<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) September 12, 1996
------------------
INSCI CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
DELAWARE
----------------------------------------------
(State of other jurisdiction of incorporation)
1-12966 06-1302773
- -------------------- ------------------------------
Commission File No. I.R.S. Employer Identification
Two Westborough Business Park,
Westborough, MA 01581
- ------------------------------- --------
Address of principal Zip Code
executive offices
(508) 870-4000
- -------------------------------
Registrant's telephone number,
including area code
<PAGE>
ITEM 5. OTHER EVENTS
The Registrant (the "Company") on September 12, 1996, completed 670,000
Units of a Regulation "D" Private Placement Offering of 8% Convertible Preferred
Stock. The Offering involved a minimum of 666,667 Units and a maximum of
1,333,334 Units ($2,500,000 minimum - $5,000,000 maximum at $3.75 per Unit),
each Unit consists of one share of 8% Preferred Stock and one Warrant to
purchase one share of Common Stock for $5.00 per share for a period of three
years expiring on October 1, 1999.
The 8% Convertible Preferred Stock and Warrants contain limited
anti-dilution protection and adjustment rights granted to purchasers of the
Units.
Additionally, the Company paid to J. Michael Reisert & Co., Inc., the
placement agent, a commission of 8% per Unit, or the sum of $201,000, on the
completion of the minimum offering, in addition to $87,500 in expenses, as well
as granting 66,667 Warrants to purchase 66,667 Units comprised of 66,667 shares
of 8% Preferred Stock, convertible into shares of Common Stock and 66,667
warrants to purchase shares of Common Stock at $5.50 per share for a period of
three years from the date of closing of the minimum offering. The balance of the
offering of up to an additional $2,487,500 or 663,334 Units is continuing, and
upon completion of the maximum or any part thereof, the Company will pay a
pro-rata commission of 8% cash commission on each Unit sold and Warrants to
purchase one Unit comprised of one share of 8% Preferred Stock and one warrant
to purchase one share of Common Stock at $5.50 per share based upon 10% of the
number of Units sold.
The Company granted, as a part of the terms of the Placement, cost-free
registration rights with respect to the underlying shares for the Convertible
Preferred Stock, the Unit Warrants and the Warrants granted to the Placement
Agent.
In the event that the Company is unable to obtain an effective
registration for the underlying shares, as provided in the Placement Agreement,
the terms of placement involve the imposition of a penalty in an adjustment of
the $3.75 Unit price paid by the holders in the placement, of 2% per month after
nine months from the date of closing with a maximum of 10%.
The Company will file a Form "D" with respect to the placement with the
Securities and Exchange Commission.
Additionally, the Term Sheet and Placement Memorandum with respect to
the Offering is annexed hereto and marked Exhibit 1 and incorporated by
reference in the within report.
<PAGE>
EXHIBIT
(1) Term Sheet with respect to the Offering.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated: Westborough, Massachusetts
September 13, 1996
INSCI CORP.
--------------------------------------
(Registrant)
/s/ ROGER KUHN
--------------------------------------
ROGER KUHN, CHIEF FINANCIAL OFFICER
<PAGE>
PRIVATE PLACEMENT TERM SHEET
INSCI CORP.
PRIVATE PLACEMENT OF UNITS
MINIMUM NUMBER: 666,667 UNITS ($2,500,000 IN THE AGGREGATE)
MAXIMUM NUMBER: 1,333,334 UNITS ($5,000,000 IN THE AGGREGATE)
AT
$3.75 PER UNIT
EACH UNIT (THE "UNITS") CONSISTS OF: (I) ONE SHARE OF 8%
CONVERTIBLE REDEEMABLE PREFERRED STOCK ("8% PREFERRED STOCK"),
AND (II) ONE REDEEMABLE COMMON STOCK WARRANT EXERCISABLE FOR
THREE YEARS ("WARRANT") TO PURCHASE ONE SHARE OF COMMON STOCK,
$.01 PAR VALUE PER SHARE ("COMMON STOCK"), AT $5.00 PER SHARE.
The Company has agreed to file a Registration Statement for the shares of Common
Stock underlying the 8% Preferred Stock and Warrants and the shares of Common
Stock underlying the securities comprising the Placement Agent Warrants (as
defined below) as soon as practicable after the Final Closing (as defined
below). In the event the registration statement is not declared effective within
nine (9) months after the Initial Closing (as hereinafter defined), the
conversion price on the Preferred Stock will be reduced (and the number of
shares of Common Stock issuable upon conversion of the 8% Preferred Stock will
be concomitantly increased) by two (2%) percent per month, or a part thereof, up
to ten (10%) percent in the aggregate.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND RESTRICTED
TRANSFERABILITY AND MAY INVOLVE IMMEDIATE SUBSTANTIAL DILUTION. SEE RISK
FACTORS.
