Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ACCESS SOLUTIONS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or jurisdiction of incorporation or organization)
3572
(Primary Standard Industrial Classification Code Number)
05-0426298
(I.R.S. Employer Identification Number)
650 Ten Rod Road, North Kingstown, RI 02852; (401) 295-2691
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
CHRISTINE M. MARX, ESQ.
Edwards & Angell
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
(201) 376-7700
(Name, address, including ZIP Code, and
telephone number, including area code, of agent for service)
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Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement and all conditions
precedent to the merger with Paper Clip Software, Inc. have been satisfied or
waived as described in the enclosed Proxy Statement - Prospectus.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of each class of Amount to be Proposed Maximum Offering Proposed maximum aggregate Amount of
securities to be registered Registered (1) Price Per Share offering price registration fee
<S> <C> <C> <C> <C> <C> <C>
Common Stock, $.01 par value 525,794 (2) $1,507,891 (3) $457
Class B Warrants 262,897
</TABLE>
(1) This Registration Statement covers the maximum number of the
Registrant's securities that would be issued in the transaction
described herein or upon exercise of the options or warrants issued
in the transaction described herein.
(2) Not applicable.
(3) Computed pursuant to Rule 457(f)(1), based upon the market value of
the securities to be exchanged in the merger (13,786,428 shares of
the common stock of PaperClip Software, Inc. ("PSI"), consisting of
8,101,521 shares of PSI common stock outstanding at November 12,
1997, 1,314,029 issuable upon exercise of stock options outstanding
at November 12, 1997 and 4,370,878 issuable upon exercise of
warrants outstanding at November 12, 1997).
Pursuant to Rule 416, there are also being registered such additional
shares of Common Stock as may become issuable pursuant to anti-dilution
provisions of the Class B Warrants and the Merger Options and Warrants.
-------------------------
The registrant hereby amends this Registration Statement on such date as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
<PAGE>
PAPERCLIP SOFTWARE, INC.
Three University Plaza
Hackensack, New Jersey 07607
__________, 1997
Dear Fellow Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
PaperClip Software, Inc. ("PaperClip") to be held on ______, 1997, at _____, at
_____ a.m. (the "Special Meeting"). We look forward to having as many
stockholders as possible present at that time.
At the Special Meeting, you will be asked to consider and vote upon
proposals to approve (i) the Merger Agreement among PaperClip, Access Solutions
International, Inc., a Delaware corporation ("ASI"), and PaperClip Acquisition
Corp., a newly-formed Delaware corporation and wholly-owned subsidiary of ASI
("Newco"), dated as of November , 1997 (the "Merger Agreement"), attached as
Exhibit A to the accompanying Proxy Statement-Prospectus, pursuant to which
Newco will merge with and into PaperClip (the "Merger"), with PaperClip
surviving as a subsidiary of ASI, and (ii) an amendment to PaperClip's
Certificate of Incorporation (the "Amendment"), attached as Exhibit B to the
accompanying Proxy Statement-Prospectus, to authorize a new class of non-voting
preferred stock of PaperClip (the "PaperClip Preferred Stock") which will be
exchanged for PaperClip's 12% Convertible Notes in the aggregate outstanding
principal amount of $129,690.74 (plus unpaid interest accrued on such notes) at
an exchange rate of one share of PaperClip Preferred Stock for each $0.30 of
principal and accrued interest on such convertible notes, as described in the
accompanying Proxy Statement-Prospectus. Upon consummation of the Merger, each
outstanding share of PaperClip Common Stock, $0.01 par value per share (the
"PaperClip Common Stock"), other than treasury shares and shares held by persons
who properly exercise their appraisal rights under Delaware law, will be
converted into the right to receive the number of shares of ASI Common Stock,
par value $.01 per share (the "ASI Common Stock"), and an equivalent number of
ASI Class B Warrants determined by dividing 1,544,438 by the number of shares of
Paper Clip Common Stock outstanding immediately prior to the closing of the
Merger (less treasury shares). The Class B Warrants will entitle the holder of
each warrant to acquire one share of ASI Common Stock for an initial exercise
price of $6.00 at any time from issuance through October 15, 2001. In addition,
the PaperClip Preferred Stock will become preferred stock of the surviving
corporation upon consummation of the Merger. Approval of the Merger Agreement
and the Amendment each requires the affirmative vote of a majority of the issued
and outstanding shares of PaperClip.
The accompanying Proxy Statement-Prospectus provides detailed information
concerning the proposed Merger, the Amendment and certain additional
information, including, without limitation, the information set forth under the
heading "Risk Factors" which describes, among other things, benefits to certain
PaperClip officers, potential adverse effects to PaperClip's stockholders and
other risks inherent in the proposed Merger and the issuance of the PaperClip
Preferred Stock, all of which you are urged to read carefully.
It is important that your PaperClip Common Stock be represented at the
Special Meeting, regardless of the number of shares you hold; therefore, please
sign, date and return your proxy card as soon as possible, whether or not you
plan to attend the Special Meeting. Returning the proxy card will not prevent
you from voting your shares in person if you subsequently choose to attend the
Special Meeting.
Promptly after the Merger, a letter of transmittal will be mailed to each
holder of record of shares of PaperClip Common Stock. PLEASE DO NOT SEND YOUR
STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD TO THE EXCHANGE AGENT UNLESS AND
UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL, WHICH WILL INCLUDE INSTRUCTIONS AS
TO THE PROCEDURES TO BE USED IN SENDING YOUR STOCK CERTIFICATES TO EXCHANGE THEM
FOR STOCK CERTIFICATES OF ASI.
Your Board of Directors believes that the Merger Agreement and the
transactions contemplated thereby are fair to and, along with the issuance of
the PaperClip Preferred Stock, are in the best interests of PaperClip and its
stockholders. The members of the Board have unanimously approved the Merger
Agreement and the Amendment and the full Board unanimously recommends that you
vote to approve the Merger Agreement and the Amendment.
Sincerely,
WILLIAM WEISS
Chief Executive Officer
<PAGE>
PAPERCLIP SOFTWARE, INC.
Three University Plaza
Hackensack, New Jersey 07607
(201) 487-3503
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held __________, 1997
To the Stockholders of PaperClip Software, Inc.:
Notice is hereby given pursuant to Section 211 of the Delaware General
Corporation Law that a Special Meeting of Stockholders (the "Special Meeting")
of PaperClip Software, Inc. ("PaperClip") will be held at _____, on _______,
1997 at _____ a.m. Eastern Standard Time for the following purposes:
1. To consider and vote upon the approval and adoption of a Merger
Agreement (the "Merger Agreement") dated as of November 12, 1997 among
PaperClip, Access Solutions International, Inc. ("ASI") and PaperClip
Acquisition Corp., a newly-formed subsidiary of ASI ("Newco"), pursuant to
which Newco will merge with and into PaperClip (the "Merger"), with
PaperClip surviving as a subsidiary of ASI, upon the terms and conditions
set forth in the Merger Agreement, all as more fully described in the
accompanying Proxy Statement-Prospectus. A copy of the Merger Agreement is
attached as Exhibit A to the Proxy Statement-Prospectus.
