fifty percent (50%) of the outstanding voting
securities of the surviving or resulting entity are or are to be owned by
the former shareholders of the Corporation (excluding from former
shareholders, a shareholder who is or, as a result of the transaction in
question, becomes an "affiliate", as defined in Rule 12b-2 under the
Exchange Act, of any part of such consolidation or merger); or (iii) the
stockholders of the Corporation shall approve the sale of all or
substantially all of the Corporation's business and/or assets to a person
or entity which is not a wholly-owned subsidiary of the Corporation.
14.3 The existence of any Option shall not in any way prevent any
Participating Corporation from engaging in any of the transactions described in
this Section 14, nor shall it confer any rights upon the holder of any such
Option to participate in any such transaction, except those expressly conferred
by the Plan and the Option Agreement pursuant to which such Option shall have
been granted.
14.4 Nothing contained in this Plan shall prevent the assumption of an
Option, or the substitution of a new option for an Option, by any corporation,
or the parent or subsidiary of any corporation, that becomes the employer of an
Optionee by reason of a merger, consolidation, acquisition, reorganization or
liquidation; provided, however, that with respect to an Incentive Stock Option,
the following additional conditions are applicable:
15
<PAGE>
(a) the excess of the aggregate fair market value of the shares
subject to the Option immediately after the substitution or assumption over
the aggregate option price of such shares is not more than the excess of
the aggregate fair market value of the Option Shares immediately before
such substitution or assumption over the aggregate purchase price of the
Option Shares; and
(b) the new option or the assumption of the old Option does not give
the Optionee additional benefits that the Optionee did not have under the
old Option.
Section 15.
Cancellation of Options
The Board may, in its sole discretion, in cases involving a serious breach
of conduct by an Employee or former Employee, or activity of a former Employee
in competition with the business of the Corporation or a Participating
Corporation, cancel any Option, whether vested or not, in whole or in part. Such
cancellation shall be effective as of the date specified by the Board. Without
limitation, activities which shall constitute a serious breach of conduct
include: (i) the disclosure or misuse of confidential information or trade
secrets; (ii) activities in violation of the policies of the Corporation or any
Participating Corporation, including without limitation, the Corporation's
insider trading policy; (iii) the violation or breach of any material provision
in any employment contract or agreement among the Employee and any Participating
Corporation; (iv) engaging in conduct relating to the Participant's employment
with the Corporation or any Participating Corporation for which either criminal
or civil penalties may be sought; and (v) engaging in activities which adversely
affects or which are inimical, contrary or harmful to the interests of the
Corporation, any Participating Corporation or its business operations. The
16
<PAGE>
determination of whether an Employee or former Employee has engaged in a serious
breach of conduct or activity in competition with the business of a
Participating Corporation shall be determined by the Board in good faith and in
its sole discretion.
Section 16
Amendment and Termination
16.1 Unless the Plan shall have been terminated sooner, the Plan shall
terminate on, and no Option shall be granted after the earlier of: (a) the tenth
(10th) anniversary of: (i) the date upon or as of which the Plan is adopted by
the Board, or (ii) the date upon which the Plan is approved by the shareholders
of the Corporation; or (b) the date upon which the total number of shares set
forth in Section 4.1 of the Plan shall be been used pursuant to the Plan.
16.2 The shareholders of the Corporation may terminate, modify or amend the
Plan at any time.
16.3 The Board also may terminate, modify or amend the Plan at any time,
provided that, without the approval of the shareholders of the Corporation, the
Board shall not make any amendment or modification for which stockholder
approval is necessary to comply with any applicable tax or regulatory
requirement, including for these purposes, any approval which is a prerequisite
for exemptive relief under Section 16(b) of the Exchange Act. Additionally,
without the approval of the shareholders of the Corporation, the Board may not
change (a) the maximum number of shares as to which Options may be granted under
the Plan (except as the number provided in Section 4.1 may be adjusted from time
to time in accordance with Section 14.1), or (b) the class of Employees eligible
to receive Incentive Stock Options.
17
<PAGE>
16.4 Except as may be set forth in this Plan, no termination, modification
or amendment of the Plan shall adversely affect the rights of any Optionee under
an Option Agreement without such Optionee's written consent and provided further
that upon or following the occurrence of a Change in Control, no amendment may
adversely affect the rights of any Optionee in connection with any Option
previously granted.
Section 17.
Effectiveness of the Plan
The Plan shall become effective only upon: (a) adoption by the Board and
(b) approval by the shareholders of the Corporation within twelve (12) months
before or after the date of such adoption by the Board.
Section 18.
Governing Law
This Plan shall be governed by and construed under the laws of the State of
Rhode Island.
Adopted as of the Access Solutions International, Inc.
first day of August, 1996.
By/s/Robert H. Stone
________________________________________
18
<PAGE>
Exhibit 10.f(i)
ACCESS SOLUTIONS INTERNATIONAL, INC.
650 TEN ROD ROAD
NORTH KINGSTOWN, RI 02852
July 18, 1996
Matthias E. Lukens, Jr.
204 Spencer Avenue
East Greenwich, RI 02818
Re: Employment Agreement dated September, 1995
Dear Matt:
This letter confirms that the time in which you must notify ASI of your election
to terminate the above-referenced Employment Agreement due to events that
occurred on January 2, 1996, has been extended through 4:00 p.m. on October 31,
1996.
Sincerely,
/s/ Thomas E. Gardner
_______________________________
Thomas E. Gardner,
Treasurer and CFO
Exhibit 10.j(i)
TERMINATION OF REGISTRATION RIGHTS AGREEMENT
AGREEMENT between Aquidneck Systems International, Inc., a Delaware
corporation (the "Company") and Thomas E. Gardner ("Gardner").
W I T N E S S E T H:
WHEREAS, the Company and Elizabeth Z. Chace and Christian Nolen as Trustees
(the "Trustees") u/a/d August 30, 1938 f/b/o Malcolm G. Chace III (the "Trust")
entered into a Registration Rights Agreement (the "Registration Rights
Agreement") dated as of January 23, 1995, pursuant to which the Company agreed
to grant certain rights to registration of the Company's Series A Preferred
Stock owned by the Trust under the Securities Act of 1933, as amended (the "1933
Act") to the Trust; and
WHEREAS, on January 16, 1996 the Trust transferred all of the shares of
Series A Preferred Stock of the Company owned by it to Gardner; and
WHEREAS, the Company and Gardner have reached an understanding concerning
termination of the Registration Rights Agreement and desire to set forth this
understanding in writing.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. The Registration Rights Agreement is terminated and is of no further
effect;
2. Gardner hereby releases the Company from any and all further obligations
pursuant to the Registration Rights Agreement, including, without limitation,
all obligations under Section 1 (Demand Registration) and Section 2 (Piggyback
Registrations).
3. This Termination of Registration Rights Agreement is effective as of
January 16, 1996.
4. This Agreement and all the provisions hereof shall be binding upon and
shall inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, executors, administrators, successors and assigns.
5. This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the State of Rhode
Island, without regard to the principles of conflicts of law thereof.
<PAGE>
6. This Agreement sets forth the entire Agreement and understanding of the
parties hereto with respect to the termination of the Registration Rights
Agreement and supersedes all prior agreements, promises, covenants,
arrangements, and communications, whether oral or written, by any party or
representative of any party hereto.
IN WITNESS WHEREOF, the parties have duly executed this Agreement.
AQUIDNECK SYSTEMS INTERNATIONAL, INC.
By: /s/ Malcom G. Chace, III
__________________________________
Chairman
/s/ Thomas E. Gardner
___________________________________
Thomas E. Gardner
2
<PAGE>
Exhibit 10.m(i)
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT is made as of the day of June, 1995, by and among
ELIZABETH Z. CHACE and CHRISTIAN NOLEN, TRUSTEES U/A/D August 30, 1938, F/B/O
MALCOLM G. CHACE, III ("Secured Party"), and AQUIDNECK SYSTEMS INTERNATIONAL,
INC. ("Debtor").
W I T N E S S E T H T H A T:
WHEREAS, Secured Party and Debtor are parties to a certain Security
Agreement, dated May 9, 1995 (the "Security Agreement"); and
WHEREAS, the parties desire to amend the Security Agreement in the manner
hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties agree as follows:
1. The principal amount available under the Letter Agreement and the Note
is being increased to Three Hundred Thousand Dollars ($300,000); therefore, all
references to "Two Fifty Hundred Thousand Dollars ($250,000)" shall be deleted
and replaced with "Three Hundred Thousand Dollars" and/or "$300,000," as
appropriate.
2. Debtor hereby warrants that all of the representations and warranties
contained in Section 3 of the Security Agreement are true and correct as of the
date hereof and that no Event of Default has occurred and is continuing or would
result by the execution of this Amendment or would constitute such an Event of
Default but for the requirement that notice be given or time elapse or both.