THIS PRIVATE PLACEMENT TERM SHEET CONSTITUTES ONLY A BRIEF SUMMARY OF THE
BUSINESS OF THE COMPANY AND OF CERTAIN ELEMENTS OF THE DOCUMENTS WHICH ARE
ATTACHED AS EXHIBITS HERETO AND IS BY NO MEANS INTENDED TO BE EXHAUSTIVE.
September 3, 1996
SUMMARY OF OFFERING
-------------------
INSCI CORP. INSCI Corp., is a Delaware corporation ("INSCI" or
the "Company") that develops, markets, installs and
services electronic information and document
management systems designed to meet the
enterprise-wide needs of organizations which
produce large quantities of computer-generated
documents and require the storage of and access to
a broad array of document types. The Company
provides its customers with the ability to
electronically capture documents and computer
output from a variety of sources, to store
information electronically and to access and
deliver the information either electronically or
via reprints in a fashion that lowers costs,
improves service and provides greater control to
the customer. INSCI's products focus on both the
desktop imaging and document management market and
the automated document factory production market.
INSCI's software products marketed under the name,
COINSERV, utilize a customer's existing host
computer and computer network to link powerful
"Server" computers, which perform automated
document indexing and optical disk storage
functions. This is accomplished with the customer's
existing network of "client" computers, which are
used by the customer's employees to search,
retrieve and distribute documents. COINSERV is an
optical-disk based client/server computer output to
laser disc (COLD) system. The COLD market addresses
print and microfiche replacement using
digital-based techniques to replace printing and
microfiche production and allowing on-line viewing
of reports that would otherwise need to be printed.
This produces rapid and major savings for user.
In fiscal year 1996, INSCI introduced the COINS-CD
product aimed at both the corporate and service
bureau markets. The new product combines INSCI's
core technology with CD-Recordable media for
purposes of electronic information distribution.
COINS offers the user the advantage of using
low-cost and easily available CD's which can be
used for distribution of large quantities of data.
Use of this type of technology also offers rapid
payback for users and service bureaus. These
products are often used in conjunction with optical
disk-based products and are particularly useful for
low cost, large volume information distribution.
Also in this past fiscal year, the Company
introduced Image Express, a print-on-demand
software product aimed at the automation of
printing operations in large corporations and
service bureaus. This product is focused on making
printing operations far more efficient and able to
address the new challenges posed by large number of
short print runs created by the market trend for
mass customization and the consequent need for
customized printing products aimed at individuals
and market segments. The Image Express technology
was acquired in March 1996 by the Company from
Custom Solutions Inc.
At the end of fiscal year 1996, INSCI introduced
Augusta, an advanced technology imaging and
document management system through its acquisition
of certain assets of the Courtland Group, Inc.
("Courtland"). Augusta provides a complete document
storage system by allowing the user to see and
store images of documents and to store and retrieve
documents in mixed data formats such as image, word
process documents and spreadsheet documents.
INSCI offers numerous services including software
installation, training, software maintenance
support and systems integration. INSCI's advanced
systems integration services division works with
its customers to integrate these various
technologies into existing technical environments
to leverage investments in technology. INSCI's
current business strategy is to develop and provide
document management solutions in a fully integrated
and customized manner that enables customers to
improve their business processes and competitive
position.
SEE "ITEM 1. BUSINESS" IN THE COMPANY'S FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 1996 FOR A
COMPLETE DESCRIPTION OF THE COMPANY'S BUSINESS.
Securities Offered and
Offering Price The Company is offering a minimum of 666,667
Units and a maximum of 1,333,334 Units, at $3.75
per Unit. Each Unit consists of one (1) share of 8%
Preferred Stock and one (1) Warrant exercisable to
purchase one (1) share of Common Stock at $5.00 per
share for a period of three (3) years.
Dividends Dividends of 8% per annum will be paid quarterly
and are cumulative. Dividends can be paid in cash
or 8% Preferred Stock at the option of the Company.