2. To consider and vote upon an amendment to PaperClip's Certificate
of Incorporation (the "Amendment") to authorize a new class of non-voting
preferred stock of PaperClip (the "PaperClip Preferred Stock") which will
be exchanged for PaperClip's 12% Convertible Notes, as more fully described
in the accompanying Proxy Statement-Prospectus. A copy of the Amendment is
attached as Exhibit B to the Proxy Statement-Prospectus.
3. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors of PaperClip has fixed the close of business on
_____, 1997 as the record date for the determination of the holders of the
Common Stock, $0.01 par value per share, of PaperClip entitled to notice of and
to vote at the Special Meeting or any adjournments or postponements thereof. The
Merger, the Amendment and other related matters are more fully described in the
accompanying Proxy Statement-Prospectus, and the exhibits thereto, which form a
part of this Notice.
By Order of the Board of Directors,
Michael Suleski
Secretary
Hackensack, New Jersey
___________, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND DATE
THE ENCLOSED PROXY WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF PAPERCLIP,
AND RETURN IT TO PAPERCLIP IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. ANY
STOCKHOLDER MAY REVOKE HIS OR HER PROXY AT ANY TIME BEFORE THE SPECIAL MEETING
BY WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY
ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
<PAGE>
[RED HERRING]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT - PROSPECTUS DATED ___________ __, 1997
PROXY STATEMENT-PROSPECTUS
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ACCESS SOLUTIONS PAPERCLIP SOFTWARE, INC.
INTERNATIONAL, INC. Three University Plaza
650 Ten Rod Road Hackensack, New Jersey 07607
North Kingstown, Rhode Island 02852 (201) 487-3503
(401) 295-2691
---------------------
This Proxy Statement-Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of PaperClip Software, Inc.
("PaperClip") to be used at a Special Meeting of stockholders to be held on
_______, 1997 for the purpose of considering and voting upon (i) a Merger
Agreement (the "Merger Agreement") dated as of November , 1997 among PaperClip,
Access Solutions International, Inc. ("ASI") and PaperClip Acquisition Corp., a
newly-formed subsidiary of ASI ("Newco"), pursuant to which Newco will merge
with and into PaperClip, with PaperClip surviving as a subsidiary of ASI (the
"Surviving Corporation"), and (ii) an amendment to PaperClip's Certificate of
Incorporation (the "Amendment") to authorize a new class of non-voting preferred
stock of PaperClip (the "PaperClip Preferred Stock") which will be exchanged for
PaperClip's 12% Convertible Notes (the "PaperClip Convertible Notes") in the
aggregate outstanding principal amount of $129,690.74 (plus unpaid interest
accrued on such notes). If the Amendment is approved by the stockholders of
PaperClip, prior to the effective time of the Merger PaperClip will file the
Amendment and issue the PaperClip Preferred Stock to the holders of the
PaperClip Convertible Notes.
At the effective time of the Merger (the "Effective Time"):
(i) each share of PaperClip Common Stock, $0.01 par value per share
(the "PaperClip Common Stock"), other than treasury shares and shares
held by Paper Clip stockholders who properly perfect their appraisal
rights in accordance with Delaware law ("Dissenting Stockholders"),
will be converted into the right to receive the number of shares of
ASI Common Stock, par value $.01 per share (the "ASI Common Stock")
and an equivalent number of ASI Class B Warrants (the "Class B
Warrants") (collectively, the "Merger Consideration") determined by
dividing 1,544,438 (which amount includes 75,000 shares of ASI Common
Stock and 75,000 Class B Warrants which will be placed in escrow
pursuant to the Escrow Agreement as set forth below) by the number of
shares of PaperClip Common Stock outstanding immediately prior to the
Effective Time (the "Conversion Ratio"); the Class B Warrants will
entitle the holder of each warrant to acquire one share of ASI Common
Stock for an initial exercise price of $6.00 at any time from issuance
through October 15, 2001;
(ii) each share of PaperClip Preferred Stock, which is to be issued
prior to the Effective Time in exchange for the PaperClip Convertible
Notes at an exchange rate of $.30 per share, will become the Preferred
Stock of the Surviving Corporation;
(iii) each outstanding option (other than options granted to employees
of PaperClip who continue to be employed by ASI following the
Effective Time who will be offered Employee Options to purchase the
ASI Common Stock in an amount deemed appropriate by ASI's Board of
Directors in substitution and cancellation of such employees' existing
PaperClip Options) and warrant to purchase PaperClip Common Stock will
be converted into an option and warrant, respectively (the "Merger
Options and Warrants") to purchase ASI Common Stock and Class B
Warrants in an amount equal to the Merger Consideration attributable
to each share of PaperClip Common Stock underlying such PaperClip
option or warrant; and
(iv) 75,000 shares of ASI Common Stock and 75,000 Class B Warrants
will be placed in escrow pursuant to the Escrow Agreement for a two
year period, during which period, if ASI redeems any Merger Options
and Warrants, the escrowed ASI Common Stock and Class B Warrants will
be returned to ASI in an amount equal to the cost of redemption
divided by $4.75 and any shares remaining in escrow at the end of such
escrow period will be distributed to the PaperClip stockholders.
It is estimated that each share of PaperClip Common Stock held by a
stockholder will receive _____ shares of a share of ASI Common Stock and _____
of a Class B Warrant (which amount includes a portion of the 75,000 shares of
ASI Common Stock and 75,000 Class B Warrants which will be placed in escrow
pursuant to the Escrow Agreement as set forth below).
The Merger Agreement and the Amendment are attached hereto as Exhibits A
and B, respectively, and are incorporated herein by reference. Pursuant to the
Merger Agreement the transferability of the ASI Common Stock and the Class B
Warrants (collectively the "ASI Purchase Securities") will be limited by lock-up
agreements which will limit sales of the ASI Purchase Securities until a date
between April 11, 1998 and October 24, 1998. Following the issuance of the ASI
Common Stock, Class B Warrants and Merger Options and Warrants pursuant to the
Merger (the "Proposed Securities Issuance"), the PaperClip stockholders,
optionholders and warrantholders will hold approximately 28% of the issued and
outstanding ASI Common Stock and, assuming the immediate exercise of the Class B
Warrants issued to the PaperClip stockholders, optionholders and warrantholders
but no exercises of ASI's outstanding options or warrants, the PaperClip
stockholders, optionholders and warrantholders would hold approximately __% of
the issued and outstanding ASI Common Stock. On _______, 1997, the last sales
price of the ASI Common Stock on the Nasdaq Small Cap Market was $____ per share
and the last reported sale price of the PaperClip Common Stock, $.01 par value
per share (the "PaperClip Common Stock"), on the OTC Bulletin Board was $____
per share.
ASI has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with the Securities and Exchange Commission covering the ASI Common Stock, Class
B Warrants and Merger Options and Warrants which may be issued in connection
with the Merger. This Proxy Statement-Prospectus also constitutes the Prospectus
of ASI filed as part of such Registration Statement.
This Proxy Statement-Prospectus does not cover any resales of ASI Common
Stock, Class B Warrants or Merger Options and Warrants received by the PaperClip
stockholders, optionholders and warrantholders upon consummation of the Merger
and no person is authorized to make use of this Proxy Statement-Prospectus in
connection with any such resale.
All information contained in this Proxy Statement-Prospectus with respect
to PaperClip has been supplied by PaperClip and all information with respect to
ASI has been supplied by ASI.
