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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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PaperClip Software, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-3137907
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
Three University Plaza
Hackensack, New Jersey 07601
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(Address of principal executive offices) (Zip Code)
(201) 487-3503 (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (a) of the Act:
Title of each class Name of exchange on which registered
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, Par Value $.01; Class A Purchase Warrants
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or
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for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
As of March 31, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on the OTC Bulletin Board closing bid
price on March 31, 1997) was $1,980,052. As of March 31, 1997, there were
8,055,521 shares of the registrant's common stock outstanding.
Documents Incorporated by Reference: None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GLOSSARY
API (APPLICATION PROGRAM INTERFACE) - A language and message format used by an
application program to communicate with another program that provides services
for it.
APPLICATION SOFTWARE - A category of software designed for specific functions
to be used by end users, e.g., spreadsheets and word processing software.
CLIENT/SERVER ARCHITECTURE - An architecture of computer hardware and software
configurations in which the APPLICATION SOFTWARE is designed to partition
functionality between the server and the client in order to optimize
performance.
COLD (COMPUTER OUTPUT TO LASER DISC) - Archiving large volumes of formatted
print data streams directly to optical media. Instead of printing large paper
reports or producing microfilm or microfiche, data is stored on optical disks.
DLL (DYNAMIC LINK LIBRARY) - A set of program routines that can be called at
runtime as needed. A dynamic link is the communications mechanism that lets one
program launch and execute another on the fly. It lets feature-laden software
run in minimal amounts of memory by building functions as separate routines
that are called into memory when required.
DOS (DISK OPERATING SYSTEM) - A category of software designed to be used to
control and manage the internal operations of a computer.
EDITION - One of the SYSTEMS.
GRAPHICAL USER INTERFACE (GUI) - A feature of a software program that uses
graphical or iconical labels and instructions to enable a user to interact with
a computer in a manner which is more intuitive than with character - based
interfaces.
GROUPWARE - A category of software that allows multiple users to work on a
project simultaneously.
INTERNET - An open global network of interconnected commercial, education and
governmental computer networks which utilize a common communications protocol,
TCP/IP.
INTRANET -An organization's network of interconnected computers which utilize a
common communications protocol, TCP/IP.
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JUKEBOX STORAGE DEVICE - A mechanical device which allows for multiple optical
disk platters or tapes to be managed and accessed by APPLICATION SOFTWARE.
LOCAL AREA NETWORK (LAN) - A network that is located in a small geographic
area, such as an office, a building, a complex of buildings, or a campus, and
whose communication technology provides a large communication capacity, low -
cost medium to which many personal computers can be connected.
MASS DISTRIBUTOR - A seller of software and hardware products and components to
VARs and retail outlets.
MICROCOMPUTER - A personal computer.
ODBC (OPEN DATABASE CONNECTIVITY) - A database programming interface from
Microsoft that provides a common language for Windows applications to access
databases.
OEM - Original equipment manufacturer of hardware or software products.
OPERATING SYSTEMS - A set of computer programs and software routines that
control the execution of computer programs.
ROUTE - An electronic method of moving documents or information on a LAN.
SCAN - To convert text and pictures printed on paper to a digital format using
a scanner.
SOFTWARE LICENSE - Rights granted to operate a computer program, subject to
certain limitations and conditions, without conferring ownership rights.
SQL (Standard Query Language) - A database query language which is used to
query and manipulate data in a relational database management system.
STORAGE MEDIA - The physical medium onto which the computer information is
recorded. Storage Media can be hard disk, optical disk or tape.
SYSTEMS - The Company's line of software products for the Windows environments,
consisting of Personal, Professional, Network and SQL (Enterprise) Editions.
TCP/IP (TRANSMISSION CONTROL PROTOCOL/INTERNET PROTOCOL) - A
compilation of network- and transport-level protocols that allow computers with
different architectures and operating system software to communicate with other
computers on the Internet.
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VAR (Value Added Reseller) - A computer hardware and/or software reseller that
employs third party technology in conjunction with its own expertise and
services in providing solutions to end users. WEB BROWSER - A program used to
navigate and view documents on the Worldwide Web of the Internet.
WINDOWS, WINDOWS 95 and WINDOWS NT - A personal computer environment
manufactured by Microsoft, emphasizing a GRAPHICAL USER INTERFACE.
WORKFLOW - A category of software that allows the user to define rules to
automate and manage work processes in a business environment.
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Introduction
PaperClipSoftware, Inc. formerly known as PaperClip Imaging Software,
Inc. (the "Company" or "PaperClip"), a Delaware corporation (which is the
successor by merger, in March 1992, to the original company which had been
incorporated in New Jersey in October 1991), is engaged in the development and
distribution of computer software for document management and imaging systems.
Recent Developments
The Company consummated its initial public offering in September of
1995, with a business plan to create an Internet suite of products and to move
PaperClip's flagship document management and imaging product line into a
Windows NT/95 32 bit platform. The Company spent approximately $3 million on
the development of the above mentioned products. With the completion of
WebClip, one of the scheduled Internet products, the Company launched an
ambitious public relations and advertising campaign to create market awareness
of the WebClip product. As of the date hereof, the Company has not realized the
volume of sales that it had hoped to achieve with the WebClip product.
In connection with obligations owed by the Company to a software
developer, during October 1996 the Company entered into an agreement which
provided for the rescheduling of payments owed by the Company to the developer.
The Company paid $150,000 upon signing such agreement and agreed to pay an
additional amount aggregating approximately $200,000 (the "Remaining Amount")
in three monthly installments commencing January 1, 1997. On January 29, 1997
the Company paid the Remaining Amount from the proceeds of the Access Loan (as
defined below).
In December 1996, the Company borrowed an aggregate amount of
$129,690.74 from nine of its stockholders. The loan was evidenced by
Convertible Promissory Notes ("Notes") issued to each of the nine stockholders
for their respective loan amounts. The Notes: (i) have a three (3) year
maturity, (ii) have a 12% interest rate, and (iii) are convertible into common
stock of the Company at a rate of $0.30 per share.
Throughout 1996, the Company incurred losses and has been seeking
sources of additional financing. In July 1996, the underwriter of the Company's
initial public offering and principal market maker for its Common Stock, A.R.
Baron & Co, Inc. ("A.R. Baron"), filed for bankruptcy. For the past several
months, management has been engaged in discussions with a number of investment
banks, corporate buyout firms and potential merger and joint venture partners
regarding various financial and strategic alternatives for the Company. The
Company has been unable to identify any additional source for a public or
private financing.
After evaluating several potential opportunities for a sale of the
Company or its assets, the Company entered into a non-binding Letter of Intent
dated January 2, 1997 (the "Letter of
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Intent") with Access Solutions International, Inc. ("Access" or "Access
Solutions"), providing for the parties to use their best efforts to negotiate
a transaction involving the purchase by Access Solutions of substantially all
of the assets of the Company and for Access Solutions to assume specified
liabilities of the Company. The purchase price would be paid by delivery to the
Company of approximately 1,544,000 shares of Access Solutions' common stock plus
an equivalent number of Access Solutions' Class B Warrants. The shares and
warrants of Access to be received in the transaction would be subject to a lock
up which will limit sales prior to October 1998. Pursuant to the Letter of
Intent, Access Solutions provided a one year bridge loan, of $300,000 (the
"Access Loan"), at an interest rate of 12% per annum, to the Company for use
as operating capital. In consideration of such loan, the Company issued a
convertible note to Access Solutions, convertible into common stock of the
Company at a conversion price of twenty-five cents ($0.25) per share. The
parties are negotiating a definitive purchase agreement (the "Definitive
Agreement with Access") with respect to the asset sale transaction, and if the
final details can be agreed upon, the transaction is expected to close on or
about July 15, 1997. The companies have begun working together in developing a
joint business plan and integrating their sales/marketing and product
development areas. It is anticipated that the parties will enter into a
Management Agreement simultaneously with the execution of the Definitive
Agreement with Access, pursuant to which Access Solutions will assume the
management and control of the day-to-day operations of the Company. Pursuant
to the Management Agreement, if executed, Access will advance funds to
PaperClip, in accordance with an agreed upon budget, pending the
closing. It is currently anticipated that, following the closing of
the Definitive Agreement with Access, the Company will dissolve and
distribute the Access shares and warrants to its shareholders, after
making provisions for its liabilities, if any, and subject to a holdback
for the benefit of warrant holders. There can be no assurance that the Company
will be successful in completing the above-described sale of assets to Access
Solutions. The Company has not identified any alternative sources of liquidity
and has no commitment with regard to obtaining any further funds which would be
required to sustain the Company's operations if the agreement with Access is
not signed or cannot be closed.
On March 11, 1997, the Company was informed by Nasdaq that its
securities have been deleted from The Nasdaq SmallCap Market due to the
Company's failure to comply with minimum asset and capital surplus requirements
established by Nasdaq. The Company's securities are now quoted on the OTC
Bulletin Board.
About the Company
The Company's systems allow users of personal computers and personal
computer networks to scan, file, retrieve, display, print and route documents
and other software objects (such as word processing files, spreadsheets and
electronic mail), while continuing to use their existing application software.
The systems can be integrated with many personal computer applications with
little or no programming and can file and retrieve documents without the time
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consuming step of manually labeling or indexing each document, or manually
searching for documents.
PaperClip has developed and markets a line of software consisting of
Personal (which is no longer distributed) , Professional, Network and SQL
(Enterprise) Editions (the "Systems"). In late 1991, the Company completed and
commenced marketing its first system, a five-user DOS Network System.
Thereafter, the Company completed the Windows Personal Edition in February
1993, followed by the Windows Network Edition, which was completed in October
1993, the Windows SQL (Enterprise) Edition, which was completed in October
1994, and the Windows Professional Edition, which was completed in January
1995. In 1996, the Company developed its Workflow module which allows the
automation of work processes associated with PaperClip documents, folders,
pages and batches as well as interaction with external data. The Company also
completed two upgrades to its Windows Network Edition and is currently
marketing Version 4.1 of the Windows Network Edition. The Company enhanced its
SQL (Enterprise Edition) by completing its certification with Microsoft and
Oracle SQL Database Servers. The Company also markets PaperClip COLD, which
captures batch file information before it goes to paper and allows expeditious
access, retrieval, full text searching and printing of COLD documents.
The Company is currently engaged in the Alpha (initial) testing of
PaperClip 32, a Windows 95/NT version of the PaperClip Windows Network Edition.
The PaperClip 32 Edition utilizes many of the enhancements that Microsoft has
built into its Windows 95 operating system. In October 1996, due to its lack of
operating funds, the Company suspended its development of the PaperClip
Workflow 32 bit Edition for Windows 95/NT, which is an add-on to PaperClip 32
that would allow the automation of work processes associated with PaperClip
documents, folders, pages and batches, as well as interaction with external
data. Although a completed version of Workflow 32 was developed for the Company
by DCL, it has never been fully tested by the Company. Although no
determination has yet been made, it is anticipated that testing will begin upon
the execution of the Definitive Agreement with Access.
The Company has completed WebClip(TM) an Internet-related product
which is a Web Browser add-on, designed to work with popular Windows 95 Web
Browsers from Netscape and Microsoft. WebClip allows users to organize Web
contents of interest in a hierarchical storage system using the Microsoft
Windows 95 Explorer interface. It also provides intelligent storage and the
ability to refresh locally stored Web pages and embedded objects (graphics,
sound, etc.) and any other objects downloaded from Web sites, while optimizing
on-line retrieval and down-load time. The Company began marketing WebClip in
August 1996. Despite an ambitious public relations and advertising campaign,
the Company has not realized the volume of sales it had hoped to achieve with
the WebClip product. A more enhanced version called WebClip Summarizer was
entering final development at year-end. The WebClip Summarizer enhances WebClip
by adding automatic abstracting and keywording to Web content.
The Company has completed development of, but has not yet tested, its
WebServer, which (like Workflow 32) is an add-on to the PaperClip 32 bit
Systems. Due to its lack of operating
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funds, in October 1996, the Company suspended its plans to test WebServer. This
new product has been designed to provide full security for documents stored on
a PaperClip System, to enable users to make the documents available to anyone
with a Web Browser and to make accessible the user's document repository to
both Internet and Intranet users. Although no determination has yet
been made, it is anticipated that testing will begin upon the execution of
the Definitive Agreement with Access.
In November 1995, PaperClip acquired, from Cheyenne Software, Inc.
("Cheyenne"), the NOSS (Network Optical Storage System) product line, which
PaperClip had previously incorporated into the Systems pursuant to a license
agreement. The Company is now also offering NOSS separately.
The Company markets the Systems and associated products domestically
(i) through mass distributors, including Tech Data Corporation and Law Cypress
Distributing Company, who sell to a value added reseller ("VAR") channel that
currently consists of approximately 150 resellers and (ii) through such VARs.
The Company markets its products internationally through approximately 25 VARs
and through distributors.
INDUSTRY BACKGROUND
Many businesses must manage and process large amounts of information
in their day to day activities. Traditional data processing systems have
automated the creation and processing of data and text, but they do not provide
a means for storing and retrieving documents that must be retained in their
original form and used in conjunction with the data.
The greatest difficulty in dealing with paper documents is filing,
storing and retrieving them conveniently and cost-effectively. In the course of
performing these tasks manually, critical documents can be inadvertently
misfiled, physically damaged, or lost. Manual handling is inefficient because
documents can only be used by one person at a time and are also inaccessible
during the time required to transport them within the organization. Moreover,
significant time and resources are often spent storing and locating documents
in large filing systems.
The procedural steps involved in processing incoming documents may
include sorting documents as they are received, indexing them for future
reference, routing them from one employee to the next, entering information
from these documents into computer systems, collecting different documents for
appropriate action, creating letters and forms of response and queuing
documents for subsequent filing. In order to improve the efficiency of the flow
of documents, manage information, and improve office productivity and response
times, many companies may seek to automate their paper and electronic document
management procedures.
Technological developments in recent years have made possible the low
cost capture, storage, retrieval and processing of paper documents as digitized
images. In particular, the application of optical disk technology, which
permits digitized document images to be stored with
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densities many times greater than magnetic storage media, has enabled the
development of cost effective computer systems for document management.
The Systems have been designed to provide users of personal computers
and computer networks the ability to file, retrieve and process large volumes
of documents quickly, efficiently and at a low cost. The enhancements developed
for the Systems have been designed to allow users to quickly implement workflow
technology in their existing environments without the need for costly
programming. The Company's Internet products should give users the added
flexibility of accessing and managing stored documents via the Internet.
THE PRODUCTS
The Company derives all of its revenues from the licensing or sale of
the Systems and associated products and services.
The Company is working on the development of Windows 95/NT versions of
the Systems and on the development of its WebClip Internet product and further
enhancements of, and additions to, its existing products. The Company's ability
to continue to compete will be dependent upon its ability to execute the
Definitive Agreement with Access or to obtain alternative sources of funding.
Even if funding is secured, there can be no assurance that the products and
enhancements currently being tested, developed or explored by PaperClip will be
completed or introduced within the anticipated timeframes, that they will
perform as anticipated, achieve market acceptance or result in revenue to the
Company. The inability to further enhance successfully its existing products or
to develop new products may have a material adverse effect on the Company's
operations and profitability.
The Systems
The Systems allow users of personal computers and personal computer
networks to scan, file, retrieve, display, print and route documents and other
software objects ("Documents"), such as word processing files, spreadsheets and
electronic mail. The Systems can be integrated with many personal computer
applications with little or no programming and can file and retrieve Documents
without the time consuming step of manually labeling or indexing each Document.
The Systems range from single user, stand-alone products to enterprise-wide
document management solutions.
Electronic "file folders" of Documents can be accessed at any time by
the user with only one key stroke combination. Minimal training is required.
Moreover, all Documents previously attached to an electronic file folder are
accessible as soon as each of the Systems is activated. If a Document is not so
attached, it can be located by searching a Document list or by entering exact
or partial identifying information into the folder's index fields. Multiple
Documents can be viewed simultaneously in any of the Systems.
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Images displayed through any of the Systems are facsimiles of the
Documents that have been scanned, and the Systems allow Documents to be
scrolled through (i.e., moved on a display screen to search for a particular
line or section), enlarged, reduced, and rotated. The Systems also allow stored
Documents to be reproduced through a locally connected laser printer, or
through shared laser print servers on a network.
The Company is offering the Systems only in Windows Editions. The
Company introduced the 4.1 Editions of the Systems in 1996, and expects to
introduce PaperClip 32 Editions in the third quarter of 1997. The 4.2 Editions,
which were designed for a 16-bit platform and were scheduled to be introduced
during the second quarter of 1997, have been cancelled by the Company because
of its strategy to focus on products such as PaperClip 32, which are designed
for 32-bit platforms using Windows 95/NT.
Personal Edition
During 1996, the Company ceased selling the Personal Edition since the
market for this product has not grown as the Company had expected.
Professional Edition
The Professional Edition allows users to create "folders" of Documents
and attach or "clip" them to their existing application software. The
additional features available include the ability to scan, index, retrieve,)
display, print, fax, import and export Documents. Storage of Documents is on
multiple forms of media, and, in addition, enables the user to store Documents
on a large variety of optical disk and "jukebox" (see "Glossary") storage
devices. This allows the storage of thousands of Documents while maintaining a
high level of performance. The user also has the ability to convert scanned
Documents by optical character recognition to a variety of word processing
formats, and to store such Documents. The DocumentLink(TM) feature allows the
user to find both the folder and the scanned image of such a Document from
within a word processing program.
Network Edition
The Network Edition provides users with all of the features of the
Professional Edition, and allows users to perform all of the functions at the
same time, as well as to route Documents and folders to other users on the
network. It also supports a shared network fax capability, allowing the user to
send faxes from, and store faxes in, folders.
SQL Edition
The SQL Edition provides all the features of the Network Edition and
provides for Wide Area Network operation using a client/server architecture.
The significant differences provided to users by the SQL Edition are the
increased integrity of the database (i.e., if there is a hardware or
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software failure which corrupts the database, this Edition will facilitate the
recovery of such records as they existed prior to their corruption) and the
improved performance in networks with more than 20 users. To operate the SQL
Edition, the user is required to obtain a license, which is readily available
from various third parties, for the desired SQL server. The SQL Edition is
suited to large departmental and enterprise installations because of its
inherent security, transaction logging capability and database integrity. The
Company presently offers its SQL Edition to work in conjunction with SQL
Servers from Microsoft, Oracle and Centura.
The COLD Product
PaperClip COLD captures formatted print data streams. Once the data is
captured by the PaperClip COLD Extract Engine, it is automatically imported
into the user's PaperClip System and made available to the users through a
familiar interface. Users can access folders containing COLD data by simply
pressing a designated key from the applications that they choose. They can also
access folders of diverse information through PaperClip's intuitive file
cabinet/folder interface. PaperClip COLD can print to any standard Windows
printers or fax and can display documents on conventional 80-column monitors in
132 column format. To further facilitate the retrieval and review of COLD
documents, PaperClip COLD supports full text searching of COLD documents and
forms overlay, and can add colored lines to the display to simulate green bar
paper viewing.
The NOSS Product Line
NOSS is the subsystem for optical storage and jukebox management. When
combined with the Network and SQL Editions, it provides a powerful system that
manages a range of mass storage devices.
The acquisition of the NOSS product line (a portion of which is
subject to an exclusive, royalty free, perpetual license from Cheyenne) allows
PaperClip to fully take advantage of NOSS's high-end functionality to further
develop powerful document imaging solutions for client/server network
environments. PaperClip is also making NOSS available as a separate product for
VARs, integrators, and distributors to develop applications based on network
optical storage.
PaperClip WorkFlow
PaperClip WorkFlow is an automated rule based workflow module that
allows the automation of work processes associated with PaperClip documents,
folders, pages and batches, as well as interaction with external data. Workflow
is an add-on to the Company's SQL Edition. PaperClip WorkFlow was developed for
PaperClip by DCL International, Ltd., a company located in the State of Israel
("DCL"). Using an object oriented graphical interface, expressions, rules and
associated processes can be easily defined and maintained using a drag and drop
interface, without programming. The graphical process map is automatically
created by PaperClip
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WorkFlow, without the need to draw flow-charts. It allows those personnel
closest to the work process to define the rules for their stage of the process.
Consistent with the Company's intuitive document and image management software,
users can quickly implement workflow solutions without the need for costly
programming.
Internet Product Line - WebClip
The Company also completed WebClip, which is an Internet-related
product. WebClip is a Web Browser add-on designed to work with popular Windows
95 Web Browsers from Netscape and Microsoft. WebClip allows users to organize
Web contents of interest in a hierarchical storage system using the Microsoft
Windows '95 Explorer interface. It provides intelligent storage and the ability
to refresh locally stored Web pages and embedded objects (graphics, sound,
etc.) and any other objects downloaded from Web sites, while optimizing on-line
retrieval and down-load time. The Company began marketing WebClip in August
1996. The WebClip product, despite a strong public relations and advertising
effort by the Company, has not realized the volume of sales that the Company
had hoped that it would.
Products Under Development
PaperClip 32
The Company is engaged in Alpha testing the PaperClip 32 Edition and
expects to Beta test it (have its VARS test the product) in the second quarter
of 1997. While management believes that the PaperClip 32 Edition will work
properly, there can be no assurance that they will function effectively in the
hands of end-users. The Company is currently engaged in testing of PaperClip
32.
Internet Product Line - WebServer
The Company has completed development of, but has not yet tested, its
WebServer(TM), which is an add-on to the PaperClip 32 Systems. The new product
is being designed to provide full security for documents stored on a PaperClip
System, to enable users to make the documents available to anyone with a Web
Browser and to make available the user's PaperClip document repository to both
Internet and Intranet users. The Company has anticipated that the introduction
of the WebServer would coincide with a second release of its Windows 95
products, but, because of the Company's lack of operating funds, testing of
WebServer was suspended. There can be no assurance it will be resumed.
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MARKETING
Objectives, Internal Sales Force and Risks
Management's marketing objectives for the Systems have been, and,
subject to availability of funds, will continue to be to: (i) develop strategic
relationships with prominent computer hardware and software organizations; (ii)
introduce the Systems to customers through value added resellers ("VARs"),
original equipment manufacturers ("OEMs"), distributors and other distribution
networks; (iii) create brand name recognition of its products by advertising in
appropriate trade magazines and publications, and by attending and
participating in exhibitions, shows and seminars, engaging in public relations
campaigns, and conducting its own seminars and direct mail campaigns; and (iv)
support the sales efforts of its resellers through sales tools and training.
Marketing assistance, training and technical support of VARs is a
critical component of the Company's efforts with respect to its Network and SQL
Editions. Consequently, the Company is expending approximately $25,000 per
month to maintain a group of seven (7) marketing, training, and technical
support employees dedicated to providing on-going communication with, and
support to, its VARs. Marketing assistance includes hot line access, mailings
of product and technical updates, joint cooperative marketing, site visits and
seminars.
In June 1996, the Company hired David Valentino, as Vice President of
Sales and Marketing.
The Company has a field sales force of four (4) persons.
While management will attempt to encourage VARs, distributors and
other resellers to focus on the Company's products, management is aware that
VARs, distributors and other resellers also represent other lines of products,
some of which may be, or are, competitive with those of the Company.
Accordingly, the VARs, OEMs, distributors and other resellers may choose to
give higher priority to products of other publishers, which would decrease
potential sales by the Company.
Distribution; Retail Sales and Licensing
The Company also utilizes distribution agreements, sales through
retail stores (and various Websites), and licensing agreements in order to
market its products.
The Company is party to several distribution agreements for its
products, most of which are terminable on 60 days' notice. The cancellation of
certain of these agreements could have a material adverse effect on the
Company.
The Company is selling its WebClip Product through retail stores such
as Software City,
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Micro Center, Media Play, Nebraska Furniture Mart and J&R World, through its
own Website and through the Websites of other companies, for which it receives
a portion of the sales revenue. Other companies' Websites where WebClip is
being sold are Saturn Solutions, Inc., Maagnum Showcase LLC, Westgroup
Management Resources, IDT Internet Services ("IDT") and International Software
Network Inc.
The Company has also entered into licensing agreements with various
licensees who will bundle WebClip as part of their products, and which will pay
to the Company its proportional share of the revenue derived from such bundled
products.
Strategic Alliances; OEM and Third Party Relationships
Management believes that strategic alliances with OEMs and other third
party relationships can provide three important benefits to the Company: (i) a
revenue stream through sales of bundled products; (ii) a means to seed the
market; and (iii) a means to broaden PaperClip's name recognition. During 1996
the Company was unable to expand on its non-contractual joint marketing
relationships that it had with a number of hardware and software manufacturers.
At the present time management is not pursuing opportunities in this area.
On June 1, 1995, the Company entered into a six month agreement with
Fujitsu Europe Limited ("Fujitsu UK"). Commencing in February 1996, Fujitsu UK
began bundling the Personal Edition with Fujitsu UK's MO City/DynaMo external
3.5" Magneto Optical Disc Drive product line. The Company will be paid
(pound)15 (approximately $24) for each bundled product. During 1996 the Company
realized $20,000 from this agreement. To reach all of Fujitsu UK's market, the
Personal Edition would have had to be translated into German, French and
certain other languages, a task which management believes can be accomplished
as needed. Thus far no translations have been required in connection with this
Agreement.
Value Added Reseller Network
To date, the most significant portion of the Company's sales have been
made through VARs. The Company currently has approximately 175 VARs, of which
approximately 150 VARs are in the United States and approximately 25 are
abroad.
Business Services
In the fourth quarter of 1995, the Company launched its Business
Services Department. The Business Services Department sells directly to major
accounts that want to work on a direct basis with the Company. It also offers
users of its products and VARs, post-contract support, consulting services and
assistance in the form of training, product education and technical support,
when requested. The Business Services Department currently consists of two (2)
employees.
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CUSTOMERS AND SALES
The Company had net sales of $1,059,924 in 1994, $1,489,139 in 1995
and $1,968,750 for 1996. Law Cypress accounted for 15% of the Company's sales
in 1996. The Company had no other customers in 1996 who accounted for more than
10% of its sales. Four (4) major customers (of which two (2) are VARs and two
(2) are distributors) accounted for 56% of sales collectively, and sales to two
(2) major customers accounted for 39%, of the Company's sales in 1995 and 1994,
respectively.
During 1996 the Business Services Department generated important sales
and business opportunities for the Company.
CUSTOMER SUPPORT AND SERVICE; WARRANTIES
The Company presently provides telephone support to its VARs. The
majority of the Company's service and support activities involve responses to
customer inquiries regarding use of the Network, SQL and Professional Editions,
which are provided by telephone support directly from the Company's technical
support center.
Beginning in 1997, the Company started to limit offering the
maintenance for its 16 bit product. The Company reduced offering this
maintenance program because it does not want customers who upgrade from the 16
bit product to the 32 bit product to be covered under the maintenance program
(which does not include the 32 bit product).
The Company warrants all its products to end users for 90 days.
Warranties cover only replacement (or refunding of purchase price) for either
damaged condition or failure to conform to specifications. WebClip requires
some limited telephone support and services to its customers.
All other products require more extensive telephone support.
PRODUCT DEVELOPMENT
To date, all of the Systems have been developed by the Company's
staff, which continues to be engaged in the planning, development and testing
of new products and product enhancements. The PaperClip WorkFlow module was
developed by DCL, a company operating in the State of Israel. The Company's
Internet products were developed by NCC Export Systems, Ltd., another Israeli
company.
PaperClip expended approximately $1,621,800 and $3,066,400 on research
and development in 1995 and 1996, respectively. For a discussion of the
products under development, see "- The Products - Products Under Development."
Existing and future competing products that may be offered at lower
prices, or that may have superior technological and performance
characteristics, could adversely affect sales of the
16
<PAGE>
Systems and/or other products offered by the Company. Management expects that
growing demand for efficient and cost-effective solutions for document
management and imaging will continue to drive the developments of new
technologies that may be more sophisticated than the Company's products and
that the Company's ability to continue to compete depends upon its ability to
continue to enhance successfully its existing products and to develop new
products that meet the changing needs of end users. However, unless the Company
has sources of financing available to it (which it currently does not), these
objectives cannot be met. The ability to enhance successfully its existing
products or to develop new products may have a material adverse effect on the
Company's operations and profitability.
PRODUCTION
The Company has produced a set of master diskettes and documentation
for each System and duplicates the diskettes, and assembles and ships the
Systems at and from its headquarters. The Company has also engaged various
sources to produce and assemble the product and documentation (including
packaging) for the Systems on terms that management believes are commercially
reasonable. The Company's WebClip product is produced in a similar manner and
can be downloaded from various Internet Websites (including the Company's own
Website). Although management believes that it may find other sources to
produce and assemble the product and documentation (including packaging) on
commercially reasonable terms, there can be no assurance that it would be able
to locate such alternative sources. The cancellation of the arrangements with
certain of these sources and the failure to locate an alternative source could
adversely affect the Company's stream of revenues.
PRODUCT PROTECTION
The Company relies on a combination of copyright, trade secret and
trademark laws and license agreements to protect its proprietary rights in its
technology. The Company obtained from the U.S. Patent and Trademark Office a
registered trademark for PAPERCLIP SOFTWARE AND DESIGN in August 1993 and
obtained a registered trademark for PAPERCLIP IMAGING SOFTWARE AND DESIGN in
February 1993. Although no other person or entity owns any U.S. registered
trademark for the mark "PaperClip" in connection with software or imaging
products, there was a prior U.S. registration for use of the "PaperClip" mark
in connection with pre-recorded word processor programs. This latter
registration was automatically canceled on April 2, 1992 by the U.S. Patent and
Trademark Office because of the registrant's failure to file (as required by
statute) an affidavit, during the year commencing with the fifth anniversary of
the registration, stating that the mark was still in use. However, the user of
the canceled registration might, at some future time, assert an infringement
claim in the U.S. based on alleged common law rights. If such a claim is
asserted, the Company may be forced to expend significant effort, time and
funds to defend against it. If the Company is not successful in defending
against such a claim, the Company would be required to adopt a different name
and would incur costs as a result thereof.
17
<PAGE>
PaperClip has also applied for trademark registration of WEBCLIP with
the U.S. Patent and Trademark Office. This application was initially rejected
and PaperClip's intellectual property counsel responded arguing that the mark
was registrable. By letter dated March 7,1997, the Superintendent of Documents
of the United States Patent and Trademark Office informed PaperClip that the
above-mentioned mark will be published in the Office Gazette on April 8, 1997.
If no party opposes the registration application within 30 days of its
publication in the Official Gazette or requests an extension of time to oppose,
the mark shall be registered. There can be no assurance that such registration
will be obtained.
The Company also has registered trademarks for PAPERCLIP IMAGING
SOFTWARE & DESIGN in the United Kingdom, Germany and Canada, but has not filed
applications for trademark registration in other countries in which the Systems
are sold.
The Company distributes its products under signed software license
agreements, which grant customers perpetual licenses to, rather than ownership
of, the Company's products and which contain restrictions on copying,
disclosure, reverse engineering and transferability. The source code for all of
the Company's products is protected as a trade secret and as an unpublished
copyrighted work. In addition, the Company has entered into nondisclosure
agreements with its employees. There can be no assurance that the steps taken
by the Company in this regard will be adequate to deter misappropriations or
independent third-party development of its technology.
The Company has no patents on its proprietary software technology and
existing copyright laws afford only limited practical protection. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights in its products and technology to the same extent as U.S. laws.
Although management believes that the Company's products, trademarks
and other proprietary rights do not infringe on any existing proprietary right
of others, there can be no assurance that third parties will not assert
infringement claims in the future.
COMPONENTS PROVIDED BY OTHERS
The Systems require licenses, which the Company has obtained, from
Decomp, among others. Before December 1996, the Professional, Network and SQL
Editions also utilized, under license, the proprietary products of Ligature,
Ltd. As of December 1, 1996, for a number of product-related reasons, the
Company stopped using Ligature's products in its software (although the license
still remains in effect).
The Company intends to seek to purchase the rights to PaperClip
Workflow module, which DCL developed. There can be no assurance that it will be
successful in this regard. If the negotiations are not completed, then
PaperClip will continue to have the rights to sell the Workflow module
worldwide, but would not own the source code.
18
<PAGE>
COMPETITION
The document management software market is intensely competitive.
Buyer preferences can shift quickly, and rapid changes in technology provide
opportunities for new entrants into the market. Management is not aware of any
product line which offers all of the features and functions of the Systems.
However, a number of software companies offer products which compete with one
or more of the functions of the Systems.
There are numerous companies that sell either stand-alone or network
systems with which the Company competes. Competition for the Company's products
include, among others, KeyFile Corporation, Westbrook Technologies, a division
of Intelligent Optics Co., Watermark Software, Inc. ("Watermark"), Optika
Imaging Systems Incorporated, LaserData, Inc., Minolta Corporation, Network
Imaging Corporation, Genesys Information Systems Corporation and Hitachi. The
Company also competes with more expensive turnkey solutions such as those
produced by FileNet Corp. ("FileNet"), IBM Corporation ("IBM"), Wang
Laboratories, Inc. ("Wang") and ViewStar Corporation. Many of these companies
have greater financial strength and technical resources than the Company, and
there can be no assurance that these competitors will not modify their existing
systems or acquire other competitors of the Company to better compete with the
Systems. Nor can there by any assurance that new companies will not introduce
new systems with better features and functions than the Systems. In 1995,
FileNet acquired Watermark. FileNet is one of the leading large system
competitors and Watermark is one of the Company's leading direct competitors.
Combined, the two companies are able to offer a more complete range of workflow
and document imaging solutions than the Company. The WebClip product competes
with the products of a number of companies, some of which have much greater
resources than the Company. Competitors for the Company's Internet products
include, among others, DocuMagix, First Floor Inc., Traveling Software, Inc.,
The ForeFront Group, Inc., and FreeLoader, Inc.
On April 13, 1995, Microsoft, Inc. ("Microsoft"), one of the largest
computer software companies in the world, announced the settlement of a lawsuit
with Wang. Under the terms of the settlement agreement, portions of Wang's
imaging software will be incorporated as a standard feature in future versions
of Microsoft Windows 95 and Windows NT operating systems. Management cannot
predict the effects of such settlement on the Company's business and prospects.