The 8% Preferred Stock payable as dividends is to
be valued at the lesser of $3.75 (three dollars
seventy-five cents) or the average bid price for
Common Stock for twenty (20) consecutive trading
days prior to the end of the quarter. In the event
that the average bid price for Common Stock during
any sixty (60) day period commencing August 1, 1998
is $2.75 (two dollars seventy-five cents) or less,
holders of a majority of outstanding 8% Preferred
Stock can elect to have dividends paid in cash for
the balance of the life of the 8% Preferred Stock
(the "Cash Election"). If the Company fails to
honor the Cash Election, the Company must pay
dividends in shares of 8% Preferred Stock (valued
at the lesser of $3.75 or the average bid price for
Common Stock for twenty (20) consecutive trading
days prior to the end of the quarter) and a
majority of holders of 8% Preferred Stock shall
have the right to designate one (1) Board Member
and the Company shall immediately appoint a
designee and use its best efforts to cause the
election of the designee for so long as twenty-five
(25%) percent of the 8% Preferred Stock remains
outstanding. In the further event the average bid
price for Common Stock during the last thirty (30)
day period of any quarter commencing with the
thirty (30) day period beginning September 1, 1998
is $3.75 (three dollars seventy-five cents) or
less, annual dividends on 8% Preferred Stock will
be automatically readjusted to eleven (11%) percent
per annum for the balance of the period that any 8%
Preferred Stock is outstanding.
Conversion Each share of 8% Preferred Stock converts into one
share of Common Stock at the option of the holder.
8% Preferred Stock
Redemption If the Company's Common Stock trades at or above
$7.50 per share for twenty out of thirty
consecutive trading days and the Company then has
an effective registration statement under the
Securities Act of 1933, as amended ("1933 Act")
with respect to all shares of Common Stock
underlying the 8% Preferred Stock, the Company has
the right, upon thirty days prior written notice to
all holders of record of the 8% Preferred Stock, to
redeem all, but not less than all, of the 8%
Preferred Stock for cash at $3.75 per share of 8%
Preferred Stock. At any time after October 1, 1999,
any shares of 8% Preferred Stock that have not
otherwise converted can be redeemed at the option
of the Company, upon thirty days prior written
notice to all then holders of record of the 8%
Preferred Stock, for cash at $3.75 per share of 8%
Preferred Stock. On October 1, 2001, any
outstanding 8% Preferred Stock shall automatically
convert into shares and Common Stock at the lesser
of $3.75 per share or the average bid price for the
Common Stock for twenty (20) consecutive trading
days ending five (5) business days prior to October
1, 2001.
Warrant Redemption If the Company's Common Stock trades at
or above $10.00 per share for 20 out of 30
consecutive trading days and the Company then has
an effective registration statement under the 1933
Act with respect to all shares of Common Stock
underlying the Warrants, the Company has the right,
upon thirty (30) days prior written notice to all
holders of record of the Warrants, to redeem all,
but not less than all, of the outstanding Warrants
at $.01 per Warrant.
Anti-Dilution
Adjustment For so long as an Investor owns 8% Preferred
Stock and/or Warrants, the Investor shall have
anti-dilution protection and adjustment right with
respect to : (i) any subdivision of the outstanding
shares of Common Stock of the Company into a
greater number of shares of Common Stock; (ii) any
declaration of a dividend or any other distribution
by the Company upon its Common Stock payable in
shares of Common Stock; (iii) any capital
reorganization or reclassification of the capital
stock of the Company; or (iv) any consolidation or
merger of the Company with another entity. (See
Limited Anti-Dilution Examples herein). There will
be no adjustment in the event that the Company pays
a dividend in cash to its holders of Common Stock;
provided, however, that the Company gives all
holders of the 8% Preferred Stock written notice at
least (30) days prior to the record date for the
cash dividend that the Company intends to declare a
cash dividend.
ANTI-DILUTION EXAMPLES
----------------------
I. ASSUMPTIONS
A. Currently Outstanding
i. 3,500,000 Shares of Common Stock.
ii. 8,000,000 Warrants and/or Preferred Shares convertible to
Common Stock.
B. To be Issued on Offering Assuming Placement of Full Amount of
Offering.
i. 1,333,334 shares of 8% Preferred Stock at $3.75 per share
("New Preferred Shares").
ii. Warrants to purchase 1,333,334 shares at $5.00 per share ("New
Warrants").
II. EXAMPLES
A. Two for One Stock Split.
i. The New Preferred Shares would become convertible into
2,666,668 shares at $1.875 each.
ii. The New Warrants would be exercisable for 2,666,668 Shares
with an exercise price of $2.50 each.