3. Except as modified and amended hereby, the Security Agreement shall
remain in full force and effect and is in all other respects ratified and
confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this
<PAGE>
Amendment Agreement to be duly executed as of the day and year first above
written.
/s/ Elizabeth Z. Chace
_____________________________________
Elizabeth Z. Chace, Trustee as
aforesaid and not individually
/s/ Christian Nolen
_____________________________________
Christian Nolen, Trustee as
aforesaid and not individually
AQUIDNECK SYSTEMS INTERNATIONAL, INC.
By /s/ Charles H. Boisseau
__________________________________
Title Senior Vice President
Business Operations
2
<PAGE>
Exhibit 10.v(i)
August 20, 1996
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Ladies and Gentlemen:
This letter confirms my prior oral agreement with the Company to amend the
Subscription Agreement between myself, Thomas Gardner and the Company dated
September, 1994 by deleting the provisions concerning registration rights.
Sincerely,
/s/Leslie A. Gardner
___________________________
Leslie A. Gardner
Exhibit 10.x
===============================================================================
ACCESS SOLUTIONS INTERNATIONAL, INC.
AND
JOSEPH STEVENS & COMPANY L.P.
-----------------
UNDERWRITER'S
WARRANT AGREEMENT
__________ ____, 1996
===============================================================================
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of __________ ____, 1996 by and
between ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware corporation (the
"Company"), and JOSEPH STEVENS & COMPANY, L.P. ("Joseph Stevens") (Joseph
Stevens is hereinafter referred to variously as the "Holder" or the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter or its
designee(s) warrants ("Warrants") to purchase up to 106,667 Units (as defined in
Section 1 hereof, each Unit consisting of two (2) shares of common stock, $.01
par value, of the Company ("Common Stock") and one (1) redeemable Common Stock
purchase warrant, each to purchase one additional share of Common Stock
("Redeemable Warrants")); and
WHEREAS, the Underwriter has agreed pursuant to the underwriting agreement
(the "Underwriting Agreement") dated as of the date hereof by and between the
Underwriter and the Company to act as the underwriter in connection with the
proposed public offering of 1,066,667 Units at a public offering price of $7.50
per Unit; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter in consideration for, and as part
of the Underwriter's compensation in connection with, Joseph Stevens acting as
the Underwriter pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of ten dollars and sixty-seven cents ($10.67), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE>
1. Grant. The Underwriter (or its designee(s)) is hereby granted the right
to purchase, at any time from __________, 1997 [one year from the date hereof]
until 5:00 p.m., New York time, on __________, 2001, [5 years from the date
hereof] up to 106,667 Units at an initial exercise price (subject to adjustment
as provided in Section 8 hereof) of $__________ [165% of the IPO price per Unit]
per Unit subject to the terms and conditions of this Agreement. A "Unit"
consists of two (2) shares of Common Stock and one (1) Redeemable Warrant. Each
Redeemable Warrant is exercisable to purchase one additional share of Common
Stock at an initial exercise price of $__________ [66 2/3% of the IPO price per
Unit] per share, commencing on the date of issuance (the "Initial Exercise
Date") and ending, at 5:00 p.m. New York time on __________, 2001 [60 months
from the date hereof] (the "Redeemable Warrant Expiration Date") at which time
the Redeemable Warrants shall expire. Except as set forth herein, the Units
issuable upon exercise of the Warrants are in all respects identical to the
Units being purchased by the Underwriters for resale to the public pursuant to
the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Method of Exercise. The Warrants are initially exercisable at an
initial exercise price per Unit set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate, together with the annexed Form of Election to Purchase duly
executed and payment of the Exercise Price (as hereinafter defined) for the
Units purchased at the
2
<PAGE>
Company's principal offices in Rhode Island (presently located at 650 Ten Rod
Road, North Kingstown, Rhode Island 02852) the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased and a certificate or
certificates for the Redeemable Warrants so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock and Redeemable Warrants underlying the Warrants). In the event the
Company redeems all of the outstanding Redeemable Warrants, the Redeemable
Warrants underlying the Warrants may only be exercised if such exercise is
simultaneous with the exercise of the Warrants. Warrants may be exercised to
purchase all or part of the Units represented thereby. In the case of the
purchase of less than all the Units purchasable under any Warrant Certificate,
the Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Units purchasable thereunder.
3.2 Exercise by Surrender of Warrant. In addition to the method of payment
set forth in Section 3.1 and in lieu of any cash payment required thereunder,
the Holder(s) of the Warrants shall have the right at any time and from time to
time to exercise the Warrants in full or in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 in exchange for the number of
Units equal to the product of (x) the number of Units as to which the Warrants
are being exercised, multiplied by (y) a fraction, the numerator of which is the
Market Price (as defined in Section 3.3 hereof) of the Units minus the Exercise
Price of the Units and the denominator of which is the Market Price per Unit.
Solely for the purposes of this Section 3.2, Market Price shall be calculated
either (i) on the date on which the form of election attached hereto is deemed
to have been sent to the Company pursuant to Section 14 hereof ("Notice Date")
or (ii) as the average of the
3
<PAGE>
Market Price for each of the five trading days immediately preceding the Notice
Date, whichever of (i) or (ii) results in a greater Market Price.
3.3 Definition of Market Price.
(a) As used herein, the phrase "Market Price" of the Units, the Common
Stock or the Redeemable Warrants, respectively, at any date shall be deemed to
be the last reported sale price, or, in case no such reported sale takes place
on such day, the average of the last reported sale prices for the last three (3)
trading days, in either case as officially reported by the principal securities
exchange on which the Units, the Common Stock or the Redeemable Warrants, as the
case may be, are listed or admitted to trading or by the Nasdaq National Market
("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the
Units, the Common Stock or the Redeemable Warrants, as the case may be, are not
listed or admitted to trading on any national securities exchange or quoted by
the National Association of Securities Dealers Automated Quotation System
("Nasdaq"), the average closing bid price as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information.
(b) If the Market Price of the Units cannot be determined pursuant to
Section 3.3(a), the Market Price of the Units at any date shall be deemed to be
the sum of the Market Price of the Common Stock and the Market Price of the
Redeemable Warrants.
(c) If the Market Price of the Common Stock cannot be determined pursuant
to Section 3.3(a) above, the Market Price of the Common Stock shall be
determined in good faith (using customary valuation methods) by resolution of
the members of the Board of Directors of the Company, based on the best
information available to it.
4
<PAGE>
(d) If the Market Price of the Redeemable Warrants cannot be determined
pursuant to Section 3.3(a) above, the Market Price of a Redeemable Warrant shall
equal the difference between the Market Price of the Common Stock and the
Exercise Price of the Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and Redeemable Warrants or
other securities, properties or rights underlying such Warrants, and upon the
exercise of the Redeemable Warrants, the issuance of certificates for shares of
Common Stock or other securities, properties or rights underlying such
Redeemable Warrants shall be made forthwith (and in any event such issuance
shall be made within five (5) business days thereafter) without charge to the
Holder thereof including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Sections 5 and 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof.
The Warrant Certificates and the certificates representing the shares of
Common Stock and the Redeemable Warrants underlying the Warrants and the shares
of Common Stock underlying each Redeemable Warrant or other securities, property
or rights shall be executed on behalf of the Company by the manual or facsimile
signature of the then present Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the then
present Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5
<PAGE>
5. Restriction On Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers or partners of the Underwriter.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Price. Except as otherwise provided in
Section 8 hereof, the initial exercise price of each Warrant shall be $____ per
Unit [165% of the IPO price per Unit]. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial
exercise price or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The Warrants, the shares
of Common Stock and the Redeemable Warrants underlying the Warrants and the
shares of Common Stock issuable upon exercise of the Redeemable Warrants
underlying the Warrants and the other securities issuable upon exercise of the
Warrants (collectively, the "Warrant Securities") have been registered under the
Securities Act of 1933, as amended (the "Act") pursuant to the Company's
Registration Statement on Form SB-2 (Registration No. 333-05285) (the
"Registration Statement"). All the representations and warranties of the Company
contained in the Underwriting Agreement relating to the Registration Statement,
the Preliminary Prospectus and Prospectus (as such terms are defined in the
Underwriting Agreement) and made as of the dates provided therein, are hereby
6
<PAGE>
incorporated by reference. The Company agrees and covenants promptly to file
post-effective amendments to such Registration Statement as may be necessary to
maintain the effectiveness of the Registration Statement as long as any Warrants
are outstanding. In the event that, for any reason whatsoever, the Company shall
fail to maintain the effectiveness of the Registration Statement, upon exercise,
in part or in whole, of the Warrants, certificates representing the shares of
Common Stock and the Redeemable Warrants underlying the Warrants, and upon
exercise, in whole or in part of the Redeemable Warrants, certificates
representing the shares of Common Stock underlying the Redeemable Warrants and
any other securities issuable upon exercise of the Warrants shall bear the
following legend:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), and may not be
offered, sold, pledged, hypothecated, assigned or transferred except
pursuant to (i) an effective registration statement under the Act, (ii) to
the extent applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii) an opinion of
counsel, if such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act is available.