To date Microsoft has not entered into the document management and imaging
market. Microsoft's entry into the document management and imaging market may
have a material adverse effect on the prospects of the Company.
In addition to computer software for document management and imaging,
there is also a diverse range of alternative types of tools and methods for
storing and retrieving documents, including microfilm, microfiche and computer
output microfilm and microfiche machines. Moreover, management expects that the
growing demand for efficient and cost-effective solutions for document
management and computer imaging will continue to drive the development of new
19
<PAGE>
technologies that may be more sophisticated and cost-effective than the
Systems. Many existing and potential competitors have considerably greater
financial, technological, marketing and personnel resources than the Company.
Management believes that the principal competitive factors in the
market for the Company's products include product performance, technology,
quality of customer support, availability of training and consulting services,
price, sales and marketing strength, corporate reputation and ongoing
responsiveness to user needs.
EMPLOYEES
As a result of limited resources, the Company reduced its full-time
staff from 43 in 1996 to 31 in 1997. At present, the Company's full-time staff
includes eleven (11) engaged in development and systems testing, twelve (12)
engaged in sales, marketing and technical support, two (2) in Business Services
and five (5) engaged in administration. The Company has no collective
bargaining agreements, and no employee is represented by a labor union. The
Company has never had a work stoppage and considers its relationship with its
employees to be satisfactory.
The Company's success depends to a significant extent upon a number of
key management and technical employees. The loss of services of one or several
of these key employees could have a material adverse effect on the Company.
Management believes that the future success of the Company will also depend in
large part upon the Company's ability to attract and retain highly skilled
technical, managerial and marketing personnel. Competition for such personnel
in the software industry is intense.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal administrative, sales and marketing, product
development and support facilities are located in Hackensack, New Jersey, and
comprise approximately 9,900 square feet. The Company occupies these premises
pursuant to a sublease, the term of which expires on January 30, 1998. The
fixed rental is approximately $7,500 per month plus escalation's for taxes and
operating expenses over a 1995 base year. The Company is purchasing, on an
installment basis, the furniture of the sublessor at a rate of approximately
$4,500 per month through January 30, 1998.
In addition, the Company leases a small sales office in California at
a cost of $2,253 per month.
ITEM 3. LEGAL PROCEEDINGS.
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The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its 1996 Annual Meeting of Stockholders on October
29, 1996, at which the following actions were taken unanimously: (i) election
of directors, (ii) the amendment of Article Fourth of the Company's Certificate
of Incorporation to increase the authorized shares of the Company's common
stock, $.01 par value per share, from 15,000,000 shares to 30,000,000 shares,
(iii) the amendment of Article First of the Company's Certificate of
Incorporation to change the Company's name to "PaperClip Software, Inc." and
(iv) amendment of Company's 1995 Stock Option Plan.
21
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On May 31, 1996 the Company effected a two-for-one split of its Common
Stock. On June 12, 1996, the Company effected a two-for-one split of its Class
A Warrants. All share amounts and per-share amounts in this Report on Form
10-KSB reflect both of these splits.
The Company's Common Stock and the Class A Warrants were, until March
11, 1997, traded on the Automated Quotation System of the National Association
of Securities Dealers, Inc. ("NASDAQ") under the symbols "PCLP" and "PCLPW,"
respectively. The following table sets forth the high and low sale prices for
the Common Stock and Class A Warrants as reported by NASDAQ.
<TABLE>
<CAPTION>
Common Stock Class A Warrants
High Low High Low
1995 Quarter
- ------------
<S> <C> <C> <C> <C>
THIRD (commencing 8 1/4 7 2 3/4 1 3/8
September 27, 1995)
FOURTH 8 1/4 1 3/4 2 5/8 1/2
1996 Quarter
- ------------
FIRST 11 3/8 4 6 1/8 1
SECOND (reflects 2-1 5 7/8 1 1/2 3 1/4* 5/8*
stock split May 31) *(reflects 2-1 warrant split
June 12)
THIRD 2 11/16 1 19/32 1 7/16 1/2
FOURTH 1 3/4 10/32 1 5/32
1997 Quarter
- ------------
FIRST (through 3/4 9/32 7/32 1/8
March 31)
</TABLE>
On March 11, 1997, the Company was informed by NASDAQ that its
securities have been deleted from the Nasdaq SmallCap Market due to the
Company's failure to comply with minimum
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<PAGE>
asset and capital surplus requirements established by NASDAQ. The
Company's securities are now quoted on the OTC Bulletin Board.
On March 31, 1997, there were approximately 1000 holders of record of
the Company's shares of Common Stock.
On March 31, 1997, the closing bid and asked prices of the Common
Stock were 9/32 and 11/32, respectively, and the closing bid and asked prices
of the Class A Warrants were 1/16 and 1/8 respectively, as reported on the OTC
Bulletin Board.
The Company has not paid cash dividends since its organization and
does not anticipate the declaration or the payment of cash dividends in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Year ended December 31, 1996 Compared with Year Ended December 31, 1995
Net sales in the year ended December 31, 1996 increased by 32.2% over
the year ended December 31, 1995 (from $1,489,139 to $1,968,750) due to the
greater acceptance of the new Windows Network Edition and SQL Editions, the
introduction of "View Only" licenses, a maintenance program which guaranteed
updated versions to end users, the introduction of a COLD product and sales
from the recently acquired NOSS product line. None of such increases was a
result of increases in prices.
Salaries and related benefits increased in such period by 7.7% (from
$1,292,654 to $1,391,725 due to the addition of administrative personnel.
Research and development expenses increased by 87.8% (from $1,621,849 to
$3,066,395) due to increased internal staffing to complete Versions 4.0 and 4.1
of the document and imaging management products, continued development of
PaperClip 32, a Windows '95 32-bit version of the Company's document and
imaging and management products, increased purchases of computer software,
supplies and support for the increased staff and utilization of external
consultants to complete the development of WebClip (an Internet browser add-on
product) and development of an Internet Web server product to be used with the
Company's Windows '95 32-bit document and imaging management products, and
continued development of a Windows '95 32-bit Workflow product.
Selling expenses increased by 53.9% (from $940,624 to $1,447,593) due
to increased personnel, development of product literature, the hiring of a
Public Relations firm and the launching of an advertising campaign for the
introduction of the WebClip product. General and administrative expenses
increased by 6.9% (from $846,817 to $905,137).
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<PAGE>
The loss from operations for the year ended December 31, 1996
increased by 50.7% over the year ended December 31, 1995 (from $3,212,805 to
$4,842,100 primarily due to the increase in research and development, and
selling expenses. These increases were partially offset by an increase in
sales.
Interest expense and financing costs decreased to $5,561 in 1996 from
$1,073,800 in 1995, primarily due to the financing costs incurred in connection
with the April 1995 Bridge Financing and the Public Offering completed in
September 1995. As a consequence of the increased loss from operations and
interest expense and financing costs, the Company's net loss was ($4,751,841)
or ($.63) per share, in 1996, as compared to ($4,236,970), or ($.88) per share,
in 1995. The decrease in the loss per share was due the higher amount of
weighted average shares outstanding in 1996.
Year ended December 31, 1995 Compared with Year Ended December 31, 1994
Net sales in the year ended December 31, 1995 increased by 40.5% over
the year ended December 31, 1994 (from $1,059,924 to $1,489,139) due to the
greater acceptability of the Windows Network and SQL Editions, the introduction
of a Maintenance Program which guaranteed to the end users updated versions,
the introduction of a COLD product (computer output to laser disk), the SyQuest
OEM agreement, and the initiation of a Business Services Department. None of
such increase was a result of increases in prices.
Salaries and related benefits increased in such period by 11.0% (from
$1,164,430 to $1,292,654 ) due to the addition of administrative personnel.
Research and development expenses increased by 39.0% (from $1,166,769 to
$1,621,849 ) due to increased internal staffing to complete the 3.2 Editions of
the Systems and initiate the 4.0 and Windows 95 (5.0) Editions and utilization
of external consultants to continue the development of the WorkFlow product and
to begin the development of Internet products.
Selling expenses increased by 26.1% (from $745,958 to $940,624) due to
increased royalties and commissions on higher sales, development of product
literature, and increased expenses incurred to visit and support the VAR
network. General and administrative expenses decreased by 2.1% (from $864,863
to $846,817).
The loss from operations for the year ended December 31, 1995
increased by 11.5% over the year ended December 31, 1994 (from $2,882,096 to
$3,212,805) primarily due increases in salaries and related benefits resulting
from the increase in the number of employees, research and development expenses
and selling expenses.
Interest expense and financing costs increased from $9,500 in 1994 to
$1,073,800 in 1995 primarily due to the financing costs incurred in connection
with the April 1995 Bridge Financing described in "Liquidity and Capital
Resources", below. As a consequence of the increased loss from operations and
interest expense and financing costs, the Company's net loss was
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<PAGE>
($4,236,970), or ($ .88) per share, in 1995, as compared $2,887,622, or $ .85
per share, in 1994.
Liquidity and Capital Resources
For the years ended December 31, 1994, 1995 and 1996, the Company
incurred net losses of $2,887,622, $4,236,970 and $4,751,841, respectively. As
of December 31, 1996, the Company had an accumulated deficit of $16,798,006,
and it continues to incur operating losses. As of December 31, 1995, the
Company had a positive working capital of $3,256,657. As of December 31, 1996
the Company had a working capital deficit of $700,859. For the years ended
December 31, 1994, 1995 and 1996, the Company's negative cash flows from
operations were $2,051,062 ,$4,087,608 and 3,990,242 respectively. As a result
of these factors, the report of the independent public accounts contains
explanatory language as to the Company's ability to continue as a going
concern.
Prior to January 1, 1994, the Company was considered to be a
development stage company. The Company required the proceeds of the Offering or
alternative funds to conduct its proposed activities. Prior to completion of
the Offering, the Company funded its operations through five (5) private
placements and three (3) Regulation S offerings that were completed between
June 1992 and December 1994, in which it raised an aggregate of approximately
$7,200,000, net of issuance costs, and through the Bridge Financing, described
below.
In the Bridge Financing, the Company issued Bridge Notes in the
aggregate principal amount of $2,365,000 and Bridge Warrants to acquire an
aggregate of 430,000 shares of Common Stock. The Bridge Notes bore interest at
the rate of 9% per annum and were repaid from the proceeds of the Company's
Offering. The Bridge Warrants are exercisable for five (5) years after their
issuance date at an exercise price of $2.25 per share. The shares issuable upon
the exercise of the Bridge Warrants were registered pursuant to the
registration statement relating to the Offering, and holders of Bridge Warrants
are entitled to certain demand and "piggyback" registration rights with respect
to the underlying shares of Common Stock.
On September 27, 1995, the Company completed the Offering, pursuant to
which it issued 1,799,750 shares of Common Stock and 1,799,750 Class A
Warrants, at prices of $5.00 per share of Common Stock and $.10 per Class A
Warrant. Each Class A Warrant entitles the registered holder thereof to
purchase one share of Common Stock at a price of $6.25, subject to adjustment,
at any time from the date of issuance of the Class A Warrant until the close of
business on August 9, 2000, unless previously redeemed. The Class A Warrants
are subject to redemption by the Company at $.10 per Class A Warrant on 30
days' prior written notice provided that either: (i) the last sales price (or
highest closing bid price) of the Common Stock as reported by NASDAQ (or on
such exchange on which the Common Stock is then traded) exceeds $9.00 per share
for 20 consecutive business days ending within 15 days prior to the date of the
notice of redemption, or (ii) the Company shall have obtained written consent
from Baron, the underwriter of the Offering, to redeem the Class A Warrants.
The Class A Warrants may not be redeemed in the absence of an effective
registration statement covering the Common Stock issuable upon exercise of the
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<PAGE>
Class A Warrants.
The Offering resulted in net proceeds (after payment of underwriting
discounts and commissions and other expenses of the Offering) of approximately
$7,907,000. However, because approximately $1,397,000 of the principal amount
of the Bridge Notes were applied by the holders thereof to the purchase of
securities in the Offering, the net cash proceeds to the Company of the
Offering were approximately $6,510,000. Approximately $1,222,000 of the net
cash proceeds were used to repay the balance of the principal amount of the
Bridge Notes ($969,000), the interest on all the Bridge Notes ($102,000) and
certain other debt (including a $150,000 8% note payable to counsel to the
Company, two partners of which were directors of the Company from June 1992
through April 1995.) The balance of the net cash proceeds were allocated to
marketing, research and development, capital equipment and working capital.
At December 31, 1996, the Company had net Federal operating loss carry
forwards ("NOL") for financial reporting purposes. Due to losses sustained by
the Company for both financial and tax reporting through 1995, management was
unable to determine that realization of the tax asset related to the NOL was
more likely than not and, thus, has provided a full valuation allowance. As a
result of the Offering, the Company's NOL that would be available to offset
future income may be subject to annual limitations. See Note 2 of the Notes to
the Financial Statements, in Item 7.
The Company consummated its initial public offering in September of
1995, with a business plan to create an Internet suite of products and to move
PaperClip's flagship document management and imaging product line into a
Windows NT/95 32 bit platform. The Company spent approximately $3 million on
the development of the above mentioned products. With the completion of
WebClip, one of the scheduled Internet products, the Company launched an
ambitious public relations and advertising campaign to create market awareness
of the WebClip product. As of the date hereof, the Company has not realized the
volume of sales that it had hoped to achieve with the WebClip product.
In connection with obligations owed by the Company to a software
developer, during October 1996 the Company entered into an agreement which
provided for the rescheduling of payments owed by the Company to the developer.
The Company paid $150,000 upon signing such agreement and agreed to pay an
additional amount aggregating approximately $200,000 (the "Remaining Amount")
in three monthly installments commencing January 1, 1997. On January 29, 1997
the Company paid the Remaining Amount from the proceeds of the Access Loan (as
defined below).
In December 1996, the Company borrowed an aggregate amount of
$129,690.74 from nine of its stockholders. The loan was evidenced by
Convertible Promissory Notes ("Notes") issued to each of the nine stockholders
for their respective loan amounts. The Notes: (i) have a three (3) year
maturity, (ii) bear interest at a rate of 12% per annum, and (iii) are
convertible into common stock of the Company at a rate of $0.30 per share.
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<PAGE>
Throughout 1996, the Company incurred losses and has been seeking
sources of additional financing. In July 1996, the underwriter of the Company's
initial public offering and principal market maker for its Common Stock, A.R.
Baron & Co., Inc., filed for bankruptcy. For the past several months,
management has been engaged in discussions with a number of investment banks,
corporate buyout firms and potential merger and joint venture partners
regarding various financial and strategic alternatives for the Company. The
Company has been unable to identify any additional source for a public or
private financing.
After evaluating several potential opportunities for a sale of the
Company or its assets, the Company entered into a non-binding Letter of Intent
dated January 2, 1997 with Access Solutions, providing for the parties to use
their best efforts to negotiate a transaction involving the purchase by Access
Solutions of substantially all of the assets of the Company and for Access
Solutions to assume specified liabilities of the Company. See "DESCRIPTION OF
BUSINESS" - "Recent Developments". There can be no assurance that the Company
will be successful in completing the sale of assets to Access Solutions. The
Company has no other sources of liquidity and has no commitments with regard
to obtaining any further funds which would be required to sustain the
Company's operations. In the event the transaction is consummated, it is
currently anticipated that the Company will dissolve and distribute the Access
shares and warrants it receives as consideration in the transaction to its
shareholders, after making provisions for its liabilities, if any, and subject
to a holdback for the benefit of warrant holders.
See the Financial Statements and the accompanying Notes, set forth in Item 7.
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements can be found following Part III of
this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
27
<PAGE>
PART III
The information required by Items 9, 10, 11 and 12 will be filed as part of the
Company's definitive proxy statement (or as an amendment to this Form 10-KSB)
filed with the Commission not later 120 days after the end of the fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
3.1 Certificate of Incorporation of Registrant, as amended.
3.2 By-Laws of Registrant, as amended. (1)
3.3 Registrant's Authorization to do Business in New Jersey. (1)
3.4 Registrant's Authorization to do Business in California. (1)
3.5 Form of Common Stock Certificate. (1)
4.2 Class A Warrant Agreement (including form of Class A Warrant) among the
Registrant, A.R. Baron & Co., Inc. ("Baron") and American Stock Transfer &
Trust Company.(1)
4.3 Stock Purchase Option, dated September 27, 1995, granted to Baron.(1)
4.4 Warrant Purchase Option, dated September 27, 1995, granted to Baron.(1)
4.5 Form of Investor Purchaser Agreement, dated as of April 5, 1995, by and
between the Registrant and the Investors identified in the Schedule of Investors
attached thereto, and amendment thereto, dated March 29, 1995. (1)
4.6 Form of Bridge Note issued on April 5, 1995, to each Investor identified on the
Schedule of Investors included with Exhibit 4.5. (1)
4.7 Form of Bridge Warrant dated April 5, 1995, given to each Investor identified on
the Schedule of Investors included with Exhibit 4.5. (1)
10.1 Employment Agreement, dated as of May 1, 1995, between the Registrant and
William Weiss. (1)
10.2 Employment Agreement, dated as of May 1, 1995, between the Registrant and
Sol Rosenberg. (1)
10.3 Employment Agreement, dated as of May 1, 1995, between the Registrant and
Helaine Fischer. (1)
10.4 Employment Agreement, dated as of December 1, 1992, between the Registrant
and Michael Suleski. (1)
10.5 Employment Agreement, dated as of June 17, 1996, between the Registrant and
David Valentino
10.6 1993 Stock Option Plan. (1)
10.7 1995 Stock Option Plan, as amended
10.8 Development License Agreement with Decomp, dated May 25, 1993. (1)
10.9 License Agreement with Decomp, dated June 3, 1993. (1)
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<PAGE>
10.10 License Agreement with Ligature, Ltd., dated August 18, 1994. (1)
10.11 License Agreement with Pixel Translations, Inc., dated May 16, 1995. (1)
10.12 Distributor Agreement with Law Cypress Distributing Company. dated as of
March 18,1993 (incorporated by reference from Exhibit 10.16
of the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1995).
10.13 Distribution Agreement with Tech Data Corporation, dated June 16, 1993. (1)
10.14 Form of End User License. (1)
10.15 Corporate License Agreement with Tenaga Nasional Berhard, dated January
1995. (1)
10.16 Development Agreement with DCL Systems International, Ltd., dated June 1,
1994. (1)
10.17 Sublease by and between the Registrant and Ram Mobile Data U.S.A. Limited
Partnership, dated as of April 20,1995, for the Registrant's headquarters. (1)
10.18 Software Bundle Agreement with Fujitsu U.K. Limited, dated as of June l, 1995. (1)
10.19 Lease by and between the Registrant and Lillipont Investment Co. dba Dupont Palm Court,
executed April 24, 1996, for Registrant's California Sales Office.
10.20 Merger and Acquisition Agreement between the Registrant and Baron, dated
September 27, 1995. (1)
10.21 Consulting Agreement with Stephen Kornfeld, dated as of January 1, 1996
(incorporated by reference from Exhibit 10.27 of the Registrant's Form
10-KSB for the fiscal year ended December 31, 1995).
10.22 (a) Reschedule Agreement with NCC Export Systems 1995 LTD ("NCC"),
dated as of October 21, 1996 (incorporated by reference from Exhibit
10 of the Registrant's Form 10-QSB for the quarter ended September
30, 1996).
(b) Receipt of full payment and termination of the Reschedule Agreement
from NCC, dated January 29 , 1997.
10.23 Software License Agreement with InText Systems, dated as of June 30,
1996.
10.24 Distributor License Agreement with Pesaniaga SDN BHD,
dated as of November 10, 1994.
10.25 Distributor License Agreement with Digital Document Systems, dated
July 1, 1996.
10.26 License Agreement with Cheyenne Software, Inc., dated November 10, 1995 (incorporated
by reference from Exhibit 10.12(c) of the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1995).
10.27 (a) Letter of Intent with Access Solutions International, Inc. ("Access
Solutions"), dated January 2, 1997.
(b) Letter Agreement with Access Solutions, amending the Letter of Intent,
29
<PAGE>
dated January 31, 1997.
(c) Letter Agreement with Access Solutions, amending the Letter of Intent,
dated February 28, 1997.
(d) Letter Agreement with Access Solutions, amending the Letter of Intent,
dated March 31, 1997.
(e) Convertible Promissory note issued by the Registrant to Access
Solutions, dated January 29, 1997.
(f) Security Agreement with Access Solutions, dated January 29, 1997.
Registration Rights Agreement with Access Solutions, dated January
29, 1997.
21.1 List of subsidiaries of Registrant. (1)
----------------------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (File No. 33-92768NY).
</TABLE>
(b) Reports on Form 8-K.
The Company filed three (3) reports on Form 8-K during the period
covered by this report. Each report on Form 8-K was filed with respect to Item
5. The date of such reports on Form 8-K were December 12, 1996 and January 2,
1997.
30
<PAGE>
PAPERCLIP SOFTWARE, INC.
------------------------
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995 F-3
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 F-4
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR
THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 F-5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996,
1995 AND 1994 F-6
NOTES TO FINANCIAL STATEMENTS F-8
F-1
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
PaperClip Software, Inc.:
We have audited the accompanying balance sheets of PaperClip Software, Inc.
(formerly PaperClip Imaging Software, Inc.) (a Delaware corporation) as of
December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PaperClip Software, Inc. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has negative cash flow from operations, has
incurred losses from inception and has negative working capital. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans with respect to future operations are also
described in Note 1. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts
and classification of liabilities that might result should the Company be
unable to continue as a going concern.
/s/ Arthur Andersen LLP
Roseland, New Jersey
February 20, 1997
F-2
<PAGE>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ------------ ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS (Note 1) $ 220,573 $ 3,661,009
ACCOUNTS RECEIVABLE (net of allowance for doubtful accounts
of $30,000 and $40,000 in 1996 and 1995, respectively) 275,527 267,024
PREPAID EXPENSES AND OTHER CURRENT ASSETS 33,855 2,767
------------ ------------
Total current assets 529,955 3,930,800
------------ ------------
EQUIPMENT, FURNITURE AND FIXTURES (Note 2):
Computer and office equipment 669,889 549,569
Furniture and fixtures 204,858 201,474
------------ ------------
874,747 751,043
Less- Accumulated depreciation (451,902) (263,352)
------------ ------------
422,845 487,691
------------ ------------
OTHER ASSETS 53,282 48,466
------------ ------------
Total assets $ 1,006,082 $ 4,466,957
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Note 4) $ 1,125,306 $ 565,936
DEFERRED REVENUE (Note 2) 56,066 58,400
CURRENT PORTION OF CAPITALIZED LEASES (Note 4) 49,442 49,807
------------ ------------
Total current liabilities 1,230,814 674,143
------------ ------------
NOTES PAYABLE (Note 3) 129,691 0
------------ ------------
CAPITAL LEASE, net of current portion (Note 4) 3,966 49,442
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT) (Note 5):
Common stock, authorized 30,000,000 shares; $.01 par value;
issued and outstanding 7,722,188 and 3,599,750 shares in
1996 and 1995, respectively 77,222 35,998
Additional paid-in capital 16,362,395 15,753,539
Accumulated deficit (16,798,006) (12,046,165)
------------ ------------
Total stockholders' equity (deficit) (358,389) 3,743,372
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 1,006,082 $ 4,466,957
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES (Notes 2 and 6) $ 1,968,750 $ 1,489,139 $ 1,059,924
-------------- -------------- --------------
OPERATING EXPENSES:
Salaries and related benefits 1,391,725 1,292,654 1,164,430
Research and development expenses
(Note 2) 3,066,395 1,621,849 1,166,769
Selling expenses 1,447,593 940,624 745,958
General and administrative expenses 905,137 846,817 864,863
-------------- -------------- --------------
Total operating expenses 6,810,850 4,701,944 3,942,020
-------------- -------------- --------------
Loss from operations (4,842,100) (3,212,805) (2,882,096)
-------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest income 95,820 49,635 3,974
Interest expense and financing costs (Note 3) (5,561) (1,073,800) (9,500)
-------------- -------------- --------------
90,259 (1,024,165) (5,526)
-------------- -------------- --------------
Net loss ($ 4,751,841) ($ 4,236,970) ($ 2,887,622)
============== ============== ==============
NET LOSS PER COMMON SHARE (Note 2) ($ .63) ($ .88) ($ .85)
============== ============== ==============
WEIGHTED AVERAGE NUMBER COMMON
SHARES OUTSTANDING (Note 2) 7,576,260 4,792,932 3,392,434
============== ============== ==============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
NUMBER PAR PAID-IN SUBSCRIPTIONS ACCUMULATED
OF SHARES VALUE CAPITAL RECEIVABLE DEFICIT
----------- --------- ------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 1,286,604 $12,866 $ 5,078,339 $ 0 ($ 4,921,573)
Issuance of stock for cash in
private placement 364,951 3,649 1,596,717 0 0
Issuance of stock in lieu of cash
compensation 17,526 175 90,825 0 0
Issuance of stock in payment
of loans 81,662 817 294,183 0 0
Issuance of stock for subscription
receivable, net 30,768 308 99,692 (100,000) 0
Conversion of note payable to
equity in January, 1995 0 0 60,000 0 0
Net loss for 1994 0 0 0 0 (2,887,622)
----------- --------- ------------- --------------- -------------------
BALANCE, December 31, 1994 1,781,511 17,815 7,219,756 (100,000) (7,809,195)
Issuance of stock for note converted
to equity in 1994 18,489 185 (185) 0 0
Payment of stock subscription
receivable 0 0 0 100,000 0
Issuance of stock and warrants
for cash in public offering 1,525,931 15,260 6,495,129 0 0
Issuance of stock and warrants
for Bridge Note conversion in
public offering 273,819 2,738 1,393,739 0 0
Issuance of Bridge Warrants 0 0 645,000 0 0
Sale of underwriter of purchase
options 0 0 100 0 0
Net loss for 1995 0 0 0 0 (4,236,970)
----------- --------- ------------- --------------- -------------------
BALANCE, December 31, 1995 3,599,750 35,998 15,753,539 0 (12,046,165)
Exercise of Bridge Warrants 247,090 2,471 553,566 0 0
2 for 1 stock split 3,846,840 38,468 (38,468) 0 0
Exercise of stock options 28,508 285 33,338 0 0
Net loss for 1996 0 0 0 0 (4,751,841)
Options granted at less than
fair value 0 0 60,420 0 0
----------- --------- ------------- --------------- -------------------
BALANCE, December 31, 1996 7,722,188 $77,222 $16,362,395 $ 0 ($ 16,798,006)
=========== ========= ============= =============== ===================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.) STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
CAH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 4,751,841) ($ 4,236,970) ($ 2,887,622)
Adjustments to reconcile net loss to net cash used
in operating activities--
Depreciation and amortization 188,550 108,999 72,651
Expense recognized for options granted at less
than fair market value 60,420 0 0
Stock issued in lieu of cash compensation 0 0 91,000
Issuance of Bridge Warrants 0 645,000 0
(Increase) decrease in accounts receivable, net (8,503) (142,214) 28,345
(Increase) decrease in prepaid expenses and other
current assets (31,088) (2,767) 14,500
(Increase) decrease in other assets (4,816) (44,000) 15,074
Increase (decrease) in accounts payable and
accrued expenses 559,370 (474,056) 614,990
(Decrease) increase in deferred revenue (2,334) 58,400 0
-------------- -------------- --------------
Net cash used in operating activities (3,990,242) (4,087,608) (2,051,062)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES--
Purchases of equipment, furniture and fixtures (123,704) (203,849) (62,693)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock and warrants for
cash in initial public offering, net of costs 0 6,510,389 0
Proceeds from issuance of bridge notes 2,365,000 0
Proceeds from sale of purchase warrants 0 100 0
Repayment of bridge financing 0 (968,523) 0
Proceeds from borrowings from stockholders 0 0 450,000
Proceeds from issuance of stock for cash 0 0 1,600,365
Proceeds from exercise of bridge warrants 556,037 0 0
Proceeds from exercise of stock options 33,623 0 0
Proceeds from notes payable 129,691 0 60,000
Proceeds from common stock subscriptions receivable 0 100,000 0
Payments on capitalized leases (45,841) (33,859) 0
Payments of notes payable to stockholder 0 (155,000) 0
-------------- -------------- --------------
Net cash provided by financing activities 673,510 7,818,107 2,110,365
-------------- -------------- --------------
Net (decrease) increase in cash (3,440,436) 3,526,650 (3,390)
CASH AND CASH EQUIVALENTS, beginning of year 3,661,009 134,359 137,749
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of year $ 220,573 $ 3,661,009 $ 134,359
============== ============== ==============
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
-------- ----------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $5,561 $ 123,350 $ 0
======== =========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Common stock (81,661 shares in 1994) issued
to satisfy loans payable to stockholders
and in conversion of notes payable $ 0 $ 0 $295,000
Assets acquired under capital lease
obligations 0 133,108 0
Issuance of stock in exchange of Bridge Notes 0 1,396,477 0
======== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-7
<PAGE>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION:
PaperClip Software, Inc. (formerly PaperClip Imaging Software, Inc.)
(the "Company"), a Delaware corporation, is engaged in the development
and distribution of off-the-shelf computer software for document
management and imaging systems. The Company's systems allow users of
personal computer networks to scan, file, retrieve, display, print and
route documents and other software objects (such as word processing
files, spreadsheets and electronic mail), while continuing to use their
existing application software. The systems can be integrated with many
personal computer applications with little or no programming and can
file and retrieve documents without the time consuming step of manually
labeling or indexing each document.
During 1995, the Company completed an initial public offering (the IPO)
of 1,799,750 shares of its common stock, and 1,799,750 redeemable Class
A purchase warrants. The common stock and Class A warrants were
purchased in pairs at $5.10 per pair but were separately transferable
immediately after completion of the IPO.
The Company's financial statements have been presented on the basis
that is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
The Company is subject to the risks and difficulties encountered by any
new business, including competition from existing companies offering
the same or similar services, lack of financial resources and minimal
previous record of operations, earnings or revenues. The Company has
incurred losses from inception, has negative cash flows from operating
activities and has signed a letter of intent for the potential sale of
its assets (see Note 9). These factors raise substantial doubt about
the ability of the Company to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities or any other adjustments that
might result should the Company be unable to continue as a going
concern.
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Use of Estimates in the
Preparation of Financial Statements-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-8
<PAGE>
Revenue Recognition-
The Company generates revenues from licensing the rights to use its
software products directly to distributors, resellers, original
equipment manufacturers (OEM's), and end users.
Revenues from licenses are recognized upon shipment of the software
if there are no significant post delivery obligations, if collection
is probable and if payment is due within one year. Under the license,
the Company provides telephone support at no additional charge for
periods not exceeding one year. The estimated cost of providing such
support is not significant. Revenues from consulting services are
recognized as services are performed.
Commencing in 1995, the Company offered post contract services, which
included software version upgrades only, and consulting and training
services related to installation and implementation of the Company's
product. Total revenues from post contract services were not
significant for 1996 and 1995. Revenues paid by the customer prior to
performance of post contract services are deferred and recognized
over the term of the post contract service agreement, usually one
year. Deferred revenue included in the balance sheet at December 31,
1996 and 1995 was $56,066 and $58,400, respectively.
Cash and Cash Equivalents-
Cash and cash equivalents consist primarily of cash at banks and
investments with maturities of three months or less.
Equipment, Furniture and Fixtures-
Equipment, furniture and fixtures are stated at cost, less
accumulated depreciation. Depreciation expense is computed using the
straight-line method over the estimated useful lives of the assets
(five to seven years).
Software Development Costs-
Statement of Financial Accounting Standards No. 86 requires
capitalization of software development cost from the time of
establishment of technological feasibility for the computer software
product until the time when the product is available for general
release to customers. Management of the Company has determined that
technological feasibility and availability for release are virtually
simultaneous and, therefore, no development costs have been
capitalized in the accompanying financial statements.
Long-Lived Assets-
During 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets" ("SFAS 121"). SFAS 121 requires,
among other things, that an entity review its long-lived assets and
certain related intangibles for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not
be fully recoverable. As a result of its review, the Company does not
believe that any impairment currently exists related to its
long-lived assets.
F-9
<PAGE>
Accounting for Stock-Based Compensation-
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123). The adoption
of this pronouncement had no impact on the Company's financial
condition or results of operations, however, additional disclosures
have been included in the financial statements (see Note 7).
Federal Income Taxes-
The Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes" (SFAS 109), which provides for the
recognition of deferred tax assets, net of an applicable valuation
allowance, related to net operating loss carryforwards and certain
temporary differences.
At December 31, 1996, the Company had net Federal operating loss
carryforwards (NOL) of approximately $16,182,000 which expire at
various dates through 2011. Due to losses sustained by the Company,
management was unable to determine that realization of the deferred
tax asset was more likely than not and, thus, has provided a full
valuation allowance. As a result of a change in control resulting
from the Company's IPO (see Note 5) or which may result upon the sale
of the Company, the Company's NOL that would be available to offset
future taxable income may be subject to annual limitations.
Net Loss Per Common Share-
Net loss per common share is computed based upon the weighted average
number of common shares and common share equivalents outstanding if
dilutive during each year. Shares issuable upon exercise of warrants
related to the April 5, 1995 Bridge Financing have been included in
the computation of net loss per share for all periods prior to the
IPO (see Note 3). All per share amounts have been retroactively
adjusted for the two-for-one common stock split on May 31, 1996. On
June 12, 1996, there was a two-for-one split of the Company's
warrants.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" which makes certain changes to the manner in which earnings
per share is reported. The Company is required to adopt this standard
for the year ended December 31, 1997. The adoption of this standard
will require restatement of prior years' earnings per share if the
impact is material.