B. Ten Percent (10%) Dividend Paid in Stock
i. The New Preferred Shares would become convertible into
1,466,668 shares at $3.41 each.
ii. The New Warrants would be exercisable for 1,466,668 Shares
with an exercise price of $4.545 each.
C. Merger Into a New Company Where Each Holder of Common Stock
Receives One Share of the New Company for Each Two Shares of INSCI.
i. The New Preferred Shares would become convertible into 666,667
shares at $7.50 each.
ii. The New Warrants would be exercisable for 666,667 Shares with
an exercise price of $10.00 each.
D. Issuance of 2,000,000 Shares of Common Stock - Anti-Dilution
Provision Not Triggered.
E. Issuance of 2,000,000 Shares of Preferred Stock - Anti-Dilution
Provision Not triggered.
Common Stock Outstanding 4,015,701 shares of Common Stock as of August
29, 1996.
Shares Reserved for
Issuance Upon Exercise of
Outstanding Rights, Warrants
and Options and Conversion
of Outstanding Preferred Stock 6,186,854 shares of Common Stock as of August
29, 1996*.
Minimum Investment A minimum purchase of 2,667 Units wil be
required, unless waived by the Company and the
Placement Agent.
Use of Proceeds The net proceeds to be received by the Company
from this private placement are estimated to be
approximately $4,512,500 if the maximum amount
of the offering is sold or $2,212,500, if the
minimum amount of the offering is sold.
(Assumes sales commissions of 8% paid to J.
Michael Reisert Inc. and offering expenses of
$87,500). Set forth below are the intended uses
of proceeds, assuming the minimum and maximum
amounts are sold:
MINIMUM MAXIMUM
AMOUNT AMOUNT
DESCRIPTION SOLD SOLD
------------ ---------- ----------
Acquisitions $1,725,000 $3,500,000
Working Capital $ 487,500 $1,012,500
---------- ----------
Total: $2,212,500 $4,512,500
========== ==========
Purchaser Requirements Purchase of the Units offered hereby is limited
to persons and entities ("Investors") that
qualify as Accredited Investors ("Accredited
Investors"), as that term is defined in Rule
501 promulgated by the Securities and Exchange
Commission ("SEC") under the 1933 Act, who make
certain representations concerning their assets
or income, investment intention and
sophistication.
*Assuming the conversion by the holders of preferred stock at variable
conversion prices as at August 29, 1996. (See Risk Factor no. 28.)
Placement Agent The Company has retained J. Michael Reisert,
Inc., a registered broker-dealer, to act as the
exclusive placement agent (the "Placement
Agent") in connection with this private
placement and the Company has agreed to pay the
Placement Agent a commission equal to 8% of all
funds raised. In addition, the Placement Agent
will receive three (3) year Warrants
("Placement Agent Warrants") to purchase Units
equal to 10% of the Units sold to be issued
upon the Final Closing, at an exercise price of
$5.50 per Placement Agent Warrant. The Company
will reimburse the Placement Agent for all of
its reasonable expenses in connection with the
Offering including the reasonable fees and
expenses of its counsel. Upon the mutual
consent of the Company and the Placement Agent,
Units may be offered by certain other
registered broker/dealers, who are registered
under the Securities Exchange Act of 1934 as
amended and the Placement Agent may allot a
portion of its compensation to such other
broker/dealers. The Company will not issue any
additional public debt or equity for one (1)
year subsequent to the Final Closing without
first giving the right of first offer to the
Placement Agent.
Offering Period The Offering will continue through September
30, 1996, subject to an extension for a period
of up to sixty (60) days upon the mutual
consent of the Company and Placement Agent.
There may be more than one closing in
connection with the sale of the Units pursuant
to this Offering. However, there will not be
any closing unless 666,667 Units are sold (the
date of such initial closing being hereinafter
referred to as "Initial Closing" and the date
of the last closing being hereinafter referred
to as "Final Closing").
Subscription Procedure To subscribe for the Units offered hereby,
prospective Investors must complete the
Subscription Document Booklet (which includes a
Unit Purchase Agreement and appropriate
Confidential Investor Questionnaire) and return
it to Spitzer & Feldman P.C., 405 Park Avenue,
New York, New York 10022-4405 (the "Escrow
Agent") in the self-addressed stamped envelope.
The execution and delivery of the Unit Purchase
Agreement will constitute a prospective
Investor's irrevocable subscription for the
amount of Units indicated. All executed
Subscription Document Booklets shall be
accompanied by check or wire transfer of the
subscription amount to the Escrow Agent. The
Company has the right, in its sole discretion,
to accept or reject any subscription in whole
or in part.