7.2 Piggyback Registration. If, at any time commencing after the date
hereof and expiring seven (7) years thereafter the Warrant Securities are not
registered under the Act as set forth in Section 7.1 hereof and the Company
proposes to register any of its securities under the Act (other than pursuant to
Form S-8, S-4 or a comparable registration statement) the Company will give
written notice by registered mail, at least thirty (30) days prior to the filing
of each such registration statement, to the Underwriter and to all other Holders
of the Warrants and/or the Warrant Securities of its intention to do so. If the
Underwriter or other Holders of the Warrants and/or Warrant Securities notifies
the Company within twenty (20) days after receipt of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford the Underwriter and such Holders of the
Warrants and/or Warrant
7
<PAGE>
Securities the opportunity to have any such Warrant Securities registered under
such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
(a) If, at any time commencing after the date hereof and expiring five (5)
years thereafter the Warrant Securities are not registered under the Act as set
forth in Section 7.1 hereof, the Holders of the Warrants and/or Warrant
Securities representing a "Majority" (as hereinafter defined) of such securities
(assuming the exercise of all of the Warrants and the Redeemable Warrants
underlying the Warrants) shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the Underwriter
and Holders, in order to comply with the provisions of the Act, so as to permit
a public offering and sale of their respective Warrant Securities for nine (9)
consecutive months by such Holders and any other Holders of the Warrants and/or
Warrant Securities who notify the Company within ten (10) days after receiving
notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the
8
<PAGE>
Warrants and the Warrant Securities within ten (10) days from the date of the
receipt of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company shall have the option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities to repurchase (i) any and all Warrant Securities at the
higher of the Market Price per share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in Section 7.4(a) or (ii) the delivery of the
written notice of election specified in this Section 7.3(c).
(d) In addition to the registration rights under Section 7.2 and subsection
(a) of this Section 7.3, if at any time commencing after the date hereof and
expiring five (5) years thereafter, the Warrant Securities are not registered
under an effective registration statement under the Act as set forth in Section
7.1 hereof, any Holder of Warrants and/or Warrant Securities shall have the
right, exercisable by written request to the Company, to have the Company
prepare and file, on one occasion, with the Commission a registration statement
so as to permit a public offering and sale for nine (9) consecutive months by
any such Holder of its Warrant Securities provided, however, that the provisions
of Section 7.4(b) hereof shall not apply to any such registration request and
registration and all costs incident thereto shall be at the expense of the
Holder or Holders making such request.
9
<PAGE>
7.4 Covenants of the Company With Respect to Registration. In connection
with any registration under Section 7.2 or 7.3 hereof, the Company covenants and
agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall
use its best efforts to have any registration statement declared effective
at the earliest possible time, and shall furnish each Holder desiring to
sell Warrant Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
The Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(d). If the Company
shall fail to comply with the provisions of Section 7.4(a), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), be liable for any or all incidental or special damages sustained
by the Holder(s) requesting registration of their Warrant Securities,
excluding consequential damages.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue
sky laws of such states as reasonably are requested by the Holder(s),
provided that the Company shall not be obligated to execute or
10
<PAGE>
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15
of the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them
may become subject under the Act, the Exchange Act or otherwise, arising
from such registration statement but only to the same extent and with the
same effect as the provisions pursuant to which the Company has agreed to
indemnify the Underwriter contained in Section 7 of the Underwriting
Agreement. The Company further agree(s) that upon demand by an indemnified
person, at any time or from time to time, it will promptly reimburse such
indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the
Company has indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 7.4(d) any such payment or
reimbursement by the Company of fees, expenses or disbursements incurred by
an indemnified person in any proceeding in which a final judgment by a
court of competent jurisdiction (after all appeals or the expiration of
time to appeal) is entered against the Company or such indemnified person
as a direct result of the Holder(s) or such person's gross negligence or
willful misfeasance will be promptly repaid to the Company.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the
11
<PAGE>
Company, its officers and directors and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act, against all loss, claim, damage or expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject
under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns,
for specific inclusion in such registration statement to the same extent
and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriter has agreed to
indemnify the Company. The Holder(s) further agree(s) that upon demand by
an indemnified person, at any time or from time to time, they will promptly
reimburse such indemnified person for any loss, claim, damage, liability,
cost or expense actually and reasonably paid by the indemnified person as
to which the Holder(s) have indemnified such person pursuant hereto.
Notwithstanding the foregoing provisions of this Section 7.4(e) any such
payment or reimbursement by the Holder(s) of fees, expenses or
disbursements incurred by an indemnified person in any proceeding in which
a final judgment by a court of competent jurisdiction (after all appeals or
the expiration of time to appeal) is entered against the Company or such
indemnified person as a direct result of the Company or such person's gross
negligence or willful misfeasance will be promptly repaid to the Holder(s).
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
12
<PAGE>
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof, without the prior written consent of
the Holders of the Warrants and Warrant Securities representing a Majority
of such securities (assuming the exercise of all of the Warrants and the
Redeemable Warrants underlying the Warrants).
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) a "cold
comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting agreement)
signed by the independent public accountants who have issued a report on
the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters
in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act
13
<PAGE>
and covering a period of at least 12 consecutive months beginning after the
effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below
and to the managing underwriter, if any, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each Holder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration
statement as it deems reasonably necessary to comply with applicable
securities laws or rules of the NASD. Such investigation shall include
access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to
such reasonable extent and at such reasonable times and as often as any
such Holder or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriter selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting, which may be the Underwriter. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such
managing underwriter, and shall contain such representations, warranties
and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing underwriter. The
Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Warrant Securities and may, at their option,
require that any or all of the representations, warranties and covenants
14
<PAGE>
of the Company to or for the benefit of such underwriters shall also be
made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with
the Company or the underwriters except as they may relate to such Holders
and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of
the date of filing of such registration statement, including without
limitation, restricted shares of Common Stock, options, warrants or any
other securities convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in reference
to the Holders of Warrants or Warrant Securities shall mean in excess of
fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of
their family, persons acting as nominees or in conjunction therewith and
(ii) have not been resold to the public pursuant to a registration
statement filed with the Commission under the Act or an applicable
exemption therefrom.
8. Adjustments to Exercise Price and Number of Securities.
8.1 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.2 Stock Dividends and Distributions. In case the Company shall pay a
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased.
15
<PAGE>
An adjustment made pursuant to this Section 8.2 shall be made as of the record
date for the subject stock dividend or distribution.
8.3 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted Exercise Price of
each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 Definition of Common Stock. For the purpose of this Agreement, the term
"Common Stock" shall mean (i) the class of stock designated as Common Stock in
the Certificate of Incorporation of the Company as may be amended or restated as
of the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value.
8.5 Merger or Consolidation or Sale.
(a) In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock), the corporation formed by such consolidation
or merger shall execute and deliver to the Holder a supplemental warrant
agreement providing that the holder of each Warrant then outstanding or to be
outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property
16
<PAGE>
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock of the Company for which such Warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in this Section 8. The
above provision of this subsection shall similarly apply to successive
consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or substantially all
of its assets, or (ii) the engagement by the Company or any of its affiliates in
a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of Rule 13e-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, or (iii) a distribution to the Company's stockholders of any cash,
assets, property, rights, evidences of indebtedness, securities or any other
thing of value, or any combination thereof, the Holders of the unexercised
Warrants shall receive notice of such sale, transaction or distribution twenty
(20) days prior to the date of such sale or the record date for such transaction
or distribution, as applicable, and, if they exercise such Warrants prior to
such date, they shall be entitled, in addition to the shares of Common Stock
issuable upon the exercise thereof, to receive such property, cash, assets,
rights, evidence of indebtedness, securities or any other thing of value, or any
combination thereof, on the payment date of such sale, transaction or
distribution.
8.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made if the amount of said adjustment shall be less than
ten cents (10 cents) per Warrant Security, provided, however, that in such case
any adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least ten cents (10 cents) per Warrant Security.