(3) DEBT:
On April 5, 1995, the Company consummated a bridge financing in which
the Company issued notes (the Bridge Notes) in the aggregate principal
amount of $2,365,000 and 430,000 warrants (the Bridge Warrants) to
acquire an aggregate of 430,000 shares of common stock at an exercise
price equal to the IPO price for the common stock less $2.75. The
Bridge Warrants are exercisable for five years from the date of
issuance. In connection with the IPO, $1,396,477 of the Bridge Notes
were converted for 273,819 shares of common stock and related warrants
(see Note 5). The balance of the principal amount of the Bridge Notes
and related interest were repaid with proceeds from the IPO. During
1996, 247,090 Bridge Warrants were exercised. At December 31, 1996,
182,910 (365,820 post split - see Note 2) Bridge Warrants were
outstanding. The $645,000 difference between the exercise price of the
Bridge Warrants and the $3.75 estimated fair value of the common stock
at the date of the bridge financing has been charged to interest
expense and a credit to be paid in capital in 1995.
F-10
<PAGE>
The Bridge Notes bore interest at the rate of 9% per annum, and
additional costs associated with their issuance of $307,450 are
reflected in interest expense and financing costs in the 1995 statement
of operations.
During 1996, the Company issued $129,691 of Convertible Notes (the
Notes) to certain shareholders of the Company. The Notes bear interest
at 12% per annum and are convertible into common stock at a rate of
$.30 per share. The Notes mature in December, 1999. The Notes become
due upon the occurrence of certain events of default, as defined.
(4) COMMITMENTS AND CONTINGENCIES:
William Weiss, Chief Executive Officer and Sol Rosenberg, President
have each entered into an employment agreement with the Company for a
term ending December 31, 1998. In accordance with their respective
contracts, each of Messrs. Weiss and Rosenberg is entitled to $120,000
per annum. Messrs. Weiss and Rosenberg's annual compensation will be
increased to $150,000 per annum after the end of the first fiscal year
in which the Company is profitable. In addition, Mr. Rosenberg's
contract provides for a severance payment not to exceed $120,000 and
requires the Company to purchase and maintain disability insurance for
his benefit.
The Company leases its office spaces under a noncancellable operating
lease. Future minimum rental payments required under this lease are
$119,000, $36,000 and $15,000 for 1997, 1998 and 1999, respectively. In
addition, the Company leases office furniture under a capital lease
agreement requiring principal payments of $49,000 and $4,000 in 1997
and 1998, respectively. Rent expense was approximately $119,000,
$120,000 and $122,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
In the last quarter of 1995, the Company purchased from Cheyenne, for
$100,000, the NOSS product line, which the Company had previously been
licensing from Cheyenne. Cheyenne also granted to the Company a
nonexclusive, perpetual, irrevocable, nontransferable, worldwide,
royalty free license with respect to certain other software the Company
had previously been licensing from Cheyenne. Prior to the purchase, the
Company had paid Cheyenne in excess of $300,000 in royalties. In
January, 1996, the parties further agreed that Cheyenne will forward to
the Company all orders received by Cheyenne for the NOSS products and
will be paid a commission of 15% with respect to each such order.
(5) STOCKHOLDERS' EQUITY (DEFICIT):
On February 17, 1994, the Company issued 264,367 shares of common stock
to qualified investors at $5.19 per share. Net cash proceeds from the
offering were $1,178,640. As part of the offering, 32,934 shares were
issued to existing stockholders in repayment of loans of $80,000 and in
lieu of cash compensation of $91,000.
During 1994, the Company obtained an advance of $60,000 for working
capital purposes from First Albany Corporation. In January, 1995, the
Company issued 18,489 shares to First Albany at $3.25 per share in
settlement of the above advance.
F-11
<PAGE>
In addition, the Company issued 30,768 shares of common stock prior to
December 31, 1994, the payment of which was received in 1995.
On December 30, 1994, the Company issued 133,518 shares of common stock
to qualified investors at $3.25 per share. Net cash proceeds from the
offering were $421,725. As part of the offering, 66,254 shares at $3.25
per share were issued to existing stockholders in repayment of loans of
$215,000.
In September, 1995, the Company completed an initial public offering
(the IPO) of 1,799,750 shares of its common stock, and 1,799,750
redeemable Class A purchase warrants (Class A warrants) including
shares issued on conversion of Bridge Warrants (see Note 3). The common
stock and Class A warrants were purchased in pairs at $5.10 per pair
but were separately transferable immediately after completion of the
IPO. Cash proceeds from the IPO were $6,510,389, net of expenses of
$1,271,859.
The Company granted to the underwriter of the IPO a five year option to
purchase up to ten percent (10%) of: (i) the number of shares of common
stock sold in the IPO (the Stock Purchase Option), at a price of $6.75
per share; and (ii) the number of Class A Warrants sold in the IPO (the
Warrant Purchase Option), at a price of $0.135 per Class A Warrant. The
Stock Purchase Option and the Warrant Purchase Option are collectively
referred to as the "Purchase Options." The Purchase Options may be
separately and independently exercised.
(6) MAJOR CUSTOMERS:
The Company sells its products primarily through mass distributors and
approximately 200 independent Value Added Resellers ("VARS"). The VARS
sell and install these products at end user sites. Sales to one major
customer for the year ended December 31, 1996 was approximately 15%.
Sales to four major customers for the year ended December 1995 were
approximately 10%, 11%, 15% and 20% . Sales to two major customers for
the year ended December 31, 1994 were 25% and 14%.
(7) STOCK OPTION PLAN:
1993 Stock Option Plan-
The Company adopted a stock option plan (the "1993 Stock Option
Plan"), effective March 8, 1993, covering 58,126 shares of the
Company's common stock, pursuant to which employees of the Company
are eligible to receive incentive stock options. The 1993 Stock
Option Plan, which expires in 2003, is administered by the Board of
Directors. The selection of participants, allotment of shares,
determination of price and other conditions of purchase of options is
determined by the Board of Directors. Incentive stock options granted
under the Plan are exercisable for a period of up to ten years from
the date of the grant. The options vest as follows: 25% in year 1,
30% in year 2, and 45% in year 3.
F-12
<PAGE>
Stock option transactions for the 1993 Stock Option Plan are summarized
as follows-
Year Ended December 31
------------------------------------------
Exercise Exercise
1996 Price 1995 Price
-------- -------- ------- ---------
Outstanding, beginning of year 58,126 $2.60 58,126 $2.60
Granted 0 0.00 0 0.00
Exercised 0 0.00 0 0.00
Canceled or expired (24,939) 2.60 0 0.00
-------- -------- ------- ---------
Outstanding, end of year 33,187 $2.60 58,126 $2.60
======== ======== ======= =========
As of December 31, 1996, all of the options outstanding under the 1993
Stock Option Plan were exercisable at $2.60 per share.
1995 Stock Option Plan-
In May, 1995 the Company adopted a stock option plan (the "1995 Stock
Option Plan") covering 1,000,000 shares of common stock, pursuant to
which officers, directors and employees of the Company and certain
other persons conferring benefit upon the Company will be eligible to
receive stock options. The 1995 Stock Option Plan, which expires on
March 1, 2005, is administered by the Board of Directors. The
selection of participants, allotment of shares, determination of
price, vesting and other conditions of purchase of options is
determined by the Board of Directors. Stock options granted under the
Plan are exercisable for a period of up to 10 years from the date of
grant.
Stock option transactions for the 1995 Stock Option Plan are
summarized as follows-
Year Ended December 31
------------------------------------------
Exercise Exercise
1996 Price 1995 Price
-------- -------- ------- ---------
Outstanding, beginning of year 140,200 $1.13-$2.50 0 $0
Granted 370,342 $.05-$2.50 140,200 $1.13-2.50
Exercised (28,508) $1.13-$2.55 0 $0
Canceled or expired (14,600) $1.13 0 $0
-------- -------- ------- ---------
Outstanding, end of year 467,434 $.05-$2.50 140,200 $1.13-$2.50
During 1996, 50,000 options were granted to three employees at less
than fair market value. The difference of $60,420 between the exercise
price and the fair market value of the Company's stock on the grant
date has been charged to operations with a corresponding credit to
additional paid in capital. Certain of the options vest as follows: 33%
in 1995, 66% in 1996 and 100% in 1997. As of December 31, 1996, 200,519
options were exercisable at prices ranging from $.05 to $2.50 per
share.
F-13
<PAGE>
Effective January 1, 1996, the Company adopted the provisions of SFAS
123, "Accounting for Stock-Based Compensation." As permitted by the
statement, the Company has chosen to continue to account for
stock-based compensation using the intrinsic value method. Had the fair
value method of accounting been applied to the Company's stock option
plans, which requires recognition of compensation cost ratably over the
vesting period of the underlying equity instruments, the net loss would
have been increased by approximately $88,000 with a $.01 per share
effect in 1996 and approximately $32,000 with $.01 per share effect in
1995. This pro forma impact only takes into account options granted
since January 1, 1995 and is likely to increase in future years as
additional options are granted and amortized ratably over the vesting
period. The average fair value of options granted during 1996 and 1995
was $1.33 and $1.13, respectively.
The fair value was estimated using the Black-Scholes option-pricing
model based on the weighted average market price at grant date of $1.89
in 1996 and $1.87 in 1995 and the following weighted average
assumptions; risk-free interest rate of 7.5% in 1996 and 1995,
volatility of 75% for 1996 and 1995, and dividend yield of 0% for 1996
and 1995.
(8) EXPORT SALES:
Export sales were approximately 18.6%, 21.3% and 16.5% of the Company's
net sales for the years ended December 1996, 1995 and 1994,
respectively.
(9) SUBSEQUENT EVENT:
On January 2, 1997, the Company signed a letter of intent with Access
Solutions International Inc. (Access) for the sale of the Company's
assets and assumption of certain liabilities by Access for
approximately $5.8 million. The purchase price would be paid by the
issuance of approximately 1,544,000 shares of Access' common stock plus
an equivalent number of Access Class B Warrants. Each warrant would
entitle the holder to purchase one share of Access common stock at an
exercise price of $6.00 per share. The parties are currently
negotiating a definitive purchase agreement. In addition, on January
29, 1997, Access advanced $300,000 to the Company and the Company
signed a convertible promissory note maturing on January 27, 1998. The
promissory note bears interest at 12% and is convertible into common
stock of the Company at $.25 per share at the option of Access.
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the Registrant has caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PAPERCLIP SOFTWARE, INC.
- ------------------------
By: /s/ William Weiss
-------------------------------------------
William Weiss, Chief Executive Officer
Date: April 14, 1997
Pursuant to the requirements of the Exchange Act, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William Weiss
- -----------------------
William Weiss Director, Chief Executive Officer April 14, 1997
(Principal Executive Financial and
and Accounting Officer)
/s/ Sol Rosenberg
- -----------------------
Sol Rosenberg President, Director April 14, 1997
/s/ Michael Suleski
- -----------------------
Michael Suleski Director, Vice President, Secretary April 14, 1997
</TABLE>
31
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
3.1 Certificate of Incorporation of Registrant, as amended.
3.2 By-Laws of Registrant, as amended. (1)
3.3 Registrant's Authorization to do Business in New Jersey. (1)
3.4 Registrant's Authorization to do Business in California. (1)
3.5 Form of Common Stock Certificate. (1)
4.2 Class A Warrant Agreement (including form of Class A Warrant) among the
Registrant, A.R. Baron & Co., Inc. ("Baron") and American Stock Transfer &
Trust Company.(1)
4.3 Stock Purchase Option, dated September 27, 1995, granted to Baron.(1)
4.4 Warrant Purchase Option, dated September 27, 1995, granted to Baron.(1)
4.5 Form of Investor Purchaser Agreement, dated as of April 5, 1995, by and
between the Registrant and the Investors identified in the Schedule of Investors
attached thereto, and amendment thereto, dated March 29, 1995. (1)
4.6 Form of Bridge Note issued on April 5, 1995, to each Investor identified on the
Schedule of Investors included with Exhibit 4.5. (1)
4.7 Form of Bridge Warrant dated April 5, 1995, given to each Investor identified on
the Schedule of Investors included with Exhibit 4.5. (1)
10.1 Employment Agreement, dated as of May 1, 1995, between the Registrant and
William Weiss. (1)
10.2 Employment Agreement, dated as of May 1, 1995, between the Registrant and
Sol Rosenberg. (1)
10.3 Employment Agreement, dated as of May 1, 1995, between the Registrant and
Helaine Fischer. (1)
10.4 Employment Agreement, dated as of December 1, 1992, between the Registrant
and Michael Suleski. (1)
10.5 Employment Agreement, dated as of June 17, 1996, between the Registrant and
David Valentino
10.6 1993 Stock Option Plan. (1)
10.7 1995 Stock Option Plan, as amended
10.8 Development License Agreement with Decomp, dated May 25, 1993. (1)
10.9 License Agreement with Decomp, dated June 3, 1993. (1)
10.10 License Agreement with Ligature, Ltd., dated August 18, 1994. (1)
10.11 License Agreement with Pixel Translations, Inc., dated May 16, 1995. (1)
10.12 Distributor Agreement with Law Cypress Distributing Company. dated as of
March 18,1993 (incorporated by reference from Exhibit 10.16
of the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1995).
10.13 Distribution Agreement with Tech Data Corporation, dated June 16, 1993. (1)
32
<PAGE>
10.14 Form of End User License. (1)
10.15 Corporate License Agreement with Tenaga Nasional Berhard, dated January
1995. (1)
10.16 Development Agreement with DCL Systems International, Ltd., dated June 1,
1994. (1)
10.17 Sublease by and between the Registrant and Ram Mobile Data U.S.A. Limited
Partnership, dated as of April 20,1995, for the Registrant's headquarters. (1)
10.18 Software Bundle Agreement with Fujitsu U.K. Limited, dated as of June l, 1995. (1)
10.19 Lease by and between the Registrant and Lillipont Investment Co. dba Dupont Palm Court,
executed April 24, 1996, for Registrant's California Sales Office.
10.20 Merger and Acquisition Agreement between the Registrant and Baron, dated
September 27, 1995. (1)
10.21 Consulting Agreement with Stephen Kornfeld, dated as of January 1, 1996
(incorporated by reference from Exhibit 10.27 of the Registrant's Form
10-KSB for the fiscal year ended December 31, 1995).
10.22 (a) Reschedule Agreement with NCC Export Systems 1995 LTD ("NCC"),
dated as of October 21, 1996 (incorporated by reference from Exhibit
10 of the Registrant's Form 10-QSB for the quarter ended September
30, 1996).
(b) Receipt of full payment and termination of the Reschedule Agreement
from NCC, dated January 29 , 1997.
10.23 Software License Agreement with InText Systems, dated as of June 30,
1996.
10.24 Distributor License Agreement with Pesaniaga SDN BHD,
dated as of November 10, 1994.
10.25 Distributor License Agreement with Digital Document Systems, dated
July 1, 1996.
10.26 License Agreement with Cheyenne Software, Inc., dated November 10, 1995 (incorporated by
reference from Exhibit 10.12(c) of the Registrant's Form 10-KSB for the fiscal year ended
December 31, 1995).
10.27 (a) Letter of Intent with Access Solutions International, Inc. ("Access
Solutions"), dated January 2, 1997.
(b) Letter Agreement with Access Solutions, amending the Letter of Intent,
dated January 31, 1997.
(c) Letter Agreement with Access Solutions, amending the Letter of Intent,
dated February 28, 1997.
(d) Letter Agreement with Access Solutions, amending the Letter of Intent,
33
<PAGE>
dated March 31, 1997.
(e) Convertible Promissory note issued by the Registrant to Access
Solutions, dated January 29, 1997.
(f) Security Agreement with Access Solutions, dated January 29, 1997.
Registration Rights Agreement with Access Solutions, dated January
29, 1997.
21.1 List of subsidiaries of Registrant. (1)
----------------------------
(1) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (File No. 33-92768NY).
</TABLE>
34
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PAPERCLIP IMAGING SOFTWARE, INC.
---------------------------------------------------------
Adopted in accordance with the provisions of
Section 242 of the General Corporation
Law of the State of Delaware
---------------------------------------------------------
We, William Weiss, Chief Executive Officer, and Michael Suleski,
Secretary, of PAPERCLIP IMAGING SOFTWARE, INC., hereby certify as follows:
FIRST: That the Certificate of Incorporation of said corporation is
hereby amended as follows:
By striking out the whole of Articles FIRST and FOURTH thereof as they
now exist and inserting in their place the following:
"FIRST": The name of the corporation is: PAPERCLIP SOFTWARE, INC.
"FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is 30,000,000 shares of Common Stock,
par value $.01 per share."
SECOND: That such amendment has been duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware by the vote
<PAGE>
of the holders of note less than a majority of the outstanding stock entitled
to vote thereon at the annual meeting of shareholders.
IN WITNESS WHEREOF, we have signed this certificate this 29th day of
August, 1996.
/s/ William Weiss
William Weiss, Chief Executive Officer
/s/ Michael Suleski
Michael Suleski, Secretary
2
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT made as of June 17, 1996, between PAPERCLIP
IMAGING SOFTWARE, INC. (the "Company"), a Delaware corporation having its
principal place of business at Three University Plaza, Hackensack, New Jersey
07601, and DAVID VALENTINO (the "Executive"), residing at 19 Kastor Lane, West
Long Branch, New Jersey 07764.
----------------------------------
In consideration of the mutual covenants contained in this Agreement,
the parties, intending to be legally bound, hereby agree as follows:
1. Employment. The Company hereby employs Executive as its Vice
President of Marketing and Sales, subject to and on the terms and conditions
set forth in this Agreement, and Executive hereby accepts such employment.
2. Term. The term of this Agreement ("Term") shall commence as of the
date hereof and shall continue until June 30, 1999, unless extended or earlier
terminated in the manner hereinafter provided.
3. Obligations of Executive. During the Term, Executive shall:
<PAGE>
(a) render his services to the Company and its affiliates in a
manner reasonably satisfactory to the Board of Directors of the Company;
(b) under the supervision and control of the Company's Board of
Directors, and the Chief Executive Officer, perform the following
responsibilities: develop and implement marketing plans for the Company's
proprietary software systems; develop bundling and OEM transactions beneficial
to the marketing of the Company's products; market the Company's products based
on such proprietary systems; hire and supervise marketing and sales employees;
and perform such other services and duties as are customarily performed by a
vice president in charge of marketing and sales of a company with activities
similar to those of the Company, including such other duties as shall be
assigned to him by the Board of Directors and the Chief Executive Officer; and
(c) devote full time to the affairs of the Company (and its
affiliates); and use his best efforts to promote the interests of the Company
(and its affiliates) and perform no acts contrary to such interests.
4. Compensation. (a) As compensation for all services to be performed
by Executive for the Company (and its affiliates) during the Term, the Company
agrees
2
<PAGE>
to pay Executive a salary at the annual rate of $135,000.
(b) In addition, the Company agrees to pay Executive incentive
compensation, and to grant stock options to Executive (on the terms set forth
in paragraph (c) of this Section), with respect to each full quarter of the
Term (commencing July 1, 1996) in relation to the following respective
quarterly quotas of "Systems Sales" (as hereinafter defined) of the Company
during such quarter:
Quarter Commencing Systems Sales Quota
------------------ -------------------
7/1/96 $ 581,641
10/1/96 $ 688,326
1/1/97 $ 814,579
4/1/97 $ 963,989
7/l/97 $1,140,804
10/1/97 $1,350,050
1/1/98 To be determined by
& thereafter Board of Directors
With respect to any quarter in which Systems Sales reach 100% of the applicable
quota: the cash incentive compensation shall be $12,500, and the number of
options available (under paragraph (c) of this Section) shall be 7,000. With
respect to any quarter in which Systems Sales exceed 100% of the applicable
quota: the incentive compensation, and the number of options available, shall
3
<PAGE>
each be increased proportionately. With respect to any quarter in which Systems
Sales reach less than the applicable quota (but at least 80% of such quota):
the cash incentive compensation, and the number of options available, shall
each be decreased proportionately. With respect to any quarter in which Systems
Sales reach less than 80% of the applicable quota (but at least 50% of such
quota), the cash incentive compensation, and the number of options available,
shall be decreased proportionately and, then, divided by two. With respect to
any quarter in which Systems Sales reach less than 50% of the applicable quota,
there shall be no incentive compensation, and no options available, under this
paragraph.
(c) The options referred to in paragraph (b) of this Section shall
all be under the Company's 1995 Stock Option Plan, at an exercise price, in
each case, of $2.50 per share (the price on June 24, 1996).
(d) As used in this Agreement, the term "Systems Sales", with
respect to any quarter, shall mean:
(i) with respect to the first four quarters of the Term, all
bona fide sales of the Company during such quarter except sales of Internet
related products;
(ii) with respect to the next four quarters of the Term: all
bona fide sales of the Company during
4
<PAGE>
such quarter including sales of Internet related products; provided, however,
that the quota applicable to any of such quarters shall not have not been
satisfied unless the bona fide sales of the Company during such quarter
excluding all sales of Internet related products shall have exceeded 50% of
such quota during such quarter; and
(iii) thereafter all bona fide sales of the Company during such
quarter (regardless of the type of products or services); as determined by the
Company's accountants, less, in each case, all returns, royalties payable to
the Company's licensors with respect to such sales, and direct costs associated
with software manuals and software packaging. The term "Sales" also includes
indirect sales related to OEM Transactions.
(e) The Company will also grant the Executive 66,666 Stock Options,
under its 1995 Stock Option Plan, at an exercise price, in each case, equal to
$2.50 per share (the price on June 24, 1996). Such grants shall take place on
each of the following respective dates: June 30, 1997, June 30, 1998, June 30,
1999, if Systems Sales during the year of the Term then ending equaled at least
50% of the aggregate quotas with respect to such year set forth or referred to
in paragraph (b) of this section.
5
<PAGE>
(f) The Company will, during each December of the Term, contribute
$7,500 to Executive's Section 401(k) Plan, except to the extent that unless the
Company shall adopt its own retirement plan granting you similar benefits. In
addition, upon satisfying (or continuing to satisfy) any applicable eligibility
requirements, Executive shall also be entitled to participate in any pension,
group insurance or hospitalization plan or other benefit plan or arrangement of
the Company which is applicable to its employees or executives generally,
although the Company shall be under no obligation to institute any such plan or
arrangement.
(g) If the Company shall terminate Executive's employment during
the Term and without cause, then: (A) the Company shall be obligated to pay:
(i) Executive's bonus under paragraph (b) of this Section for the period ending
on the date of such termination, and to the extent earned; (ii) his salary at
the rate of $135,000 per annum for the six months following such termination;
and (B) Executive shall be entitled to a proportionate number of the options
referred to in paragraph (e) of this Section up to the date of such
termination.
(h) Notwithstanding any other provision of this Agreement, if the
Company shall sell all or substantially all of the assets of the Company or the
Company shall be a party to a merger in which the
6
<PAGE>
Company is not the surviving entity, then, Executive shall be entitled to all
of his options referred to in paragraph (e) of this section, all of which shall
vest.
5. Expenses. The Company will reimburse Executive for properly
documented expenses reasonably incurred by Executive in connection with the
performance of her services to the Company.
6. Agreement Not to Compete; Not to Disclose Confidential Information.
(a) Executive agrees that while he is employed by the Company and for a period
of 24 months commencing at the end of the Term (unless his employment is
terminated prior to the end of the Term without cause, in which event, such
period shall commence after any payments due Executive under this Agreement
have ceased): he will not, except on behalf of the Company (or any of its
affiliates), directly or indirectly, whether as an officer, director,
shareholder, partner, proprietor, associate, employee, representative, agent,
salesperson, consultant, distributor or otherwise, develop, market or sell, or
assist any such person or other entity to develop, market or sell, any software
products competitive with those developed, marketed or sold by the Company
during the Term. Notwithstanding the foregoing, the ownership for investment
purposes as a passive investor (passivity shall not include, among other
things, the receipt of
7
<PAGE>
securities obtained for past or future services, advice or ideas) of common
stock constituting not more than 1% of the outstanding common stock of a person
which is traded on the New York Stock Exchange or the American Stock Exchange
or which is authorized to be quoted on the Nasdaq National Market, even though
that person is a competitor of the Company, shall not be prohibited by this
Section 6(a).
(b) Executive agrees that while he is employed by the Company and
for a period of 36 months commencing at the end of the Term (unless his
employment is terminated prior to the end of the Term without cause, in which
event, such period shall commence after payments due Executive under this
Agreement have ceased) for a period of 36 months after the termination of such
employment, he will not, except on behalf of the Company (or any of its
affiliates), directly or indirectly, whether as an officer, director,
shareholder (subject to the 1% limitation as provided for in 6(a)), partner,
proprietor, associate, employee, representative, agent, salesperson,
consultant, distributor or otherwise, hire or solicit the hiring of any
employee, salesperson or other representative of the Company or any of its
affiliates (except consultants or other third parties introduced by Executive
to the Company).
8
<PAGE>
(c) Executive agrees that he will not, at any time, disclose to any
person, corporation, firm, partnership or other entity (except the Company or
its affiliates) or any officer, director, stockholder, partner, associate,
employee, agent or representative of any such person, partnership, firm,
corporation or other entity, any confidential information or trade secrets of
the Company or any of its affiliates learned by him at any time.
(d) Executive agrees that a violation of the terms and provisions
of this Section 6 will cause irreparable injury to the Company (and its
affiliates, if any), and that the Company (and its affiliates, if any) shall be
entitled, in addition to any other rights and remedies they may have, at law or
in equity, to an injunction enjoining and restraining Executive from doing or
continuing to do any such act and any other violations or threatened violations
of this Section 6.
7. Termination With Cause. As used in this Agreement, the term "cause"
shall mean: (i) criminal, unethical, or dishonest conduct on the part of
Executive so serious as to be injurious to the reputation or business interests
of the Company, or (ii) a material breach by the Executive of the provisions of
this Agreement, (iii) if the Executive has ceased to perform his duties
hereunder in any material respect. The
9
<PAGE>
Executive's employment shall not have been deemed to be terminated for cause
unless and until there shall have been delivered to the Executive a Notice of
Termination specifying the particulars thereof in reasonable detail, and in the
case of (ii) and (iii) above, the Executive shall have had a reasonable period
to cure.
8. Entire Agreement. This Agreement constitutes the entire agreement
between the Company and Executive in any way relating to the employment of
Executive and merges all prior agreements and understandings between them
relating in any way to the subject matter of this Agreement. This Agreement may
not be amended or terminated except by a writing signed by the party against
whom such amendment or termination is sought to be enforced. This Agreement
shall be binding upon the parties and their successors.
9. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New Jersey (without regard to
conflict of laws rules).
10
<PAGE>
The parties have executed this Agreement as of the day and year first above
written.
PAPERCLIP IMAGING SOFTWARE, INC.
By /s/ William Weiss
--------------------------------
William Weiss, CEO
/s/ David Valentino
--------------------------------
David Valentino
11
<PAGE>
PAPERCLIP IMAGING SOFTWARE, INC.
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
-------------------------------------------
PAPERCLIP IMAGING SOFTWARE, INC. hereby adopts an amended and restated
stock option plan upon and subject to the terms and provisions set forth below
for the benefit of certain of its key employees, directors, former directors,
consultants, and other persons who have conferred substantial benefit upon the
Company.
1. Definitions. The following terms shall have the meanings set forth
below whenever used in this instrument:
(a) The word "Board" shall mean the Board of Directors of the Company.
(b) The word "Code" shall mean the United States Internal Revenue Code
of 1986, as amended from time to time (Title 26 of the United
States Code).
(c) The word "Committee" shall mean the Compensation Committee
designated by the Board to administer the Plan and consisting of
either the full Board or at least two directors, each of whom is
an "outside director" as that term is defined for purposes of
Section 162(m) of the Code. Until there are members of the Board
who qualify as "outside directors," the Committee shall consist of
the full Board.
(d) The words "Common Stock" shall mean the common shares, $.01 par
value per share, of the Company.
(e) The word "Company" shall mean PaperClip Imaging Software, Inc., a
Delaware Corporation, and any successor thereto which shall
maintain this Plan.
(f) The words "Fair Market Value" shall have the meaning set forth in
Section 7(a) hereof.
1
<PAGE>
(g) The words "Incentive Stock Option" shall mean any option which
qualifies as an incentive stock option under terms of Section 422
of the Code or any successor provision thereto.
(h) The words "Key Employee" shall mean any person whose performance
as an employee of the Company or a Subsidiary is, in the judgment
of the Committee, important to the successful operation of the
Company or a Subsidiary.
(i) The words "Non-Qualified Stock Option" shall mean an option
granted under Section 7 of the Plan that is not an Incentive Stock
Option, including any option granted under Section 8 hereof.
(j) The word "Optionee" shall mean any Key Employee, director, former
director, or consultant or other person (who has conferred
substantial benefit upon the Company), to whom a stock option has
been granted pursuant to this Plan.
(k) The word "Parent" shall mean any corporation which owns, directly
or indirectly, stock of the Company possessing at least 50% of the
total combined voting power of all classes of stock of the
Company.
(l) The word "Plan" shall mean the PaperClip Imaging Software, Inc.
Amended and Restated 1995 Stock Option Plan, as set forth in this
document, and as it may be amended hereafter.
(m) The word "Subsidiary" shall mean any corporation in which the
Company owns, directly or indirectly, stock possessing at least
50% of the total combined voting power of all classes of stock of
such corporation.
2
<PAGE>
(n) The words "Substantial Shareholder" shall mean any Optionee who
owns more than 10% of the total combined voting power of all
classes of stock of either the Company or any Parent or
Subsidiary. Ownership shall be determined in accordance with
Section 424(d) of the Code and lawful applicable regulations
thereof.
2. Purpose of the Plan. The purpose of the Plan is to provide Key
Employees, directors, former directors, consultants, and other persons who have
conferred substantial benefit upon the Company, with greater incentive to serve
and promote the interests of the Company and its shareholders and/or to reward
such persons for extraordinary services rendered to the Company or on its
behalf or substantial benefit conferred upon it. Accordingly, the Company will,
from time to time during the effective period of the Plan, grant to such Key
Employees, directors, former directors, consultants, and other persons who have
conferred substantial benefit upon the Company, as may be selected to
participate in the Plan, options to purchase Common Stock on the terms and
subject to the conditions set forth in the Plan.
3. Effective Date of the Plan. The Plan became effective as of May 1,
1995, subject to approval by holders of a majority of the outstanding shares of
voting capital stock of the Company, which was obtained in May 1995.
4. Administration of the Plan. (a) The Plan shall be administered by
the Committee. A majority of the Committee shall constitute a quorum, and the
acts of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by all of the members, shall be acts of
the Committee.
3
<PAGE>
(b) Subject to the terms and conditions of the Plan and applicable
law, and except as provided in Section 8 hereof, and in addition to the other
authorizations granted to the Committee under the Plan, the Committee shall
have full and final authority in its absolute discretion:
(i) to select the Key Employees, former directors, consultants, and
other persons who have conferred substantial benefit upon the
Company, other than any member of the Board, to whom options
will be granted;
(ii) to determine the number of shares of Common Stock subject to
any option; (iii) to determine the time when options will be
granted; (iv) to determine the terms and conditions of any
option; (v) to determine the time when each option may be
exercised; (vi) to determine at the time of grant of an option
whether and to what extent such option is an Incentive Stock
Option;
(vii) to prescribe the form of the option agreements governing the
options which are granted under the Plan and to set the
provisions of such option agreements as the Committee may deem
necessary or desirable, provided such provisions are not
contrary to the terms and conditions of either the Plan or,
where the option is an Incentive Stock Option, Section 422 of
the Code;
(viii) to adopt, amend, and rescind such rules and regulations as, in
the Committee's opinion, may be advisable in the administration
of the Plan; and
(ix) to construe, interpret and administer the Plan, the rules and
regulations and the instruments evidencing options granted
under the Plan and to make all
4
<PAGE>
other determinations deemed necessary or advisable for the
administration of the Plan.
(c) Any decision made or action taken by the Committee in connection
with the administration, interpretation, and implementation of the Plan and of
its rules and regulations, shall, to the extent permitted by law, be conclusive
and binding upon all Optionees under the Plan and upon any person claiming
under or through such an Optionee. The Committee may employ attorneys,
consultants, accountants or other persons and the Committee, the Company and
its officers and the Board shall be entitled to rely upon the advice, opinions
or valuations of any such persons. Neither the Committee nor any of its members
shall be liable for any act taken in good faith by the Committee pursuant to
the Plan. No member of the Committee shall be liable for the act of any other
member.
5. Persons Eligible for Options. Subject to the restrictions herein
contained, options may be granted from time to time in the discretion of the
Committee only to such Key Employees, former directors, consultants and other
persons who have conferred substantial benefit upon the Company, as designated
by the Committee, whose initiative and efforts, in the Committee's judgment,
have contributed or may be expected to contribute to the continued growth and
future success of the Company and/or its Subsidiaries. Except as provided in
Section 8 hereof, the Board shall not be eligible to receive an option under
the Plan. No option shall be granted to any Key Employee during any period of
time when he is on leave of absence. The Committee may grant more than one
option to the same Optionee.
6. Shares Subject to the Plan. (a) Subject to the provisions of
paragraph (b) of this Section 6, the aggregate number of shares of Common Stock
for which options may be granted under
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the Plan shall be 1,000,000 shares of Common Stock (as adjusted for a 2 for 1
stock split effective as of May 31, 1996), each of which may be the subject of
an Incentive Stock Option as the Committee may determine in its sole
discretion. Either treasury or authorized and unissued shares of Common Stock,
or both, in such amounts, within the maximum limit of the Plan, as the
Committee shall from time to time determine, may be so issued. All shares of
Common Stock which are the subject of any lapsed, expired or terminated options
may be made available for reoffering under the Plan to any Optionee. If an
option granted under this Plan is exercised, any Common Stock which is the
subject thereof shall not thereafter be available for reoffering under the
Plan.
(b) In the event that subsequent to the date of adoption of the Plan
by the Board, the outstanding shares of Common Stock are, as a result of a
stock split, stock dividend, combination or exchange of shares, exchange for
other securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization or other such change, including without
limitation any transaction described in Section 424(a) of the Code, increased
or decreased or changed into or exchanged for a different number or kind of
shares of stock or other securities of the Company, then (i) there shall
automatically be substituted for each share of Common Stock subject to an
unexercised option granted under the Plan and each share of Common Stock
available for additional grants of options under the Plan the number and kind
of shares of stock or other securities into which each outstanding share of
Common Stock shall be exchanged, (ii) the option price per share of Common
Stock or unit of securities shall be increased or decreased proportionately so
that the aggregate purchase price for the securities subject to the option
shall remain the same as immediately prior to such event, and (iii) the
Committee shall make such other adjustments to the securities subject to
options, the provisions of the Plan, and option agreement as may be
appropriate, equitable and in
6
<PAGE>
compliance with the provisions of Section 424(a) of the Code to the extent
applicable and any such adjustment shall be final, binding and conclusive as to
each Optionee; provided, however, in each case, that (y) with respect to
Incentive Stock Options, no such adjustment shall be authorized to the extent
that such adjustment would cause the Plan to violate Section 422 of the Code or
any successor provision thereto; and (z) any such adjustment shall provide for
the elimination of fractional shares.