No person is authorized to give any information or to make any
representation other than those contained in this Proxy Statement-Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by ASI or PaperClip. This Proxy
Statement-Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities to which it relates, or to a solicitation
of a proxy, in any jurisdiction in which, or to any person to whom, it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Proxy Statement-Prospectus nor the distribution of any securities pursuant
hereto shall, under any circumstances, imply that the information herein is
correct as of any time subsequent to the date hereof.
THE ASI SECURITIES COVERED HEREBY THAT MAY BE ISSUED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement-Prospectus and the form of proxy are first being
mailed to stockholders of PaperClip on or about ________, 1997.
The date of this Proxy Statement-Prospectus is _______, 1997.
<PAGE>
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION.........................................................
FORWARD LOOKING STATEMENTS....................................................
SUMMARY ............................................................
RISK FACTORS ............................................................
SPECIAL MEETING INFORMATION...................................................
SPECIAL FACTORS ............................................................
Background of the Merger.............................................
Recommendation of the Board of Directors; Reasons for the Merger.....
Amendment to PaperClip's Certificate of Incorporation; Reasons
for the Amendment...............................................
Interests of Certain Persons in the Merger; Conflicts of Interest....
Operations of ASI After the Merger...................................
CAPITALIZATION ............................................................
ACCESS SOLUTIONS INTERNATIONAL, INC. SELECTED HISTORICAL
FINANCIAL DATA ............................................................
ACCESS SOLUTIONS INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND..............
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................
PAPERCLIP SOFTWARE, INC. SELECTED HISTORICAL
FINANCIAL DATA ............................................................
PAPERCLIP SOFTWARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................................
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS...................
THE MERGER ............................................................
General ............................................................
Exchange of Certificates; Fractional Shares..........................
PaperClip Options and Warrants.......................................
Escrow Arrangement...................................................
Bridge Loan..........................................................
Management Agreement.................................................
Resale Restrictions; Lock-up Agreements..............................
PaperClip Stockholder Approval.......................................
Conditions, Representations and Covenants............................
Termination; Amendments..............................................
Termination Fee......................................................
Financing of the Merger..............................................
Certain Federal Income Tax Consequences..............................
Accounting Treatment.................................................
Regulatory Approvals.................................................
Rights of Dissenting Stockholders....................................
Management and Operations After the Merger...........................
INFORMATION CONCERNING ACCESS SOLUTIONS INTERNATIONAL, INC....................
General ............................................................
Business ............................................................
Facilities...........................................................
Management...........................................................
INFORMATION CONCERNING PAPERCLIP SOFTWARE, INC................................
General ............................................................
Business ............................................................
DESCRIPTION OF SECURITIES.....................................................
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS................................
CERTAIN TRANSACTIONS..........................................................
PRINCIPAL STOCKHOLDERS OF ASI.................................................
MARKET PRICES OF AND DIVIDENDS ON SECURITIES..................................
LEGAL MATTERS ............................................................
EXPERTS ............................................................
INDEX TO FINANCIAL STATEMENTS.................................................
EXHIBITS
A. Merger Agreement
B. Amendment to PaperClip's Certificate of Incorporation
C. Section 262 of DGCL
<PAGE>
AVAILABLE INFORMATION
ASI (Commission File No. 0-28920) and PaperClip (Commission File No.
0-26598) are each subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. In addition, such reports, proxy
statements and other information can be inspected and copied at the Commission's
Regional Offices at 7 World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials may be obtained by mail, at prescribed
rates, from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Web site is http://www.sec.gov. The ASI Common Stock is listed on
the Nasdaq Small Cap Market and material filed by ASI can be inspected at the
offices of the Nasdaq Small Cap Market, 1735 K Street, NW, Washington, DC 20006.
This Proxy Statement-Prospectus does not contain all the information set
forth in the Registration Statement on Form S-4 and exhibits relating thereto,
including any amendments (the "Registration Statement"), of which this Proxy
Statement-Prospectus is a part, and which ASI has filed with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). Reference
is made to such Registration Statement for further information with respect to
ASI and the ASI Common Stock, Class B Warrants and Merger Options and Warrants
offered hereby. Statements contained herein or incorporated herein by reference
concerning the provisions of documents are summaries of such documents and each
statement is qualified in its entirety by reference to the copy of the
applicable document if filed with the Commission or attached as an exhibit
hereto.
FORWARD LOOKING STATEMENTS
The statements contained in the Proxy Statement-Prospectus that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). Such forward-looking
statements may be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should" or
"anticipates" or the negative thereof or comparable terminology, or by
discussions of strategy that involve risks and uncertainties. From time to time,
ASI or its representatives have made or may make forward-looking statements,
orally or in writing. Such forward-looking statements may be included in various
filings made by ASI with the Commission, or press releases or oral statements
made by or with the approval of an authorized executive officer of ASI. These
forward-looking statements, such as statements regarding anticipated future
revenues, capital expenditures, research and development expenditures and other
statements regarding matters that are not historical facts, involve predictions.
ASI's actual results, performance or achievements could differ materially from
the results expressed in, or implied by, these forward-looking statements.
Potential risks and uncertainties that could affect the Company's future
operating results include, but are not limited to, the factors set forth under
"Risk Factors" herein and economic conditions, including economic conditions
related to the computer industry.
GIGAPAGE and the ASI logo are trademarks of ASI. PaperClip software and the
PaperClip logo are registered trademarks of PaperClip. All other trade names,
trademarks or service marks appearing in this Prospectus are the property of
their respective owners and are not the property of ASI or PaperClip.
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROXY STATEMENT-PROSPECTUS. IN JANUARY 1996, ASI EFFECTED A
ONE-FOR-74 REVERSE STOCK SPLIT (THE "REVERSE STOCK SPLIT") OF ASI COMMON STOCK.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROXY STATEMENT-PROSPECTUS
(I) GIVES EFFECT TO THE REVERSE STOCK SPLIT; (II) ASSUMES NO EXERCISE OF THE
REDEEMABLE WARRANTS INCLUDED IN THE UNITS (BOTH AS DEFINED BELOW); AND (III)
ASSUMES NO EXERCISE OF THE CLASS B WARRANTS OR THE MERGER OPTIONS AND WARRANTS.
HOLDERS OF PAPERCLIP COMMON STOCK SHOULD CAREFULLY CONSIDER THE INFORMATION
SET FORTH UNDER THE HEADING "RISK FACTORS" BELOW.
THE PARTIES
ACCESS SOLUTIONS INTERNATIONAL, INC. ASI designs, develops, assembles and
markets mainframe information storage and retrieval systems, including both
hardware and software, for large enterprises. ASI products include GIGAPAGE
software, for on-line viewing of reports and data, as well as optical/magnetic
storage hardware systems. ASI believes that its proprietary computer output to
laser disk ("COLD") and data storage systems provide a faster, more reliable and
more economical method of storing vast quantities of computer-generated data
than is generally available from other COLD systems or from traditional data
storage methods. ASI's COLD and optical data storage systems, which are marketed
under the brand names GIGAPAGE and OAS, are sold principally to large
organizations that have the need to store and retrieve large quantities of
computer-generated data.