17
<PAGE>
8.7 Adjustment of Redeemable Warrants' Exercise Price. With respect to any
of the Redeemable Warrants, whether or not the Redeemable Warrants have been
exercised (or are exercisable) and whether or not the Redeemable Warrants are
issued and outstanding, the Redeemable Warrant exercise price and the number of
shares of Common Stock underlying such Redeemable Warrants shall be
automatically adjusted in accordance with Section 8 of the Warrant Agreement
between the Company and Continental Stock Transfer & Trust Company dated
__________, 1996 (the "Redeemable Warrant Agreement"), upon the occurrence of
any of the events described therein. Thereafter, the underlying Redeemable
Warrants shall be exercisable at such adjusted Redeemable Warrant exercise price
for such adjusted number of underlying shares of Common Stock or other
securities, properties or rights.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Units in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock or
Redeemable Warrants upon
18
<PAGE>
the exercise of the Warrants, or fractions of shares of Common Stock upon the
exercise of the Redeemable Warrants underlying the Warrants, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction down to the nearest whole number of shares of Common Stock or
Redeemable Warrants, as the case may be, or other securities, properties or
rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants and the Redeemable
Warrants, such number of shares of Common Stock or other securities, properties
or rights as shall be issuable upon the exercise thereof. The Company covenants
and agrees that, upon exercise of the Warrants and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. The Company further
covenants and agrees that upon exercise of the Redeemable Warrants underlying
the Warrants and payment of the respective Redeemable Warrant exercise price
therefor, all shares of Common Stock and other securities issuable upon such
exercises shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. As long as the Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Common Stock issuable upon the exercise of the Warrants and the Redeemable
Warrants and all Redeemable Warrants underlying the Warrants to be listed
(subject to official notice of issuance) on all securities exchanges on which
the Common Stock or the Redeemable Warrants issued to the public in connection
herewith may then be listed and/or quoted on Nasdaq National Market or Nasdaq
SmallCap Market.
19
<PAGE>
12. Notices to Warrant Holders. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any
option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the
20
<PAGE>
transfer books, as the case may be. Failure to give such notice or any defect
therein shall not affect the validity of any action taken in connection with the
declaration or payment of any such dividend, or the issuance of any convertible
or exchangeable securities, or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. Redeemable Warrants. The form of the certificate representing
Redeemable Warrants (and the form of election to purchase shares of Common Stock
upon the exercise of Redeemable Warrants and the form of assignment printed on
the reverse thereof) shall be substantially as set forth in Exhibit "A" to the
Redeemable Warrant Agreement. Each Redeemable Warrant issuable upon exercise of
the Warrants shall evidence the right to initially purchase one fully paid and
non-assessable share of Common Stock at an initial purchase price of $__________
[66 2/3% of the IPO price per Unit] per share commencing on the Initial Exercise
Date and ending at 5:00 p.m. New York time on the Redeemable Warrant Expiration
Date at which time the Redeemable Warrants shall expire. The exercise price of
the Redeemable Warrants and the number of shares of Common Stock issuable upon
the exercise of the Redeemable Warrants are subject to adjustment, whether or
not the Warrants have been exercised and the Redeemable Warrants have been
issued, in the manner and upon the occurrence of the events set forth in Section
8 of the Redeemable Warrant Agreement, which is hereby incorporated herein by
reference and made a part hereof as if set forth in its entirety herein. Subject
to the provisions of this Agreement and upon issuance of the Redeemable Warrants
underlying the Warrants, each registered holder of such Redeemable Warrants
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully paid and non-assessable
shares of Common Stock (subject to adjustment as provided herein and in the
Redeemable Warrant Agreement), free and clear of all preemptive rights of
stockholders, provided that such registered
21
<PAGE>
holder complies with the terms governing exercise of the Redeemable Warrants set
forth in the Redeemable Warrant Agreement, and pays the applicable exercise
price, determined in accordance with the terms of the Redeemable Warrant
Agreement. Upon exercise of the Redeemable Warrants, the Company shall forthwith
issue to the registered holder of any such Redeemable Warrant in his name or in
such name as may be directed by him, certificates for the number of shares of
Common Stock so purchased. Except as otherwise provided herein, the Redeemable
Warrants underlying the Warrants shall be governed in all respects by the terms
of the Redeemable Warrant Agreement. The Redeemable Warrants shall be
transferable in the manner provided in the Redeemable Warrant Agreement, and
upon any such transfer, a new Redeemable Warrant Certificate shall be issued
promptly to the transferee. The Company covenants to, and agrees with, the
Holders that it will send to each Holder, irrespective of whether or not the
Warrants have been exercised, any and all notices required by the Redeemable
Warrant Agreement to be sent to holders of Redeemable Warrants.
14. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company;
(b) If to the Company, to the address set forth in Section 3 hereof or
to such other address as the Company may designate by notice to the
Holders; or
(c) If to the Underwriter, to Joseph Stevens & Company, L.P., 33
Maiden Lane, New York, New York 10038, Attention: Joseph Sorbara.
22
<PAGE>
15. Supplements and Amendments. The Company and the Underwriter may from
time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Underwriter) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Underwriter may deem necessary or desirable and which the Company and
the Underwriter deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
16. Successors. All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
17. Termination. This Agreement shall terminate at the close of business on
__________, 2003 [7 years from the date hereof]. Notwithstanding the foregoing,
the indemnification provisions of Section 7 shall survive such termination until
the close of business on __________, 2008 [12 years from the date hereof.]
18. Governing Law, Submission to Jurisdiction. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or of the United States of America for the Southern District of New York, and
irrevocably submits to such jurisdiction, which jurisdiction
23
<PAGE>
shall be exclusive. THE COMPANY, THE UNDERWRITER AND THE HOLDERS HEREBY
IRREVOCABLY WAIVE ANY OBJECTION TO SUCH EXCLUSIVE JURISDICTION OR INCONVENIENT
FORUM. Any such process or summons to be served upon any of the Company, the
Underwriter and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the appropriate address referenced in Section 14 hereof. Such mailing shall be
deemed personal service and shall be legal and binding upon the party so served
in any action, proceeding or claim. The Company, the Underwriter and the Holders
agree that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
and the Redeemable Warrant Agreement contain the entire understanding between
the parties hereto with respect to the subject matter hereof and may not be
modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
24
<PAGE>
22. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Underwriter and any other Holder(s) of the Warrant Certificates
or Warrant Securities.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall to either constitute but one and the
same instrument.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:________________________________________
Robert H. Stone
President and Chief Executive Officer
Attest:
___________________________
Secretary
JOSEPH STEVENS & COMPANY, L.P.
By:________________________________________
Name:
Title
26
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, ________, 2001
No. W- ____ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or registered assigns,
is the registered holder of __________ Warrants to purchase initially, at any
time from ____________, 1997 [one year from the effective date of the
Registration Statement] until 5:00 p.m., New York time, on ____________, 2001
[five years from the effective date of the Registration Statement] ("Expiration
Date"), up to ______________ Units, each Unit consisting of two (2) fully-paid
and non-assessable shares of common stock, $.01 par value ("Common Stock") of
ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware corporation (the "Company"),
and one (1) redeemable warrant ("Redeemable Warrants") (each Redeemable Warrant
entitling the holder to purchase one fully-paid and non-assessable share of
Common Stock), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $_____________ [120% of the public offering
price per Unit] per Unit upon surrender of this Warrant Certificate and payment
of the Exercise Price at an office or agency of the Company, or by surrender of
this Warrant Certificate in lieu of cash payment, but subject to the conditions
set forth herein and in the warrant agreement dated as of _________________,
1996 between the Company and Joseph Stevens & Company, L.P. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company or by surrender of this Warrant Certificate.
1
<PAGE>
No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall forthwith issue to the holder hereof a new Warrant
Certificate representing the balance of such Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated as of , 1996
ACCESS SOLUTIONS INTERNATIONAL, INC.
[SEAL] By:_______________________________________
Robert H. Stone
President and Chief Executive Officer
Attest:
____________________________
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ Units and
herewith tenders in payment for such Securities a certified or official bank
check payable in New York Clearing House Funds to the order of Access Solutions
International, Inc. in the amount of $__________, all in accordance with the
terms of Section 3.1 of the Underwriter's Warrant Agreement dated as of
___________, 1996 between Access Solutions International, Inc. and Joseph
Stevens & Company, L.P. The undersigned requests that certificates for such
securities be registered in the name of _______________ whose address is
__________________________ and that such certificates be delivered to
______________________________ whose address is ____________________________.
Dated:
Signature __________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
_____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Units all in
accordance with the terms of Section 3.2 of the Underwriter's Warrant Agreement
dated as of ______________, 1996 between Access Solutions International, Inc.
and Joseph Stevens & Company, L.P. The undersigned requests that certificates
for such securities be registered in the name of __________________ whose
address is _______________________ and that such certificates be delivered to
whose address is ____________________________________.
Dated:
Signature __________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
_____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ________________________ Signature:__________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Holder)
6
<PAGE>
Exhibit 10.y
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This Agreement is made and entered into as of this __ day of __________,
1996, by and between Access Solutions International, Inc., a Delaware
corporation (the "Company"), and Joseph Stevens & Company, L.P. (the
"Consultant").
In consideration of and for the mutual promises and covenants contained
herein, and for other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Purpose. The Company hereby retains the Consultant during the term
specified in Section 2 hereof to render consulting advice to the Company as an
investment banker relating to financial and similar matters, upon the terms and
conditions as set forth herein.
2. Term. Subject to the provisions of Sections 8, 9 and 10 hereof, this
Agreement shall be effective for a period of twenty-four (24) months commencing
on the date hereof.