7. Option Provisions. The Committee is hereby authorized to grant
options to Key Employees, former directors, consultants and other persons who
have conferred substantial benefit upon the Company, as designated by the
Committee, upon the following terms and conditions (except to the extent
otherwise provided in Section 8 hereof) and with such additional terms and
conditions, in either case not inconsistent with the provisions of the Plan, as
the Committee shall determine:
(a) Option Price. The option price per share of Common Stock which is
the subject of an Incentive Stock Option shall be determined by the Committee
at the time of grant but shall not be less than one hundred percent (100%) of
the Fair Market Value of a share of Common Stock on the date the option is
granted; provided, however, that if a Key Employee to whom an Incentive Stock
Option is granted is, at the time of the grant, a Substantial Shareholder, the
option price per share of Common Stock shall be determined by the Committee but
shall not be less than one hundred ten percent (110%) of the Fair Market Value
of a share of Common Stock on the date the option is granted. The option price
per share of Common Stock under each option granted pursuant to the Plan which
is not an Incentive Stock Option shall be determined by the Committee at the
time of grant but shall not be less than one hundred percent (100%) of the Fair
Market Value of a share of Common Stock on the date the option is granted,
unless the Board shall have approved a lower
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<PAGE>
percentage with respect to such option. Such Fair Market Value shall be
determined in accordance with procedures to be established by the Committee
(the "Fair Market Value"). The day on which the Committee approves the granting
of an option shall be deemed for all purposes hereunder the date on which the
option is granted.
(b) Term of Option. The Committee shall determine when each option is
to expire, but no option shall be exercisable after ten (10) years have elapsed
from the date upon which the option is granted; provided, however, that no
Incentive Stock Option granted to a person who is a Substantial Shareholder at
the time of the grant of such option shall be exercisable after five (5) years
have elapsed from the date upon which the option is granted.
(c) Limitation on Exercise and Transfer of Option. Except as otherwise
provided in paragraph (e) of this Section 7, only the Optionee (personally) may
exercise an option; provided, however, that, under applicable law with respect
to any option that is not an Incentive Stock Option, a guardian or other legal
representative who has been duly appointed for such Optionee may exercise such
option on behalf of the Optionee. Subject to Section 422 of the Code, no option
granted hereunder, and no right under any such option, shall be assignable,
alienable, saleable or transferable otherwise than by will or by the laws of
descent and distribution; provided, however, that, if so determined by the
Committee, an Optionee may, in the manner established by the Committee,
designate a beneficiary or beneficiaries to exercise the rights of the
Optionee, and to receive any property distributable, with respect to any option
upon the death of the Optionee. No option granted hereunder, and no right under
any such option, may be pledged or hypothecated, nor shall any such option be
subject to execution, attachment or similar process and any purported pledge,
8
<PAGE>
hypothecation, execution or attachment thereof shall be void and unenforceable
against the Company or any Parent or Subsidiary.
(d) Conditions Governing Exercise of Option. The Committee may, in its
absolute discretion, either require that, prior to the exercise of any option
granted hereunder, the Optionee shall have been an employee for a specified
period of time after the date such option was granted, or make any option
granted hereunder immediately exercisable. Each option shall be subject to such
additional restrictions or conditions with respect to the time and method of
exercise as shall be prescribed by the Committee. Upon satisfaction of any such
conditions, the option (including an option granted under the provision for
automatic grants contained in Section 8 hereof) may be exercised in whole or in
part at any time during the option period. Options shall be exercised by the
Optionee giving written notice to the Company of the Optionee's exercise of the
option accompanied by full payment of the purchase price either in cash or,
with the consent of the Committee, in whole or in part (i) in shares of Common
Stock held by the Optionee for the requisite period necessary to avoid a charge
to the Company's earnings for financial reporting purposes (and otherwise
meeting any other requirements to avoid such charge) having a Fair Market Value
on the date the option is exercised equal to that portion of the purchase price
for which payment in cash is not made or (ii) pursuant to a broker-assisted
cashless-exercise program established by the Committee; provided in each case
that such methods avoid "short-swing" profits to the Optionee under Section
16(b) of the Exchange Act. Notwithstanding any of the foregoing, the
alternative referenced in (ii) shall not be available with respect to Incentive
Stock Options outstanding as of the date of stockholder approval of the Plan. A
dissolution or liquidation of the Company or, unless the surviving corporation
assumes said options, a merger or consolidation in which the Company is not the
surviving
9
<PAGE>
corporation, shall cause each outstanding option to terminate, provided that
during the option term each Optionee shall have the right during the period
prescribed in the option agreement prior to such dissolution or liquidation, or
merger or consolidation in which the Company is not the surviving corporation,
to exercise his option in whole or in part.
(e) Termination of Employment, Etc. If an Optionee who is a Key
Employee ceases to be an employee of the Company, and all Subsidiaries, his
option shall, unless otherwise provided in Section 8 hereof or in the option
agreement between the Optionee and the Company, terminate on the date which is
three (3) months after such date to exercise all or any part of the option. An
Optionee's employment shall not be deemed to have terminated while he is on a
military, sick or other bona fide approved leave of absence from the Company or
a Subsidiary as such a leave of absence is described in Section 1.421-7(h) of
the Federal Income Tax Regulations or any lawful successor regulations thereto.
If the stock option is an Incentive Stock Option, no option agreement shall:
(i) permit any Optionee to exercise any Incentive Stock Option more
than three (3) months after the date the Optionee ceased to be
employed by the Company or any Subsidiary if the reason for the
Optionee's cessation of employment was other than his death or
his disability (as such term is defined by Section 22(e)(3) of
the Code); or
(ii) permit any Optionee to exercise any Incentive Stock Option more
than twelve (l2) months after the date the Optionee ceased to be
employed by the Company or any Subsidiary if the reason for the
Optionee's cessation of employment was the Optionee's disability
(as such term is defined by Section 22(e)(3) of the Code); or
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<PAGE>
(iii) permit any person to exercise any Incentive Stock Option more
than twelve (l2) months after the date the optionee ceased to be
employed by the Company or any Subsidiary if either (A) the
reason for the Optionee's cessation of employment was his
death or (B) the Optionee died within three (3) months after
ceasing to be employed by the Company or any Subsidiary.
If any option is, by the terms of the option agreement related to such option,
exercisable following the Optionee's death, then such option shall be
exercisable by the Optionee' estate, or the person designated in the Optionee's
Last Will and Testament, or the person to whom the option was transferred by
the applicable laws of descent and distribution.
(f) Limitations on Grant of Incentive Stock Options. During the
calendar year in which any Incentive Stock Option granted under this Plan, or
any other plan of the Company or a Parent or Subsidiary, first becomes
exercisable, the aggregate Fair Market Value of the shares of Common Stock
which are subject to such Incentive Stock Option (determined as of the date the
Incentive Stock Option was granted) shall not exceed the sum of One Hundred
Thousand dollars ($100,000). Options which are not designated as Incentive
Stock Options shall not be subject to the limitations described in the
preceding sentence and shall not be counted when applying such limitation.
(g) Prohibition of Alternative Options. It is intended that Optionees
who are Key Employees may be granted, simultaneously or from time to time,
Incentive Stock Options or other stock options, but no Key Employees shall be
granted alternative rights in Incentive Stock Options and other stock options
so as to prevent options granted as Incentive Stock Options from qualifying as
such within the meaning of Section 422 of the Code.
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<PAGE>
8. Options Awarded to Directors. Each director who is a member of the
Board and an executive officer of the Company on December 31 of a year during
the term of the Plan shall automatically be granted a Non-Qualified Stock
Option to purchase one percent (1%) of the outstanding Common Stock of the
Company on the date of grant on the first business day of the following year.
Each director who is a member of the Board and is not an executive officer of
the Company on December 31 of a year during the term of the Plan shall
automatically be granted a Non-Qualified Stock Option to purchase one-fourth
of one percent (1/4%) of the outstanding Common Stock of the Company on the
date of grant. All options granted pursuant to this Section 8 shall (a) be at
an exercise price per share of Common Stock equal to 100% of the Fair Market
Value of a share of Common Stock on the date of the grant; (b) have a term of
ten (10) years; (c) terminate (i) three months after termination of a
director's service as a director of the Company (or if the director is also an
employee or consultant of the Company, three months after termination of such
director's service in all such capacities) for any reason other than disability
(as such term is defined by Section 22(e)(3) of the Code) or death, (ii) three
(3) months after the date the director ceases to serve as a director of the
Company due to disability (as such term is defined by Section 22 (e)(3) of the
Code), or (iii) (A) twelve (12) months after the date the director ceases to
serve as a director due to death or (B) three months after the death of the
director if the director died during the three month period following the date
the director ceased to serve as a director of the Company due to disability (as
such term is defined by Section 22 (e)(3) of the Code); and (d) be otherwise on
the same terms and conditions as all other options granted pursuant to the
Plan. Notwithstanding any of the foregoing, the Company reserves the right to
grant options to directors under the other
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<PAGE>
provisions of the Plan upon the Committee being composed of at least two
"outside directors" and to dispense, at that time, with the automatic option
grants to directors provided in this Section 8.
9. Amendments to the Plan. (a) Except to the extent prohibited by
applicable law and unless otherwise expressly provided in an option agreement
or in the Plan, the Committee is authorized to interpret the Plan and from time
to time adopt any rules and regulations for carrying out the Plan that it may
deem advisable. Subject to the approval of the Board, the Committee may at any
time amend, modify, suspend or terminate the Plan. In no event, however,
without the approval of the Company's shareholders, shall any action of the
Committee or the Board result in:
(i) amending, modifying or altering the eligibility requirements
provided in Section 5 hereof; or
(ii) increasing or decreasing, except as provided in Section 6
hereof, the maximum number of shares of Common Stock for
which options may be granted; or
(iii) decreasing the minimum option price per share of Common Stock
at which options may be granted under the Plan, as provided
in Section 7(a) hereof; or
(iv) extending either the maximum term during which an option is
exercisable as provided in Section 7(b) hereof or the date on
which the Plan shall be terminated as provided in Section 14
hereof; or
(v) changing the requirements relating to the Committee; or
(vi) making any other change which would cause any option granted
under the Plan as an Incentive Stock Option not to qualify as
an Incentive Stock Option; or
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<PAGE>
(vii) amending, modifying or altering the plan to the extent that
such action would require approval of the Company's
shareholders under Section 162 (m) of the Code;
except as necessary to conform the Plan and the option agreements to changes in
the Code or other governing law. However, no such amendment, modification or
alteration shall, without the consent of the option holders, adversely affect
their rights and obligations under their outstanding options.
(b) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any option granted under the Plan in the manner
and to the extent it shall deem desirable to carry the Plan into effect.
10. Election to Have Shares Withheld. Except with respect to an option
which at the time of grant was intended to be an Incentive Stock Option, in
combination with or in substitution for cash withholding or any other legal
method of satisfying federal and state withholding tax liability, an Optionee
may elect to participate in a broker-assisted cashless-exercise program and
have the proceeds of the shares of Common Stock held by the Optionee sold
pursuant to such broker-assisted cashless-exercise program withheld by the
Company in order to satisfy federal and state withholding tax liability (a
"share withholding election"); provided, (i) the Committee shall not have
revoked its advance approval of the option holder's share withholding election;
and (ii) the election to satisfy such tax liability through such
broker-assisted cashless-exercise program is made on or prior to the date on
which the amount of withholding tax liability is determined.
11. Investment Representation, Approvals and Listing. The Committee
may condition its grant of any option hereunder upon receipt of an investment
representation from the Optionee which shall be substantially similar to the
following:
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<PAGE>
"Optionee agrees that any shares of Common Stock of PaperClip
Imaging Software, Inc. (the "Company") which he may acquire by virtue
of the exercise of this option shall be acquired for investment
purposes only and not with a view to distribution or resale; provided,
however, that this restriction shall become inoperative in the event
the underlying shares of Common Stock of the Company which are subject
to this option shall be registered under the Securities Act of 1933,
as amended, or in the event there is presented to the Company an
opinion of counsel satisfactory to counsel for the Company to the
effect that the offer or sale of the shares of Common Stock of the
Company which are subject to this option may lawfully be made without
registration under the Securities Act of 1933, as amended."
The Company shall not be required to issue any certificates for shares of
Common Stock upon the exercise of an option granted under the Plan prior to (i)
obtaining any approval from any governmental agency which the Committee shall,
in its sole discretion, determine to be necessary or advisable, (ii) the
admission of such shares to listing on any national securities exchange on
which the shares of Common Stock may be listed, (iii) completion of any
registration or other qualification of the shares of Common Stock under any
state or federal law or ruling or regulations of any governmental body which
the Committee shall, in its sole discretion, determine to be necessary or
advisable, or the determination by the Committee, in its sole discretion, that
any registration or other qualification of the shares of Common Stock is not
necessary or advisable, and (iv) obtaining an investment representation from
the Optionee in the form set forth above or in such other form as the
Committee, in its sole discretion, shall determine to be adequate.
12. General Purposes.
(a) No Right to Awards or Equal Terms. No Key Employee, consultant,
former director or other person who has conferred substantial benefit upon the
Company shall have any claim to be
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<PAGE>
granted an option under the Plan. The form and substance of option agreements,
whether granted at the same or different times, need not be identical.
(b) No Limit on Other Plans. Nothing contained in the Plan shall
prevent the Company or any Parent or Subsidiary from adopting or continuing in
effect other or additional compensation arrangements and such arrangements may
be either generally applicable or applicable only in specific cases.
(c) No Right to be Employed, Etc. Nothing in the Plan or in any option
agreement shall confer upon any Optionee any right to continue in the employ of
the Company or any Subsidiary, or to serve as a member of the Board, or to be
entitled to receive any remuneration or benefits not set forth in the Plan or
such option agreement, or to interfere with or limit either the right of the
Company or any Subsidiary to terminate the employment of such Optionee at any
time or the right of the shareholders of the Company to remove him as a member
of the Board with or without cause.
(d) Optionee Does Not Have Rights of Shareholder. Nothing contained in
the Plan or in any option agreement shall be construed as entitling any
Optionee to any rights of a shareholder as a result of the grant of an option
until such time as shares of Common Stock are actually issued to such Optionee
pursuant to the exercise of an option.
(e) Successors in Interest. The Plan shall be binding upon the
successors and assigns of the Company.
(f) No Liability Upon Distribution of Shares. The liability of the
Company under the Plan and any distribution of shares or Common Stock made
hereunder is limited to the obligations set forth herein with respect to such
distribution and no term or provision of the Plan shall be construed to impose
any liability on the Company or the Committee in favor of any person with
16
<PAGE>
respect to any loss, cost or expense which the person may incur in connection
with or arising out of any transaction in connection with the Plan.
(g) Use of Proceeds. The cash proceeds received by the Company from
the issuance of shares of Common Stock pursuant to the Plan will be used for
general corporate purposes.
(h) Expenses. The expenses of administering the Plan shall be borne by
the Company.
(i) Captions. The captions and section numbers appearing in the Plan
are inserted only as a matter of convenience. They do not define, limit,
construe or describe the scope or intent of the provisions of the Plan.
(j) Number. The use of the singular or plural herein shall not be
restrictive as to number and shall be interpreted in all cases as the context
may required.
(k) Gender. The use of the feminine, masculine or neuter pronoun shall
not be restrictive as to gender and shall be interpreted in all cases as the
context may require.
(l) No Fractional Shares. No fractional shares of Common Stock shall
be issued or delivered pursuant to the Plan or any option granted under the
Plan, and the Committee shall determine whether cash, other securities, or
other property shall be paid or transferred in lieu of any fractional shares of
Common Stock or whether such fractional shares of Common Stock or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(m) Severability. If any provision of the Plan or any option granted
under the Plan is or becomes or is deemed to be invalid, illegal, or
unenforceable in any jurisdiction, or would disqualify the Plan or any option
granted under the Plan under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to applicable laws,
or if it cannot be construed or deemed amended without, in the determination of
the Committee, materially altering
17
<PAGE>
the intent of the Plan, such provision shall be deemed void and stricken and
the remainder of the Plan and any such option shall remain in full force and
effect.
13. Deductibility of Compensation under the Plan. Prior to the
termination of the "reliance period" set forth in Treasury Regulation Section
1.162-27(f)(2), the Committee shall determine whether and what actions to take
to ensure that options granted under the Plan after the expiration of the
"reliance period" constitute "performance-based compensation" within the
meaning of Section 162(m) of the Code. After the expiration of the "reliance
period," provided that the Committee consists solely of "outside directors,"
the Company believes that options under the Plan will be exempt from the
limitations of Section 162(m) of the Code as "performance-based" compensation.
14. Termination of the Plan. The Plan shall terminate upon the earlier
of (i) the date on which all shares of Common Stock available for issuance
under the Plan shall have been issued, (ii) the termination of the Plan by the
Board, or (iii) on March 1, 2005, and thereafter no options shall be granted
under the Plan. All options outstanding at the time of termination of the Plan
shall continue in full force and effect according to the terms of the option
agreements governing such options and the terms and conditions of the Plan, and
unless otherwise provided in the Plan or in the applicable option agreement,
the authority of the Committee to amend, alter, adjust, suspend, discontinue,
or terminate any such option or to waive any conditions or rights under any
such option, and the authority of the Board to amend the Plan, shall extend
beyond such date.
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STANDARD OFFICE LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, March
21, 1996 is made by and between Lillipont Investment Co., Inc. dba: Dupont
Palm Court (herein called "Lessor") and Paperclip Imaging Software, Inc. doing
business under the name of Same, (herein called "Lessee").
1.2 PREMISES: Suite Number(s) 214, floors, consisting of
approximately 1,733 feet, more or less, as defined in paragraph 2 and as shown
on Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 2192 Dupont
Drive in the City of Irvine County of Orange State of California, as more
particularly described in Exhibit __ hereto, and as defined in paragraph 2.
1.4 USE: General Office/Training, subject to paragraph 6.
1.5 TERM: 36 months commencing July 1, 1996 ("Commencement Date") and
ending June 30, 1999, as defined in paragraph 3.
1.6 BASE RENT: $2,253.00 per month, payable on the 1st day of each
month, per paragraph 4.1.
1.7 BASE RENT INCREASE: On July 1, 1997 and July 1, 1998 the monthly
Base Rent payable under paragraph 1.6 above shall be adjusted as provided in
paragraph 4.3 below.
1.8 RENT PAID UPON EXECUTION: for July 1996.
1.9 SECURITY DEPOSIT: $2,253.00
2. PREMISES, PARKING AND COMMON AREAS.
2.1 Premises: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in paragraph 1.3 of the
Basic Lease Provisions. "Building" shall include adjacent parking structures
used in connection therewith. The Premises, the Building, the Common Areas,
the land upon which the same are located, along with all other buildings and
improvements thereon or thereunder, are herein collectively referred to as the
"Office Building Project." Lessor hereby leases to Lessee and Lessee leases
from Lessor for the term, at the rental, and upon all of the conditions set
forth herein, the real property referred to in the Basic Lease Provisions,
paragraph 1.2, as the "Premises," including rights to the Common Areas as
hereinafter specified.
<PAGE>
2.2 VEHICLE PARKING: So long as Lessee is not in default, and subject
to the rules and regulations attached hereto, and as established by Lessor
from time to time, Lessee shall be entitled to rent and use common parking
spaces in the Office Building Project at the monthly rate applicable from time
to time for monthly parking as set by Lessor and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the
prohibited activities described in the Lease or the rules then in effect, then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
2.2.2 The monthly parking rate per parking space will be
$-0- per month at the commencement of the term of this Lease, and is subject
to change upon five (5) days prior written notice to Lessee. Monthly parking
fees shall be payable one month in advance prior to the first day of each
calendar month.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Office Building Project that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee
and of other lessees of the Office Building Project and their respective
employees, suppliers, shippers, customers and invitees, including but not
limited to common entrances, lobbies, corridors, stairways and stairwells,
public restrooms, elevators, escalators, parking areas to the extent not
otherwise prohibited by this Lease, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, ramps, driveways, landscaped areas
and decorative walls.
2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by
and conform to the rules and regulations attached hereto as Exhibit B with
respect to the Office Building Project and Common Areas, and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor or such other person(s) as Lessor may appoint shall have the
exclusive control and management of the Common Areas and shall have the right,
from to time, to modify, amend and enforce said rules and regulations. Lessor
shall not be responsible to Lessee for the non-compliance with said rules and
regulations by other lessees, their agents, employees and invitees of the
Office Building Project.
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Building interior and exterior
and Common Areas, including, without limitation, changes in the location,
size, shape, number, and appearance thereof, including but not limited to the
lobbies, windows, stairways, air shafts, elevators, escalators, restrooms,
driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress, egress, direction of traffic, decorative walls, landscaped
areas and
2
<PAGE>
walkways; provided, however, Lessor shall at all times provide the parking
facilities required by applicable law;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and
functional relationship to the Office Building Project;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Office Building
Project, or any portion thereof;
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building Project
as Lessor may, in the exercise of sound business judgment deem to be
appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if
for any reasons Lessor cannot deliver possession of the Premises to Lessee on
said date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease
or the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease, except as may be otherwise
provided in this Lease, until possession of the Premises is tendered to
Lessee, as hereinafter defined; provided, however, that if Lessor shall not
have delivered possession of the Premises within sixty (60) days following
said Commencement Date, as the same may be extended under the terms of a Work
Letter executed by Lessor and Lessee, Lessee may, at Lessee's option, by
notice in writing to Lessor within ten (10) days thereafter, cancel this
Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses Lessor for all costs incurred for Non-Standard Improvements and, as
to Lessor's obligations, Lessor shall return any money previously deposited by
Lessee (less any offsets due Lessor for Non-Standard Improvements); and
provided further, that if such written notice by Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be no further force or effect.
3
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3.2.1 POSSESSION TENDERED--DEFINED. Possession of the
Premises shall be deemed tendered to Lessee ("Tender of Possession") when (1)
the improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) ten (10) days shall have
been expired following advance written notice to Lessee of the occurrence of
the matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement
of rent, and the sixty (60) days period following the Commencement Date before
which Lessee's right to cancel this Lease accrues under paragraph 3.2, shall
be deemed extended to the extent of any delays caused by acts or omissions of
Lessee, Lessee's agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease
term is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of
Possession (as defined in paragraph 3.2.1) or the actual taking of possession
by Lessee, whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
paragraph 4.3, and except as may be otherwise expressly provided in this
Lease, Lessee shall pay to Lessor the Base Rent for the Premises set forth in
paragraph 1.6 of the Basic Lease Provisions, without offset or deduction.
Lessee shall pay Lessor upon execution hereof the advance Base Rent described
in paragraph 1.8 of the Basic Lease Provisions. Rent for any period during the
term hereof which is for less than one month shall be prorated based upon the
actual number of days of the calendar month involved. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
4.3 RENT INCREASE.
4.3.1 At the times set forth in paragraph 1.7 of the Basic
Lease Provisions, the monthly Base Rent payable under paragraph 4.1 of this
Lease shall be adjusted by the increase of 4%.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the security deposit set forth in paragraph 1.9 of the Basic Lease Provisions
as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may
use,
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apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor
for any loss or damage which Lessor may suffer thereby. If Lessor so uses or
applies all or any portion of said deposit, Lessee shall within ten (10) days
after written demand therefor deposit cash with Lessor in an amount sufficient
to restore said deposit to the full amount then required of Lessee. It the
monthly Base Rent shall, from time to time, increase during the term of this
Lease, Lessee shall, at the time of such increase, deposit with Lessor
additional money as a security deposit so that the total amount of the
security deposit held by Lessor shall at all times bear the same proportion to
the then current Base Rent as the initial security deposit bears to the
initial Base Rent set forth in paragraph 1.6 of the Basic Lease Provisions.
Lessor shall not be required to keep said security deposit separate from its
general accounts. It Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not heretofore been applied by Lessor,
shall be returned without payment of interest or other increment for its use,
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between Lessor
and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use
which is reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the
state existing on the date that the Lease term commences, but without regard
to alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such
Lease term Commencement Date. In the event it is determined that this warranty
has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly, at Lessor's sole cost and expense,
rectify any such violation.
(b) Except as provided In paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with ail applicable statutes, ordinances,
rules, regulations orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in
effect or which may hereafter come into effect, whether or not they reflect a
change in policy from that now existing, during the term or any part of the
term hereof, relating in any manner to the Premises and the occupation and use
by Lessee of the Premises. Lessee shall conduct its business in a lawful
manner and shall not use or permit the use of the Premises or the Common Areas
in any manner that will tend to create waste or a nuisance or shall tend to
disturb other occupants of the Office Building Project.
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6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating system in the Premises shall be in good operating
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee
hereby accepts the Premises and the Office Building Project in their condition
existing as of the Lease Commencement Date or the date that Lessee takes
possession of the Premises, whichever is earlier, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations governing
and regulating the use of the Premises, and any easements, covenants or
restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that it has satisfied itself by its own independent investigation
that the Premises are suitable for its intended use, and that neither Lessor
nor Lessor's agent or agents has made any representation or warranty as to the
present or future suitability of the Premises, Common Areas, or Office
Building Project for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior walls, roof, and common
areas and the equipment whether used exclusively for the Premises or in common
with other premises, in good condition and repair; provided, however, Lessor
shall not be obligated to paint, repair or replace wall coverings, or to
repair or replace any improvements that are not ordinarily a part of the
Building or are above then Building standards. Except as provided in paragraph
9.5, there shall be no abatement of rent or liability of Lessee on account of
any injury or interference with Lessee's business with respect to any
improvements, alterations or repairs made by Lessor to the Office Building
Project or any part thereof. Lessee expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because
of Lessor's failure to keep the Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises
in good condition and repair, Lessee shall be responsible for payment of the
cost thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located)
that serves only Lessee or the Premises, to the extent such
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cost is attributable to causes beyond normal wear and tear. Lessee shall be
responsible for the cost of painting, repairing or replacing wall coverings,
and to repair or replace any Premises improvements that are not ordinarily a
part of the Building or that are above then Building standards. Lessor may, at
its option, upon reasonable notice, elect to have Lessee perform any
particular such maintenance or repairs the cost of which is otherwise Lessee's
responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and tree of
debris. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices by Lessee. Lessee shall repair any damage to the
Premises occasioned by the installation or removal of Lessee's trade fixtures,
alterations, furnishings and equipment. Except as otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, air conditioning, window coverings, wall
coverings, carpets, wall paneling, ceilings and plumbing on the Premises and
in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions. Utility Installations or
repairs in, on or about the Premises, or the Office Building Project. As used
in this paragraph 7.3 the term "Utility Installation" shall mean carpeting,
window and wall coverings, power panels, electrical distribution systems,
lighting fixtures, air conditioning, plumbing and telephone and
telecommunication wiring and equipment. At the expiration of the term, Lessor
may require the removal of any or all of said alterations, improvements,
additions or Utility Installations, and the restoration of the Premises and
the Office Building Project to their prior condition, at Lessee's expense.
Should Lessor permit Lessee to make its own alterations, improvements,
additions or Utility Installations, Lessee shall use only such contractor as
has been expressly approved by Lessor, and Lessor may require Lessee to
provide Lessor, at Lessee's sole cost and expense, a lien and completion bond
in an amount equal to one and one-half times the estimated cost of such
improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee make
any alterations, improvements, additions or Utility Installations without the
prior approval of Lessor, or use a contractor not expressly approved by
Lessor, Lessor may, at any time during the term of this Lease require that
Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
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applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all, conditions of
said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or
for use in the Premises, which claims are or may be secured by any mechanic's
or materialmen's lien against the Premises, the Building or the Office
Building Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days'
notice prior to the commencement of any work in the Premises by Lessee, and
Lessor shall have the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises the Building or the
Office Building Project, upon the condition that if Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an
amount equal to such contested lien claim or demand indemnifying Lessor
against liability for the same and holding the Premises, the Building and the
Office Building Project free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's reasonable attorneys' fees
and costs in participating in such action if Lessor shall decide it is to
Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including
but not limited to, floor coverings, panelings, doors, drapes, built-ins,
moldings, sound attenuation, and lighting and telephone or communication
systems, conduit, wiring and outlets, shall be made and done in a good and
workmanlike manner and of good and sufficient quality and materials and shall
be the property of Lessor and remain upon and be surrendered with the Premises
at the expiration of the Lease term unless Lessor requires their removal
pursuant to paragraph 7.3(a). Provided Lessee is not in default,
notwithstanding the provisions of this paragraph 7.3(e), Lessee's personal
property and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises or the
Building, and other than Utility Installations, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of paragraph
7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building
Project, including, but not by way of limitation, such
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utilities as plumbing, electrical systems communication systems, and fire
protection and detection systems, so long as such installations do not
unreasonably interfere with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE-LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of
Comprehensive General Liability insurance utilizing an Insurance Services
Office standard form with Broad Form General Liability Endorsement (GL0404),
or equivalent, in an amount of not less than [See Insurance Addendum] per
occurrence of bodily Injury and property damage combined or in a greater
amount as reasonably determined by Lessor and shall insure Lessee with Lessor
as an additional insured against liability arising out of the use, occupancy
or maintenance of the Premises. Compliance with the above requirement shall
not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE-LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other
risks Lessor deems advisable from time to time, insuring Lessor, but not
Lessee, against liability arising out of the ownership, use, occupancy or
maintenance of the Office Building Project in an amount not less than [ ] per
occurrence. See Insurance Addendum.
8.3 PROPERTY INSURANCE-LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease for the benefit of
Lessee, replacement cost fire and extended coverage insurance with vandalism
and malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE-LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss
or damage to the Office Building Project improvements, but not Lessee's
personal property, fixtures, equipment or tenant improvements, in the amount
of the full replacement cost thereof, as the same may exist from time to time,
utilizing Insurance Services Office standard form, or equivalent, providing
protection against all perils included within the classification of fire
extended coverage, vandalism, malicious mischief, plate glass, and such other
perils as Lessor deems advisable or may be required by a lender having a lien
on the Office Building Project. In addition, Lessor shall obtain and keep in
force, during the term of this Lease, a policy of rental value insurance
covering a period of one year, with loss payable to Lessor, which insurance
shall also cover all Operating Expenses for said period. Lessee will not be
named in any such policies carried by Lessor and shall have no right to any
proceeds therefrom. The policies required by these paragraphs 8.2 and 8.4
shall contain such deductibles as Lessor or the aforesaid lender may
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determine. In the event that the Premises shall suffer an insured loss as
defined in paragraph 9.1(f) hereof, the deductible amounts under the
applicable insurance policies shall be deemed an Operating Expense. Lessee
shall not do or permit to be done anything which shall invalidate the
insurance policies carried by Lessor. Lessee shall pay the entirety of any
increase in the property insurance premium for the Office Building Project
over what it was immediately prior to the commencement of the term of this
Lease if the increase is specified by Lessor's insurance carrier as being
caused by the nature of Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be cancellable
or subject to reduction of coverage or other modification except after thirty
(30) days prior written notice to Lessor. Lessee shall, at least thirty (30)
days prior to the expiration of such policies furnish Lessor with renewals
thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this
Lease shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and
its agents, Lessor's master or ground lessor, partners and lenders, from and
against any and all claims for damage to the person or property of anyone or
any entity arising from Lessee's use of the Office Building Project, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims, costs and expenses arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the terms
of this Lease, or arising from any act or omission of Lessee, or any of
Lessee's agents, contractors, employees, or invitees, and from and against all
costs, attorney's fees, expenses and liabilities incurred by Lessor as the
result of any such use, conduct, activity, work, things done, permitted or
suffered, breach, default or negligence, and in dealing reasonably therewith,
including but not limited to the defense or pursuit of any claim or any action
or proceeding involved therein: and in case any action or proceeding be
brought against Lessor by reason of any such matter, Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
Lessee, as a material part of the consideration to Lessor, hereby assumes all
risk of damage to property of Lessee or injury to persons, in, upon or about
the Office Building Project arising from any cause and Lessee hereby waives
all claims in respect thereof against Lessor.
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8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of
income therefrom or for loss of or damage to the goods, wares, merchandise or
other property of Lessee, Lessee's employees, invitees, customers, or any
other person in or about the Premises or the Office Building Project, nor
shall Lessor be liable for injury to the person of Lessee, Lessee's employees,
agents or contractors, whether such damage or injury is caused by or results
from theft, fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or from any other
cause, whether said damage or injury results from conditions arising upon the
Premises or upon other portions of the Office Building Project, or from other
sources or places, or from new construction or the repair, alteration or
improvement of any part of the Office Building Project, or of the equipment,
fixtures or appurtenances applicable thereto, and regardless of whether the
cause of such damage or injury or the means of repairing the same is
inaccessible, Lessor shall not be liable for any damages arising from any act
or neglect of any other lessee, occupant or user of the Office Building
Project, nor from the failure of Lessor to enforce the provisions of any other
lease of any other lessee of the Office Building Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged
or destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean it the
Building of which the Premises are a part is damaged or destroyed to the
extent that the cost to repair is less than fifty percent (50%) of the then
Replacement Cost of the building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the
extent that the cost to repair is fifty percent (50%) or more of the then
Replacement Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of
the buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction"
shall mean if the Office Building Project Buildings are damaged or destroyed
to the extent that the cost of repair is fifty percent (50%) or more of the
then Replacement Cost of the Office Building Project Buildings.