ASI's optical data storage systems consist of both hardware and software
products. The hardware component of the systems is the Optical Archiving System
("OAS") which consists of an optical disk robotic autochanger and a controller
that commands the robotic autochanger to automatically mount and dismount
optical disks in response to instructions received from data storage and
retrieval software. ASI's GIGAPAGE software is an end-user application for
report storage and retrieval that operates in conjunction with its OAS hardware
component. In addition, ASI is extending its storage solution technology to
embrace other segments of the market, including RAID (redundant array of
independent disks) and tape storage with an updated version of the OAS utilizing
fiber optics. The control unit of the OAS is directly attached to the mainframe
through a conventional IBM-compatible interface to input-output ("1/O") channel
of the IBM/compatible mainframe.
The market for COLD storage systems is segmented into the mainframe, PC
(stand-alone or LAN-based), client/server and CD-ROM markets. Organizations that
store and retrieve large quantities of data and/or are subject to government
regulation of data retention are primary prospects for purchases of ASI's
products.
ASI's executive offices are located at 650 Ten Rod Road, North Kingstown,
Rhode Island 02852 and its telephone number is (401) 295-2691.
See "The Parties -- ASI."
PAPERCLIP SOFTWARE, INC. PaperClip develops and markets document management
and imaging software. Its products 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. PaperClip's systems can be integrated with many personal
computer applications with little or no programming and can file and retrieve
documents without the need to manually label or index, or manually search, for
documents.
PaperClip markets its software and associated products domestically through
(i) mass distributors, which sell to approximately 125 value added resellers
("VARs"), and (ii) VARs. It also markets its products internationally through
approximately 30 VARs and through distributors, and sells directly to large
corporations that require consulting and integration services.
PaperClip (formerly known as PaperClip Imaging Software, Inc.) is the
successor by merger, in March 1992, to the original company which had been
incorporated in New Jersey in October 1991, and is currently incorporated under
the laws of the State of Delaware. Its principal executive office is located at
Three University Plaza, Hackensack, New Jersey 07601, and its telephone number
is (201) 487-3503.
See "The Parties -- PaperClip."
See "Special Factors - Operations of ASI After the Merger" for a summary of
ASI's strategy for the combined operations of ASI and PaperClip.
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting of PaperClip's stockholders will be held at ______ on
__, 1997 at _ a.m., local time (including any and all adjournments or
postponements thereof, the "Special Meeting"). See "Special Meeting
Information."
PURPOSES OF SPECIAL MEETING
At the Special Meeting, holders of PaperClip Common Stock will consider and
vote upon proposals to (i) approve the Merger Agreement, including the merger of
Newco with and into PaperClip, with PaperClip surviving as a subsidiary of ASI
(the "Surviving Corporation"), and (ii) approve the Amendment contemplated by
the minutes of the meeting of the Board of Directors of PaperClip, dated
November 3, 1997, and any other matter that may properly come before the Special
Meeting. See "Special Meeting Information."
TERMS OF THE MERGER; MANAGEMENT AGREEMENT
In accordance with, and subject to the terms and conditions of, the Merger
Agreement, at the Effective Time:
(i) each share of PaperClip Common Stock, other than treasury shares and
shares held by Dissenting Stockholders, will be converted into the right to
receive the number of shares of ASI Common Stock and an equivalent number
of Class B Warrants determined by dividing 1,544,438 (which amount includes
75,000 shares of ASI Common Stock and 75,000 Class B Warrants which will be
placed in escrow pursuant to the Escrow Agreement as set forth below) by
the number of shares of PaperClip Common Stock outstanding immediately
prior to the Effective Time; the Class B Warrants will entitle the holder
of each warrant to acquire one share of ASI Common Stock for an initial
exercise price of $6.00 at any time from issuance through October 15, 2001;
(ii) each share of PaperClip Preferred Stock, which is to be issued prior
to the Effective Time in exchange for the PaperClip Convertible Notes at an
exchange rate of $.30 per share, will become Preferred Stock of the
Surviving Corporation;
(iii) each outstanding option (other than options granted to employees of
PaperClip who continue to be employed by ASI following the Effective Time
who will be offered Employee Options to purchase ASI Common Stock in an
amount deemed appropriate by ASI's Board of Directors in substitution and
cancellation of such employees' existing PaperClip Options) and warrant to
purchase PaperClip Common Stock will be converted into Merger Options and
Warrants to purchase ASI Common Stock and Class B Warrants in an amount
equal to the Merger Consideration attributable to each share of PaperClip
Common Stock underlying such PaperClip option or warrant; and
(iv) 75,000 shares of ASI Common Stock and 75,000 Class B Warrants will be
placed in escrow pursuant to the Escrow Agreement for a two year period,
during which period, if ASI redeems any Merger Options and Warrants, the
escrowed ASI Common Stock and Class B Warrants will be returned to ASI in
an amount equal to the cost of redemption divided by $4.75 and any shares
remaining in escrow at the end of such escrow period will be distributed to
the PaperClip stockholders.
See "The Merger -- General."
It is estimated that each share of PaperClip Common Stock held by a
stockholder will receive ____ shares of a share of ASI Common Stock and _____ of
a Class B Warrant (which includes a portion of the 75,000 shares of ASI Common
Stock and 75,000 Class B Warrants which will be placed in escrow pursuant to the
Escrow Agreement as set forth below).
Pursuant to the Merger Agreement, the transferability of the ASI Purchase
Securities shall be limited by lock-up agreements which will limit sales of the
ASI Purchase Securities until a date between April 1998 and October 1998. See
"The Merger -- Resale Restrictions; Lock-up Agreements."
ASI and PaperClip entered into a Management Agreement dated as of April 15,
1997 (the "Management Agreement"), pursuant to which ASI is responsible for (i)
the management of the day-to-day operations of PaperClip, and (ii) advancing on
behalf of PaperClip funds provided for by an agreed-upon operating budget, in
each case from the date of the Management Agreement to the date of consummation
of the Merger or the earlier termination of the Merger Agreement. Through
September 30, 1997, ASI advanced approximately $1,181,690 to fund PaperClip's
operations. Under the terms of the Management Agreement, PaperClip will pay to
ASI a management fee of $50,000 per month (the "Management Fee") up to a maximum
of $300,000 and thereafter $1.00 per month for any succeeding months. PaperClip
will have no obligation to pay the Management Fee, to repay any advances or to
reimburse ASI for any other costs incurred by ASI as part of its duties under
the Management Agreement (the "Management Agreement Payment Obligations") if the
Merger is consummated.
VOTES REQUIRED
The PaperClip Board of Directors has fixed the close of business on ____,
1997 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Special Meeting. Only the
holders of record of the outstanding shares of PaperClip Common Stock on the
Record Date will be entitled to notice of, and to vote at, the Special Meeting
and any adjournments or postponements thereof. The presence, in person or by
proxy, of a majority of the aggregate number of shares of PaperClip Common Stock
outstanding and entitled to vote on the Record Date is necessary to constitute a
quorum at the Special Meeting.
The affirmative vote of the holders of a majority of the shares of
PaperClip Common Stock issued, outstanding and entitled to vote at the Special
Meeting is required to approve the Merger Agreement and the Amendment. The
approval of (i) the Merger Agreement and (ii) the issuance of the PaperClip
Preferred Stock to the holders of the PaperClip Convertible Notes, which is
conditioned upon the approval of the Amendment, by the PaperClip stockholders
are each a condition to the consummation of the Merger. If, however, the Merger
Agreement is not approved and the Amendment is, then the Amendment will be
effected and the PaperClip Preferred Stock will be issued to the PaperClip
Convertible Note holders.
