PAPERCLIP SOFTWARE, INC.
0 XXXXXXXXXX XXXXX
XXXXXXXXXX, XX 00000
Xxxxxx X. Xxxxx, President September 11, 1997
Access Solutions International, Inc.
000 Xxx Xxx Xxxx
Xxxxx Xxxxxxxxx, Xxxxx Xxxxxx 00000
Dear Xxx,
Thank you for the draft of a letter of agreement to amend the nature of
Access Solutions International, Inc.'s ("ASI") acquisition of PaperClip
Software, Inc. ("PaperClip") pursuant to the previously executed Asset Purchase
Agreement by and between ASI and PaperClip, dated as of April 15, 1997 (the
"Asset Purchase Agreement"). Over the last several weeks we have worked together
in order to create a transaction, acceptable to both of our companies, that
addresses the outstanding issues. We have been discussing a merger as a means to
meet the needs of both companies. Set forth below is a general outline of a
modified merger transaction that we believe adequately addresses the
requirements of both companies.
THE REVERSE SUBSIDIARY MERGER
1. In order to avoid the need for ASI to prepay the outstanding PaperClip
Convertible Notes at closing, the Convertible Note Holders have agreed to
exchange their Convertible Notes for newly issued preferred stock of PaperClip.
The Convertible Note (in the aggregate outstanding principal amount of
$129,690.74)(1) will be exchanged (at a rate of $0.30 per share) into an
aggregate of 432,303(1) shares of PaperClip preferred stock.(1) After 18 months,
the holders of the preferred stock will have the option to put the shares of the
preferred stock to ASI for cash or ASI common stock and Class B Warrants. After
30 months, ASI shall have the right to redeem the preferred stock for cash or
ASI common stock and Class B Warrants. The put price and the redemption price
shall be for the same number of shares of ASI common stock and Class B Warrants
as 1 share of PaperClip common stock would receive, or for cash equal to the
liquidation preference, plus, in each case, accrued but unpaid dividends on the
preferred stock. The dividend rate on the preferred stock will be 12% per annum.
The preferred stock will be non-voting and will have a liquidation preference in
an aggregate principal amount of $129,690.74.(1)
2. ASI sets up a merger subsidiary.
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1. Plus unpaid interest accrued on the Convertible Notes which shall be
exchanged for additional shares of preferred stock.
3. The companies proceed with a reverse subsidiary merger whereby ASI's
subsidiary merges into PaperClip with PaperClip surviving as a subsidiary of
ASI. ASI will own all of the voting stock of this subsidiary, but initially will
not own the non-voting preferred stock described above. The consideration for
the merger would be 1,544,438 shares of ASI common stock plus an equivalent
number of ASI Class B Warrants. All shares will be freely tradeable, subject to
the lock-up in the same manner as contemplated by the Asset Purchase Agreement.
Each common stockholder of PaperClip will receive all shares of ASI common stock
and Class B Warrants that such stockholder is entitled to upon such
stockholder's execution of a lock-up agreement substantially in the form of the
lock-up agreement attached to the Asset Purchase Agreement as Exhibit A-1 or
A-2; otherwise, such stockholder's shares will be held in escrow.
4. 75,000 shares of ASI common stock plus an equivalent number of ASI Class
B Warrants shall be held in escrow for 2 years following the closing. In the
event ASI redeems for cash or shares any of PaperClip's warrants, a number of
escrow shares and an equivalent number of Class B Warrants determined by
dividing the costs of redemption by $4.75 will be returned to ASI; otherwise any
remaining shares and Class B Warrants shall be distributed to the PaperClip
shareholders at the expiration of the 2 year escrow period.
5. In reliance on PaperClip's representations that its outstanding
convertible securities are as set forth on Schedule 1 to this letter, and that
no events have occurred that would lower the exercise price or increase the
number of shares of PaperClip common stock into which any such securities can be
converted, ASI and PaperClip agree that at the closing each outstanding
convertible security of PaperClip shall be converted into the right to receive
for each share underlying such convertible security the same number of shares of
ASI common stock and Class B Warrants as a stockholder of 1 share of PaperClip
common stock would be entitled to receive at the closing.
6. ASI and PaperClip agree that each will use its best efforts, and will
use its best efforts to cause its attorneys, accountants and other advisors, to
prepare and file a Form S-4 reflecting the transaction as promptly as possible,
but in any event within thirty (30) days of the date hereof.
7. ASI agrees that it will cause its counsel to prepare, and ASI and
XxxxxXxxx agree that each will use its best efforts to negotiate in good faith
and execute, a definitive Merger Agreement as promptly as possible, but in any
event within thirty (30) days of the date hereof. Upon execution of such Merger
Agreement, the Asset Purchase Agreement shall be terminated and shall cease to
be of any force and effect. The Merger Agreement will contain representations,
warranties, covenants and conditions to closing identical to those contained in
the Asset Purchase Agreement except to the extent inconsistent with the terms
hereof, in which case they shall be modified to the limited extent necessary to
accommodate the new structure described herein.
8. As a condition to closing the merger transaction, PaperClip shall, (i)
terminate the consulting agreement with Xxxxxxx Xxxxxxxx, without any additional
compensation to be due by ASI or PaperClip, (ii) terminate the employment
agreement with Xxxxxxx Xxxxx, and (iii) terminate the underwriting agreement,
and the mergers and acquisitions agreement, each between PaperClip and AR Baron.
9. ASI agrees that for employees of PaperClip who continue to be employed
by the new subsidiary of ASI, it will provide the new ASI employees with options
for ASI common stock in an amount deemed appropriate by ASI's board for such
employee in lieu of such employee's PaperClip Options.
10. ASI agrees that it will refrain from exercising its right of conversion
contained in the $300,000 Convertible Promissory Note unless the Merger
Agreement terminates without consummation of the closing.
Please confirm your agreement with the terms set forth in this letter by
executing this letter where indicated below, whereupon it shall become a binding
agreement.
PAPERCLIP SOFTWARE, INC.
By:/s/Xxxxxxx Xxxxx
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Xxxxxxx Xxxxx,
Chief Executive Officer
Xxxxxx and accepted this 12th
day of September 1997.
ACCESS SOLUTIONS
INTERNATIONAL, INC.
By:/s/Xxxxxx X. Xxxxx
-----------------------------
Xxxxxx X. Xxxxx, President
SCHEDULE 1
Class A Public Warrants ($3.125) 3,599,500
Baron Option ($3.375) 359,950
Baron Warrants Option ($4.219) 359,950
Bridge Warrants ($1.125) 365,746
Warrants in connection with
8% Secured Note ($1.625) 45,608
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4,730,754