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(f) "Insured Loss" shall mean damage or destruction which
was caused by an event required to be covered by the insurance described in
paragraph 8. The tact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring, excluding
all improvements made by lessees, other than those installed by Lessor at
Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs
9.4 and 9.5, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of either
Premises Damage or Premises Building Partial Damage, then Lessor shall as soon
as reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels at Lessor's expense,
repair such damage (but not Lessee's fixtures, equipment or tenant
improvements originally paid for by Lessee) to its condition existing at the
time of the damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs
9.4 and 9.5, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), which damage prevents Lessee from making any
substantial use of the Premises, Lessor may at Lessor's option either (i)
repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of the
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease as of the date of the occurrence of such damage, in which event this
Lease shall terminate as of the date of the occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT
TOTAL DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage, whether or not it is
an Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's option either (i) repair such damage or
destruction as soon as reasonably possible at Lessor's expense (to the extent
the required materials are readily available through usual commercial
channels) to its condition existing at the time of the damage, but not
Lessee's fixtures, equipment or tenant improvements, and this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of
Lessor's intention to cancel and
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terminate this Lease, in which case this Lease shall terminate as of the date
of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the
last twelve (12) months of the term of this Lease there is substantial damage
to the Premises, Lessor may at Lessor's option cancel and terminate this Lease
as of the date of occurrence of such damage by giving written notice to Lessee
of Lessor's election to do so within 30 days after the date of occurrence of
such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that
Lessee has an option to extend or renew this Lease, and the time within which,
said option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than twenty (20) days after
the occurrence of an Insured Loss falling within the classification of
Premises Damage during the last twelve (12) months of the term of this Lease.
If Lessee duly exercises such option during said twenty (20) day period,
Lessor shall, at Lessor's expense, repair such damage, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to
exercise such option during said twenty (20) day period, then Lessor may at
Lessor's option terminate and cancel this Lease as of the expiration of said
twenty (20) day period by giving written notice to Lessee of Lessor's election
to do so within ten (10) days after the expiration of said twenty (20) day
period notwithstanding any term or provision in the grant of option to the
contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to
the extent the operation and profitability of Lessee's business as operated
from the Premises is adversely affected. Except for said abatement of rent, if
any, Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this Paragraph 9 and shall
not, commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's election to
do so at any time prior to the commencement or completion, respectively, of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
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(c) Lessee agrees to cooperate with Lessor in connection
with any such restoration and repair, including but not limited to the
approval and/or execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Office Building Project.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for
paying any increase in real property tax specified in the tax assessor's
records and work sheets as being caused by additional improvements placed upon
the Office Building Project by other lessees or by Lessor for the exclusive
enjoyment of any other lessee.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Office Building Project or any
portion thereof by any authority having the direct or indirect power to tax
including any city, county, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, as against any legal or equitable interest of Lessor in the Office
Building Project or in any portion thereof as against Lessor's right to rent
or other income therefrom, and as against Lessor's business of leasing the
Office Building Project. The term "real property tax" shall also include any
tax, fee, levy, assessment or charge (i) in substitution of, partially or
totally, any tax, tee, levy, assessment or charge hereinabove included within
the definition of "real property tax" or (ii) the nature of which was
hereinbefore included within the definition of "real property tax," or (iii)
which is imposed for a service or right not charged prior to June 1,1978 or,
if previously charged, has been increased since June 1,1978, or (iv) which is
imposed as a result of a change in ownership, as defined by applicable local
statutes for property tax purposes, of the Office Building Project or which is
added to a tax or charge hereinbefore included within the definition of real
property tax by reason of such change of ownership, or (v) which is imposed by
reason of this transaction, any modifications or changes hereto, or any
transfers hereof.
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10.4 JOINT ASSESSMENT. It the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information (which may include the cost of
construction) as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines,
water for reasonable and normal drinking and lavatory use, and replacement
light bulbs and/or fluorescent tubes and ballasts for standard overhead
fixtures.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours or such other days or hours
may hereafter be set forth. Utilities and services required at other times
shall be subject to advance request and reimbursement by Lessee to Lessor of
the cost thereof.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water,
lighting or power, or suffer or permit any act that causes extra burden upon
the utilities or services, including but not limited to security services,
over standard office usage for the Office Building Project. Lessor shall
require Lessee to reimburse Lessor for any excess expenses or costs that may
arise out of a breach of this subparagraph by Lessee. Lessor may, in its sole
discretion, install at Lessee's expense supplemental equipment and/or separate
metering applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other
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cause beyond Lessor's reasonable control or in cooperation with governmental
request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall
include the transfer or transfers aggregating: (a) if Lessee is a corporation,
more than twenty-five percent (25%) of the voting stock of such corporation,
or (b) it Lessee is a partnership, more than twenty-five percent (25%) of the
profit and loss participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee, or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, all of which are referred to as "Lessee
Affiliate"; provided that before such assignment shall be effective, (a) said
assignee shall assume in full, the obligations of Lessee under this Lease and
(b) Lessor shall be given written notice of such assignment and assumption.
Any such assignment shall not, in any way, affect or limit the liability of
Lessee under the terms of this Lease even if after such assignment or
subletting the terms of this Lease are materially changed or altered without
the consent of Lessee, the consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or
subletting shall release Lessee of Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the rent and other sums due Lessor
hereunder including Lessee's Share of Operating Expense Increase, and to
perform all other obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a
waiver or estoppel of Lessor's right to
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exercise its remedies for the breach of any of the terms or conditions of this
paragraph 12 or this Lease.
(d) It Lessee's obligations under this Lease have been
guaranteed by third parties, then an assignment or sublease, and Lessor's
consent thereto shall not be effective unless said guarantors give their
written consent to such sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable on the Lease or sublease and without
obtaining their consent and such action shall not relieve such persons from
liability under this Lease or said sublease; however, such persons shall not
be responsible to the extent any such amendment or modification enlarges or
increases the obligations of the Lessee or sublessee under this Lease or such
sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible
for the performance of this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting
of the Premises by Lessee shall not constitute an acknowledgment that no
default then exists under this Lease of the obligations to be performed by
Lessee nor shall such consent be deemed a waiver of any then existing default,
except as may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement
relied upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent
null and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, the following terms and conditions shall apply
to any subletting by Lessee of all or any part of the Premises and shall be
deemed included in all subleases under this Lease whether or not expressly
incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease
heretofore or hereafter made by Lessee, and Lessor may collect such rent and
income and apply same toward Lessee's obligations under this Lease; provided,
however, that until a default shall occur in the performance of Lessee's
obligations under this Lease, Lessee may receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor nor by reason of the collection of the
rents from a sublessee, be deemed liable to the
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sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice
from Lessor stating that a default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as
to whether such default exists and notwithstanding any notice from or claim
from Lessee to the contrary. Lessee shall have no right or claim against said
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into
any sublease, Lessee shall use only such form of sublessee as is satisfactory
to Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing
(c) In the event Lessee shall default in the performance of
its obligations under this Lease, Lessor at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease
from the time of the exercise of said option to the termination of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents
or security deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by Lessee
to the sublessee. Such sublessee shall have the right to cure a default of
Lessee within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset
from and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet
the Premises or request the consent of Lessor to any assignment or subletting
or if Lessee shall request the consent of Lessor for any act Lessee proposes
to do then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
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12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition
any approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of a
quality substantially equal to that of Lessee and consistent with the general
character of the other occupants of the Office Building Project and not in
violation of any exclusives or rights then held by other tenants, and (b) the
proposed assignee or sublessee be at least as financially responsible as
Lessee was expected to be at the time of the execution of this Lease or of
such assignment or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises for
a continuous period of sixty (60) days or more, whether or not the rent is
paid.
(b) The breach by Lessee of any of the covenants, conditions
or provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment
or subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency),
13.1(f) (false statement), 16(a) (estoppel certificate), 30(b)
(subordination), 33 (auctions), or 41.1 (easements), all of which are hereby
deemed to be material, non-curable defaults without the necessity of any
notice by Lessor to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written
notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee
with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed
by Lessee other than those referenced in subparagraphs (b) and (c), above,
where such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee; provided, however, that if the
nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently pursues such cure to completion. To the extent permitted
by law, such thirty (30) day notice shall constitute the sole and exclusive
notice required to be given to Lessee under applicable Unlawful Detainer
statutes.
(e)(i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becoming a
"debtor" as defined in 11 U.S.C.ss.101 or any
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successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days. In the event
that any provision of this paragraph 13.1(e) is contrary to any applicable
law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement
given to Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises
by any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises to
Lessor. In such event Lessor shall be entitled to recover from Lessee all
damages incurred by Lessor by reason of Lessee's default including, but not
limited to, the cost of recovering possession of the Premises; expenses of
reletting, including necessary renovation and alteration of the Premises,
reasonable attorneys' fees, and any real estate commission actually paid; the
worth at the time of award by the court having jurisdiction thereof of the
amount by which the unpaid rent for the balance of the term after the time of
such award exceeds the amount of such rental loss for the same period that
Lessee proves could be reasonably avoided; that portion of the leasing
commission paid by Lessor pursuant to paragraph 15 applicable to the unexpired
term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all
of Lessor's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due
at the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but
in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of
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trust covering the Premises whose name and address shall have theretofore been
furnished to Lessee in writing, specifying wherein Lessor has failed to
perform such obligation; provided, however, that if the nature of Lessor's
obligation is such that more than thirty (30) days are required for
performance then Lessor shall not be in default if Lessor commences
performance within such 30-day period and thereafter diligently pursues the
same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or
other sums due hereunder will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Office Building Project.
Accordingly, if any installment of Base Rent, Operating Expense Increase, or
any other sum due from Lessee shall not be received by Lessor or Lessor's
designee within ten (10) days after such amount shall be due, then, without
any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge
equal to 6% of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under
the threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first
occurs; provided that if so much of the Premises or the Office Building
Project are taken by such condemnation as would substantially and adversely
affect the operation and profitability of Lessee's business conducted from the
Premises, Lessee shall have the option, to be exercised only in writing within
thirty (30) days after Lessor shall have given Lessee written notice of such
taking (or in the absence of such notice, within thirty (30) days after
condemning authority shall have taken possession), to terminate this Lease as
of the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the rent and Lessee's Share of Operating Expense Increase shall be
reduced in the proportion that the floor area of the Premises taken bears to
the total floor area of the Premises. Common areas taken shall be excluded
from the Common Areas usable by Lessee and no reduction of rent shall occur
with respect thereto or by reason thereof. Lessor shall have the option in its
sole discretion to terminate this Lease as of the taking of possession by the
condemning authority, by giving written notice to Lessee of such election
within thirty (30) days after receipt of notice of a taking by condemnation of
any part of the Premises or the Office Building Project. Any award for the
taking of all or any part of the Premises or the Office Building Project under
the power of eminent domain or any payment made under threat of the exercise
of such power shall be the property of Lessor, whether such award shall be
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made as compensation for diminution in value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any separate award for loss of or damage to Lessee's
trade fixtures, removable personal property and unamortized tenant
improvements that have been paid for by Lessee. For that purpose the cost of
such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by
reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are Lee &
Associates/Irvine as "listing broker" and Lee & Associates/Irvine as
"cooperating broker," licensed real estate broker(s). A "cooperating broker"
is defined as any broker other than the listing broker entitled to a share of
any commission arising under this Lease. Upon execution of this Lease by both
parties, Lessor shall pay to said brokers jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of $ Seperate
Agreement, for brokerage services rendered by said broker(s) to Lessor in this
transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any
rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having
failed to exercise an Option, or (iv) if said broker(s) are the procuring
cause of any other lease or sale entered into between the parties pertaining
to the Premises and/or any adjacent property in which Lessor has an interest,
or (v) if the Base Rent is increased, whether by agreement or operation of an
escalation clause contained herein, then as to any of said transactions or
rent increases, Lessor shall pay said broker(s) a fee in accordance with the
schedule of said broker(s) in effect at the time of execution of this Lease.
Said fee shall be paid at the time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of
this paragraph 15 to the extent of their interest in any commission arising
under this Lease and may enforce that
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right directly against Lessor; provided, however, that all brokers having a
right to any part of such total commission shall be a necessary party to any
suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other
than the person(s), if any, whose names are set forth in paragraph 15(a),
above) in connection with the negotiation of this Lease and/or the
consummation of the transaction contemplated hereby, and no other broker or
other person, firm or entity is entitled to any commission or finder's fee in
connection with said transaction and Lessee and Lessor do each hereby
indemnify and hold the other harmless from and against any costs, expenses,
attorneys' fees or liability for compensation or charges which may be claimed
by any such unnamed broker, finder or other similar party by reason of any
dealings or actions of the Indemnifying party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days' prior written notice from the other party
("requesting party") execute, acknowledge and deliver to the requesting party
a statement in writing (i) certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to the responding
party's knowledge, any uncured defaults on the part of the requesting party,
or specifying such defaults if any are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Office Building Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default to this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party,
(ii) there are no uncured defaults in the requesting party's performance, and
(iii) if Lessor is the requesting party, not more than one month's rent has
been paid in advance.
(c) It Lessor desires to finance, refinance, or sell the Office
Building Project, or any party thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee
as may be reasonably required by such lender or purchaser. Such statements
shall include the past three (3) years' financial statements of Lessee. All
such financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes herein set
forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any
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transfer of such title or interest. Lessor herein named (and in case of any
subsequent transfers then the grantor) shall be relieved from and after the
date of such transfer of all liability as respects Lessor's obligations
thereafter to be performed, provided that any funds in the hands of Lessor or
the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at the
maximum rate then allowable by law or judgments from the date due. Payment to
such interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges incurred
by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the
obligations to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under
the terms of this Lease, including but not limited to Lessee's Share of
Operating Expense Increase and any other expenses payable by Lessee hereunder
shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains
all agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pending to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise
stated in this Lease, Lessee hereby acknowledges that neither the real estate
broker listed in paragraph 15 hereof nor any cooperating broker on this
transaction nor the Lessor or any employee or agents of any of said persons
has made any oral or written warranties or representations to Lessee relative
to the condition or use by Lessee of the Premises or the Office Building
Project and Lessee acknowledges that Lessee assumes all responsibility
regarding the Occupational Safety Health Act, the legal use and adaptability
of the Premises and the compliance thereof with all applicable laws and
regulations in effect during the term of this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given it delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to the
signature of the respective parties, as the case may be. Mailed notices shall
be deemed given upon actual receipt at the address required, or forty-eight
hours following deposit in the mail, postage prepaid, whichever first occurs.
Either party may by notice to the
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other specify a different address for notice purposes except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice purposes. A copy to all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted to
such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee to any
provision hereof, other than the failure to Lessee to pay the particular rent
so accepted, regardless to Lessor's knowledge of such preceding breach at the
time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a"short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration to the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations to Lessee, except that the rent
payable shall be two hundred percent (200%) of the rent payable immediately
preceding the termination date of this Lease, and all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions
to paragraph 17, this Lease shall bind the parties, their personal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State where the Office Building Project is located and any
litigation concerning this Lease between the parties hereto shall be initiated
in the county in which the Office Building Project is located.
30. SUBORDINATION.
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(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease,
mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the Office Building Project and to any and all advances
made on the security thereof and to all renewals, modifications,
consolidations replacements and extensions thereof. Notwithstanding such
subordination, Lessee's right to quiet possession of the Premises shall not be
disturbed if Lessee is not in default and so long as Lessee shall pay the rent
and observe and perform all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. It any mortgagee, trustee or
ground lessor shall elect to have this Lease and any Options granted hereby
prior to the lien of its mortgage, deed of trust or ground lease, and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such mortgage, deed to trust or ground lease, whether, this
Lease or such Options are dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as
the case may be. Lessee's failure to execute such documents within ten (10)
days after written demand shall constitute a material default by Lessee
hereunder without further notice to Lessee or, as Lessor's option, Lessor
shall execute such documents on behalf to Lessee as Lessee's attorney-in-fact.
Lessee does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEYS' FEES.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to decision
or judgment. The provisions to this paragraph shall inure to the benefit of
the broker named herein who seeks to enforce a right hereunder.
31.2 The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all
other costs and expenses incurred in the preparation and service of notice of
default and consultations in connection therewith, whether or not a legal
transaction is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
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32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same,
performing any services required of Lessor, showing the same to prospective
purchasers, lenders, or lessees, taking such safety measures, erecting such
scaffolding or other necessary structures, making such alterations, repairs,
improvements or additions to the Premises or to the Office Building Project as
Lessor may reasonably deem necessary or desirable and the erecting, using and
maintaining of utilities, services, pipes and conduits through the Premises
and/or other premises as long as there is no material adverse effect to
Lessee's use of the Premises. Lessor may at any time place on or about the
Premises or the Building any ordinary "For Sale" signs and Lessor may at any
time during the last 120 days to the term hereof place on or about the
Premises any ordinary "For Lease" signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for
the same.
32.3 Lessor shall have the right to retain keys to the Premises and
to unlock all doors in or upon the Premises other than to files, vaults and
safes, and in the case of emergency to enter the Premises by any reasonably
appropriate means, and any such entry shall not be deemed a forceable or
unlawful entry or detainer of the Premises or an eviction. Lessee waives any
charges for damages or injuries or interference with Lessee's property or
business in connection therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common
Areas without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease. Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether to
grant such consent. The holding of any auction on the Premises or Common Areas
in violation of this paragraph shall constitute a material default of this
Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Office Building
Project.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option to Lessor, operate as an assignment to
Lessor to any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent to one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
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37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder. Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf to
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right to first offer to lease the Premises or the right of
first refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property to Lessor; (3) the right or option
to purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right
of first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee: provided,
however, that an Option may be exercised by or assigned to any Lessee
Affiliate as defined in paragraph 12.2 of this Lease. The Options, if any,
herein granted to Lessee are not assignable separate and apart from this
Lease, nor may any Option be separated from this Lease in any manner, either
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised
unless the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i)
during the time commencing from the date
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Lessor gives to Lessee a notice of default pursuant to paragraph 13.1(c) or
13.1(d) and continuing until the noncompliance alleged in said notice of
default is cured, or (ii) during the period of time commencing on the day
after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) and continuing until the
obligation Is paid, or (iii) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(c), or paragraph
13.1(d), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the
subject Option, (iv) if Lessee has committed any non-curable breach including
without limitation those described in paragraph 13.1(b), or is otherwise in
default of any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions to an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term to this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 13.1(d)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure
to completion, or (iii) Lessor gives to Lessee three or more notices of
default under paragraph 13.1(c), or paragraph 13.1(d) whether or not the
defaults are cured or (iv) if Lessee has committed any non-curable breach,
including without limitation those described in paragraph 13.1(b), or is
otherwise in default of any of the terms, covenants and conditions of this
Lease.
40. SECURITY MEASURES--LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shalt have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and to Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Office Building Project or
any part thereof, in which event the cost thereof shall be included within the
definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office
Building Project or building in which the Premises are located upon not less
than 90 days prior written notice;
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(b) To, at Lessee's expense, provide and install Building
standard graphics on the door of the Premises and such portions of the Common
Areas as Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights expressly
given herein;
(d) To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of the
buildings or the Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business;
(b) Suffer or permit anyone, except In emergency, to go upon
the roof of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time to grant
such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so
long as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use to the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material default of this Lease by Lessee without the
need for further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall In no way affect this Lease or impose any liability upon Lessor.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the
right on the part of said party to institute suit for recovery of such sum. If
it shall be adjudged that there was no legal obligation on the part of said
party to pay such sum or any part thereof, said party shall be entitled to
recover such sum or so much thereof as it was not legally required to pay
under the provisions of this Lease.
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43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of
such entity represent and warrant that such individual is duly authorized to
execute and deliver this Lease on behalf of said entity. If Lessee is a
corporation, trust or partnership, Lessee shall, within thirty (30) days after
execution of this Lease, deliver to Lessor evidence of such authority
satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or
Addenda of this Lease and the typewritten or handwritten provisions, if any,
shall be controlled by this typewritten or handwritten provisions.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessees shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully
executed by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable
modifications to this Lease as may be reasonably required by an institutional
lender in connection with the obtaining of normal financing or refinancing of
the Office Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee, respectively.
48. WORK LETTER. This Lease ss supplemented by that certain Work Letter
to even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which
constitute a part of this Lease: GENERAL RULES OF DUPONT PALM COURT.
50. SECURITY SYSTEMS. If Lessee installs a security system in suite, he
is solely responsible for the unit in its entirety, malfunction or
interruption. Lessor has no responsibility for security systems or their
operations.
51. RESERVED PARKING SPACE. One reserved parking space ss given with this
lease. This Space is #214.
52. NOTICE OF INTENT to lease or not to lease for a new term be given to
Lessor 60 days, in writing, prior to expiration to Lease. Privilege to show
suite to new tenants the 60 days prior to expiration if new term not accepted.
53. BASE RENT shall increase commencing July 1, 1997 to June 30, 1998.
Amount $2,343, 00
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Base Rent shall increase commencing July 1, 1998 to June 30, 1998.
Amount $2,437.00
54. *See Attached Addendum to be considered Page 11 of 11 Pages.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISIONS CONTAINED HEREIN, AND BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
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IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF
THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL
REPLY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
LILLIPONT INVESTMENT COMPANY, INC. PAPERCLIP IMAGING SYSTEMS, INC.
By /s/ MARY M. MUNDAY By /s/ William Weiss
--------------------------------- -------------------------------------
MARY M. MUNDAY WILLIAM WEISS
Its: President Its: CEO
By By
--------------------------------- -------------------------------------
Its: Its:
Executed at Irvine, California Executed at
on April 24, 1996 on April 22, 1996
--------------------------------- -------------------------------------
Address: 2192 Dupont Drive Address:Three University Place
Hackensack, NJ 07601
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RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the
outside or inside of the building or the premises without the written
consent of Landlord first had and obtained. Landlord shall have the
right to remove any such sign, placard, picture, advertisement, name
or notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved by
Landlord.
Tenant shall not place anything nor allow anything to be placed near
the glass of any window, door, partition or wall which may appear
unsightly from outside the premises.
3. The directory of the building will be provided exclusively for the
display of the name and location of Teanant only, and Landlord
reserves the right to exclude any other names therefrom.
4. The sidewalks, passages, exits, entrances and stairways shall not be
obstructed by any Tenant or used for any purpose other than for
ingress to and egress from Tenant's respective premises. The
passages, exits, entrances, stairways, balconies and roof are not for
the use of the general public and Landlord shall in all cases retain
the right to control and prevent access thereto by all persons whose
presence in the judgment of Landlord shall be prejudicial to the
safety, character, reputation and interests of the building and its
Tenants, provided that nothing contained shall be construed to
prevent such access to persons with whom the Tenant normally deals in
the ordinary course of Tenant's business unless such person are
engaged in illegal activities. No Tenant nor employees or invitees of
any Tenant shall be permitted on the roof of the building.
5. Tenant shall not alter any lock nor install any new or additional
locks or any bolts on any door of the premises without the prior
written consent of Landlord.
6. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be
thrown therein. The expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the
Tenant who or whose employees or invitees shall have caused it.
7. Tenant shall not overload the floor of the premises. Upon termination
of tenancy, Tenant shall be responsible for the cost of repairs
necessitated as a result of Tenant's marking, driving nails or
screws, or drilling into partitions, woodwork or plaster. No boring,
cutting or stringing of wires or laying of linoleum or other similar
floor
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coverings shall be permitted except with the prior written consent of
Landlord and as Landlord may direct.
8. No furniture, freight or equipment of any kind shall be brought into
the building without the consent of Landlord, and all moving of the
same into or out of the building shall be done at such time and in
such manner as Landlord shall designate. Landlord shall have the
right to prescribe the weight, size and position of all safes and
other heavy equipment brought into the building, and also the times
and manner of moving the same in and out of the building. Safes, file
cabinets or other heavy objects shall stand on wood strips of such
thickness as is necessary to properly distribute the weight. Tenant
shall install 1/8" felt, or other contact with carpet or tile floors.
Tenant agrees at the termination of this lease to reimburse Landlord
for any damages to carpet or floor covering, normal wear and tear
excepted.
Landlord will not be responsible for loss of or damage to any safe or
property from any cause and all damage done to the building by moving
or maintaining any safe or other property shall be repaired at the
expense of Tenant. There shall not be used in any space, on the
stairways, balconies or walkways any hand trucks except those
equipped with rubber tires and side guards.
9. Tenant shall not employ any person or persons for the purpose of
cleaning the premises unless otherwise agreed to by Landlord.
Landlord shall provide janitor service, which shall include ordinary
dusting and cleaning, but shall not include cleaning of carpets or
rugs, (except normal vacuuming), cleaning of draperies, or moving of
furniture and other special services. Window cleaning shall be
provided by Landlord and scheduled at its discretion. Tenant shall
not cause any unnecessary labor by reason of Tenant's carelessness or
indifference in the preservation of good order and cleanliness.
Landlord shall in no way be responsible to Tenant for any loss of
property on the premises, however occurring, or for any damage done
to the effects of any Tenant by the janitor or other employee of
Landlord or any other person.
10. Tenant shall not use, keep or permit to be used or kept any food or
noxious gas or substance in the premises, or permit or suffer the
premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the building by
reason of noise, odors and/or vibrations, or interfere in any way
with other Tenants or those having business therein, nor shall any
animals (except seeing-eye dogs) be brought in or kept in or about
the premises or the building. No Tenant shall make or permit to be
made any unseemly or disturbing noises or disturb or interfere with
other occupants of this or neighboring buildings or premises or those
having business with them whether by use of any musical instrument,
radio, phonograph, unusual noise, or in any other way. No Tenant
shall throw anything out of doors or down passageways or stairways.
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11. The premises shall not be used for manufacturing or for the storage
of merchandise except as such storage may be incidental to the use of
the premises for general office purposes. The premises shall not be
used or lodging, or cooking, for washing of clothes, or for any
improper objectionable or immoral purposes. No Tenant shall occupy or
permit any portion of his premises to be occupied for the manufacture
or sale of liquor, narcotics, or tobacco in any form, or as a medical
office. No Tenant shall advertise for laborers giving an address at
the premises.
12. Tenant shall not use or keep in said premises or the building any
kerosene, gasoline or other inflammable or combustible fluid or
material, or use any method of heating or air conditioning other than
that supplied by Landlord or approved in writing by Landlord.
13. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires
will be allowed without the consent of Landlord. The location of
telephones, call boxes and other office equipment affixed to said
premises shall be subject to the approval of Landlord. Landlord
reserves the right to enter upon said premises for the purpose of
installing additional electrical wiring and/or other utilities for
the benefit of Tenant or adjoining Tenants.
14. All keys to offices, rooms and toilet rooms shall be obtained from
Landlord and Tenant shall not duplicate keys, obtain keys or have
keys made from any other source. Tenant shall be furnished with two
door keys for the first 250 square feet of leased space or portion
thereof, and one door key for each additional 250 square feet of
leased space or portion thereof. Additional keys may be obtained from
Landlord at a cost of $2.00 each. Upon termination of tenancy, tenant
shall deliver to Landlord the keys to the offices, rooms and toilet
rooms which have been furnished or shall pay to the Landlord the cost
of replacing same or of changing the lock or locks opened by such
keys if Landlord deems it necessary to make such change.
15. Tenant shall provide plastic floor mats or similar approved
protective coverings under all desk chairs having casters or roller
of any type.
16. In case of invasion, mob, riot, public excitement or other commotion,
Landlord reserves the right to prevent access to the building of any
person during the continuance of the same by closing the doors or
otherwise, for the safety of Tenants and protection of property in
the building and the premises.
17. Tenant shall see that the doors of the premises are closed and
security locked before leaving the building, and that all electricity
be carefully shut off, so as to prevent waste or damage, and for any
default or carelessness Tenant shall make good all injuries sustained
by other Tenants or occupants of the building or Tenant.
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18. Landlord reserves the right to exclude or expel from the building any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, and who shall in any manner to any act
in violation of any of the rules and regulations of the building.
19. The requirements of Tenants will be attended to only upon application
to Landlord. Employees of Landlord shall not perform any work or do
anything outside of their regular duties unless under special
instructions from Landlord, and no employee will admit any person
(Tenant or otherwise) to any office without specific instructions
from Landlord.
20. No vending machine or machines of any description shall be installed,
maintained or operated upon the premises without the prior written
consent of Landlord.
21. Landlord shall have the right, exercisable and without notice and
without liability to Tenant, to change the name and street address of
the building of which the premises are a part.
22. Tenant agrees that he will comply with all fire and security
regulations which may be issued from time to time by Landlord, and
Tenant shall also provide Landlord with the name of a designated
responsible employee to represent Tenant in all matters pertaining to
such fire or security regulations.
23. Landlord reserves the right, by written notice by Tenant, to rescind,
alter, or waive any rule or regulation at any time prescribed for the
building when, in Landlord's judgment, it is necessary or desirable
or proper for the best interests of the building and its Tenants.
24. No Tenant or employee or invitee of Tenant shall disturb, solicit or
canvass any occupant of the building, and Tenant shall cooperate to
prevent the same. No Tenant or employee or invitee of Tenant shall
place any advertising material of any type in the toilet rooms, on
the exterior walls or doors of the building or on the glass windows
of the premises so as to be visible from the exterior of the Tenant's
premises.
25. Tenant shall not use the name of the building in connection with or
in promoting or advertising the business of Tenant in any way so as
to imply that Tenant has any financial or ownership interest in the
building or occupies space in the building other than as a Tenant.
26. The parking areas provided for the building shall be used solely for
temporary parking of vehicles used by Tenant, its employees or
invitees during business hours. No vehicle of any type shall be
stored within the parking area at any time. In the event a vehicle is
disable, it shall be removed within 48 hours. There shall be no "For
Sale" or other
37
<PAGE>
advertising signs on or about any parked vehicles. All vehicles shall
be parked in the designated parking areas in conformance with all
signs and other markings.
27. Tenant shall not place any improvements or moveable objects,
including antennas, outdoor furniture, etc., in the building parking
areas, landscaped areas or other areas outside of Tenant's premises.
28. Landlord shall furnish heating and air conditioning consistent with
good engineering practices and installation during the hours of 7:00
a.m. and 7:00 p.m. Monday thru Friday, except for holidays.
29. Tenant shall not use, keep or permit to be used any of the areas
within Tenant's premises or the building so as to cause litter and/or
defacing of the building, other improvements or landscaping.
30. No coffee grounds or tea leaves or other similar materials are to be
disposed of in sinks. All such material shall be disposed of in the
trash receptacles provided.
31. Landlord shall not provide security systems for space occupied by
Tenant. Should Tenant on own initiative install a security system,
Tenant will provide Landlord the key, and operating instructions for
same on the day of installation, so that the janitorial service may
operate and so that the premises may be entered for emergencies,
should that be necessary. Landlord is in no way liable for security
system function or malfunction, or for bills for "false alarms" from
the Irvine police.
32. Tenant agrees that as far as is practical and reasonable, he will
require his employees and invitees to conform to the rules and
regulations set forth herein.
33. Landlord reserves the right to make such other rules and regulations
as in its judgment may be required from time to time for the safety,
care and cleanliness of the building and the premises and for the
preservation of good order therein. Tenant agrees to abide by all
such rules and regulations hereinabove stated and any additional
rules and regulations which may be hereafter adopted.
38
<PAGE>
ADDENDUM TO LEASE
Your lease will require you to carry the following minimum insurance
coverages:
Public Liability: $300,000
Property Damage: $30,000
Fire: Full insurable value of personal property
The lease also requires you to name the landlord as an additional insured on
your policy. The landlord should be named as follows:
LILLIPONT INVESTMENT CO. INC.
Please have your insurance agent provide us with a current Certificate of
Insurance complying with the above.
INSURANCE: Tenant shall take out and keep in force during the term of this
lease, at Tenant's expense, public liability and property damage insurance.
The limitation of liability of such insurance shall be not less than Three
Hundred Thousand Dollars ($300,000.00) in respect to each occurrence of bodily
injury or death, and to the limitation of not less than Thirty Thousand
Dollars ($30,000.00) in respect to property damage. Said policy or policies
shall provide that Landlord be named as an additional insured thereunder. A
copy of said policy or policies or certificates evidencing such insurance
shall be delivered to Landlord at the commencement of the term of this lease,
and thereafter, within thirty (30) days prior to the expiration of the term of
each such policy, which shall further provide that no less than ten (10) days'
prior written notice shall be given to Landlord prior to the cancellation or
modification of each such policy.
Tenant agrees that if Tenant does not take out such insurance or keep the same
in full force and effect, Landlord may take out the necessary insurance and
pay the premium therefore, and Tenant shall repay to Landlord the amount so
paid by having such amount deemed to be additional rental and payable as such
in the next rental payment due. Tenant shall take out and maintain fire
insurance covering his stock in trade and furniture and fixtures in an amount
equal to the full insurable value thereof.
Landlord hereby releases Tenant and Tenant hereby releases Landlord and its
respective officers, if any, agents and employees from any and all claims and
demands for loss, damages, expense or injury to the premises, furnishings,
fixtures and equipment located on the premises which is caused by or results
from perils, events or happenings which are the subject of insurance carried
by the respective parties in force at the time of any such loss; provided,
however, that such waiver shall be effective only to the extent permitted by
the insurance covering such loss and to the extent such insurance coverage is
not prejudiced thereby or the expense increased.
<PAGE>
STANDARD OFFICE LEASE - GROSS
DUPONT PALM COURT
ADDENDUM - CONSIDERED PAGE 11 OF 11 PAGES
COSTS FOR COMMENCING LEASE:
Signage Fee $80.00
Key Deposit $10.00
Credit Report $35.00
First Month's Rent $2,253.00
Security Deposit $2,253.00
TOTAL RECEIVED: $4,631.00
A Security Deposit is not considered a last month's rent. The Security Deposit
is refunded within 14 days after expiration of lease if all conditions of
suite are vacated and in order.
Provided that tenant is not in default of any terms and conditions of this
lease, Landlord hereby grants Tenant these options.
Lillipont Investment Company, Inc. is not responsible for any Act of God
occurrence on property known as 2191 Dupont Dr., Irvine, California.
CONDITIONS AND TENANT IMPROVEMENTS:
<PAGE>
NCC EXPORT SYSTEMS 1995 LTD.
20 Shenkar Street
Beit Hatikva 49130, Israel
January 29, 1997
PaperClip Software, Inc.