As of the Record Date, directors and executive officers of PaperClip and
their affiliates and persons and entities related to the foregoing were
beneficial owners of 921,165 shares of PaperClip Common Stock representing
approximately 11.4% of the outstanding shares of PaperClip's Common Stock. The
affirmative votes by the holders of these shares may affect the outcome of the
vote. Certain holders of _______ % of the PaperClip Common Stock have executed a
Stockholder Agreement, dated as of November ___, 1997 (the "Stockholder
Agreement"), pursuant to which such stockholders have agreed to vote all of
their shares in favor of the transaction. See "Special Meeting Information --
Votes Required."
REASONS FOR THE MERGER
In the discussions which led to the transactions between PaperClip and ASI,
which initially resulted in the signing of an asset purchase agreement between
PaperClip and ASI (the "Asset Purchase Agreement"), which was subsequently
replaced by the Merger Agreement, the respective managements of ASI and
PaperClip identified a number of potential benefits resulting from a combination
of the two entities, including similar customer bases and complementary
products; expanded development, distribution, packaging and marketing
opportunities; shared industry experience and expertise; more efficient
operations and synergies in development operations and support services; and
expanded management and marketing depth. The PaperClip Board believes that the
Merger (i) represents the most attractive financial alternative available to
PaperClip's stockholders; (ii) will provide PaperClip's stockholders with better
access to the capital markets and greater liquidity; and (iii) giving effect to
the complementary operating efficiencies and product offerings contemplated by
the Merger, gives PaperClip's stockholders, as holders of ASI Common Stock after
the completion of the Merger, the potential for greater long-term appreciation.
See "Special Factors -- Recommendation of the Board of Directors; Reasons for
the Merger."
The number of ASI Purchase Securities and the terms of the Merger as a
whole were all determined as a result of arms-length negotiations between ASI
and PaperClip. The number of ASI Purchase Securities to be issued by ASI to the
stockholders of PaperClip was determined by analysis of the prevailing equity
values of ASI and PaperClip in January 1997 (when the acquisition was first
negotiated) and other factors considered relevant. See "Risk Factors -- Fixed
Conversion Ratio Does Not Reflect Changes in Stock Prices."
AMENDMENT TO PAPERCLIP'S CERTIFICATE OF INCORPORATION; REASONS FOR THE AMENDMENT
In order to issue the PaperClip Preferred Stock to the PaperClip
Convertible Note holders (as set forth below), the Board of Directors of
PaperClip has unanimously approved (subject to stockholder approval) the
Amendment to PaperClip's Certificate of Incorporation, substantially in the form
of Exhibit B attached to the Proxy Statement-Prospectus and incorporated herein
by reference, to effect the Amendment with respect to the issuance of the
PaperClip Preferred Stock; however, such text is subject to change as may be
required by the Secretary of State of the State of Delaware (the "Secretary of
State"). If the Amendment is approved by the actions of the PaperClip
stockholders, PaperClip will be authorized to issue the PaperClip Preferred
Stock.
In order to avoid the need for ASI to repay the PaperClip Convertible Notes
at the Effective Time, the PaperClip Convertible Note holders have agreed to
exchange their Convertible Notes for the PaperClip Preferred Stock (which, on
the Effective Time, will become the Preferred Stock of the Surviving Corporation
(the "Preferred Stock")). PaperClip Convertible Notes in the aggregate
outstanding principal amount of $129,690.74 (plus unpaid interest accrued on the
PaperClip Convertible Notes) will be exchanged at a rate of one share of
PaperClip Preferred Stock for $0.30 of principal and accrued interest on the
PaperClip Convertible Notes into an aggregate of 432,303 shares of PaperClip
Preferred Stock (plus unpaid interest accrued on the Convertible Notes of
Preferred Stock). After 18 months, the holders of the PaperClip Preferred Stock
will have the option to put the shares of the Preferred Stock to the Surviving
Corporation or ASI for cash or ASI Common Stock and Class B Warrants. After 30
months, ASI will have the right to redeem the Preferred Stock for cash or ASI
Common Stock and Class B Warrants. The per share put price and the redemption
price will be for the same number of shares of ASI Common Stock and Class B
Warrants as one share of PaperClip Common Stock would receive, or for cash equal
to the liquidation preference of $.30 per share, plus, in each case, accrued but
unpaid dividends on the Preferred Stock. Following the Effective Time, ASI will,
or will cause the Surviving Corporation to, honor the put rights of the holders
of the Series A Preferred Stock, including, without limitation, providing funds
to the Surviving Corporation to satisfy the put, if necessary. 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 of $.30 per share or an
aggregate of $129,690.74 (plus unpaid interest accrued on the PaperClip
Convertible Notes which shall be exchanged for additional shares of Preferred
Stock).
RECOMMENDATION OF THE BOARD OF DIRECTORS
The PaperClip Board has unanimously approved the Merger and the adoption of
the Amendment and recommends a vote for approval of the Merger Agreement and the
Amendment at the Special Meeting. The PaperClip Board believes that the terms of
the Merger are fair to, and, along with the adoption of the Amendment, in the
best interests of PaperClip and its stockholders. For a discussion of the
factors considered by the PaperClip Board in reaching its decision, see "Special
Factors -- Background of the Merger," "Special Factors -- Recommendation of the
Board of Directors; Reasons for the Merger," and "Special Factors -- Amendment
to PaperClip's Certificate of Incorporation, Reasons for the Amendment."
The number of ASI Purchase Securities to be issued by ASI to the
stockholders of PaperClip is the same as the number that would have been issued
by ASI to PaperClip in the asset purchase transaction reduced only by the shares
of ASI Common Stock and Class B Warrants that will be returned to ASI if ASI
redeems any Merger Options and Warrants out of the 75,000 shares of ASI Common
Stock and Class B Warrants to be held in escrow for a period of two years
pursuant to the Escrow Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Although the Merger was unanimously approved by all of the members of the
PaperClip Board, in considering approval of the Merger Agreement, PaperClip's
stockholders should be aware that certain officers and directors of PaperClip,
and a stockholder of approximately 5% of PaperClip's Common Stock who acted in
an advisory capacity to PaperClip in connection with the Merger, have interests
in the Merger that are in addition to the interest of stockholders of PaperClip
generally and which may create perceived conflicts of interest. These interests
include the payment by ASI of certain employment and severance obligations of
PaperClip, the employment by ASI of an officer of PaperClip (who is also a
director), and the receipt by a stockholder, who will also serve as a director
of ASI for at least two years following the Merger, of a significant amount of
PaperClip Common Stock in connection with the advisory services he rendered to
PaperClip in connection with the Merger. See "Special Factors -- Interests of
Certain Persons in the Merger."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
MANAGEMENT. Senior management will be reorganized with a combination of
personnel from both companies. Robert H. Stone, presently President and Chief
Executive Officer of ASI, will remain in that position. D. Michael Bridges,
presently Director of Sales for PaperClip, will assume the duties of Vice
President of Sales for ASI after the Merger. Michael Suleski, presently a
director and Vice President of Development for PaperClip, will assume the duties
of Vice President of PaperClip Development for ASI after the Merger. Denis
Marchand, Financial Controller for ASI, and Chip Rabinowitz, Acting Director of
Engineering and Development at ASI, will each remain in his current position.