3. Duties of Consultant. During the term of this Agreement, the Consultant
will provide the Company with such regular and customary consulting advice as is
reasonably requested by the Company, provided that the Consultant shall not be
required to undertake duties not reasonably within the scope of the consulting
advisory service contemplated by this Agreement. In performance of these duties,
the Consultant shall provide the Company with the benefits of its best judgment
and efforts. It is understood and acknowledged by the parties that the value of
the Consultant's advice is not measurable in any quantitative manner, and that
the Consultant shall be obligated to render advice, upon the request of the
Company, in good faith, but shall not be obligated to spend any specific amount
of time in doing so. The Consultant's duties may include, but will not
necessarily be limited to:
A. Providing sponsorship and exposure in connection with the dissemination
of corporate information regarding the Company to the investment community at
large under a systematic planned approach.
B. Rendering advice and assistance in connection with the preparation of
annual and interim reports and press releases.
C. Arranging, on behalf of the Company and its representatives, at
appropriate times, meetings with securities analysts of major regional
investment banking firms.
D. Assisting in the Company's financial public relations, including
discussions between the Company and the financial community.
E. Rendering advice with regard to internal operations, including:
<PAGE>
(1) advice regarding formation of corporate goals and their
implementation;
(2) advice regarding the financial structure of the Company and its
divisions or subsidiaries or any programs and projects of such
entities;
(3) advice concerning the securing, when necessary and if possible, of
additional financing through banks, insurance companies and/or other
institutions; and
(4) advice regarding corporate organization and personnel.
F. Rendering advice with respect to any acquisition program of the Company.
G. Rendering advice regarding a future public or private offering of
securities of the Company or of any subsidiary.
4. Relationships with Others. The Company acknowledges that the Consultant
and its affiliates are in the business of providing financial services and
consulting advice (of all types contemplated by this Agreement) to others.
Nothing herein contained shall be construed to limit or restrict the Consultant
or its affiliates from rendering such services or advice to others.
5. Consultant's Liability. In the absence of gross negligence or willful
misconduct on the part of the Consultant, or the Consultant's breach of this
Agreement, the Consultant shall not be liable to the Company, or to any officer,
director, employee, shareholder or creditor of the Company, for any act or
omission in the course of or in connection with the rendering or providing of
advice hereunder. Except in those cases where the gross negligence or willful
misconduct of the Consultant or the breach by the Consultant of this Agreement
is alleged and proven, the Company agrees to defend, indemnify and hold the
Consultant harmless from and against any and all reasonable costs, expenses and
liability (including, but not limited to, attorneys' fees paid in the defense of
the Consultant) which may in any way result from services rendered by the
Consultant pursuant to or in any connection with this Agreement.
6. Expenses. The Company, upon receipt of appropriate supporting
documentation, shall reimburse the Consultant for any and all reasonable
out-of-pocket expenses incurred by the Consultant in connection with services
rendered by the Consultant to Company pursuant to this Agreement, including, but
not limited to, hotel, food and associated expenses, all charges for travel and
long-distance telephone calls and all other expenses incurred by the Consultant
in connection with services rendered by the Consultant to the Company pursuant
to this Agreement. Expenses payable under this Section 6 shall not include
allocable overhead expenses of the Consultant, including, but not limited to,
attorneys' fees, secretarial charges and rent.
2
<PAGE>
7. Compensation. As compensation for the services to be rendered by the
Consultant to the Company pursuant to Section 3 hereof, the Company shall pay
the Consultant a financial consulting fee of two thousand dollars ($2,000) per
month for twenty-four (24) months commencing on ________ __, 1996. Forty-Eight
Thousand Dollars ($48,000), representing payment in full of all amounts due the
Consultant pursuant to this Section 7, shall be paid by the Company on ________
__, 1996.
8. Other Advice. In addition to the duties set out in Section 3 hereof, the
Consultant agrees to furnish advice to the Company in connection with the
acquisition of and/or merger with other companies, joint ventures with any third
parties, license and royalty agreements and any other financing (other than the
private or public sale of the Company's securities for cash), including, but not
limited to, the sale of the Company itself (or any significant percentage,
subsidiaries or affiliates thereof).
In the event that any such transactions are directly or indirectly
originated by the Consultant for a period of five (5) years from the date
hereof, the Company shall pay fees to the Consultant as follows:
Legal Consideration Fee
1. $-0- - $3,000,000 5% of legal consideration
2. $3,000,001 - $4,000,000 Amount calculated pursuant
to line 1 of this computation,
plus 4% of excess over $3,000,000
3. $4,000,001 - 5,000,000 Amount calculated pursuant to lines
1 and 2 of this computation, plus
3% of excess over $4,000,000
4. above $5,000,000 Amount calculated pursuant to
pursuant to lines 1, 2 and 3 of
this computation, plus 2% of excess
over $5,000,000.
Legal consideration is defined, for purposes of this Agreement, as the
total of stock (valued at market on the day of closing, or if there is no public
market, valued as set forth herein for other property), cash and assets and
property or other benefits exchanged by the Company or received by the Company
or its shareholders (all valued at fair market value as agreed or, if not, by
any independent appraiser), irrespective of period of payment or terms.
9. Sales or Distributions of Securities. If the Consultant assists the
Company in the sale or distribution of securities to the public or in a private
transaction, the Consultant shall receive fees in the amount and form to be
arranged separately at the time of such transaction.
3
<PAGE>
10. Form of Payment. All fees due to the Consultant pursuant to Section 8
hereof are due and payable to the Consultant, in cash or by certified check, at
the closing or closings of a transaction specified in such Section 8 or as
otherwise agreed between the parties hereto; provided, however, that in the case
of license and royalty agreements specified in Section 8 hereof, the fees due
the Consultant in receipt of such license and royalty agreements shall be paid
as and when license and/or royalty payments are received by the Company. In the
event that this Agreement shall not be renewed for a period of at least twelve
(12) months at the end of the five (5) year period referred to in Section 8
hereof or if terminated for any reason prior to the end of such five (5) year
period then, notwithstanding any such non-renewal or termination, the Consultant
shall be entitled to the full fee for any transaction contemplated under Section
8 hereof which closes within twelve (12) months after such non-renewal or
termination.
11. Limitation Upon the Use of Advice and Services.
A. No person or entity, other than the Company or any of its subsidiaries,
shall be entitled to make use of or rely upon the advice of the Consultant to be
given hereunder, and the Company shall not transmit such advice to others, or
encourage or facilitate the use of or reliance upon such advice by others,
without the prior written consent of the Consultant.
B. It is clearly understood that the Consultant, for services rendered
under this Agreement, makes no commitment whatsoever as to making a market in
the securities of the Company or to recommend or advise its clients to purchase
the securities of the Company. Research reports or corporate finance reports
that may be prepared by the Consultant will, when and if prepared, be done
solely on the merits or judgment of analysts of the Consultant or senior
corporate finance personnel of the Consultant.
C. The use of the Consultant's name in any annual report or other report of
the Company, or any release or similar document prepared by or on behalf of the
Company, must have the prior written approval of the Consultant unless the
Company is required by law to include the Consultant's name in such annual
report, other report or release, in which event the Consultant will be furnished
with a copy of such annual report, other report or release using Consultant's
name in advance of publication by or on behalf of the Company.
D. Should any purchases of securities be requested to be effected through
the Consultant by the Company, its officers, directors, employees or other
affiliates, or by any person on behalf of any profit sharing, pension or similar
plan of the Company, for the account of the Company or the individuals or
entities involved, such orders shall be taken by a registered account executive
of the Consultant, shall not be subject to the terms of this Agreement, and the
normal brokerage commission as charged by the Consultant will apply in
conformity with all rules and regulations of the New York Stock Exchange, the
National Association of Securities Dealers, Inc. or other regulatory bodies.
Where no regulatory body sets the fee, the normal established fee as used by the
Consultant shall apply.
E. The Consultant shall not disclose confidential information which it
learns about the Company as a result of its engagement hereunder, except such
disclosure as may be required for Consultant to perform its duties hereunder.
4
<PAGE>
1. Indemnification. Since the Consultant will be acting on behalf of the
Company in connection with its engagement hereunder, the Company and Consultant
have entered into a separate indemnification agreement substantially in the form
attached hereto as Exhibit A and dated the date hereof, providing for the
indemnification of Consultant by the Company. The Consultant has entered into
this Agreement in reliance on the indemnities set forth in such indemnification
agreement.
2. Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is deemed unlawful or invalid for any
reason whatsoever, such unlawfulness or invalidity shall not affect the validity
of the remainder of this Agreement.
3. Miscellaneous.
A. Any notice or other communication between the parties hereto shall be
sent by certified or registered mail, postage prepaid, if to the Company,
addressed to it at 650 Ten Rod Road, North Kingstown, RI 02852, Attention:
Robert H. Stone, President and Chief Executive Officer with a copy to Edwards &
Angell, 2700 Hospital Trust Tower, Providence, RI 02903, Attention: John E.