Three University Plaza
Hackensack, NJ 07601
ATTN: William Weiss
Dear Mr. Weiss:
Reference is made to (i) that certain Reschedule Agreement between NCC
Export Systems 1995 LTD. ("us" or "we") and PaperClip Imaging Software, Inc.
(n/k/a PaperClip Software, Inc., "you"), dated as of the 21st day of October,
1996 (the "Reschedule Agreement") and (ii) that certain Security Agreement
between you as Pledgor and us as Secured Party, dated as of the 21st day of
October, 1996 (the "Security Agreement").
We are confirming herewith that we are in receipt of $65,634.50, which
is the full amount owed to us by you pursuant to the Reschedule Agreement.
In consideration of the above mentioned payment, we hereby terminate
each of the Reschedule Agreement and the Security Agreement. We shall execute
all documents reasonably necessary to evidence the termination of the liens and
security interests granted to us pursuant to the Reschedule Agreement and the
Security Agreement.
NCC EXPORT SYSTEMS 1995 LTD.
By: /s/ Moshe Attias
--------------------------------
Name: Moshe Attias
Title: Vice President for Finances
<PAGE>
SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("Agreement") is made in California on June 30,
1996, ("Effective date") between InTEXT Systems located at 715 Sutter Street,
Folsom, CA 95630 (Licensor) and PaperClip Software, Inc. located at 3
University Plaza, Hackensack, N.J. 07601 (Licensee) under which Licensor grants
Licensee certain rights in software technology developed or licensed by
Licensor ("the Technology"), to be used in Licensee's products ("the Products")
as defined in Exhibit A attached hereto and incorporated herein.
1. GRANT OF RIGHTS
1.1 Object Code License. Licensor hereby grants Licensee a worldwide,
nonexclusive license to use, copy, reproduce, translate, and distribute and
market binary copies of the Technology when integrated into the Product(s)
defined in Exhibit A. Licensee may distribute the Products under a shrinkwrap
license that enforces all the terms and conditions of this contract. Licensee
shall only license the binary copies of the Technology as part of the Products
and shall have no right to distribute such copies other than with the Products
as set forth in Exhibit A.
2. PAYMENT TERMS
2.1 Payments. In consideration of the above license grants, Licensee agrees to
make payments to Licensor as provided in Exhibit B hereto.
3. MAINTENANCE SERVICES, ENHANCEMENTS AND SUPPORT
3.1. Support of Licensee. Licensor agrees to provide Licensee, with the
technical support services as provided in Exhibit B.
3.2. End-User/Licensee Technical Support. Licensee shall make available to all
end-users of Technology the same level of service and support that it offers
for the Products. Licensee may, at its sole discretion, charge an end-user
support fee.
3.3. Travel. Should Licensee request Licensor employees or contractors to
travel to Licensee's facility, Licensee shall pay the reasonable incurred
expenses of such employees. All such travel shall be approved by Licensor and
Licensee in advance.
4. PAYMENTS AND ACCOUNTING
4.1. Payments. All payments and reporting shall be made as specified in Exhibit
B hereto.
4.2. Taxes. Licensee shall pay all license fees, taxes, including, but not
limited to, any applicable sales taxes and value added taxes, excises, customs
duties or charges levied or imposed on the Technology ordered except franchise
taxes or taxes based upon the net income of Licensor.
4.3. Inspection of Licensee's Records. Licensee agrees to maintain accurate
records covering all transactions related to the Technology. Licensor or an
independent Certified Public Accountant selected by Licensor shall have the
right, once per year and upon reasonable notice, to inspect the records of
Licensee upon which the reports are based and all records relating to payments
owed for the Technology copies distributed by Licensee. The costs of such audit
shall be born by Licensor unless the difference between license fees paid and
license fees due and owing is greater than five percent in which case Licensee
shall be responsible for such costs.
<PAGE>
5. WARRANTIES, INDEMNIFICATION AND LIABILITY LIMITATIONS
5.1. Title. Licensor warrants that it has the legal right to grant the licenses
as set forth in this Agreement, and that such licenses do not infringe on any
third parties' proprietary or personal rights. Licensor further warrants that
there are no pending lawsuits concerning any aspect of the Technology.
5.2. Non-fringement. Should the Technology become, or in Licensor's opinion be
likely to become, the subject of any infringement claim or suit, Licensor
shall, at its option:
1 ) procure for Licensee the right to continue distributing the
Technology, as well as the right for Licensee and its customers to continue use
of the Technology, while maintaining its functionality; or,
2) settle the claim or suit.
5.3. DISCLAIMER. THE WARRANTIES PROVIDED BY LICENSOR HEREIN ARE THE ONLY
WARRANTIES PROVIDED BY LICENSOR WITH RESPECT TO THE TECHNOLOGY. SUCH WARRANTIES
ARE IN LIEU OF ALL OTHER WARRANTIES BY LICENSOR, EXPRESS OR IMPLIED, INCLUDING
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE,
WITH RESPECT TO THE TECHNOLOGY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND INCLUDING
WITHOUT LIMITATION LOSS OF PROFIT OR LOSS OR DESTRUCTION TO DATA.
5.4. Mutual Warranty. Licensor and Licensee shall make no warranty to any third
party, written or oral, on each others' behalf.
5.5. Indemnification by Licensee. Licensee agrees to indemnify and hold
harmless Licensor and its officers and employees from all costs, expenses
(including attorneys' fees), losses, liabilities, damages, and settlements that
Licensor may incur as a result of a suit or claim based on Licensee's
marketing, demonstration, and/or distribution of the Technology, if Licensee's
combination or modification of the Technology is such as to cause the
Technology to infringe on the proprietary rights of a third party where the
Technology provided to the Licensee as provided by Licensor absent such
combination or modification would not so infringe, provided that Licensor:
1 ) promptly notified Licensee of any such claim or suit in writing
and gives Licensee the opportunity to defend or settle any claim or suit at
Licensee's expense; and,
2) cooperates fully with Licensee in defending or settling any such
claim or suit. Licensee shall control the defense and settlement of any such
claim or suit including the selection of counsel. Licensee shall make no
settlement or other resolution of such claims which will require payments or
action by Licensor without Licensor's approval.
5.5.1 Indemnification by Licensor. Licensor shall indemnify Licensee against
any judgment by a court of competent jurisdiction based on a claim that
Licensor does not have sufficient right, title or interest in Technology to
enter in to this agreement, or that Technology infringes or violates any
Patent, Copyright, or trade secret, provided Licensee shall have given Licensor
prompt notice of any such claim and sole control of the defense. Licensor shall
have the right, at its option, either to obtain for Licensee the right to
continue use of the Technology, substitute other computer software which has
substantially the same operating capabilities and specifications as the
Technology, or modify Technology so that it has substantially the same
operating capabilities and specifications and is no longer infringing. In the
event that none of the above options are
<PAGE>
reasonably available, Licensee's sole and exclusive remedy shall be to
terminate this Agreement and obtain a refund of the License Fee paid to
Licensor.
5.5.2 Licensor shall have no liability for any claim based on modification of
the Technology made by Licensee. Licensee warrants that any modifications made
by it shall not infringe any patents, copyright or other third party rights.
5.6. Remedies for Breach. [SECTION DELETED]
5.7 The maximum amount of Licensor's or Licensee's liability hereunder to any
and all causes of action relating to or arising out of section 5 shall be the
total payments received by Licensor from Licensee hereunder as of the date such
liability is finally determined by a court of law.
6. LICENSOR'S PROPRIETARY RIGHTS
6.1. Licensor's Title. Licensor retains title to the Technology, including the
code and the visual aspects of the Technology, translations, derivative works,
and to all copyrights and trademarks to those items. Licensor shall have no
ownership interest in products developed by Licensee.
All Right, Title and Interest to the Software Development Kits ("SDKs) shall
belong to Licensor.
6.2. Protection of Licensor's Copyrights and Trademarks. Licensee agrees that
it shall not represent in any manner that it has ownership of any of the
copyrights or trademarks of Licensor. Licensee also agrees that it shall
not at any time do or cause to be done any act contesting or in any way
impairing any part of Licensor's right, title and interest in any of
Licensor's copyrights or trademarks irrespective of whether such
copyrights or trademarks are registered in the jurisdiction in which
Licensee is located or does business.
7. TERM AND TERMINATION
7.1. Term. Unless earlier terminated pursuant to the provisions hereof, this
Agreement shall remain in effect and shall be renewable according to the terms
set forth in Exhibit B hereto.
7.2. Termination for Cause. Either party shall have the right to terminate this
Agreement upon a default by the other party on any of its material obligations
under this Agreement, unless within thirty (30) calendar days after written
notice of such default, such party remedies such default.
7.3. Return of Proprietary Materials. Upon the expiration or the termination of
this Agreement, for any reason, Licensee shall immediately discontinue use,
sale and distribution of the Technology.
<PAGE>
7.4. Survival after Termination. All sublicensees to use the Technology which
are properly granted to end users under the shrinkwrap license attached shall
survive any termination of this Agreement. Licensor agrees to provide such end
users with support for the product at Licensor's then-current rates or, at
Licensor's sole option, to delegate such support responsibilities to an
appropriate third party. The confidentiality and warranty provisions of this
Agreement shall survive and continue to bind the parties for three (3) years
after termination.
8. CONFIDENTIALITY
8.1. Retention of Proprietary Rights in Confidential Information. Each party
may disclose to the other confidential information, including but without
limitation information concerning its inventions, know-how, trade secrets, as
may be necessary to further the performance of this Agreement. All such
confidential information disclosed hereunder, including the content of this
Agreement, shall remain the sole property of the party disclosing the same, and
the receiving party shall have no interest or rights with respect thereto
except as set forth herein.
8.2. Confidentiality. Each party agrees to preserve and protect the
confidentiality of any information provided pursuant to this Agreement, and all
documents and other materials containing such information, to the same extent
that it protects its own proprietary information. Neither party shall use
confidential information of the other party for its own benefit, or for the
benefit of a third party, except as authorized under the terms and conditions
of this Agreement.
9. TRAINING
9.1. Provisions for Training. Licensor agrees to provide training and support
in the use of the Technology to Licensee at Licensor's facilities at times,
frequencies and fees mutually acceptable to the parties.
10. REVISIONS
10.1. Advance Notice. Licensor will use reasonable efforts to give Licensee
ninety (90) days advance notice of the introduction of new revisions of the
Technology which are distributed by Licensor to similarly situated customers as
Licensee.
11. GENERAL
11.1. Governing Law. This Agreement shall be subject to and governed in all
respects, including issues of validity, interpretation, performance and
enforcement, by the statutes and laws of the State of California.
11.2. Entire Agreement. This Agreement, which shall be deemed to include the
Exhibits attached hereto and made a part hereof, constitutes the entire
Agreement and understanding between the parties and integrates all prior
discussions between them related to its subject matter. No modification of any
of the terms of this Agreement shall be valid unless in writing and signed by
an authorized representative of each party.
11.3. Assignment. This Agreement is assignable by Licensor. Licensee may assign
this Agreement if substantial control of Licensee is transferred as the result
of a merger, acquisition or similar event; provided, however, that such
assignment is not made to a direct competitor of Licensors who markets
Technology similar to Licensor's. This Agreement shall apply to and bind any
successor or assigns of the parties hereto.
<PAGE>
11.4. Notice. Any notice or communication to be given pursuant to the terms of
this Agreement shall be sufficient if given in writing and personally
delivered, mailed by first class, certified or registered mail or sent as a
facsimile to the parties to the following addresses:
InTEXT Systems Corp. PaperClip Software Inc.
120 Montgomery Street, Ste. 450 3 University Plaza
San Francisco, CA 94104 Hackensack, NJ 07601
USA USA
Fax: (415) 391-4996 Attn: William Weiss
11.5. Force Majeure. Neither party shall be liable for any delay or failure to
comply with any terms of this Agreement due wholly or in part to Force Majeure
which may not be overcome by due diligence. Nothing in this paragraph shall
excuse Licensee from timely payment of any amounts due Licensor.
11.6. Survival of Obligations. The indemnification, payment and reporting
obligations for periods prior to termination in this Agreement shall survive
the expiration or termination of this Agreement.
11.7. Waiver. A waiver, expressed or implied, by either party of any default by
the other in the observance and performance of any of the conditions, covenants
or duties set forth herein shall not constitute or be construed as a waiver of
any subsequent or other default.
11.8. Independent Contractors. The parties acknowledge and agree that they are
dealing with each other hereunder as independent contractors. Neither Licensee
nor any of its affiliates, agents, employees or legal representatives are, nor
shall they be deemed affiliates, agents, employees or legal representatives of
Licensor. Nothing contained in this Agreement shall be interpreted as
constituting either party as the joint venture or partner of the other party or
as conferring upon either party the power of authority to bind the other party
in any transaction with third parties.
11.9. Disputes. The interpretation of or any dispute under this Agreement shall
be resolved in accordance with California law. The parties agree to submit to
non-binding mediation prior to taking legal action unless other legal rights or
remedies are negatively impacted.
Licensor Licensee
/s/ James R. Davis /s/ William Weiss
- ------------------ -----------------
By: James R. Davis By: William Weiss
Title: Controller Title: CEO
<PAGE>
[INTEXT LETTERHEAD]
July 15, 1996
William Weiss, CEO
PaperClip Software, Inc.
3 University Plaza
Hackensack, NJ 07601
Dear William,
I have enclosed the signed original Software License Agreement for your files.
Regards,
/s/ Barbara Treichak
Barbara Treichak
enclosure
<PAGE>
PAPERCLIP IMAGING SOFTWARE, INC.
DISTRIBUTOR LICENSE AGREEMENT
1. LICENSE GRANT. PAPERCLIP IMAGING SOFTWARE, INC. During the term of this
Agreement: PaperClip grants the Distributor the exclusive right to market and
sell the Products provided by Distributor under this Agreement, in unaltered
form to End Users located in Malaysia. No right or license to use, copy, or
alter the Products is granted by this Agreement, except that Distributor may
use a reasonable number of copies of each Product purchased pursuant to its
Agreement for the purpose of demonstrating the Product to End-Users. During the
term of this Agreement Distributor agrees not to carry any competing software
products.
2. OWNERSHIP. You agree that ownership of, and title to, the Software and
documentation and all rights therein, and all copyrights relating thereto, and
all trademarks affixed thereto, are and shall remain the property of Licensor
(and/or its licensors, if any). Licensor reserves the right to change its
trademarks with respect to the Software.
3. PROTECTION OF SOFTWARE. You agree to take all reasonable steps to protect
the software and documentation from unauthorized copy or use. The Software
source code represents and embodies trade secrets of Licensor (and/or its
licensors). The source code and embodied trade secrets are not licensed to you,
and any modification, addition or deletion is strictly prohibited. You agree
not to dissemble, decompile, or otherwise reverse engineer the Software in
order to discover the source code and/or the trade secrets contained in the
source code. You also may not remove or obscure Licensor's trademark or copy
right notices.
4. TERM. This Agreement is effective for a 36 month period commencing with the
date of PaperClip's acceptance of this Distributor Agreement. You may terminate
this License at any time by destroying the documentation and the software
together with any copy made by you. This Agreement shall also automatically
terminate if you breach any of the terms and conditions of this Agreement. You
agree to destroy the original and any such copy of the Software and
documentation, or to return them to Licensor upon termination of this License.
<PAGE>
5. LIMITED WARRANTY. If the diskettes or documentation are in damaged
condition, or if the Software fails to substantially conform to the
specifications in the accompanying documentation, you may return them and any
copy made by you (postage prepaid) to Licensor, within 90 days of purchase,
together with your written explanation of the reason for this return. Licensor
will then either send you a replacement or refund your license fee. THIS IS
YOUR ONLY REMEDY.
6. DISCLAIMER OF WARRANTIES. Licensor makes no warrantee, representation or
promise not expressly set forth in this agreement. Licensor disclaims and
excludes any and all implied warranties of merchantability, title and fitness
for a particular purpose. Licensor does not warrant that the software and
documentation will satisfy your requirements or that the software and
documentation are without defects or error that the operation of the software
will be interrupted.
7. LIMITATION OF LIABILITY. Licensor's aggregate liability arising from or
relating to this agreement or the software or documentation is limited to the
total of all payments made by you or for you for the license. Licensor shall
not in any case be liable for any special incidental, consequential, indirect
or punitive damages, even if licensor has been advised of the possibility of
such damages. Licensor is not responsible for lost profits or revenue, loss of
use of the software, loss of data, costs of recreating lost data, the cost of
any substitute equipment or program, or claims by any party other than you.
8. SOLICITATION OF EMPLOYMENT. During the term of this Agreement, and for one
(1) year thereafter, whether by expiration or otherwise, Reseller agrees not to
directly recruit for employment or offer subcontracted arrangements outside of
the normal business practice to any employee of PaperClip Imaging Software.
GENERAL CONDITIONS
9. GOVERNING LAW. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of New Jersey.
10. ENTIRE AGREEMENT. This agreement sets forth the entire understanding and
agreement between you and Licensor and may be amended only in writing and
signed by both parties. No vendor, distributor, dealer, retailer, sales person
or other person is authorized to modify this agreement or to make any warranty,
representation or promise
2
<PAGE>
which is different from, or in addition to, the representations or promises in
this agreement.
11. WAIVER. No waiver of any right under this Agreement shall be effective
unless in writing and signed by a duly authorized representative of Licensor.
No waiver of any past or present right arising from any breach or failure to
perform shall be deemed to be a waiver of any future right arising under this
Agreement.
12. SEVERABILITY. If any provision in this Agreement is invalid or
unenforceable, that provision shall be construed, limited, modified, or if
necessary, severed, to the extent necessary, to eliminate its invalidity or
unenforceability, and other provision of this Agreement shall remain
unaffected.
TRAINING
1. Distributor will have personnel trained in PaperClip, Gupta, Microsoft NTSA
and Novell Netware. This is to ensure that End-Users are adequately supported.
If Distributor fails to support the End-Users, PaperClip will have the right to
terminate this agreement. Distributor will employ at its own expense, train, at
all times during the term of this Agreement, sufficient personnel who are
competently trained in the operation and marketing of computer software and
also in the operation and marketing of the Products so that Distributor will be
able to: serve the demands and needs of its customers for the Products; service
and support the Products; and promote and market the Products.
PRICES AND PAYMENT
1. The prices for the Products to be paid by Distributor shall be in U.S.
dollars at the suggested retail prices in effect on Developer's Product Price
List at the time of receipt of the order from Distributor. All costs of
shipment from Developer's point of manufacture shall be borne by Distributor.
2. Payment shall be due from Distributor by letter of credit in U.S. Dollars
with respect to each shipment; 50% at the time of order and 50% at the time of
delivery.
3
<PAGE>
PRODUCT ORDERS, MARKETING AND SHIPMENT
Distributor agrees to employ its best efforts vigorously and aggressively to
promote and market the PaperClip Products in order for Distributor to maintain
its sole distributors status. At the end of the first year, PaperClip will
review with Distributor the level of activity that has taken place and will
have the right to discontinue the sole distributor exclusivity portion of this
agreement. As part of this Agreement, Distributor is to submit to PaperClip its
marketing and support plans.
ACKNOWLEDGMENT. You acknowledge that you have read every provision of this
License Agreement.
<TABLE>
<CAPTION>
<S> <C>
Your signature : /s/ Boo Gooi Teh Date: 10 November 1994
Please print your name BOO GOOI TEH Title SENIOR VICE PRESIDENT
---------------------- ---------------------------
PESANIAGA SDN. BHD.
---------------------- ---------------------------
PaperClip Imaging Software, Inc. /s/ WILLIAM WEISS Title CEO
-------------------- ---------------------------
</TABLE>
4
<PAGE>
PAPERCLIP SOFTWARE, INC.
DISTRIBUTOR LICENSE AGREEMENT
1. LICENSE GRANT. PAPERCLIP SOFTWARE, INC. During the term of this Agreement:
PaperClip grants the Distributor the exclusive right (with the exception of
Tokairo) to market and sell the Products provided by Distributor under this
Agreement, in unaltered form to End Users and Resellers located in the United
Kingdom. No right or license to use, copy, or alter the Products is granted by
this Agreement, except that Distributor may use a reasonable number of copies
of each Product purchased pursuant to this Agreement for the purpose of
demonstrating the Product to End Users and Resellers. During the term of this
Agreement Distributor agrees not to carry any competing software products.
2. OWNERSHIP. You agree that ownership of, and title to, the Software and
documentation and all rights therein, and all copyrights relating thereto, and
all trademarks affixed thereto, are and shall remain the property of Licensor
(and/or its licensors, if any). Licensor reserves the right to change its
trademarks with respect to the Software.
3. PROTECTION OF SOFTWARE. You agree to take all the reasonable steps to
protect the Software and documentation from unauthorized copy or use. The
Software source code represents and embodies trade secrets of Licensor (and/or
its licensors). The source code and embodied trade secrets are not licensed to
you, and any modification, addition or deletion is strictly prohibited. You
agree not to dissemble, decompile, or otherwise reverse engineer the Software
in order to discover the source code and/or the trade secrets contained in the
source code. You also may not remove or obscure Licensor's trademark or copy
right notices.
4. TERM. This Agreement is effective for a 12 month period commencing with the
date of PaperClip's acceptance of this Distributor Agreement. You may terminate
this License at any time by destroying the documentation and the Software
together with any copy made by you. The Agreement shall also automatically
terminate if you breach any of the terms and conditions of this Agreement. You
agree to destroy the original and any such copy of the Software and
documentation, or return them to Licensor upon termination of this License.
<PAGE>
LIMITED WARRANTY AND LIMITED LIABILITY
5. LIMITED WARRANTY. If the diskettes or documentation are in damaged
condition, or if the Software fails to substantially conform to the
specifications in the accompanying documentation, you may return them and any
copy made by you (postage prepaid) to Licensor, within 90 days of purchase,
together with your written explanation of the reason for this return. Licensor
will then either sent you a replacement or refund your license fee. THIS IS
YOUR ONLY REMEDY.
6. DISCLAIMER OF WARRANTIES. Licensor makes no warrantee, representation or
promise not expressly set forth in the Agreement. Licensor disclaims and
excludes any and all implied warranties of merchantability, title and fitness
for a particular purpose. Licensor does not warrant that the Software and
documentation will satisfy your requirements or that the Software and
documentation are without defects or error that the operation of the software
will be interrupted.
7. LIMITATION OF LIABILITY. Licensor's aggregate liability arising from or
relating to this Agreement or the software or documentation is limited to the
total of all payments made by you or for you for the license. Licensor shall
not in any case be liable for any special incidental, consequential, indirect
or punitive damages, even if Licensor has been advised of the possibility of
such damages. Licensor is not responsible for lost profits or revenue, loss of
use of the Software, loss of data, costs of recreating lost data, the cost of
any substitute equipment or program, or claims by any party other than you.
8. SOLICITATION TO EMPLOYMENT. During the term of this Agreement, and for one
(1) year thereafter, whether by expiration or otherwise, Distributor agrees not
to directly recruit for employment or offer subcontracted arrangements outside
of the normal business practice to any employee of PaperClip Software.
GENERAL CONDITIONS
9. GOVERNING LAW. This Agreement shall be governed by, and interpreted in
accordance with, the State of New Jersey, USA.
10. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding and
agreement between you and Licensor and may be amended only in writing and
signed by both parties. No vendor, distributor, dealer, retailer, sales person
or other person is authorized to modify this Agreement or to make any warranty,
representation or promise which is different from, or in addition to, the
representations or promises in this Agreement.
11. WAIVER. No waiver of any right under this Agreement shall be effective
unless in writing and signed by a duly authorized representative of Licensor.
No waiver of any past or present right arising from any breach or failure to
perform shall be deemed to be a waiver of any future right arising under this
Agreement.
2
<PAGE>
12. SEVERABILITY. If any provision in this Agreement is invalid or
unenforceable, that provision shall be construed, limited, modified, severed,
to the extent necessary, to eliminate its invalidity or unenforceability, and
other provisions of this Agreement shall remain unaffected.
TRAINING
1. Distributor will have personnel trained in PaperClip, Gupta, Microsoft SQL
Server, Microsoft NT/AS and Novell Netware. This is to ensure that End Users
and Resellers are adequately supported. If Distributor fails to support the End
Users and Resellers, PaperClip will have the right to terminate the Agreement.
Distributor will employ at its own expense, train, at all times during the term
of this Agreement, sufficient personnel who are competently trained in the
operation and marketing of computer software and also in the operation and
marketing of the Products listed in this Agreement, so that Distributor will be
able to: serve the demands and needs of its customers for the Products; service
and support the Products, and promote and market the Products.
Distributor will authorize and train Resellers in accordance with PaperClip's
reseller program (Exhibit A).
PRICES AND PAYMENT
1. The prices for the Products to be paid by Distributor shall be in US dollars
at the suggested retail prices, less 40%, in effect on Licensor's Product Price
List (Exhibit B) at the time of receipt of the order from Distributor. All
costs of shipment from Licensor's point of manufacture shall be borne by
Distributor.
2. Payment shall be due from Distributor by letter of credit in US dollars with
respect to each shipment: net 30 days.
3
<PAGE>
PRODUCT ORDERS, MARKETING AND SHIPMENT
Distributor agrees to employ its best efforts to vigorously and aggressively
promote and market PaperClip Products in order for Distributor to maintain its
sole distribution rights. Distributor agrees to authorize 6 resellers during
the term of this Agreement. Distributor agrees to keep in stock a minimum of 1
Reseller Kit and 2 Five-user Base Systems for delivery to authorized resellers
at all times. As part of this Agreement Distributor is to submit to PaperClip
its marketing and support plans. PaperClip will provide to Distributor all
available artwork and marketing material for reproduction.
ACKNOWLEDGMENT. You acknowledge that you have read every provision of this
License Agreement.
Your Signature Date
/s/ T. Edwards 1 July 1996
- --------------------------------------- -------------------------------
Please print your name and Company Title
T. Edwards Sales & Marketing Director
- --------------------------------------- ------------------------------
PaperClip Software Title
/s/ William Weiss CEO
- --------------------------------------- ------------------------------
4
<PAGE>
[ACCESS SOLUTIONS INTERNATIONAL, INC. LETTERHEAD]
January 2, 1997
PaperClip Software, Inc.
Three University Plaza
Hackensack, NJ 07601
Attention: William Weiss, Chief Executive Officer
Re: Letter of Intent
----------------
Ladies and Gentlemen:
As you know, Access Solutions International, Inc. ("ASI") and
representatives of PaperClip Software, Inc. (the "Seller") have been discussing
a possible transaction in which ASI or a subsidiary would purchase from the
Seller substantially all of the Seller's assets used by the Seller in its
business, including, without limitation, the intellectual property rights used
by the Seller in its business (the "Seller's Assets"). This Letter of Intent is
intended to set forth the principal terms of the transaction which has been
discussed by ASI and the Seller. Except as otherwise set forth in Paragraph 9
below, this Letter of Intent is not intended to be a binding agreement between
the parties. A binding agreement will be in effect only at the time a
definitive purchase agreement is executed by the parties.
The principal terms of the transaction which have been discussed are as
follows:
1 ASI will purchase the Seller's Assets in a transaction structured as
an asset purchase. At the closing, the Seller's Assets will be
delivered to ASI free and clear of all liens, charges and
encumbrances of any nature whatsoever.
2 ASI will assume certain liabilities of Seller as stated in the
binding agreement, and no other liabilities.
3 The Purchase Price for Seller's Assets will be approximately $5.79
million, calculated by multiplying the Seller's 7,722,188 issued and
outstanding shares of common stock by seventy-five cents ($0.75) per
share, subject to adjustment as provided in Paragraph 4 below. The
Purchase Price will be paid at the closing by delivery of
approximately 1,544,000 shares of ASI's common stock (determined by
dividing the Purchase Price by $3.75 per share), plus an equivalent
number of ASI Class B Warrants. Each Class B Warrant will entitle the
holder to purchase one share of ASI common stock at an exercise price
of $6.00 per share. Neither the shares of ASI common stock nor the
Class B Warrants
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<PAGE>
PaperClip Software
January 2, 1997
Page 2
will be registered and neither will carry registration rights. In the
binding agreement, ASI will agree to use its best efforts file a
registration statement to register the Common Stock and Class B
Warrants within 90 days of the closing on terms and conditions set
forth therein.
4 The Purchase Price may be increased by a maximum of $322,500 in the
event that Seller is unable to cancel, repay or repurchase its issued
and outstanding convertible promissory notes prior to the closing.
The binding agreement will contain mutually satisfactory arrangements
for assumption, cancellation or conversion of Seller's existing
warrants and bridge warrants.
5 The binding agreement will provide that, from and after the closing,
ASI will nominate one person designated by Seller to ASI's Board of
Directors. Seller will also be able to designate one additional
person who will be permitted to attend all meetings of ASI's Board of
Directors as an "advisor" or "observer."
6 In order to fund Seller's operations until the closing, ASI agrees to
loan to Seller up to $300,000, $235,000 of which will be loaned
within 3 business days on terms and conditions as are customarily
available for commercial loans. Such loan will be secured by a first
priority security interest in all of Seller's Assets, and will be
evidenced by a convertible debenture or promissory note of Seller.
Such loan will also be guaranteed by the personal guarantees of
William Weiss and Steven Kornfeld for up to fourteen days, until ASI
can satisfy itself that there are no other liens or security
interests as of the date of this letter in Seller's Assets other than
to an Israeli vendor to Seller, which lien ASI may cause to be
discharged at any time in ASI's discretion by payment of the
outstanding amount owed to such vendor out of the loan proceeds.
Such convertible debenture or promissory note will be due one year
from the date of issue, will bear interest at 12% per annum, payable
quarterly, and will permit conversion of all or part of the
outstanding principal at any time at ASI's option at a conversion
price of twenty-five cents ($0.25) per share of Seller's common
stock. If outstanding lien(s) are discovered, Sellers can cure by
evidence of waiver or satisfaction.
7 After execution of this Letter of Intent, ASI's counsel will prepare
and the parties will use their best efforts to negotiate the terms
and conditions of a mutually acceptable purchase agreement by January
31, 1997, in which ASI will agree to purchase Seller's Assets.
- 2 -
<PAGE>
PaperClip Software
January 2, 1997
Page 3
8 The obligation of the parties to negotiate the binding agreement and
consummate the purchase of Seller's Assets is subject to conditions
which will be stated in the binding agreement, which will include,
but will not be limited to, the following conditions:
a) Negotiation and execution of a mutually satisfactory binding
agreement, including appropriate representations, warranties,
covenants and indemnities by all parties.
b) That no events shall have occurred that individually or in the
aggregate have a material adverse effect on the business or
financial condition or prospects of Seller or ASI.
c) Receipt of all necessary governmental and regulatory approvals
and all consents from third parties necessary to consummate the
transaction.
d) In conducting its review and examination of the management,
business, technology, intellectual property, markets,
environmental compliance, assets, liabilities and financial
condition of Seller or ASI, neither party shall become aware of
any liability, condition, fact or event which, in such party's
discretion, would make the proposed acquisition inadvisable or
not in the best interests of such party.
e) The binding agreement and the final terms of the proposed
acquisition shall have been approved by the Board of Directors
of ASI and the Board of Directors and stockholders of Seller.
f) Seller will deliver a so-called "lockup letter", in form and
substance satisfactory to ASI and the underwriter of its initial
public offering, which letter will, among other things, require
Seller to refrain from selling any shares of ASI common stock
until such time as will be stated in the letter.
9 For valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Seller hereby agrees that until January 31,
1997, the Seller will not enter into any agreement or negotiation
with any person with respect to the sale or other disposition of any
direct or indirect interest in the Seller's Assets or the Seller. In
addition, the Seller hereby agrees that until January 31, 1997, it
will take no action, directly or
- 3 -
<PAGE>
PaperClip Software
January 2, 1997
Page 4
indirectly, to solicit indications of interest in, or offers for the
sale of any interest in the Seller's Assets or the Seller. ASI and
the Seller hereby agree that the provisions of this paragraph 9 are
intended to be binding on the parties hereto.
10 Miscellaneous.
(a) Access. After the execution of this letter of intent by Seller
and pending the preparation of the binding agreement and
thereafter until the closing, each party will permit the other
party, its lenders and their respective legal, accounting and
financial representatives, full access during ordinary business
hours to its premises and to such of its management personnel as
may be designated by the other party, and to all its applicable
accounting, financial and other records, and shall furnish the
other party all information with respect to its business and
affairs as the other party or such representatives may request
from time to time.
(b) Disclosure. The specific terms of this Letter of Intent shall
not be disclosed by any party to any person, except as may be
required by law or as may be necessary to receive requisite
regulatory or corporate approvals, in which case the parties
hereto hereby agree to disclose only those terms which are
necessary under the circumstances upon advice of counsel.
(c) Confidentiality. Without the prior consent of both of the
parties, the parties shall not make any statement, or public
announcement, or any release to the trade publications or to the
press, or make any statement to any competitor, customer, or any
other third party, with respect to this transaction, except as
either party may reasonably determine to be necessary to comply
with the requirements of any law, governmental order or
regulation.
- 4 -
<PAGE>
PaperClip Software
January 2, 1997
Page 5
Please acknowledge your agreement with the terms of this Letter of Intent by
executing the enclosed copy of this Letter of Intent and returning it to my
attention at ASI. In the event this Letter of Intent is not signed by you and
returned to ASI prior to 5:00 p.m. on January 3, 1997, this Letter of Intent
will be deemed null and void and of no further force or effect.
Very truly yours,
ACCESS SOLUTIONS
INTERNATIONAL, INC.
By: /s/ Robert H. Stone
---------------------------
Title: President and CEO
AGREED AND ACCEPTED:
PAPERCLIP SOFTWARE, INC.
By: /s/ William Weiss
--------------------------
Title: CEO
--------------------
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<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
650 TENROD ROAD
NORTH KINGSTOWN, RI 02852
January 31, 1997
PaperClip Software, Inc.
Three University Plaza
Hackensack, NJ 07601
Attn: William Weiss,
Chief Executive Officer
Re: Letter of Intent dated January 2, 1997 ("Letter of Intent")
-----------------------------------------------------------
Dear Bill:
This letter confirms our mutual agreement that each time the "January 31,
1997" date appears in Paragraph 9 of the Letter of Intent, such date shall be
replaced with "February 28, 1997."