For a period of up to two years following the Merger, ASI shall nominate
one person designated by PaperClip, who initially will be Stephen Kornfeld (who
is a shareholder of, and a consultant to, PaperClip) to ASI's Board of
Directors. In addition, during such two year period, PaperClip will be entitled
to designate one person who will be permitted to attend all meetings of ASI's
Board of Directors as an "advisor" or "observer". In the event that Mr. Kornfeld
or any other designee of PaperClip resigns or is removed for cause from ASI's
Board of Directors, Mr. Kornfeld or such other designee will be entitled to
designate an additional "advisor" or "observer".
OPERATIONS. ASI's strategy for the combined operations of ASI and PaperClip
after consummation of the Merger is to provide an enterprise-wide solution for
data storage, retrieval, document management, report distribution and data
mining. This strategy is intended to leverage several key technologies and
products from both ASI's mainframe offerings and PaperClip's software line.
The lead product in this new strategic direction is PaperClip's new
document management software product, PaperClip 32, which is expected to be
released in the quarter ending December 31, 1997. Using PaperClip 32 as a
"common dashboard" for its document management and imaging solutions, ASI
intends to link the following types of products, which can be developed both
internally and externally: (1) data input systems (e.g., scanned documents,
faxed documents, computer-generated reports, forms processing, etc.); (2) data
storage systems (e.g., data warehousing, hierarchical storage systems, RAID,
tape, CD-ROM, etc.); and (3) data distribution systems (e.g., data mining,
custom reporting, Internet browser access, etc.) In order to accomplish this,
ASI intends to integrate OEM data input products and ASI's GIGAPAGE with the
PaperClip product; introduce a new OAS/3597 controller this quarter which will
provide a high-speed link between client-server based storage devices and
mainframe systems; combine PaperClip's NOSS product and the OAS/3597 to allow a
wide range of physical storage systems, upgradability to future storage devices
and connections to the enterprise storage market; enhance the PaperClip WorkFlow
product to automatically generate customized reports based upon a huge volume of
data, distribute the reports to the appropriate people and allow access to the
more detailed information to users; and complete development of PaperClip's Web
Server to allow Internet access to PaperClip data. There can be no assurance
that this strategy will be successful or that ASI will have the financial or
other resources necessary to develop any of these products or that, if
developed, any of these products will be commercially successful.
Significant aspects of the operations of ASI and PaperClip will be combined
to achieve greater marketing impact and lower operating costs. Administration,
human resources, finance/accounting, sales and marketing will be combined in one
facility in PaperClip's present offices in Hackensack, New Jersey. PaperClip
document management and imaging research and development, support services and
quality assurance testing will remain in New Jersey. Mainframe research and
development, quality assurance testing, support services, integration services
and production will be located in ASI's North Kingstown, Rhode Island facility.
RESALE RESTRICTIONS; LOCK-UP AGREEMENTS
All ASI Purchase Securities received by the PaperClip stockholders,
optionholders and warrantholders in the Merger will be freely transferable under
the Securities Act except that ASI Purchase Securities received by persons who
are deemed to be "affiliates" (as such term is defined under the Securities Act)
of PaperClip at the time of the PaperClip Special Meeting may be resold by them
only in certain permitted circumstances. Pursuant to the Merger Agreement, the
ASI Purchase Securities will be subject to lock-up agreements, which will limit
sales of the ASI Purchase Securities prior to either (i) October 24, 1998, if
certain stockholders of ASI consent to be bound by a lock-up through October 24,
1998, or (ii) April 11, 1998, if certain stockholders of ASI do not consent to
be bound by a lock-up through October 24, 1998. See "The Merger -- Resale
Restrictions; Lock-up Agreements."
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including the
approval of the PaperClip stockholders solicited hereby; the effectiveness of
the Registration Statement of which this Proxy Statement-Prospectus forms a
part; the receipt and presentation to PaperClip's Board of Directors of a bona
fide written third-party proposal for financing of the Surviving Corporation for
at least 12 months following the Merger, and the reasonable satisfaction of the
PaperClip Board that such proposal is attainable (the "Financing Condition");
and other customary closing conditions. See "The Merger -- Conditions,
Representations and Covenants."
TERMINATION OR AMENDMENT OF MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the closing by
mutual written consent of both parties, or by either ASI or PaperClip if (i) any
of the conditions to its obligations under the Merger Agreement has not been
met, (ii) the required approval of the PaperClip stockholders is not obtained at
the Special Meeting, (iii) the Merger has not been consummated on or prior to
January 31, 1998, (iv) the PaperClip Board approves or recommends a bona fide
proposal to merge or acquire all or a substantial portion of its outstanding
shares or all or substantially all of its assets on terms determined by the
Board to be more favorable than the transactions contemplated by the Merger
Agreement (a "Takeover Proposal"), and (v) a breach of any provision of the
Merger Agreement has been committed by the other party which has a material
adverse effect.
Any term or provision of the Merger Agreement may be amended in writing
(subject to compliance with applicable law) at any time, except that after the
approval of the PaperClip stockholders, no amendment may be made that requires
further approval by the stockholders of PaperClip without first obtaining such
approval.
See "The Merger -- Termination; Amendments."
TERMINATION FEE
PaperClip will be required to pay ASI a termination fee of $750,000 if (i)
the Merger Agreement is terminated as a result of a Takeover Proposal or (ii)
the Required PaperClip Stockholder Approval is not obtained and a Takeover
Proposal involving PaperClip has been made public prior to the PaperClip Special
Meeting after which the Required PaperClip Stockholder Approval is not obtained.
See "The Merger -- Termination Fee."
PAPERCLIP OPTIONS AND WARRANTS
Pursuant to the Merger Agreement, the outstanding options (other than
employee options) and warrants to purchase PaperClip Common Stock will be
converted into Merger Options and Warrants to purchase ASI Common Stock and
Class B Warrants in an amount equal to the Merger Consideration attributable to
each share of Paper Clip Common Stock underlying such Paper Clip option or
warrant.
Pursuant to the Merger Agreement, ASI will offer PaperClip employees who
continue to be employed by ASI or the Surviving Corporation options (the
"Employee Options") to purchase ASI Common Stock in an amount deemed appropriate
by ASI's Board of Directors in substitution and cancellation of such employees
existing PaperClip options.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is anticipated that the Merger will be a taxable transaction for federal
income tax purposes. Each holder of PaperClip Common Stock will recognize gain
or loss equal to the difference between (x) its basis in the PaperClip Common
Stock surrendered and (y) the sum of (i) the cash received, (ii) the fair market
value of the ASI Common Stock received, and (iii) the fair market value of the
ASI Class B Warrants received, all as determined on the date of the exchange
pursuant to the Merger.
It should be noted that PaperClip has not obtained, and will not obtain, a
ruling from the Internal Revenue Service or an opinion of tax counsel regarding
the matters described herein.
Stockholders should consult their own tax advisors as to the tax
consequences of the Merger to them under federal, state, local or any other
applicable law.
ACCOUNTING
The Merger is intended to be accounted for as a purchase transaction, as
more fully described under "The Merger -- Accounting Treatment."
MANAGEMENT
Under the terms of the Management Agreement, ASI is responsible for (i) the
management of the day-to-day operations of PaperClip and (ii) advancing, on
behalf of PaperClip, funds as provided for by an agreed-upon operating budget,
in each case from the date of the Management Agreement to the date of
consummation of the Merger or the earlier termination of the Merger Agreement.