Ottavionni, Esq. or, if to the Consultant, addressed to it at 33 Maiden Lane,
8th Floor, New York, New York 10038, Attention: Joseph Sorbara, Chief Executive
Officer, with a copy to Orrick, Herrington & Sutcliffe, 666 5th Avenue, New
York, New York 10103, Attention: Rubi Finkelstein, Esq., or to such address as
may hereafter be designated in writing by one party to the other. Such notice or
other communication shall be deemed to be given on the date of receipt.
B. If, during the term hereof, the Consultant shall cease to do business,
the provisions hereof relating to the duties of the Consultant and compensation
by the Company as it applies to the Consultant shall thereupon cease to be in
effect, except for the Company's obligation of payment for services rendered
prior thereto. This Agreement shall survive any merger of, acquisition of, or
acquisition by the Consultant and, after any such merger or acquisition, shall
be binding upon the Company and the corporation surviving such merger or
acquisition.
C. This Agreement embodies the entire agreement and understanding between
the Company and the Consultant and supersedes any and all negotiations, prior
discussions and preliminary and prior agreements and understandings related to
the central subject matter hereof.
D. This Agreement has been duly authorized, executed and delivered by and
on behalf of the Company and the Consultant.
E. This Agreement shall be construed and interpreted in accordance with
laws of the State of New York, without giving effect to conflicts of laws.
5
<PAGE>
F. This Agreement and the rights hereunder may not be assigned by either
party (except by operation of law) and shall be binding upon and inure to the
benefit of the parties and their respective successors, assigns and legal
representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date hereof.
ACCESS SOLUTIONS
INTERNATIONAL, INC.
By: ________________________________
Name:
Title:
JOSEPH STEVENS & COMPANY, L.P.
By:__________________________________
Name:
Title:
6
<PAGE>
EXHIBIT A
_________________, 1996
JOSEPH STEVENS & COMPANY, L.P
33 Maiden Lane
8th Floor
New York, New York 10038
Ladies and Gentlemen:
In connection with our engagement of JOSEPH STEVENS & COMPANY, L.P. (the
"Consultant") as our financial advisor and investment banker, we hereby agree to
indemnify and hold the Consultant and its affiliates, and the directors,
officers, partners, shareholders, agents and employees of the Consultant
(collectively the "Indemnified Persons"), harmless from and against any and all
claims, actions, suits, proceedings (including those of shareholders), damages,
liabilities and expenses incurred by any of them (including, but not limited to,
fees and expenses of counsel) which are (A) related to or arise out of (i) any
actions taken or omitted to be taken (including any untrue statements made or
any statements omitted to be made) by us, or (ii) any actions taken or omitted
to be taken by any Indemnified Person in connection with our engagement of the
Consultant pursuant to the Financial Advisory and Consulting Agreement, of even
date herewith, between the Consultant and us (the "Consulting Agreement"), or
(B) otherwise related to or arising out of the Consultant's activities on our
behalf pursuant to the Consultant's engagement under the Consulting Agreement,
and we shall reimburse any Indemnified Person for all expenses (including, but
not limited to, fees and expenses of counsel) incurred by such Indemnified
Person in connection with investigating, preparing or defending any such claim,
action, suit or proceeding (collectively a "Claim"), whether or not in
connection with pending or threatened litigation in which any Indemnified Person
is a party. We will not, however, be responsible for any Claim which is finally
judicially determined to have resulted exclusively from the gross negligence or
willful misconduct of any person seeking indemnification hereunder. We further
agree that no Indemnified Person shall have any liability to us for or in
connection with the Consultant's engagement under the Consulting Agreement
except for any Claim incurred by us solely as a direct result of any Indemnified
Person's gross negligence or willful misconduct.
We further agree that we will not, without the prior written consent of the
Consultant, settle, compromise or consent to the entry of any judgment in any
pending or
<PAGE>
threatened Claim in respect of which indemnification may be sought hereunder
(whether or not any Indemnified Person is an actual or potential party to such
Claim), unless such settlement, compromise or consent includes a legally
binding, unconditional, and irrevocable release of each Indemnified Person
hereunder from any and all liability arising out of such Claim.
Promptly upon receipt by an Indemnified Person of notice of any complaint
or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution, but failure
to so notify us shall not relieve us from any obligation we may have hereunder,
unless, and only to the extent that, such failure results in the forfeiture by
us of substantial rights and defenses, and such failure to so notify us will not
in any event relieve us from any other obligation or liability we may have to
any Indemnified Person otherwise than under this Agreement. If we so elect or
are requested by such Indemnified Person, we will assume the defense of such
Claim, including the employment of counsel reasonably satisfactory to such
Indemnified Person and the payment of the fees and expenses of such counsel. In
the event, however, that such Indemnified Person reasonably determines in its
sole judgment that having common counsel would present such counsel with a
conflict of interest or such Indemnified Person concludes that there may be
legal defenses available to it or other Indemnified Persons different from or in
addition to those available to us, then such Indemnified Person may employ its
own separate counsel to represent or defend it in any such Claim and we shall
pay the reasonable fees and expenses of one other such counsel. Notwithstanding
anything herein to the contrary, if we fail timely or diligently to defend,
contest, or otherwise protect against any Claim, the relevant Indemnified Party
shall have the right, but not the obligation, to defend, contest, compromise,
settle, assert crossclaims or counterclaims, or otherwise protect against the
same, and shall be fully indemnified by us therefor, including, but not limited
to, for the fees and expenses of its counsel and all amounts paid as a result of
such Claim or the compromise or settlement thereof. In any Claim in which we
assume the defense, the Indemnified Person shall have the right to participate
in such defense and to retain its own counsel therefor at its own expense.
We agree that if any indemnity sought by an Indemnified Person hereunder is
held by a court to be unavailable for any reason, then (whether or not the
Consultant is the Indemnified Person) we and the Consultant shall contribute to
the Claim for which such indemnity is held unavailable in such proportion as is
appropriate to reflect the relative benefits to us, on the one hand, and the
Consultant, on the other, in connection with the Consultant's engagement by us
under the Consulting Agreement, subject to the limitation that in no event shall
the amount of the Consultant's contribution to such Claim exceed the amount of
fees actually received by the Consultant from us pursuant to the Consultant's
engagement under the Consulting Agreement. We hereby agree that the relative
benefits to us, on the one hand, and the Consultant, on the other hand, with
respect to the Consultant's engagement under the Consulting Agreement shall be
deemed to be in the same proportion as (a) the total value paid or proposed to
be paid or received by us or our stockholders as the case may be, pursuant to
the transaction (whether or not consummated) for which the Consultant is engaged
to render services bears to (b) the fee paid or proposed to be paid to the
Consultant in connection with such engagement.
2
<PAGE>
Our indemnity, reimbursement and contribution obligations under this
Agreement shall be in addition to, and shall in no way limit or otherwise
adversely affect any rights that an Indemnified Party may have at law or at
equity.
Should the Consultant, or any of its directors, officers, partners,
shareholders, agents or employees, be required or be requested by us to provide
documentary evidence or testimony in connection with any proceeding arising from
or relating to the Consultant's engagement under the Consulting Agreement, we
agree to pay all reasonable expenses (including but not limited to fees and
expenses of counsel) in complying therewith and one thousand dollars ($1,000)
per day for any sworn testimony or preparation therefor, payable in advance.
We hereby consent to personal jurisdiction and service of process and venue
in any court in which any claim for indemnity is brought by any Indemnified
Person.
It is understood that, in connection with the Consultant's engagement under
the Consulting Agreement, the Consultant may be engaged to act in one or more
additional capacities and that the terms of the original engagement or any such
additional engagement may be embodied in one or more separate written
agreements. The provisions of this Agreement shall apply to the original
engagement and any such additional engagement and shall remain in full force and
effect following the completion or termination of the Consultant's
engagement(s).
Very truly yours,
ACCESS SOLUTIONS INTERNATIONAL, INC.
By: ___________________________________
Name:
Title:
CONFIRMED AND AGREED TO:
JOSEPH STEVENS & COMPANY, L.P.
By:__________________________________
Name:
Title:
3
<PAGE>
Exhibit 10.z
ACCESS SOLUTIONS INTERNATIONAL, INC.
650 Ten Rod Road
North Kingstown, RI 02852
June 14, 1996
Mr. Hector D. Wiltshire
4200 Coral Hills Drive
Coral Springs, FL 33065
Dear Hector:
This letter confirms the agreement of Access Solutions International,
Inc. (formerly known as Aquidneck Systems International, Inc.) (the "Company")
to provide you with the cash payments required to pay, on a "grossed-up" basis,
any federal and state income taxes associated with the valuation for tax
purposes of the stock issued to you by the Company in January 1996. The Company
also agrees to provide to you an auditors and/or independent valuation to
justify the valuation for tax purposes.
The Company hereby agrees to pay any amounts due to you pursuant to the
preceding paragraph upon the completion of the proposed initial public offering.