Please acknowledge your agreement by executing this letter where
indicated below.
Very truly yours,
ACCESS SOLUTIONS INTERNATIONAL, INC.
By: /s/ Robert H. Stone
----------------------------------
Robert H. Stone, President and CEO
AGREED AND ACCEPTED:
PAPERCLIP SOFTWARE, INC.
By: /s/ William Weiss
----------------------------------
William Weiss, CEO
<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
650 TENROD ROAD
NORTH KINGSTOWN, RI 02852
February 28, 1997
PaperClip Software, Inc.
Three University Plaza
Hackensack, NJ 07601
Attn: William Weiss,
Chief Executive Officer
Re: Letter of Intent dated January 2, 1997 ("Letter of Intent")
-----------------------------------------------------------
Dear Bill:
This letter confirms our mutual agreement that each time the "January 31,
1997" date appears in Paragraph 9 of the Letter of Intent, such date shall be
replaced with "March 31, 1997."
Please acknowledge your agreement by executing this letter where
indicated below.
Very truly yours,
ACCESS SOLUTIONS INTERNATIONAL, INC.
By: /s/ Robert H. Stone
-----------------------------------
Robert H. Stone, President and CEO
AGREED AND ACCEPTED:
PAPERCLIP SOFTWARE, INC.
By: /s/ William Weiss
-----------------------------------
William Weiss, CEO
<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
650 TENROD ROAD
NORTH KINGSTOWN, RI 02852
March 31, 1997
PaperClip Software, Inc.
Three University Plaza
Hackensack, NJ 07601
Attn: William Weiss,
Chief Executive Officer
Re: Letter of Intent dated January 2, 1997 ("Letter of Intent")
-----------------------------------------------------------
Dear Bill:
This letter confirms our mutual agreement that each time the "January 31,
1997" date appears in Paragraph 9 of the Letter of Intent, such date shall be
replaced with "April 11, 1997."
Please acknowledge your agreement by executing this letter where
indicated below.
Very truly yours,
By Robert H. Stone, President and CEO
/s/ Robert H. Stone
- -----------------------------
ACCESS SOLUTIONS INTERNATIONAL, INC.
AGREED AND ACCEPTED:
/s/ William Weiss
- -----------------------------
By: William Weiss, CEO
PAPERCLIP SOFTWARE, INC.
<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH
SECURITIES OR UNLESS SUCH SALE, TRANSFER, ASSIGNMENT, PLEDGE OR DISTRIBUTION IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT OR SUCH STATE LAWS.
CONVERTIBLE PROMISSORY NOTE
---------------------------
$300,000 January 29, 1997
I. PROMISE TO PAY
1. FOR VALUE RECEIVED, the undersigned PAPERCLIP SOFTWARE, INC., a
Delaware corporation (the "Maker"), hereby promises to pay to ACCESS SOLUTIONS
INTERNATIONAL, INC., a Delaware corporation at 650 Ten Rod Road, North
Kingstown, Rhode Island 02852 ("Access"), or its permitted assigns
(collectively with Access, the "Payee"), the principal sum of Three Hundred
Thousand Dollars ($300,000) together with interest thereon at the rate of
twelve percent (12%) per annum based upon the actual number of days elapsed
over a 360 day year.
2. This Note is the "Note" issued in accordance with that certain
Letter of Intent dated January 2, 1997 (the "Letter of Intent") between Maker
and Payee. Capitalized terms used herein and not defined are used with the same
meaning as set forth in the Letter of Intent.
3. Accrued and unpaid interest on this Note shall be payable quarterly
in arrears commencing April 1, 1997 and continuing quarterly thereafter on July
1, 1997, October 1, 1997, January 2, 1998 and until the Maturity Date (as
hereinafter defined).
4. Subject to the earlier conversion hereof pursuant to the conversion
rights set forth below, this Note shall be due and payable in full on January
27, 1998 (the "Maturity Date") or earlier, at the election of the Payee, upon
the happening of any of the following events:
(a) the Maker shall (i) discontinue its business (as evidenced by a
resolution of Maker's Board of Directors or stockholders), (ii) apply for or
consent to the appointment of a receiver, trustee, custodian or liquidator of
it or any of its property, (iii) admit in writing its inability to pay its
debts as they mature, (iv) make a general assignment for the benefit of
creditors, (v) be adjudicated a bankrupt or insolvent or be the subject of an
order for relief under Title 11 of the United States Code or (vi) file a
voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations of
a petition filed against it in any such proceeding under any such law;
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<PAGE>
(b) there shall be filed against the Maker an involuntary petition
under any bankruptcy, reorganization or insolvency law of any jurisdiction,
whether now or hereafter in effect if, within one hundred and eighty days (180)
following the service on the Maker of any such petition, the same shall not
have been discharged, released or vacated;
(c) The Maker shall sell or transfer substantially all of its assets
or business units to someone other than Access;
(d) The Maker shall fail to pay any interest payment obligation
contained in this Note within five (5) days of when due;
(e) The Maker shall be in default of any other material obligation
contained in this Note or in the Security Agreement or Registration Rights
Agreement of even date, which default, has not been cured within ten (10) days
after the receipt by Maker of notice thereof from Payee, or, if such default is
not capable of being cured within ten days, Maker has not begun efforts
satisfactory to Payee to cure such default within such ten-day period.
5. Maker may prepay this Note at any time after having given at least
thirty (30) days prior written notice to Payee.
6. Payment of principal and interest hereunder are payable in lawful
money of the United States of America at the office of the Payee at the address
set forth above or at such other address as Payee shall designate from time to
time.
7. All agreements between the Maker and the Payee are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness or otherwise, shall the amount
paid or agreed to be paid to the Payee for the use, forbearance or detention of
the indebtedness evidenced hereby exceed the maximum amount which the Payee is
permitted to receive under applicable law. If, for any circumstances
whatsoever, fulfillment of any provision hereof, or of the Letter of Intent, at
the time performance of such provision shall be due, shall involve exceeding
such amount, then the obligation to be fulfilled shall automatically be reduced
to the limit of such validity, and if from any circumstance the Payee should
ever receive as interest an amount which would exceed such maximum amount, such
amount which would be excessive interest shall be applied to the reduction of
the principal balance evidenced hereby and not to the payment of interest. As
used herein, the term "applicable law" shall mean the law in effect as of the
date hereof, provided, however, that in the event there is a change in the law
which results in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date. This provision shall control
every other provision of all agreements between the Maker and the Payee.
8. This Note and all transactions hereunder and/or evidenced herein
shall be governed by, and construed and enforced in accordance with, the laws
of the State of New York (without giving effect to any conflicts or choice of
laws provisions which would cause the application of the domestic substantive
laws of any other jurisdiction). MAKER AND PAYEE
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<PAGE>
EACH HEREBY WAIVES TRIAL BY JURY WITH RESPECT TO ANY PROCEEDING INVOLVING THIS
NOTE.
9. If this Note shall not be paid when due and shall be placed by the holder
hereof in the hands of any attorney for collection, through legal proceedings
or otherwise, the Maker will pay reasonable attorneys' fees to the holder
hereof together with reasonable costs and expenses of collection, including,
without limitation, any such attorneys' fees, costs and expenses relating to
any proceedings with respect to the bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation of the Maker or any party to
any agreement or instrument securing this Note.
10. The Maker hereby waives presentment, demand, notice of dishonor,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note.
11. This Note is secured by and entitled to the benefits of a Security
Agreement of even date herewith.
12. Payee shall have the right to assign or negotiate all or any part
of this Note and all associated rights to interest, conversion, security and
registration to Joseph Stevens & Company, L.P. without the prior consent of
Maker only upon the consummation of the purchase of Maker's assets by Access
contemplated by the Letter of Intent and a merger between Maker and another
entity arranged by Joseph Stevens & Company, L.P.
13. To evidence the fact that it has executed this Note, Maker may
send a copy of the executed Note to Payee by facsimile transmission. Maker
shall be deemed to have executed this Note on the date it sent such facsimile
transmission. In such event, Maker shall deliver to Payee the executed Note for
receipt on the next business day.
II. CONVERSION RIGHTS
1. At the option of the Payee, all or part of the principal of this
Note, together with the interest accrued on such converted principal, may at
any time while this Note is outstanding, be converted into fully paid and
non-assessable shares of the common stock, $.01 par value, of the Maker (the
"Converted Shares"), at the Conversion Rate, determined as hereinafter
provided, in effect at the time of conversion for such principal and interest
(hereinafter, all "Conversion").
2. (a) The rate at which the principal amount of this Note and accrued
interest thereon shall be converted into Converted Shares shall initially be
one share of common stock for each twenty-five cents ($.25) of the principal
and interest amount hereof (the "Conversion Rate").
(b) In the event that, while this Note is outstanding, from time to
time, the Maker shall issue any shares of its common stock or any Convertible
Securities (as defined below) at a price of less than twenty-five cents ($.25)
per share (the "New Issue Share Price"),
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<PAGE>
then the Conversion Rate shall be adjusted to be equal to the lowest New Issue
Share Price in any such transaction after the date hereof.
3. (a) In order to exercise the Conversion privilege, the Payee of
this Note shall deliver such Note to the Maker at the principal office of the
Maker, accompanied by written notice to the Maker, duly signed by such Payee,
of its election to convert the same. Such notice shall also state the address
or addresses to which the certificate or certificates evidencing the Converted
Shares, and any other securities, and evidences of ownership of any other
property, issuable upon such conversion shall be transmitted after the issue
thereof upon such conversion. As promptly as practicable after the receipt of
such notice and surrender of this Note as aforesaid, the Maker shall issue in
the name of such Payee, and shall, after any such issue, transmit to such Payee
at such address or addresses, a certificate or certificates evidencing the
Converted Shares, and any other securities and evidences of ownership of any
other property, issuable upon the conversion of this Note (or such specified
portion hereof). If the Conversion is for less than the then outstanding
principal and interest of the Note, Maker agrees to execute and deliver to
Payee a promissory note for the balance due on the Note, which replacement note
shall be on the same terms and conditions as set forth herein.
(b) Such Conversion shall be deemed to have been effected at the
close of business on the date on which such notice and this Note shall have
been delivered to the Maker as aforesaid, and at such time the Payee shall
become and be deemed to be the owner of record of such Converted Shares, and of
any such other securities and other property, issuable upon such conversion,
whether or not the stock transfer books of the Maker shall then be open, and
whether or not the Maker shall fail, neglect or refuse to accept such delivery
and/or to issue and/or deliver the certificate or certificates for such
Converted Shares or securities, or other evidences or ownership of such other
property.
4. The Maker covenants that it will at all times preserve its rights
to issue and keep available, free from preemptive rights, sufficient capital
stock to permit the conversion of this Note then outstanding in full at any
time. The Board of Directors of the Maker shall take appropriate action to
reserve from the Maker's authorized but unissued capital stock sufficient
shares of common stock to permit the conversion of the full amount of the
principal of and accrued interest on this Note, which reservation shall be
noted in the books and records and, if appropriate, the financial statements of
the Maker.
5. The Maker covenants that all Converted Shares which may be issued
upon the conversion of this Note will, upon issuance, be validly issued, fully
paid and non-assessable, and free from all taxes, excluding income taxes, gross
receipts taxes or any similar tax based upon the earnings, receipts, income or
gain to the Payee.
6. The term "Convertible Securities" shall mean any class of
securities of the Maker which by its terms shall be convertible into or
exchangeable for any common stock of the Maker.
7. This Note is further entitled to the benefits of a Registration
Rights Agreement of even date herewith.
- 4 -
<PAGE>
III. COVENANTS
1. So long as this Note is outstanding the Maker covenants and agrees
as follows:
(a) The Maker shall maintain in full force and effect its existence as
a Delaware corporation, its rights and franchises and all licenses, permits,
and other rights to use trademarks, trade names, copyrights, trade secrets,
patents or processes owned or possessed by it and deemed by it to be necessary
to the conduct of its business and shall comply with all applicable laws and
regulations, whether now in effect or hereinafter enacted or promulgated by any
governmental authority having jurisdiction.
(b) The Maker shall duly pay and discharge or cause to be duly paid
and discharged, before the same becomes delinquent, all taxes (including all
employment and payroll taxes), assessments and other governmental charges
imposed upon it or any of its properties or in respect of its franchise or
income; provided, however, that (unless and until foreclosure, distraint, sale
or any similar proceeding shall have been commenced) no such tax or charge need
be paid if being contested in good faith by proper proceedings diligently
conducted and if such reservation or other appropriate provisions, if any, as
shall be required by generally accepted accounting principles, shall have been
made therefor.
(c) The Maker will promptly notify the Payee in writing of any
litigation against it that has been instituted or is pending, or to the Maker's
knowledge threatened, the outcome of which might have a material adverse affect
on the Maker's financial conditions, business or operations.
(d) Upon request of the Payee, the Maker will provide the Payee with
copies of all filings made by the Maker with federal (including the Securities
and Exchange Commission), state or local governmental bodies or agencies.
2. The Maker covenants that, so long as this Note is outstanding, the
Maker shall not do any of the following:
(a) Create, incur, assume or permit to exist, any mortgage, pledge,
lien or other encumbrance on any of its properties or assets whether now owned
or hereafter acquired; provided, however, that the foregoing restrictions shall
not apply to:
(i) a security interest in favor of NCC Export Systems 1995
LTD ("NCC"), created pursuant to that certain Reschedule Agreement
and that certain Security Agreement, each dated as of the 21st day
of October, 1996, by and among Maker and NCC (the obligations
being secured by such lien shall be repaid from the proceeds of
the loan evidenced by this Note);
(ii) liens for taxes, assessments and other governmental
charges and levies not yet delinquent or thereafter payable
without penalty or interest or (if foreclosure,
- 5 -
<PAGE>
distraint, sale or other similar proceeding shall not have been
commenced) being contested in good faith by appropriate
proceedings diligently conducted, if such reservation or other
appropriate provision, if any, as shall be required by generally
accepted accounting principles shall have been made therefor;
(iii) purchase money security interests;
(iv) liens of carriers, warehousemen, materialmen and
mechanics incurred in the ordinary course of business for sums not
yet due or being contested in good faith and by appropriate
proceedings diligently conducted, if such reservation or other
appropriate provision, if any, as shall be required by generally
accepted accounting principles shall have been made therefor;
(v) liens, encumbrances, pledges, or deposits of personal
property incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance and other
social security programs or to secure performance of statutory
obligations, surety and appeal bonds, performance or return of
money bonds and other obligations of a like nature (exclusive of
obligations for the payment of money borrowed); or
(vi) liens arising from judgments, so long as the execution
thereof shall be stayed or other appropriate relief therefrom
shall be obtained pending appeal.
(b) Create, incur, assume or otherwise become or remain liable,
directly or indirectly, for any manner of indebtedness or liability for
borrowed funds (other than funds previously borrowed pursuant to that certain
convertible note dated on or about December 16, 1996), whether by loan,
guaranty, mortgage, or otherwise, provided that: (i) existing factoring or
credit arrangements shall be permitted to remain in effect and the Maker may
obtain credit pursuant thereto, and (ii) accounts payable and accrued expenses
shall not be deemed to be obligations for borrowed funds.
(c) Merge with or into any person other than Access;
(d) Directly or indirectly sell, lease or otherwise dispose of any
material part of its properties, assets, rights, permits, licenses and
franchises to any person other than Access, except in the ordinary course of
business.
(e) Sell or otherwise dispose of any capital stock of any subsidiary
or permit any subsidiary to sell or otherwise dispose of any of its equity
interests or capital stock.
(f) Make any advance or loan to any person, firm or corporation,
except intercompany advances and reasonable travel or business expenses
advanced to the Maker's employees in the ordinary course of business, or invest
in, acquire or hold any securities of any other person or firm, except shares
of its subsidiaries and bank certificates of deposit, which are fully insured
by an agency of the United States, or direct obligations of the United States.
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(g) Issue any additional capital stock (other than as may be required
upon the exercise of any currently outstanding options and warrants) or any
options or warrants to purchase such capital stock or securities convertible
into such capital stock.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by
its duly authorized officer as of the date first above written.
PAPERCLIP SOFTWARE, INC.
By: /s/ William Weiss
-----------------------------
Title: CEO
-----------------------
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<PAGE>
SECURITY AGREEMENT
------------------
THIS AGREEMENT made as of the 29th day of January, 1997, by and
between PAPERCLIP SOFTWARE, INC., a Delaware corporation ("Debtor"), and ACCESS
SOLUTIONS INTERNATIONAL, INC., a Delaware corporation ("Secured Party").
SECTION 1. THE SECURITY INTERESTS. (A) In order: (i) to secure the due
and punctual payment of the principal and interest on that certain Convertible
Promissory Note of Debtor of even date herewith issued to Secured Party in the
original principal amount of Three Hundred Thousand Dollars ($300,000) (the
"Note"), and (ii) to secure the due and punctual payment and performance of all
other indebtedness, liabilities and obligations of Debtor to Secured Party, of
every kind and description, whether direct, indirect or contingent, now
existing or hereafter acquired or arising, secured or unsecured, primary or
secondary, due or to become due, arising under the Note or this Agreement and
any future amendments thereto (all of the foregoing are hereinafter called the
"Obligations"), Debtor hereby grants to Secured Party a continuing security
interest in the following described fixtures and personal property whether now
owned or hereafter acquired or arising and wherever located (hereinafter
collectively called the "Collateral"):
All fixtures and all tangible and intangible personal property
now or hereafter owned by Debtor or in which Debtor now or hereafter
acquires an interest, including, without limitation, all machinery,
equipment, motor vehicles, furniture, furnishings, office supplies,
computer software, general intangibles, contract rights, patents,
trademarks, copyrights, trade names, instruments, documents of title,
policies and certificates of insurance, securities, bank deposits,
checking accounts and cash, and all additions and accessions thereto
and all replacements and substitutions therefor and parts therefor now
owned or hereafter acquired by Debtor or in which Debtor now or
hereafter holds or hereafter acquires an interest; all proceeds and
products of all of the foregoing, wherever situated.
All inventory now owned or hereafter acquired by Debtor or in
which Debtor now or hereafter acquires an interest, including all
merchandise, returned and repossessed goods, raw materials, goods in
process, finished goods and proceeds therefor (hereinafter called the
"Inventory"), and all accounts of Debtor, including all accounts
receivable, notes, drafts, acceptances, chattel paper and other forms
of obligations and receivables now owned or hereafter arising from
Inventory sold or otherwise disposed of by Debtor; and all proceeds
and products of all of the foregoing.
(B) All Collateral consisting of accounts, contract rights,
chattel paper and general intangibles of Debtor, whether now existing or
hereafter arising, and arising from the sale, delivery or provision of goods
and/or services are sometimes hereinafter collectively called the "Customer
Receivables".
(C) The security interests granted pursuant to this Section 1
(the "Security Interests") are granted as security only and shall not subject
Secured Party to, or transfer or in any way affect or modify, any obligation or
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liability of Debtor under any of the Collateral or any transaction which gave
rise thereto. Debtor does not assign any contract rights hereby which, pursuant
to such contract rights, Debtor is prohibited from assigning to Secured Party.
SECTION 2. FILING; FURTHER ASSURANCES. Debtor will, at its expense,
execute, deliver, file and record (in such manner and form as Secured Party may
require), or permit Secured Party to file and record, any financing statements,
specific assignments or other paper that may be reasonably necessary or
desirable, or that Secured Party may reasonably request, in order to create,
preserve, perfect or validate any Security Interest or to enable Secured Party
to exercise and enforce its rights hereunder with respect to any of the
Collateral. Secured Party may at any time or from time to time, at its sole
discretion, require Debtor to cause any chattel paper included in the Customer
Receivables to be delivered to Secured Party, or any agent or representative
designated by it, or to cause a legend referring to the Security Interests to
be placed on such chattel paper and upon any ledgers or other records
concerning the Customer Receivables.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor
hereby represents, warrants and covenants as follows:
A. That, except for the Security Interests and other liens
permitted by Secured Party set forth on Exhibit A attached hereto,
Debtor is, or to the extent that certain of the Collateral is to be
acquired after the date hereof, will be, the owner of the Collateral
free from any adverse lien, security interest or encumbrance (other
than purchase money security interests), and that Debtor will defend
the Collateral against all claims and demands of all persons at any
time claiming any interest therein to the extent that it is
commercially reasonable to do so.
B. That no financing statement covering the Collateral is on file
in any public office, other than the financing statements filed
pursuant to this Security Agreement and as are set forth on Exhibit A
attached hereto.
C. That all additional information, representations and
warranties contained in Exhibit B attached hereto and made a part
hereof are true, accurate and complete on the date hereof.
D. That Debtor will promptly pay any and all taxes, assessments
and governmental charges upon the Collateral prior to the date
penalties are attached thereto, except to the extent that such taxes,
assessments and charges shall be contested in good faith by Debtor in
appropriate proceedings. Such amount which is being contested shall be
fully reserved on the financial statements of Debtor in accordance
with generally accepted accounting principles.
E. That Debtor will immediately notify Secured Party of any event
causing a substantial loss or diminution in the value of all or any
material part of the Collateral and the amount or an estimate of the
amount of such loss or diminution.
F. That Debtor will keep the Collateral free from any adverse
lien, security interest or encumbrance (other than liens set forth on
Exhibit A hereto and purchase money security interests) and in good
order and repair and will not intentionally waste or destroy the
Collateral or any part thereof; and
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Debtor will not use the Collateral in material violation of any
statute or ordinance.
G. That Debtor will not sell or offer to sell or otherwise
assign, transfer or dispose of the Collateral or any interest therein,
without the prior written consent of Secured Party; provided, however,
that as long as no Event of Default has occurred and is continuing,
Debtor may sell Inventory in the ordinary course of business.
H. That Debtor will provide Secured Party with not less than
thirty (30) days' prior written notice of any change in the name of
Debtor.
I. Debtor will have and maintain insurance at all times with
respect to the Collateral against risks of fire (including so-called
extended coverage) and theft, and such other risks as Secured Party
may reasonably require in writing, containing such terms, in such
form, for such periods and written by such companies as may be
reasonably satisfactory to Secured Party, such insurance shall name
Secured Party as loss payee and additional insured, as applicable, and
shall provide for thirty (30) days' prior advance notice in writing to
Secured Party of any cancellation thereof, and within thirty (30) days
after the execution hereof, Debtor shall furnish Secured Party with
certificates or other evidence satisfactory to Secured Party of
compliance with the foregoing insurance provisions. Any credit
insurance covering the Customer Receivables shall name Secured Party
as loss payee.
J. Debtor represents and warrants that all books and records
concerning the Collateral are located at the locations listed in
Exhibit B hereto, and that all Inventory and machinery and equipment
of Debtor is located at the locations listed in Exhibit B hereto.
Debtor shall immediately notify Secured Party of any change in the
location of its chief executive office, of any new or additional
address where its books and records concerning the Collateral are
located and of any new locations of Inventory or machinery and
equipment not specified hereinabove, and if any such location is on
leased premises, promptly furnish Secured Party with a landlord's
waiver in form and substance satisfactory to Secured Party.
K. Debtor agrees to cooperate and join, at its expense, with
Secured Party in taking such steps as are necessary, in Secured
Party's reasonable judgment, to perfect or continue the perfected
status of the Security Interests granted hereunder, including, without
limitation, the execution and delivery of any financing statements,
amendments thereto and continuation statements, the delivery of
chattel paper, documents or instruments to Secured Party, the
obtaining of landlord's waivers required by Secured Party, the
notation of encumbrances in favor of Secured Party on certificates of
title, and the execution and filing of any collateral assignments and
any other instruments reasonably requested by Secured Party
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<PAGE>
to perfect its security interest in any and all of Debtor's patents,
trademarks, service marks, trade names, copyrights and other general
intangibles.
L. Debtor agrees to reimburse Secured Party on demand for
reasonable out-of-pocket expenses incurred in connection with Secured
Party's exercise of its rights under this Security Agreement. Debtor
agrees to indemnify Secured Party and hold it harmless against any
costs, expenses, losses, damages and liability (including reasonable
attorney's fees) incurred in connection with this Security Agreement,
other than as a direct result of Secured Party's gross negligence or
willful misconduct.
SECTION 4. RECORDS RELATING TO COLLATERAL. Debtor will keep its
records concerning the Collateral, including the Customer Receivables and all
chattel paper included in the Customer Receivables, at its principal office at
Three University Plaza, Hackensack, New Jersey 07601 or at such other place or
places of business as Secured Party may approve in writing. Debtor will hold
and preserve such records and chattel paper and will permit representatives of
Secured Party at any time during normal business hours to examine and inspect
the Collateral and to take abstracts from such records and chattel paper (but
not more often than twice per calendar year, upon prior notice to Debtor), and
will furnish to Secured Party such information and reports regarding the
Collateral as Secured Party may from time to time reasonably request.
SECTION 5. COLLECTIONS WITH RESPECT TO CUSTOMER RECEIVABLES. Debtor
will, at its expense, as agent for Secured Party and subject at all times to
Debtor using its best judgment to protect the interests of Secured Party:
(i) endeavor to collect or cause to be collected from customers
indebted on Customer Receivables, as and when due, any and all
amounts, including interest, owing under or on account of each
Customer Receivable;
(ii) compromise and settle any dispute relating to any Customer
Receivable; and
(iii) take or cause to be taken such appropriate action to
repossess goods, the sale of which gave rise to any Customer
Receivable, or to enforce any rights or liens under Customer
Receivables, as Debtor may deem proper, and in the name of Debtor, or
Secured Party, as Debtor may deem proper; provided that Debtor shall
not be required under this Section 5 to take any action which would be
contrary to any applicable law or court order.
SECTION 6. GENERAL AUTHORITY. Upon the occurrence and during the
continuance of an Event of Default, Debtor hereby irrevocably appoints Secured
Party, Debtor's true and lawful attorney-in-fact, with full power of
substitution, in the name of Debtor, at Debtor's expense, to the extent
permitted by law to exercise, at any time and from time to time to do all acts
and things which Secured Party deems reasonably necessary or desirable to
effectuate its rights under this Security Agreement including but not limited
to:
(i) executing and filing financing statements on behalf of Debtor
and otherwise perfecting any security interest granted hereby;
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<PAGE>
(ii) corresponding and negotiating directly with insurance
carriers;
(iii) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due upon or by virtue thereof;
(iv) to receive, take, endorse, assign and deliver any and all
checks, notes, drafts, documents and other negotiable and
non-negotiable instruments and chattel paper taken or received by
Secured Party in connection therewith;
(v) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto;
(vi) to sell, transfer, assign or otherwise deal in or with the
same or the proceeds or avails thereof or the related goods securing
the Customer Receivables, as fully and effectually as if Secured Party
were the absolute owner thereof;
(vi) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference thereto;
(vii) to discharge any taxes, liens, security interests or other
encumbrances at any time placed thereon; and
(ix) to receive any and all mail addressed to Debtor;
provided that Secured Party shall give Debtor not less than ten (10) days'
prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral, except any Collateral which is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market. Secured Party and Debtor agree that such notice constitutes
"reasonable notification" within the meaning of Section 9-504(3) of the Uniform
Commercial Code.
SECTION 7. EVENTS OF DEFAULT. Debtor shall be in default under this
Security Agreement upon the occurrence of any one of the following events
(herein referred to as an "Event of Default"):
(a) default by Debtor in the due observance or performance in any
material respect of any covenant contained in Section 3 (E), (G) or
(H) or Section 4 of this Agreement;
(b) default by Debtor in the due observance or performance of any
other covenant or agreement herein contained and such default shall
continue unremedied for twenty (20) consecutive days after written
notice thereof by Secured Party to Debtor;
(c) any default in the payment when due of any indebtedness of
Debtor to Secured Party, including, without limitation, indebtedness,
obligations or liabilities under the Note which shall continue
unremedied in accordance with the provisions of the Note; or
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<PAGE>
(d) the occurrence of any Event of Default under the provisions
of the Note which shall continue unremedied in accordance with the
provisions of the Note; or
(e) any attachment on any of the Collateral shall remain in
existence for a period of ten (10) days from the date such attachment
was made, or if such attachment is not capable of being removed within
such ten (10) day period, for such longer period during which Secured
Party is satisfied with Debtor's efforts to remove such attachment.
SECTION 8. REMEDIES UPON EVENT OF DEFAULT. If any Event of Default
shall have occurred, and is continuing, Secured Party may exercise all the
rights and remedies of a secured party under the Uniform Commercial Code and
any and all other remedies and rights at law or equity and, in addition,
Secured Party may, without being required to give any notice, except as herein
provided or as may be required by mandatory provisions of law, (i) apply the
cash, if any, then held by it as Collateral in the manner specified in Section
9, and (ii) if there shall be no such cash or if such cash shall be
insufficient to pay all the Obligations in full, sell the Collateral, or any
part thereof, at public or private sale or at any broker's board, for cash,
upon credit or for future delivery, and at such price or prices as Secured
Party may deem satisfactory. Secured Party shall have the right to take
immediate possession of the Collateral and for the purpose may, so far as
Debtor may give authority therefor, enter upon any premises on which any
Collateral is located without notice and remove the same therefrom. Debtor
hereby expressly consents to such repossession of the Collateral and waives all
rights to demand any notice with respect thereto. Secured Party may require
Debtor to assemble all or any part of the Collateral and make it available to
Secured Party at a place to be designated by Secured Party which is reasonably
convenient. Secured Party may be the purchaser of any or all of the Collateral
so sold at any public sale (or, if the Collateral is of a type customarily sold
in a recognized market or is of a type which is the subject of widely
distributed standard price quotations, at any private sale), and may apply all
or any portion of the Obligations towards the payment for any Collateral
purchased by Secured Party, and may thereafter hold the same, absolutely, free
from any right or claim of whatsoever kind. Upon any such sale Secured Party
shall have the right to deliver, assign and transfer to the purchaser thereof
the Collateral so sold. Each purchaser at any such sale shall hold the
Collateral so sold absolutely, free from any claim or right of whatsoever kind,
including any equity or right of redemption. Debtor, to the extent permitted by
law, hereby specifically waives all rights of redemption, stay or appraisal
which it has or may have under any rule of law or statute now existing or
hereafter adopted. Secured Party shall give ten (10) days' prior written notice
of its intention to make any such public or private sale. Such notice, in case
of a public sale, shall state the time and place fixed for such sale. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as Secured Party may fix in the notice of such
sale. At any such sale the Collateral may be sold in one lot as an entirety or
in separate parcels, as Secured Party may determine. Secured Party shall not be
obligated to make any such sale pursuant to any such notice. Secured Party may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by Secured Party until the selling price is paid by the purchaser
thereof, but Secured Party shall not incur any liability in case of the failure
of such purchaser to take up and pay
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<PAGE>
for the Collateral so sold and, in case of any such failure, such Collateral
may again be sold upon like notice. Secured Party, instead of exercising the
power of sale herein conferred upon it, may proceed by a suit or suits at law
or in equity to foreclose the Security Interests and sell the Collateral, or
any portion thereof, under a judgment or decree of a court or courts of
competent jurisdiction. Solely, for purposes of exercising the rights and
powers granted to Secured Party in this Section 8 or by applicable law, and
until all Obligations are satisfied in full, the Debtor hereby grants to
Secured Party an irrevocable license to use all trademarks and trade names (and
to sell goods bearing any such trademark or trade name), registered or
unregistered, which are now or hereafter owned by or licensed to Debtor or in
which Debtor now has or hereafter acquires an interest.
SECTION 9. USE OF COLLATERAL. Notwithstanding anything herein to the
contrary, so long as no Event of Default shall have occurred and be continuing,
and subject to the various provisions of this Agreement, the Debtor may use the
Collateral in any lawful manner.
SECTION 10. QUIET ENJOYMENT. The Secured Party acknowledges that its
security interest hereunder is subject to the rights of Quiet Enjoyment of
various licensees under license agreements, whether existing on the date hereof
or hereafter executed. For the purpose hereof, "Quiet Enjoyment" shall mean in
connection with the rights of licensees under license agreements, the Secured
Party's agreement that its rights under this Agreement and in the Collateral
are subject to the rights of such licensees to distribute, use and/or to
exploit the product licensed to them, and to have access to the product in
connection therewith and that even if the Secured Party shall become the owner
of the Collateral in case of an Event of Default, the Secured Party's ownership
rights shall be subject to any rights of said licensees under such license
agreements, provided, however, that the Secured Party shall not be responsible
for any liability or obligation of the Debtor under any license agreement.
SECTION 11. APPLICATION OF PROCEEDS. The proceeds of any sale of, or
other realization upon, all or any part of the Collateral shall be applied in
the following order of priorities:
first, to pay the expenses of such sale or other realization,
including reasonable out-of-pocket expenses of Secured Party and
reasonable fees and expenses of its agents and counsel, and all
reasonable expenses, liabilities and advances incurred or made by
Secured Party in connection therewith, and any other unreimbursed
expenses for which Secured Party is to be reimbursed pursuant to
Section 12;
second, apply all proceeds hereunder (except proceeds applied
pursuant to clause first above) to the payment of the Obligations in
such other manner as Secured Party, in its sole discretion, shall
determine; and
finally, to pay to Debtor, or its successors or assigns, or as a
court of competent jurisdiction may direct, any surplus then remaining
from such proceeds.
SECTION 12. EXPENSES. Debtor will forthwith upon demand pay to Secured
Party:
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(a) the amount of any taxes which Secured Party may have been
required to pay by reason of the Security Interests (including any
applicable transfer taxes) or to free any of the Collateral from any
lien thereon; and
(b) the amount of any and all reasonable out-of-pocket expenses,
including the reasonable fees and disbursements of its counsel and of
any agents not regularly in its employ, which Secured Party may incur
in connection with: (x) the collection, sale or other disposition of
any of the Collateral, (y) the exercise by Secured Party of any of the
powers conferred upon it hereunder or (z) any default on Debtor's part
hereunder; provided , however, that in the event that Debtor fails to
enter an Asset Purchase Agreement with Secured Party on or before
February 28, 1997 through no fault of Secured Party, Debtor will also
pay to Secured Party within ten days of demand by Secured Party all
such expenses which Secured Party may incur in connection with the
preparation and administration of this Security Agreement (not to
exceed $10,000).