Escrow Account All subscription payments received prior to the
Initial Closing will be deposited by the Escrow
Agent in an escrow account located at The Chase
Manhattan Bank, N.A., 11 West 51st Street, New
York, New York 10019. No interest will be
earned by prospective Investors on subscription
payments held in the Escrow Account. If less
than 666,667 Units are sold prior to
termination of this private placement, or if
for any reason the closing of the purchase and
sale of the Units does not take place, all
payments will be returned to the prospective
Investors without interest or deduction.
Restrictions on
Transfer Neither the 8% Preferred Stock, the Warrants
nor the Common Stock issuable upon the
conversion of the 8% Preferred Stock or the
exercise of the Warrants, may be offered, sold
or resold unless they are registered under the
1933 Act or an exemption from the registration
requirements of the 1933 Act is available. None
of such securities have been registered under
the 1933 Act and, except with respect to the
Common Stock underlying the 8% Preferred Stock
and Warrants (see below), there is no plan to
register any of the securities under the 1933
Act.
Registration of
Shares The Company has agreed to prepare and file with
the SEC a registration statement ("Registration
Statement") on the appropriate form under the
1933 Act, with respect to the shares of Common
Stock issuable upon the conversion of the 8%
Preferred Stock (including any 8% Preferred
Stock issued in payment of dividends), the
exercise of the Warrants and upon conversion or
exercise of the securities underlying the
Placement Agent Warrants (collectively, the
"Registrable Securities"), as soon as
practicable after the Final Closing and use its
best efforts to have the Registration Statement
become effective and to keep such registration
statement effective and current for three (3)
years. In addition, holders of the Registrable
Securities will be entitled to piggyback
registration rights, which subject to certain
restrictions, would permit the holders to
include their Registrable Securities in a
Registration Statement filed by the Company
covering securities to be offered by the
Company or other selling security holders. In
the event the Registration Statement is not
declared effective within nine (9) months after
the Initial Closing, the conversion price on
the 8% Preferred Stock will be reduced (and the
number of shares of Common Stock issuable upon
conversion of the 8% Preferred Stock will be
concomitantly increased) by two (2%) percent
per month, or a part thereof, up to ten (10%)
percent in the aggregate.
Lockup The Common Stock underlying the 8% Preferred
Stock and Warrants cannot be sold for a period
of six (6) months subsequent to the date of the
Final Closing, and thereafter, only in
compliance with the 1933 Act and applicable
state securities laws.
Additional Offering The Company has entered into a placement
agreement with Amerivet/Dymally Securities,
Inc.. ("Amerivet") a licensed broker-dealer to
arrange for an offering under Regulation D of a
minimum of 1,000,000 and maximum of 1,350,000
shares of 10% convertible preferred stock at a
stated value of $1.00 per share. The Company
has closed on the minimum amount of $1,000,000
and issued 1,000,000 shares of 10% convertible
preferred stock to one existing shareholder.
The 10% convertible preferred stock under the
Amerivet placement may be converted into shares
of the Company's Common Stock at a 30% discount
to the average market price of such Common
Stock for the ten (10) trading days prior to
conversion (subject to the terms and conditions
of the Amerivet placement). The shares of
Common Stock issuable upon conversion will be
determined by the share price as quoted by the
National Association of Securities Dealers
Automated Quotation System ("NASDAQ").
Indemnification The Company has agreed to indemnify and hold
harmless the Placement Agent and each officer,
director and controlling person of the
Placement Agent from and against any and all
loss, liability, claim, damage and expense
arising as a result of any untrue statement or
alleged untrue statement of a material fact
contained in this Memorandum and the Exhibits
annexed hereto or in any filing executed by the
Company filed with any state or jurisdiction in
order to qualify the Units for offer and sale
under the blue sky laws or the omission or
alleged omission from this Memorandum and the
Exhibits annexed hereto of a material fact
required to be stated herein or therein or
necessary to make the statements herein or
therein not misleading in light of the
circumstances under which they were made.
The Placement Agent has agreed to indemnify and
hold harmless the Company from and against all
loss, liability, claim, damage and expense
arising out of any actions based upon
violations or alleged violations of the 1933
Act by the Placement Agent or arising as a
result of a breach by the Placement Agent of
any warranties and covenants or from the
untruth of any representation made by the
Placement Agent in the Placement Agreement
between the Placement Agent and the Company, or
otherwise arising out of the gross negligence
or willful misconduct of the Placement Agent.
This Space Intentionally
Left Blank.