In addition, the Company also agrees to make payment to you, on a "grossed-up"
basis, of any additional taxes, interest and penalties that may be imposed if
any taxing authority successfully challenges the amount of the taxes paid by you
and additional tax, interest or penalties are due as a result thereof.
Very truly yours,
ACCESS SOLUTIONS INTERNATIONAL, INC.
By: /s/Thomas E. Gardner
_______________________________
Thomas E. Gardner, Treasurer
and Chief Financial Officer
Exhibit 10.aa
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 31st day of July,
1996 by and between Robert H. Stone, residing at 27 Shore Road, Magnolia,
Massachusetts 01930 ("you") and Access Solutions International, Inc. (formerly
Aquidneck Systems International, Inc.), a Delaware corporation with offices at
650 Ten Rod Road, North Kingstown, RI 02852 (the "Company").
W I T N E S S E T H:
WHEREAS the Company desires to employ you, and you desire to accept such
employment, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and promises hereinafter set forth, the parties hereto agree as
follows:
1. Term. Unless earlier terminated pursuant to the provisions of Section 9
hereof, your employment hereunder will be for the period (the "Term") commencing
on August 5, 1996 and ending July 31, 1998, provided that the Term shall
automatically renew in successive one year extensions unless the Company shall
have given you not less than 90 days prior written notice of its intention to
terminate this Agreement as of the last day of the term or any succeeding
extension.
2. Position, Title, Duties, etc. (a) During the Term, you shall be employed
as the President and Chief Executive Officer, reporting directly to the Board of
Directors of the Company, or in such other capacity as may be determined by the
Board of Directors from time to time. Your employment shall be full-time and
exclusive. Your duties shall include supervision of the executive officers of
the Company, reporting to the Board of Directors and shareholders on all
material matters concerning the Company, acting as primary spokesperson for the
Company to its customers and venders and to the public, primary responsibility
for all operations of the Company, and such other executive and administrative
duties as the Chairman of the Board of Directors shall assign to you from time
to time, consistent with the By-Laws of the Company.
(b) You will, to the best of your abilities, in good faith and with
integrity, devote your time, attention, energy and skill (vacations and
reasonable absences because of sickness and other personal necessity excepted)
during usual business hours (and outside those hours when reasonably necessary
to your duties hereunder) to your duties to the Company and to the promotion of
the Company's interests, as such duties and interests are determined from time
to time by the Board of Directors. You will be subject to such policies and
procedures as are from time to time established for executive level senior
employees and, as applicable, for employees of the Company generally, except to
the extent that such policies or procedures are contrary to the terms of this
Agreement. You acknowledge and agree that you may be required, without
additional compensation, to perform services for any business entity
controlling, controlled by, or under common control with the Company (such
business entities hereinafter individually and collectively, "Affiliates") and
to accept such office or position with any Affiliate as the Board of
<PAGE>
Directors may require, including, but not limited to, service as an officer or
director of the Company or any Affiliate. You shall comply with all applicable
policies of the Company and Affiliates.
3. Salary. During the Term, the Company will pay you, biweekly, a salary
which initially shall be at an annualized rate of One Hundred Thirty-Seven
Thousand Five Hundred ($137,500) Dollars. Your performance and salary will be
reviewed from time to time, but at least yearly, by the Compensation Committee
of the Board and, in their discretion, your salary may be adjusted in accordance
with such review.
4. Incentive Compensation, Bonuses and Stock Options. (a) You will be
entitled to a bonus (the cash portion of which will be payable within ten (10)
days following the receipt of the Company's audited financial statements for the
fiscal year ended June 30, 1997) calculated as follows: (i) if the Company has a
pre-tax profit for the fiscal year ending June 30, 1997 of $500,000 or less,
five (5%) percent of such pre-tax profit; and (ii) if the Company has a pre-tax
profit for the fiscal year ending June 30, 1997 of more than $500,000, ten (10%)
percent of such pre-tax profit. Such bonus shall be paid partly in cash and
partly by the grant to you on the date hereof of an incentive stock option to
purchase 10,000 shares of the Company's common stock at an exercise price of
$3.75 per share, which stock option will vest only if the Company's pre-tax
profits for the fiscal year ending June 30, 1997 exceed $500,000 and will
otherwise expire. The cash portion of the bonus will be equal to the amount
calculated pursuant to either (i) or (ii) above, reduced by the amount
determined by multiplying any positive difference between: (i) the market price
per share of the Company's common stock on June 30, 1997, and (ii) $3.75, by
10,000. Bonuses for any subsequent fiscal years during which you are employed
will be determined by the Board of Directors after consultation with you;
(b) Subject to approval by the Compensation Committee of the Board, you
also will be granted on the date hereof 40,000 incentive stock options under the
Company's 1996 Stock Option Plan, with an exercise price equivalent to the
offering price on the effective date of the Company's proposed initial public
offering, vesting fifty percent at July 31, l997, and the remainder at July 31,
l998, so long as you continue to be employed by the Company;
(c) During the Term, you will be entitled to participate in any incentive
compensation, bonus and stock option plan established by the Company for the
benefit of executive level employees of the Company to the extent prescribed by
the Board of Directors.
5. Expenses. (a) Subject to Company policies regarding the pre-approval of
reimbursable expenses, the Company will reimburse you for all reasonable
out-of-pocket expenses incurred by you (including, without limitation,
reasonable living expenses incurred by you in the Providence/North Kingstown
area) for the purpose of and in connection with performing your duties to the
Company hereunder.
(b) Reimbursement of expenses under this Section 5 shall be subject to
proper submission of substantiating documentation requested by the Company, and
shall be paid to you in accordance with the Company's policies respecting
expense reimbursement, as the same may vary from time to time.
2
<PAGE>
6. Vacation. You shall accrue one and two-thirds days paid vacation for
each month of each calendar year you are employed during the Term. The timing of
vacations shall be mutually agreed, taking into consideration factors important
to you and the Company, and must be approved in advance by the Chairman of the
Board. If any vacation time which you have accrued for any given calendar year
is for any reason unused during said year or the following year, you will be
allowed to accrue such unused vacation into the subsequent calendar year
provided that, unless otherwise mutually agreed, no more than five unused
vacation days shall be so accrued in the aggregate at any given point in time.
7. Other Benefits. The Company will make available to you such health, life
and other insurance coverage, sick day policies, pension plans and other
employee benefits as may generally be made available to executive level senior
employees of the Company subject to and in accordance with the Company policy,
as the same may vary from time to time, and subject to any specific provision of
this Agreement.
8. Confidentiality. (a) Except as required by your duties to the Company as
an employee, you shall not (during or after any period of employment) directly
or indirectly use, publish, disseminate or otherwise disclose any Confidential
Information without the express prior written consent of the Company. For
purposes of this Agreement, "Confidential Information" shall mean all written
and oral confidential or proprietary information of the Company and its
Affiliates, whether or not discovered or developed by you, and of third parties
(such as suppliers, customers and consultants) who may have imparted information
in confidence to the Company or its Affiliates, known by you as a result of your
employment with the Company at any time (including prior to execution of this
Agreement), provided that Confidential Information shall not include any such
information which is now or hereafter becomes generally known in the industries
in which the Company is conducting business without your fault. You understand
that the restriction of this Section shall continue to apply after your
employment is terminated, regardless of the reason for such termination.
(b) Upon termination of employment with the Company for any reason, you
shall forthwith deliver to the Company all property of the Company, including
without limitation, all copies of all procedural manuals, guides, customer
lists, records and other documents and materials containing Confidential
Information then in your possession or control, whether prepared by you or
others.
(c) You further agree to sign a copy of the each of the Company's standard
Confidentiality Agreement, Non-Competition Agreement and Assignment of
Inventions; provided, however, that the Non-Competition Agreement shall be
modified to provide that in the event your employment is terminated other than
for Cause (as defined below), the Non-Competition provisions will apply only
during such time provided you are receiving severance payments pursuant to
Section 9(b).
9. Termination. Your employment hereunder may be terminated as set forth in
this Section 9, in which event you will be paid your reimbursable expenses (if
submitted, before or
3
<PAGE>
after such termination, in accordance with Section 5(b) hereof), earned but
unpaid salary and benefits, as well as unused vacation time accrued to date of
termination, and the Company and you will have no further obligation to each
other under this Agreement except as set forth below in this Section 9.
(a) Termination by the Company For Cause. The Company may terminate your
employment upon thirty (30) days written notice at any time for "Cause", defined
for purposes of this Agreement as conduct by you constituting (i) gross
negligence, willful misconduct or breach of fiduciary duty to the Company, or
material default or other material breach of your obligations hereunder or of
any future agreement between you and the Company respecting non-competition or
the ownership or protection of confidential information, inventions, patents,
trademarks, copyrights or other intellectual property, in each case not cured
within 30 days after written notice thereof is given to you, (ii) failure by you
to perform diligently and competently your duties hereunder or (iii) misconduct,
dishonesty, insubordination, or other act by you detrimental to the Company's
good will or damaging its relationship with its customers, suppliers, or
employees, including, without limitation, (A) use of alcohol or illegal drugs
such as to interfere with the performance of your obligations hereunder, (B)
conviction of a felony or of any crime involving moral turpitude, dishonesty, or
theft, and (C) material failure by you to comply with applicable laws or
governmental regulations.