SECTION 13. NONABATEMENT OF SECURITY INTERESTS; TERMINATION. The
Security Interests granted hereby shall not abate or lapse, but shall continue
in full force and effect so as to secure all of the Obligations of the Debtor
to the Secured Party.
Upon satisfaction in full of all Obligations, the Secured Party will
send to Debtor termination statements for all Uniform Commercial Code financing
statements of record filed by the Secured Party hereunder.
SECTION 14. NOTICES. All notices, requests, demands and other
communications provided for hereunder shall be in writing, including facsimile
transmission ("FAX") and mailed or delivered by overnight courier, or
transmitted by FAX confirmed in writing mailed to the addressee, to the
applicable party at the addresses indicated below.
if to Secured Party:
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Attention: Robert H. Stone, President and CEO
FAX: 401-295-1851
if to Debtor:
PaperClip Software, Inc.
Three University Plaza
Hackensack, NJ 07601
Attention: William Weiss, CEO
FAX: 201-487-0613
or, as to each party, at such other address as shall be designated by such
parties in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices,
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requests, demands and other communication shall be deemed given upon the
earlier to occur of: (a) the third day following deposit thereof in the United
States mail, (b) twelve noon local time on the first business day following
timely deposit thereof with an overnight courier service or (c) receipt by the
party to whom such notice is directed.
SECTION 15. WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part of
Secured Party to exercise, and no delay in exercising, and no course of dealing
with respect to, any right, power or remedy under this Security Agreement shall
operate as a waiver thereof; nor shall any single or partial exercise by
Secured Party of any right, power or remedy under this Security Agreement
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. The remedies in this Security Agreement are cumulative
and are not exclusive of any other remedies provided by law.
SECTION 16. CHANGES IN WRITING. Neither this Security Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally
but only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
SECTION 17. NEW YORK LAW; MEANING OF TERMS. This Security Agreement
shall be construed in accordance with and governed by the laws of the State of
New York, except to the extent that remedies provided by the laws of any State
other than New York are governed by the laws of said State. Unless otherwise
defined herein, or unless the context otherwise requires, all terms used herein
which are defined in the New York Uniform Commercial Code have the meanings
therein stated.
SECTION 18. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 19. HEADINGS. The headings in this Security Agreement are for
the purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 20. PARTIES IN INTEREST. All the terms and provisions of this
Security Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not.
SECTION 21. WAIVER OF JURY TRIAL. Each party hereto hereby submits to
the jurisdiction of the courts of the State of New York and the United States
District Court for the Southern District of New York, as well as to the
jurisdiction of all courts to which an appeal may be taken or other review
sought from the aforesaid courts, for the purpose of any suit, action or other
proceeding arising out of any of such party's obligations under or with respect
to this Security Agreement, and expressly waives any and all objections it may
have as to venue in any of such courts. DEBTOR AND SECURED PARTY EACH WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF
THEM AGAINST THE OTHER ON ANY MATTER WHATSOEVER (INCLUDING, WITHOUT LIMITATION,
ANY
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ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED WITH
THIS SECURITY AGREEMENT, ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN). No party to this
Security Agreement, including but not limited to any assignee or successor of a
party, shall seek a jury trial in any lawsuit, proceeding, counterclaim, or any
other litigation procedure based upon, or arising out of, this Security
Agreement, any related instruments, any collateral or the dealings or the
relationship between the parties. No party will seek to consolidate any such
action, in which a jury trial has been waived, with any other action in which a
jury trial cannot be or has not been waived. THE PROVISIONS OF THIS SECTION
HAVE BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE
SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO
ANY OTHER PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED
IN ALL INSTANCES.
SECTION 22. FACSIMILE EXECUTION. To evidence the fact that it has
executed this Agreement, a party may send a copy of its executed counterpart to
the other party by facsimile transmission. That party shall be deemed to have
executed this Agreement on the date it sent such facsimile transmission. In
such event, such party shall deliver to the other party the counterpart of this
Agreement executed by such party for receipt on the next business day.
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IN WITNESS WHEREOF, this Security Agreement has been executed by the
parties hereto all as of the day and year first above written. PAPERCLIP
SOFTWARE, INC.
By: /s/ William Weiss
----------------------------
Title: CEO
-------------------------
ACCESS SOLUTIONS INTERNATIONAL, INC.
By: /s/ Robert H. Stone
----------------------------
Title: President & CEO
----------------------
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REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement dated as of January 29, 1997, is
between PaperClip Software, Inc., a Delaware corporation (the "Company"), and
Access Solutions International, Inc. (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Convertible Promissory Note of even
date ("Note"), the parties hereto have agreed to provide for the registration
rights set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and conditions contained herein, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties to
this Agreement hereby agree as follows:
1. Definitions. For all purposes of this Agreement, the following
terms shall have the meanings set forth below:
Commission means the United States Securities and Exchange Commission,
or any other federal agency at the time administering the Securities Act.
Common Stock means the Common Stock, $.01 par value per share of the
Company and any shares of any other class of capital stock of the Company
hereafter issued which: (i) are not preferred in the Company's charter as to
dividends or assets over any class of stock of the Company, (ii) are not
subject to redemption in the Company's charter, or (iii) are issued to the
holders of shares of Common Stock upon any reclassification thereof.
Demand Registration means the registration requested by the
Stockholders pursuant to Section 2(a)(i).
Indemnified party. As defined in Section 8(c).
Person means an individual, partnership, corporation, limited
liability company, association, trust, joint venture, unincorporated
organization, or any government, governmental department or agency or political
subdivision thereof.
Piggyback Registration. As defined in Section 3(a)(i).
Public Sale means any sale of Restricted Securities to the public
pursuant to a public offering registered under the Securities Act or to the
public through a broker or market-maker pursuant to the provisions of Rule 144
(or any successor rule) adopted under the Securities Act or any other public
offering not required to be registered under the Securities Act.
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<PAGE>
Registration Expenses. As defined in Section 7(a).
registered and registration refer to a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act and the declaration or ordering by the Commission of the effectiveness of
such registration statement.
Restricted Securities means at any particular time all shares of Stock
issued or issuable to Stockholder upon the exercise of the conversion rights
pursuant to the Note, which shares have not been sold in a Public Sale, or
which are not able to be sold in a Public Sale pursuant to the provisions of
Rule 144 of the Securities Act.
Securities Act means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Stock means all shares of Common Stock or Preferred Stock now or
hereafter owned by the Stockholders.
Stockholders means initially, the Purchaser, and thereafter any Person
who becomes a party to this Agreement by executing an Instrument of Accession
in connection with the transfer to or acquisition by such Person of any
Restricted Securities from the Purchaser or any subsequent transferee of the
Purchaser; provided that a Person shall cease to be a Stockholder hereunder at
such time as such Person ceases to own Restricted Securities.
Underwriters Maximum Number means for any Piggyback Registration,
Demand Registration or other registration which is an underwritten
registration, that number of securities to which such registration should, in
the opinion of the managing underwriters of such registration in the light of
marketing factors, be limited.
2. Stockholder Demand Registration.
(a) Request for Demand Registration.
(i) Subject to the limitations contained in the following
paragraphs of this Section 2, the holders of fifty-one (51%) percent
or more of the Restricted Securities may at any time give to the
Company, pursuant to this clause (i), a written request for a Demand
Registration of Restricted Securities. Within 10 days after the
receipt by the Company of any such written request, the Company will
give written notice of such registration request to all Stockholders.
(ii) Subject to the limitations contained in the following
paragraphs of this Section 2, after the receipt of such written
request for a Demand Registration: (A) the Company will be obligated
and required to include in such Demand Registration all Restricted
Securities with respect to which the Company shall receive from
Stockholders, within 30 days (the
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"Inclusion Period") after the date on which the Company shall have
given to all Stockholders a written notice of registration request
pursuant to Section 2(a)(i) hereof, the written requests of such
Stockholders for inclusion of their respective shares of Restricted
Securities in such Demand Registration, and (B) the Company will use
its reasonable best efforts in good faith to effect promptly (but in
no event later than ninety-five (95) days from the end of the
Inclusion Period, provided, however, that such ninety-five (95) day
period shall be extended for up to sixty (60) additional days in the
event of a material development that shall hinder the Company from
effecting such registration) the registration of all such Restricted
Securities; provided, that, the Company shall not be obligated to
cause the effectiveness of a Demand Registration of any convertible
Restricted Securities unless and until such convertible Restricted
Securities included in a Demand Registration shall have been converted
into Common Stock of the Company prior to or simultaneously with the
effectiveness of a Demand Registration; and provided, further, that
each Stockholder shall be entitled to convert any Common Stock so
converted back into convertible Restricted Securities in the event
such Demand Registration is not declared effective. All written
requests made by Stockholders pursuant to this clause (ii) will
specify the number of shares of Restricted Securities to be registered
and will also specify the intended method of disposition thereof. Such
method of disposition shall, in any case, be an underwritten offering
if an underwritten offering is requested by holders of 51% or more of
the Restricted Securities to be included in such Demand Registration.
(iii) Any Stockholder shall be permitted to withdraw all or
any part of the Restricted Securities of such Stockholder from any
Demand Registration at any time prior to the effective date of such
Demand Registration, but in the case of an underwritten public
offering, only if such Stockholder is permitted to do so by the
managing underwriters or pursuant to any agreement therewith. Upon
such withdrawal, subject to Section 2(b)(ii), such Restricted
Securities shall count as being part of a Demand Registration for
purposes of Section 7(a) hereof unless the withdrawing Stockholder
bears one-half of its pro rata share of the costs associated with such
Demand Registration.
(b) Limitations on Demand Registration.
(i) The Stockholders will not be entitled to require the
Company to effect any Demand Registration pursuant to Section 2(a)
hereof more frequently than once during the term hereof, or within six
months after the effective date of any Piggyback Registration pursuant
to Sections 2 or 3 hereof. Registrations pursuant to this Section 2
shall be on Form S-1 or S-2 or Form SB-1 or SB-2 or, if any Demand
Registration would be eligible for registration on Form S-3, the
Company may effect such Demand Registration pursuant to Form S-3.
(ii) Any registration initiated pursuant to Section 2(a)
hereof shall not count as a Demand Registration for purposes of
Section 7(a) hereof unless and until such registration shall have
become effective and seventy-five percent (75%) of the number of
shares that count as part of the Demand Registration shall have been
actually sold.
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(iii) The Company shall not be obligated or required to effect
the Demand Registration of any Restricted Securities pursuant to
Section 2(a) hereof during the period commencing on the date falling
60 days prior to the Company's estimated date of filing of, and ending
on the date 180 days following the effective date of, any registration
statement pertaining to any underwritten registration initiated by the
Company, for the account of the Company, if the written request of
Stockholders for such Demand Registration pursuant to Section 2(a)(i)
hereof shall have been received by the Company after the Company shall
have given to all Stockholders a written notice stating that the
Company is commencing an underwritten registration initiated by the
Company; provided, however, that the Company will use its reasonable
best efforts in good faith to cause any such registration statement to
be filed and to become effective as expeditiously as shall be
reasonably possible. The Company shall not be required to maintain the
effectiveness of any Demand Registration beyond the earlier to occur
of (i) the consummation of the distribution by Stockholders of the
Restricted Securities included therein or (ii) 120 days after the
effective date thereof.
(c) Priority on Demand Registrations. If the managing underwriters in
any Demand Registration pursuant to this Section 2 shall give written advice to
the Company and the Stockholders that, in their opinion, there is an
Underwriters' Maximum Number of shares of Restricted Securities that may
successfully be included in such registration, then: (i) if the Underwriters'
Maximum Number is less than the number of shares of Restricted Securities
requested to be included in such registration, the Company will be obligated
and required to include in such registration that number of shares of
Restricted Securities which does not exceed the Underwriters' Maximum Number,
and such number of shares of Stock shall be allocated pro rata among such
Stockholders on the basis of the number of shares of Restricted Securities
requested to be included therein by each such Stockholder; and (ii) if the
Underwriters' Maximum Number exceeds the number of shares of Restricted
Securities requested to be included in such registration, then the Company will
be entitled to include in such registration that number of securities which
shall have been requested by the Company to be included in such registration
for the account of the Company and which shall not be greater than such excess.
Neither the Company nor any of its security holders (other than the
Stockholders) shall be entitled to include any securities in any underwritten
Demand Registration unless the Company or such security holders (as the case
may be) shall have agreed in writing to sell such securities on the same terms
and conditions as shall apply to the Restricted Securities to be included in
such Demand Registration.
(d) Selection of Underwriters. If any Demand Registration or any
registration effected pursuant to Section 2 hereof is an underwritten offering,
or a best efforts underwritten offering, the investment bankers and managing
underwriters in such registration will be selected by the Company, subject to
the approval of the holders of 51% or more of the Restricted Securities to be
included in such registration.
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3. Piggyback Registrations.
(a) Rights to Piggyback.
(i) If (and on each occasion that) the Company proposes to register
any of its equity securities or any other securities convertible into
equity securities under the Securities Act for its own account (other
than a registration statement on Form S-4 or S-8 or any substitute
form that may, from time to time, be adopted by the Commission) (each
such registration not withdrawn or abandoned prior to the effective
date thereof being herein called a "Piggyback Registration"), the
Company will give written notice to all Stockholders of such proposal
not later than 20 days prior to the anticipated filing date of such
Piggyback Registration.
(ii) Subject to the provisions contained in paragraphs (b) and (c) of
this Section 3 and in the last sentence of this clause (ii): (A) the
Company will be obligated and required to include in each Piggyback
Registration all Restricted Securities with respect to which the
Company shall receive from holders of fifty-one (51%) percent or more
of the Restricted Securities, within 15 days (the "Piggyback Inclusion
Period") after the date on which the Company shall have given written
notice of such Piggyback Registration to all Stockholders pursuant to
Section 3(a)(i) hereof, the written requests of such Stockholders for
inclusion in such Piggyback Registration, and (B) the Company will use
its reasonable best efforts in good faith to effect promptly (but in
no event later than ninety-five (95) days from the end of the
Piggyback Inclusion Period, provided, however, that such ninety-five
day period shall be extended for up to sixty additional days in the
event of a material development that shall hinder the Company from
effecting such registration) the registration of all such Restricted
Securities; provided, that the Company shall not be obligated to cause
the effectiveness of a Piggyback Registration of any convertible
Restricted Securities unless and until such convertible Restricted
Securities included in a Piggyback Registration shall have been
converted into Common Stock of the Company prior to or simultaneously
with the effectiveness of a Piggyback Registration; and provided,
further, that each Stockholder shall be entitled to convert any Common
Stock so converted back into convertible Restricted Securities in the
event such Piggyback Registration is not declared effective. Any
Stockholder shall be permitted to withdraw all or any part of the
Restricted Securities of such Stockholders from any Piggyback
Registration at any time prior to the effective date of such Piggyback
Registration, but in the case of an underwritten offering only if such
Stockholder is permitted to do so by the managing underwriters or
pursuant to any agreement therewith. The Company shall not be required
to maintain the effectiveness of any Piggyback Registration beyond the
consummation of the distribution by holders of Restricted Securities
included in such Piggyback Registration.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration initiated by the Company,
and the managing underwriters shall give written advice to the Company that, in
their opinion, there is an Underwriters' Maximum
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Number of securities that may successfully be included in such registration,
then: (i) the Company shall be entitled to include in such registration that
number of securities which the Company proposes to offer and sell for its own
account in such registration and which does not exceed the Underwriters'
Maximum Number; and (ii) the Company will be obligated and required to include
in such registration that number of shares of Restricted Securities which shall
have been requested by the holders thereof to be included in such registration
and which does not exceed the difference between the Underwriters' Maximum
Number and that number of securities which the Company is entitled to include
therein pursuant to clause (i) above and such number of shares of Restricted
Securities shall be allocated pro rata among such Stockholders on the basis of
the number of shares of Restricted Securities requested to be included therein
by each such Stockholder.
(c) Selection of Underwriters. In any Piggyback Registration, the
Company, in its sole discretion, shall (unless the Company shall otherwise
agree) have the right to select the investment bankers and managing
underwriters in such registration.
4. Lockup Agreements.
(a) Restrictions on Public Sale by Stockholders. Each
Stockholder, if the managing underwriters so request in connection with such
registration, will not, without the prior written consent of such underwriters,
effect any public sale or other distribution of any equity securities of the
Company, including any sale pursuant to Rule 144, during the seven days prior
to, and during the ninety-day period commencing on the effective date of such
underwritten registration, except in connection with such underwritten
registration.
(b) Restrictions on Public Sale by the Company. The Company
agrees, unless it obtains the consent of the managing underwriter(s) of any
underwritten offering of Restricted Securities pursuant to Sections 2 or 3
hereof, not to effect any public sale or distribution of its equity securities,
or any securities convertible into or exchangeable or exercisable for such
equity securities, during the period commencing on the seventh day prior to,
and ending on the ninetieth day (or such longer period as shall be required by
the managing underwriters) following, the effective date of any underwritten
Demand or Piggyback Registration, except in connection with any such
underwritten registration, pursuant to any employee benefit plan or as part of
a business combination transaction.
5. Registration Procedures. If (and on each occasion that) the
Company shall become obligated to effect any registration of any Restricted
Securities hereunder, the Company will use its reasonable best efforts in good
faith to effect promptly the registration of such Restricted Securities under
the Securities Act and to permit the public offering and sale of such
Restricted Securities in accordance with the intended method of disposition
thereof, and, in connection therewith, the Company, as expeditiously as shall
be reasonably possible, will:
(a) prepare and file with the Commission a registration statement
with respect to such Restricted Securities, and use its reasonable best efforts
in good faith to cause such registration statement to become and remain
effective as provided herein;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included in such
registration statement as may be necessary to comply in all material respects
with the provisions of the Securities Act with respect to the disposition of
all
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securities covered by such registration statement or as may be necessary to
keep such registration statement effective and current as provided herein;
(c) as soon as reasonably practicable, furnish to each seller of
Restricted Securities such number of copies of such registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including
each preliminary prospectus), and such other documents, all as any such seller
may reasonably request in order to facilitate the disposition of the Restricted
Securities held by such seller;
(d) enter into such customary agreements (provided they do not
require the issuance of securities at a discount to any underwriter) and take
all such other customary actions in connection therewith as the Stockholders
holding 51% or more of the Restricted Securities being registered reasonably
request in order to expedite or facilitate the disposition of such Restricted
Securities;
(e) use its reasonable best efforts in good faith to register and
qualify the Restricted Securities covered by such registration statement under
such securities or blue sky laws of such jurisdictions as any seller (or the
managing underwriter, in the case of any underwritten offering) shall
reasonably request in light of the intended plan of disposition, and do any and
all such other acts and things as may be reasonably necessary or advisable to
permit the disposition in such jurisdictions of the Restricted Securities
covered by such registration statement; provided, however that the Company
shall not be required in connection therewith to qualify to do business or file
a general consent to service of process in any such jurisdiction or subject
itself to taxation in any jurisdiction where the Company is not already subject
to taxation; and
(f) furnish to each prospective seller a signed counterpart,
addressed to the prospective sellers, (or to the underwriters, in the case of
any underwritten offering) of (i) an opinion of counsel for the Company, dated
the effective date of the registration statement, and (ii) a "comfort" letter
signed by the independent public accountants who have certified the Company's
financial statements included in the registration statement, covering
substantially the same matters with respect to the registration statement (and
the prospectus included therein) and, in the case of the "comfort" letter, with
respect to events subsequent to the date of the financial statements, as are
customarily covered (at the time of such registration) in opinions of issuer's
counsel and in "comfort" letters delivered to the underwriters in underwritten
public offerings of securities.
6. Cooperation by Prospective Sellers, Etc.
(a) Each prospective seller of Restricted Securities will furnish
to the Company in writing such information as the Company may reasonably
require and which is customary in
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such transactions from such seller, and otherwise reasonably cooperate with the
Company in connection with any registration statement with respect to such
Restricted Securities and the Company may exclude from such Registration
Statement the Restricted Securities of any prospective seller who fails to
furnish such reasonably requested information within 30 days after receiving
such request.
(b) The failure of any prospective seller of Restricted
Securities to furnish any information or documents in accordance with any
provision contained in this Agreement shall not affect the obligations of the
Company under this Agreement to any remaining sellers who furnish such
information and documents unless in the reasonable opinion of counsel to the
Company or the underwriters, such failure impairs or may impair the viability
of the offering or the legality of the registration statement or the underlying
offering.
(c) The Stockholders included in any registration statement will
not (until receipt of a notice to the contrary) effect sales of Restricted
Securities included in any registration statement after receipt of written
notice from the Company to suspend sales to permit the Company to correct or
update such registration statement or prospectus; but the obligations of the
Company with respect to maintaining any registration statement current and
effective shall be extended by a period of days equal to the period such
suspension is in effect.
(d) At the end of any period during which the Company is
obligated to keep any registration statement current and effective as provided
herein (and any extensions thereof required by the preceding paragraph (c) of
this Section 6), the Stockholders included in such registration statement shall
discontinue sales of shares pursuant to such registration statement upon
receipt of notice from the Company of its intention to remove from registration
the shares covered by such registration statement which remain unsold, and such
Stockholders shall notify the Company of the number of shares registered which
remain unsold promptly after receipt of such notice from the Company.
7. Registration Expenses.
(a) Except as otherwise provided herein, all out of pocket costs
and expenses incurred or sustained by the Company in connection with or arising
out of the Demand Registration pursuant to Section 2 hereof and each
registration pursuant to Section 3 hereof, including, without limitation, all
registration and filing fees, fees and expenses of compliance with federal and
state securities or blue sky laws (including reasonable fees and disbursements
of counsel for the underwriters in connection with the blue sky qualification
of Restricted Securities), printing expenses, messenger, telephone and delivery
expenses, fees and disbursements of counsel for the Company, reasonable fees
and disbursements of one counsel representing any or all of the holders of
Restricted Securities (selected by the holders of fifty-one (51%) percent or
more of the Restricted Securities), reasonable fees and disbursements of all
independent certified public accountants of the Company (including the expenses
relating to the preparation and delivery of any special audit or "cold comfort"
letters required by or incident to such registration), and fees and
disbursements of underwriters (excluding discounts, commissions and expenses
representing disguised commissions), the reasonable fees and expenses of any
special experts retained by the Company of its own initiative or at the request
of the managing underwriters in connection with such registration, and fees and
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expenses of all (if any) other persons retained by the Company (all such costs
and expenses being herein called, collectively, the "Registration Expenses"),
will be borne and paid by the Company; provided, however, that the Company
shall not pay nor otherwise be responsible for any legal fees or disbursements
of additional counsel other than as set forth above. The Company will, in any
case, pay its internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit, and the fees and expenses incurred in
connection with the listing of the securities to be registered on each
securities exchange on which similar securities of the Company are then listed.
(b) The Company will not bear the cost of nor pay for any stock
transfer taxes imposed in respect of the transfer of any Restricted Securities
to any purchaser thereof by any Stockholder in connection with any registration
of Restricted Securities pursuant to this Agreement.
(c) To the extent that expenses reasonably incurred by the
Company incident to any registration are, under the terms of this Agreement,
not required to be paid by the Company, each Stockholder included in such
registration will pay all such expenses which are clearly solely attributable
to the registration of such Stockholder's Restricted Securities so included in
such registration, and all other such expenses not so attributable to one
Stockholder will be borne and paid by all sellers of securities included in
such registration in proportion to the number of securities so included by each
such seller.
8. Indemnification.
(a) Indemnification by the Company. To the full extent permitted
by law, the Company will indemnify each Stockholder requesting or joining in a
registration and each underwriter of the securities so registered, the
officers, directors, agents, employees and partners of each such Person and
each Person, if any, who controls any thereof (within the meaning of the
Securities Act) against any and all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of any material fact contained in any registration
statement, prospectus or any amendment or supplement thereto, or any document
filed pursuant to state securities laws (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Stockholder, underwriter, and each other
Person indemnified pursuant to this paragraph (a) for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission (or alleged untrue statement or omission) made in
reliance upon and in conformity with
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written information furnished to the Company in an instrument duly executed by
such Stockholder, underwriter, officer, director, partner or controlling person
and stated to be specifically for use therein. provided, however, that the
Company shall not be liable to any such Stockholder to the extent that any such
claim, loss, damage, liability or action arise out of or are based upon any
untrue statement or omission made in any preliminary prospectus if: (i) having
previously been furnished by or on behalf of the Company with copies of such
final prospectus, such Stockholder failed to send or deliver a copy of the
final prospectus with or prior to the delivery of written confirmation of the
sale by such Stockholder to the person asserting the claim from which such
claim, loss, damage, liability or action arise, and (ii) the final prospectus
would have corrected such untrue statement or such omission; provided, further,
that the Company shall not be liable to any Stockholder in any such case to the
extent that any such claim, loss, damage, liability or action arise out of or
are based upon any untrue statement or omission in any prospectus if: (x) such
untrue statement or omission is corrected in an amendment or supplement to such
prospectus, and (y) having previously been furnished by or on behalf of the
Company with copies of such prospectus as so amended or supplemented, such
Stockholder thereafter fails to deliver such prospectus as so amended or
supplemented prior to or concurrently with the sale of a Restricted Security to
the person asserting the claim from which such claim, loss, damage, liability
or action arise.
(b) Indemnification by Each Stockholder. Each Stockholder
requesting or joining in a registration will severally and not jointly
indemnify each underwriter of the securities so registered, the Company and the
officers, agents, employees and directors and partners of each such Person and
each Person, if any, who controls any thereof, together with the officers,
agents, employees, directors and partners of such controlling person (within
the meaning of the Securities Act) and their respective successors in title and
assigns against any and all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of any material fact contained in any registration statement,
prospectus, or any amendment or supplement thereto, or any document filed
pursuant to state securities laws (or in any related registration statement,
notification or the like) or any omission (or alleged omission) to state
therein any material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by such Stockholder of
any rule or regulation promulgated under the Securities Act applicable to such
Person and relating to any action or inaction required of such Person in
connection with any such registration, qualification or compliance, and such
Stockholder will reimburse each underwriter, the Company and each other Person
indemnified pursuant to this paragraph (b) for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that this
paragraph (b) shall apply only if (and only to the extent that) such statement
or omission (or alleged untrue statement or omission) was made in reliance upon
and in conformity with written information furnished to such underwriter or the
Company in an instrument duly executed by any such Stockholder or any officer,
director, partner or controlling person of such Stockholder and stated to be
specifically for use therein, and provided further that each Stockholder's
liability hereunder (including, without limitation, Section 9) with respect to
any particular registration shall be limited to an amount equal to the proceeds
received by such Stockholder from the Restricted Securities sold by such
Stockholder in such registration. The Company and the Stockholders shall be
entitled to
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receive indemnities from underwriters, selling brokers, dealer managers and
similar securities professionals, participating in any distribution of
Restricted Securities to the same extent as provided above with respect to
information so furnished in writing by such underwriters expressly for use in
any prospectus or registration statement.
(c) Indemnification Proceedings. Each party entitled to
indemnification pursuant to this Section 8 (the "indemnified party") shall give
notice to the party required to provide indemnification pursuant to this
Section 8 (the "indemnifying party") promptly after such indemnified party
acquires actual knowledge of any claim as to which indemnity may be sought, and
shall permit the indemnifying party (at its expense) to assume the defense of
any claim or any litigation resulting therefrom; provided that counsel for the
indemnifying party, who shall conduct the defense of such claim or litigation,
shall be reasonably acceptable to the indemnified party, and the indemnified
party may participate in such defense at the indemnified party's expense; and
provided, further, that the failure by any indemnified party to give notice as
provided in this paragraph (c) shall not relieve the indemnifying party of its
obligations under this Section 8 except to the extent that the failure results
in a failure of actual notice to the indemnifying party and such indemnifying
party is prejudiced solely as a result of the failure to give notice. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. The reimbursement required by this Section 8 shall be made by
periodic payments during the course of the investigation or defense, as and
when bills are received or expenses incurred.
9. Contribution in Lieu of Indemnification. If the indemnification
provided for in Section 8 hereof is unavailable to a party that would have been
an indemnified party under any such section in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein,
then each party that would have been an indemnifying party thereunder shall, in
lieu of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and such indemnified party on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The 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 indemnifying party or such
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and each Stockholder agree that it would not be just and equitable
if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation which does not take account the
equitable considerations referred to above in this Section 9. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
or liabilities (or actions in respect thereof) referred to above in this
Section 9 shall include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
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or claim. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to indemnification or
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
10. Rule 144 Requirements; Form S-3. The Company will use its
reasonable best efforts in good faith to take all steps necessary to ensure
that the Company will be eligible to register securities on Form S-1, S-2,
SB-1, SB-2 or S-3 (or any comparable forms adopted by the Commission) and to
file all reports required to be filed by it under the Securities Exchange Act
of 1934 in order that there will be publicly available current public
information concerning the Company within the meaning of Rule 144(c) of the
Commission under the Securities Act. The Company will furnish to any
Stockholder, upon request made by such Stockholder, a written statement signed
by the Company, addressed to such Stockholder, describing briefly the action
the Company has taken or proposes to take to comply with the current public
information requirements of Rule 144. The Company will, at the request of any
Stockholder, upon receipt from such Stockholder of: (x) a certificate
certifying: (i) that such Stockholder has held such Restricted Securities for a
period of not less than three (3) consecutive years (or such shorter period as
may be permitted by Rule 144 from time to time) within the meaning of Rule 144,
(ii) that such Stockholder has not been an affiliate (as defined in Rule 144)
of the Company for more than the ninety-two (92) preceding days, (or such
shorter period as may be permitted by Rule 144 from time to time) and (iii) as
to such other matters as may be appropriate in accordance with such Rule; and
(y) if not waived in writing by the Company, an unqualified written opinion of
counsel knowledgeable in securities law matters as to clauses (i) and (ii)
above, addressed to the Company and reasonably acceptable in form and substance
to the Company, remove from the stock certificates representing such Restricted
Securities that portion of any restrictive legend which relates to the
registration provisions of the Securities Act, and, thereupon, such Restricted
Securities will cease to be Restricted Securities for purposes of this
Agreement.
11. Participation in Underwritten Registrations. No person may
participate in any underwritten registration pursuant to this Agreement unless
such person: (a) agrees to sell such person's securities on the basis provided
in any underwriting arrangements approved by the persons entitled, under the
provisions hereof, to approve such arrangements, and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required by the terms of such underwriting
arrangements. Any Stockholder to be included in any underwritten registration
shall be entitled at any time to withdraw such Restricted Securities from such
registration prior to the execution of the related underwriting agreement in
the event that such Stockholder shall disapprove of any of the terms of such
agreement.
12. Miscellaneous.
(a) No Inconsistent Agreements. The Company hereby represents and
warrants that it is not a party to or bound in any manner under, and covenants
that it will not enter into at any time after the date hereof, any agreement or
contract (whether written or oral) with respect to any of its securities which
grants to any securityholder (other than under this Agreement) any
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<PAGE>
demand registration rights or prevents the Company from complying in any
respect with the registration rights granted by the Company to the Stockholders
hereunder.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this paragraph (b), may not be amended, modified or
supplemented, and any waiver or consent to or any departure from any of the
provisions of this Agreement may not be given and shall not become or be
effective, unless and until (in each case) the Company shall have received the
prior written consent of the holders of at least 66 2/3% of the Restricted
Securities then outstanding to any such amendment, modification, supplement,
waiver or consent; provided however, that any amendment, modification or waiver
of any provision of this Agreement that affects only one or more particular
parties hereto to this Agreement may become effective only with the written
approval of such party or parties.
(c) Restricted Securities Held by the Company. Whenever the
consent or approval of Stockholders is required pursuant to this Agreement,
Restricted Securities held by the Company shall not be counted in determining
whether such consent or approval was duly and properly given by such
Stockholders.
(d) Term. The agreements of the Company contained in this
Agreement shall continue in full force and effect so long as any Stockholder
holds any Restricted Securities.
(e) Notices. Any notice or other communication in connection with
this Agreement shall be deemed to be delivered if in writing (or in the form of
a telex or telecopy) addressed as provided below (a) when actually delivered,
in person, (b) when telexed or telecopied to said address, confirmed by
registered or certified mail, (c) when received if delivered by overnight
courier, or (d) in the case of delivery by mail, three business days shall have
elapsed after the same shall have been deposited in the United States mails,
postage prepaid and registered or certified:
(i) if to a Stockholder, at such Stockholder's address on the stock
transfer books of the Company (which the Company shall make
available for determining the address of any Stockholder for
notification purposes hereunder) with a copy to:
John E. Ottaviani, Esq.
Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 02903
(ii) if to the Company, at:
Three University Plaza
Hackensack, NJ 07601
Attention: William Weiss, CEO
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<PAGE>
with a copy to:
Richard A. Goldberg, Esq.
Shereff, Friedman, Hoffman & Goodman, L.L.P.
919 Third Avenue
New York, NY 10022
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 13(e).
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without limitation, subsequent holders of Stock agreeing to
be bound by all of the terms and conditions of this Agreement by executing an
Instrument of Accession in the form set forth in attached Exhibit A.
(g) Counterparts. This Agreement may be executed in one or more
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument.
(h) Headings. The headings in this Agreement are for convenience
of reference only and shall not constitute a part of this Agreement, nor shall
they affect the meaning, construction or effect of any of the terms of this
Agreement.
(i) Governing Law. The validity, performance, construction and
effect of this Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York, without giving effect to principles
of conflicts of law.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Facsimile Execution. To evidence the fact that it has
executed this Agreement, a party may send a copy of its executed counterpart to
the other party by facsimile transmission. That party shall be deemed to have
executed this Agreement on the date it sent such facsimile transmission. In
such event, such party shall deliver to the other party the counterpart of this
Agreement executed by such party for receipt on the next business day.
(l) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted by the Company with
respect
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<PAGE>
to the Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
PAPERCLIP SOFTWARE, INC.
By /s/ William Weiss
-------------------------------
Title CEO
----------------------------
PURCHASER:
ACCESS SOLUTIONS INTERNATIONAL,
INC.
By: /s/ Robert H. Stone
-------------------------------
Robert H. Stone
President and CEO
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