PaperClip shall have no obligation to pay any of the Management Agreement
Payment Obligations if the Merger is consummated.
Upon consummation of the Merger, the directors and officers of Newco
immediately prior to the closing of the Merger shall remain the directors and
officers of the Surviving Corporation to hold office in accordance with the
charter documents and bylaws of the Surviving Corporation, until their
respective successors are duly elected or appointed and qualified. See "The
Merger -- Management and Operations after the Merger."
For two years following the closing of the Merger, ASI will nominate one
member of ASI's board designated by PaperClip, who initially will be Stephen
Kornfeld, a director of and consultant to PaperClip. In addition, PaperClip will
have the right to designate one person who will be permitted to attend all
meetings of ASI's Board as an "advisor" or "observer", who initially will be
William Weiss, the Chief Executive Officer and a director of PaperClip.
CERTAIN DIFFERENCES IN STOCKHOLDERS' RIGHTS
Both ASI and PaperClip are Delaware corporations subject to the Delaware
General Corporation Law (the "DGCL"). The stockholders of PaperClip, whose
rights are governed by the PaperClip Certificate of Incorporation, as amended
(the "PaperClip Certificate"), the PaperClip Bylaws, as amended (the "PaperClip
Bylaws") and the DGCL will, upon consummation of the Merger, become stockholders
of ASI whose rights will be governed by the ASI Restated Certificate of
Incorporation, as amended (the "ASI Certificate"), and the ASI Bylaws, as
amended (the "ASI Bylaws"), and will continue to be governed by the DGCL. The
rights of the ASI stockholders differ from the rights of the PaperClip
stockholders with respect to certain important matters, including the ability of
directors to elect additional directors, and the ability of stockholders to call
special meetings. See "Effect of the Merger on Rights of Stockholders."
APPRAISAL RIGHTS
Holders of PaperClip Common Stock who do not vote in favor of the Merger
Agreement and who comply with the requirements of Section 262 of the DGCL will
be entitled to appraisal or dissenters' rights. See "The Merger -- Rights of
Dissenting Stockholders."
STOCK PRICES AND DIVIDENDS
ASI's Units (the "Units"), each consisting of two shares of ASI Common
Stock and one redeemable common stock warrant ("Redeemable Warrant"), as well as
the ASI Common Stock and Redeemable Warrants comprising the Units, have been
quoted on the Nasdaq SmallCap Market since October 16, 1996, when ASI completed
its initial public offering ("IPO"). PaperClip Common Stock had been quoted on
the Nasdaq National Market from September 27, 1995 to March 11, 1997, when it
was deleted from the Nasdaq National Market due to PaperClip's failure to comply
with the minimum asset and capital surplus requirements established by Nasdaq.
Since such date, the PaperClip Common Stock has been quoted on the OTC Bulletin
Board.
The table below sets forth the high and low market values on the Nasdaq
Small Cap Market (i) for ASI securities since October 16, 1996, and (ii) for
PaperClip Common Stock from September 27, 1995 to March 11, 1997 and thereafter
the high and low bid quotation prices on the OTC Bulletin Board. Neither ASI nor
PaperClip has paid any dividends on its securities. These quotations from the
OTC Bulletin Board may not represent actual transactions.
ASI
1996 HIGH LOW
- ---- ---- ---
Fourth Quarter (from October 16) 5 3-3/4
1997
First Quarter 5-1/4 3-5/8
Second Quarter 4-1/2 3-1/8
Third Quarter
Fourth Quarter (through October 31)
PAPERCLIP
1995
Third Quarter (from September 27) 8-1/4 7
Fourth Quarter 8-1/4 1-3/4
1996
First Quarter 11-3/8 4
Second Quarter (reflects 2-for-1 stock 5-7/8 1-1/2
split May 31, 1996)
Third Quarter 2-11/16 1-19/32
Fourth Quarter 1-3/4 10/32
1997
First Quarter 3/4 9/32
Second Quarter 1/4 3/32
Third Quarter
Fourth Quarter (through October 31) 3/14 5/64
See "Market Prices of and Dividends on Securities."
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial data set forth below should be read in conjunction
with the Management's Discussion and Analysis of Financial Condition and Results
of Operations and the Financial Statements, the notes thereto and other
financial and statistical information of ASI and PaperClip included elsewhere in
this Proxy Statement-Prospectus.
ACCESS SOLUTIONS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------------------
1997 1996 1995
----- ---- ----
(in thousands except share and per share data)
STATEMENT OF OPERATIONS DATA:
Net sales:
<S> <C> <C> <C>
Products $ 501 $1,352 $3,126
Services 591 635 476
---------------- -------------- -------------
Total net sales 1,092 1,987 3,602
Cost of sales 390 580 1,300
--------------- -------------- -------------
Gross profit 701 1,407 2,302
Operating expenses 4,074 5,358(1) 4,681
--------------- -------------- -------------
Loss from operations (3,373) (3,951) (2,379)
Interest (income) expense, net (12) 92
--------------- -------------- -------------
Loss before extraordinary item (3,360) (4,141) (2,471)
Extraordinary gain on debt restructuring
-- 320 --
=============== ============= =============
Net loss $(3,360) $(3,821) $(2,471)
=============== ============= =============
Net loss applicable to common stock:
Net loss $(3,360) $(3,821) $(2,471)
Accrued dividends on preferred stock
-- (109) 88
=============== ============== =============
$(3,360) $(3,930) $(2,559)
=============== ============== =============
Net loss per common share:
Loss before extraordinary item $(1.05) $(1.88) $(1.14)
Extraordinary item -- .14 --
--------------- -------------- -------------
$(1.05) $(1.74) $(1.14)
=============== ============== =============
Weighted average shares of Common Stock (2)
3,204,122 2,256,150 2,250,259
</TABLE>
June 30, 1997
(in thousands)
BALANCE SHEET DATA:
Working capital $2,672
Total assets 3,980
Total liabilities 937
Total stockholders' equity 3,043
(1) Includes $744,000 of compensation expense for a former officer,
including $424,830 of non-cash expenses associated with the fair value
of the stock issued.