(b) Termination by the Company at Will. At any time, the Company may
terminate your employment upon written notice other than for Cause, in which
event:
(i) you will receive severance payments (at such times and in such
amounts as would otherwise have been paid to you) equal to: (A) if the
termination occurs on or prior to July 31, 1997, twelve months salary; or
(B) if such termination occurs on or after August 1, 1997, the lesser of:
(I) twelve months salary; or (II) the balance of your then current salary
through July 31, l998, but in no event less than six months salary;
(ii) you will continue to receive the benefits described in Section 4
hereof through June 30, l997; and
(c) Termination by You. You may terminate your employment upon 30 days
written notice at any time for any reason or without a stated reason. If you
terminate your employment under Section 9(c), you will work cooperatively with
the Company and use your best efforts to effect a smooth transition.
(d) Expiration of Term. Your employment will terminate on the last day of
the Term or any succeeding extension of the Company has given you notice of its
intention to terminate this Agreement as of such date. In such event, you will
work cooperatively with the Company and use your best efforts to effect a smooth
transition.
(e) Any payments due you under this Section 9 shall, upon your death, be
made to your surviving spouse, or if there is no surviving spouse, to your
surviving children in equal shares, or if there are no surviving children, to
your estate. The payments and benefits (if any)
4
<PAGE>
required to be provided to you pursuant to this Section 9 shall be in full and
complete satisfaction of any and all obligations owing to you pursuant to this
Agreement.
(f) No termination of this Agreement by either party, regardless of the
circumstances or reasons, shall terminate, amend or in any way affect the
validity of the provisions of Section 8 hereof or any other agreement executed
by you relating to Confidential Information, Non-Competition or Assignment of
Inventions to the Company.
10. No Conflicts. You hereby represent and warrant to the Company that
performance of your obligations under this Agreement does not and will not
violate any written or oral contract, agreement, law or court order by which you
are bound and further you covenant not to create such a violation during the
Term including, without limitation, any such violation created by using any
information belonging to any third party that would be characterized as
Proprietary Information if such information belonged to the Company.
11. Notices. Any notice to be given under this Agreement by either party
shall be in writing, hand delivered, or mailed by certified mail or registered
mail with return receipt requested, and addressed to the other party at its
address at the head of this Agreement or at such other address as such other
party shall have provided notice to the first party in accordance with the
provisions of this Section. Any notice shall be effective upon receipt by the
intended recipient thereof.
12. Non-Waiver of Rights. The failure to enforce at any time any of the
provisions of this Agreement or to require at any time performance by the other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof or the right of either party thereafter to enforce each and
every provision in accordance with the terms of this Agreement. Any waiver of
any provision of this Agreement shall be valid only if in writing signed by the
party so waiving, and no waiver of a provision hereof in any given instance
shall operate as a waiver of such provision in any other instance or the waiver
of any other provision of this Agreement.
13. Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
14. Assignment. This Agreement shall be binding upon and shall inure to the
benefit of you and the Company and their respective executors, administrators,
heirs, successors and permitted assigns and shall not be assignable in whole or
in part by either party without the written consent of the other party hereto
except assignment by the Company to any person or entity which at any time,
whether by merger, purchase (of stock or assets), liquidation, reorganization or
otherwise, shall acquire all or substantially all of the assets or business of
the Company.
5
<PAGE>
15. Review of Performance. In January 1997, the Board of Directors will
evaluate your performance to date and if appropriate, will increase your salary
to an annualized rate of One Hundred Fifty Thousand ($150,000.00) Dollars.
16. Miscellaneous. This Agreement embodies the entire agreement of the
parties with respect to the matters within its scope and supersedes any prior
agreements and understandings of the parties respecting the same. This Agreement
shall not be amended or modified except in writing signed by both parties
hereto, and the provisions hereof shall override any contrary or conflicting
provisions in any acknowledgment, invoice or other document unilaterally issued
by either party. The headings contained in this Agreement have been inserted
solely for convenience of reference and shall be of no force or effect in the
construction or interpretation of the provisions of this Agreement. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Employment Agreement
as of the day and year first above written.
THE "COMPANY": ACCESS SOLUTIONS INTERNATIONAL, INC.
By: /s/ Thomas E. Gardner
________________________________________
Thomas E. Gardner
Treasurer and CFO
"YOU": /s/ Robert H. Stone
________________________________________
Robert H. Stone
6
<PAGE>
Exhibit 10.bb
PROMISSORY NOTE
$250,000 As of February 6, 1996
FOR VALUE RECEIVED, the undersigned, (hereinafter referred to as
"Maker"), hereby promises to pay to the order of Malcolm G. Chace III
("Lender"), c/o Point Gammon Corporation, 731 Hospital Trust Building ,
Providence, Rhode Island 02903, the principal sum of Two Hindred Fifty Thousand
Dollars ($250,000) in lawful money of the United States of America, payable at
said address or at such other place as the holder hereof may in writing direct,
ON DEMAND, together with interest on the unpaid principal balance of this Note
at any time outstanding, whether before or after demand, payable monthly in
arrears on the first business day of each month, commencing March 1, 1996, at
the place heretofore designated for the payment of principal, in like money, at
the rate of ten and one-quarter percent (l0.25%) per annum.
This Note may be prepaid in whole or in part at any time without prior
notice. All prepayments or other payments made with respect to this Note shall
be applied first to any costs and expenses due hereunder, second to any interest
accrued but not paid hereunder and third to principal then outstanding.
In the event that Lender, or any subsequent holder of this Note shall
exercise or endeavor to exercise any of his or its remedies hereunder, the Maker
shall pay on demand all reasonable costs and expenses incurred in connection
therewith, including, without limitation, attorneys' fees and the holder may
take judgment for all such amounts in addition to all other sums due hereunder.
The Maker shall also pay on demand all reasonable costs and expenses incurred in
connection with the preparation and execution of this Note, including, without
limitation, attorneys' fees.
<PAGE>
No modification or waiver or any provision of this Note or consent to any
departure by the Maker therefrom, shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance, and for the purpose, for which given.
Neither any failure nor delay on the part of the holder hereof in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall a single or partial exercise thereof preclude any other or
future exercise, or the exercise of any other right, power or privilege.
In the event this Note is placed in the hands of an attorney or attorneys
for the enforcement of any obligation set forth herein, the Maker agrees to pay,
in addition to principal and interest, reasonable costs of collection,
including, without limitation, reasonable attorneys' fees.
This Note shall be construed and interpreted according to the laws of the
State of Rhode Island as a Rhode Island contract.
All notices, requests, demands, consents or other communications given
hereunder or in connection herewith shall be in writing and sent by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
Maker at his address set forth below. The Maker or the holder hereof may, by
notice given as aforesaid, change its address for all subsequent notices.
Notices shall be deemed given when mailed as aforesaid.
AQUIDNECK SYSTEMS
INTERNATIONAL, INC.
BY:/s/Thomas E. Gardner
_______________________________
Thomas E. Gardner
Treasurer
2
<PAGE>
Exhibit 23.a
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated August 2, 1996 relating
to the financial statements of Access Solutions International, Inc. (formerly
Aquidneck Systems International, Inc.) which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/Price Waterhouse LLP
___________________________
Price Waterhouse LLP
Boston, Massachusetts
September 9, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
This schedule contains summary financial information extracted from the
June 30, 1996 financial statements and is qualified in its entirety by
reference to such fiancial statements.
</LEGEND>
<CIK> 0000875385
<NAME> ACCESS SOLUTIONS INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 537,831
<SECURITIES> 0
<RECEIVABLES> 476,309
<ALLOWANCES> (50,304)
<INVENTORY> 504,450
<CURRENT-ASSETS> 1,530,281
<PP&E> 1,558,451
<DEPRECIATION> (965,990)
<TOTAL-ASSETS> 2,874,296
<CURRENT-LIABILITIES> 3,501,371
<BONDS> 0
0
0
<COMMON> 15,119
<OTHER-SE> (674,168)
<TOTAL-LIABILITY-AND-EQUITY> 2,874,296
<SALES> 1,986,908
<TOTAL-REVENUES> 1,986,908
<CGS> 580,386
<TOTAL-COSTS> 5,358,411
<OTHER-EXPENSES> (11,856)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201,795
<INCOME-PRETAX> (4,141,828)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,141,828)
<DISCONTINUED> 0
<EXTRAORDINARY> 320,387
<CHANGES> 0
<NET-INCOME> (3,821,441)
<EPS-PRIMARY> (1.74)
<EPS-DILUTED> (1.74)
</TABLE>