(2) Computed using the weighted average number of shares of Common Stock
outstanding during the period and other potentially dilutive
instruments issued at prices below the assumed initial public offering
price during the twelve month period prior to the date of
effectiveness of the Registration Statement of which this Prospectus
forms a part. See Note 1 to the ASI Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC
STATEMENT OF
OPERATIONS DATA: SIX MONTHS ENDED JUNE 30, FISCAL YEAR ENDED DECEMBER 31,
------------------------- ------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 920,868 $ 983,575 $ 1,968,750 $ 1,489,139 $ 1,059,924
Total operating expenses 2,181,681 3,306,313 6,810,850 4,701,944 3,942,020
Income (loss) from continuing
operations (1,260,813) (2,322,738) (4,842,100) (3,212,805) (2,882,096)
Other income (expense) net 18,500 64,836 90,259 (1,024,165) ( 5,526)
Net loss (1,279,313) (2,257,902) (4,751,841) (4,236,970) (2,887,622)
Income (loss) from
continuing operations
per share ($ 0.16) ($ 0.30) ( $ 0.63) ( $0 .88) ( $ 0.85)
Weighted average
number of common
shares outstanding 7,951,893 7,435,815 7,576,260 4,792,932 3,392,434
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
June 30, December 31,
---------- ---------------------------------------
1997 1996 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Working capital $ (1,820,396) $(700,859) $3,256,657 $(935,823)
Total assets 806,794 1,006,082 4,466,957 523,368
Total liabilities 2,391,411 1,364,471 723,585 1,194,992
Total stockholders' equity (deficit) (1,584,617) (358,389) 3,743,372 (671,624)
</TABLE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma combined financial data of ASI
is derived from, and should be read in conjunction with, the unaudited pro forma
condensed combined financial statements and notes thereto included elsewhere in
this Proxy Statement-Prospectus. The unaudited pro forma financial data does not
purport to represent what ASI's financial position or results of operations
would have actually been had the Merger occurred at the beginning of the period
presented or to project ASI's financial position or results of operations at any
future date or period. In addition, it does not incorporate any benefits or cost
savings or synergies of ASI and PaperClip as a result of the Merger.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
YEAR ENDED JUNE 30, 1997
------------------------
<S> <C>
Total net sales $2,997,621
Operating loss (1) (8,209,253)
Net loss (2) (8,166,129)
Net loss per share (1.71)
Weighted average common shares outstanding (3) 4,749,819
PRO FORMA COMBINED BALANCE SHEET DATA:
June 30, 1997
-------------
Cash and cash equivalents $ 1,971,174
Working capital (4) 921,368
Total assets (5) 8,368,599
Long-term liabilities and mandatorily
redeemable Series A
Preferred stock (6) 136,407
Total stockholders' equity (7) 5,938,905
-----------
</TABLE>
<PAGE>
(1) The pro forma adjustments include the amortization of intangible assets
arising from the acquisition of PaperClip of $1,056,232, partially offset by the
elimination of $125,000 of management fees for the year ended June 30, 1997.
(2) The pro forma adjustments include the amortization of intangible assets
arising from the acquisition of PaperClip of $1,056,232 for the year ended June
30, 1997, partially offset by the elimination of $125,000 of management fees and
elimination of interest expense of $23,729 related to PaperClip's Convertible
Notes and bridge loan for the year ended June 30, 1997.
(3) The pro forma adjustments include the issuance of 1,544,438 shares of
ASI Common Stock.
(4) The pro forma adjustments include an accrual for $70,500 of
non-recurring transaction costs, the elimination of the $300,000 bridge loan,
advances of $529,052 and $140,300 of interest and management fees payable
recorded by PaperClip as of June 30, 1997. The related interest and management
fee income was not reflected in ASI's historical financial statements due to the
expectation that the Merger will be consummated.
(5) The pro forma adjustments include the elimination of the $300,000
bridge loan and advances of $529,052 recorded by ASI and recording $4,410,638 of
intangible assets arising from the acquisition of PaperClip.
(6) Reflects the conversion of PaperClip's Convertible Notes into PaperClip
mandatorily redeemable Series A preferred stock.
(7) Reflects the issuance of 1,544,438 shares of ASI Common Stock and
related warrants and the elimination of PaperClip's stockholders' equity
balance.
COMPARATIVE PER SHARE DATA
The following tables set forth certain unaudited per share data of ASI and
PaperClip and combined per share data on an unaudited pro forma basis after
giving effect to the Merger. This data should be read in conjunction with the
selected historical financial data and the unaudited pro forma combined
condensed financial statements included elsewhere in this Proxy
Statement-Prospectus and the separate historical financial statements of ASI and
PaperClip included elsewhere herein. The pro forma combined financial data are
not necessarily indicative of the operating results or financial position that
would have been achieved if the Merger had been consummated as of the beginning
of the periods presented, nor are they necessarily indicative of the future
operating results or financial position of ASI/PaperClip. Neither ASI nor
PaperClip has ever paid any cash dividends on its common stock.
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED JUNE 30,____________
1997 1996 1995
HISTORICAL-ASI:
<S> <C> <C> <C>
Net loss ($1.05) ($1.74) ($1.14)
Book value .76 (A) (A)
</TABLE>
<TABLE>
<CAPTION>
As Of Or For The As Of Or For The
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1996 1995 1994 1997 1996
HISTORICAL-PAPERCLIP:
<S> <C> <C> <C> <C> <C>
Net loss ($ 0.63) ($0.88) ($0.85 ) ($0.16) ($0.30)
Book value ($ 0.05) (A) (A) ($.20) (A)
</TABLE>
<TABLE>
<CAPTION>
As Of Or For The
YEAR ENDED JUNE 30,
1997
PROFORMA COMBINED:
<S> <C>
Net loss ($ 1.71)
Book value $ 1.10
(A) - Not Presented
</TABLE>
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED
IN THIS PROXY STATEMENT-PROSPECTUS, SHOULD BE CONSIDERED BY HOLDERS OF PAPERCLIP
COMMON STOCK IN EVALUATING WHETHER TO APPROVE THE MERGER.
RISKS RELATING TO THE MERGER
INTEGRATION OF OPERATIONS. Integrating the operations and management of
ASI, headquartered in Rhode Island, and PaperClip, headquartered in New Jersey,
will be a time-consuming process and there can be no assurance that this
integration will result in the achievement of all the anticipated synergies and
other benefits expected to be realized from the Merger. Moreover, the
integration of these organizations will require the dedication of management
resources, which may temporarily distract attention from the day-to-day business
of the combined company. The inability of management to successfully integrate
the operations of the two companies or the distraction of management attention
could have a material adverse effect on the business and operating results of
the combined entity. See "Special Factors -- Recommendation of the Board of
Directors; Reasons for the Merger."
MERGER-RELATED EXPENSES. ASI estimates that, as a result of the Merger, ASI
will incur merger costs of approximately $288,500, of which approximately
$218,000 was expensed as incurred in Fiscal 1997 due to the initial uncertainty
surrounding the Merger. Management of ASI estimates that the remaining $70,500
of such expenses will be capitalized. In addition, it is expected that PaperClip
will incur merger-related expenses of approximately $293,000, consisting of
investment banking, legal and accounting fees and financial printing and other
related charges. Approximately $218,000 relating to the above-referenced
expenses has been expensed by PaperClip in the first three quarters of its
Fiscal 1997. The remaining charge of $75,000 will be expensed as it is incurred.
The amount of these charges is a preliminary estimate and is subject to change.
Moreover, additional unanticipated expenses may be incurred in connection with
the integration of the businesses of ASI and PaperClip.
FIXED CONVERSION RATIO DOES NOT REFLECT CHANGES IN STOCK PRICES. The number
of shares of ASI Common Stock and Class B Warrants to be issued in the Merger is
fixed. The market value of ASI Common Stock and/or PaperClip Common Stock at the
Effective Time may vary significantly from the price as of the date of execution
of the Merger Agreement, the date hereof or the date on which stockholders vote
on the Merger due to, among other factors, the market's perception of the
synergies expected to be achieved by the Merger, changes in the business,
operations or prospects of ASI or PaperClip, market assessments of the
likelihood that the Merger will be consummated and the timing thereof, and
general market and economic conditions. Because the purchase price will not be
adjusted to reflect changes in the market value of ASI Common Stock or PaperClip
Common Stock, the market value of the ASI Purchase Securities issued in the
Merger and the market value of the PaperClip Common Stock may be higher or lower
than the value of such securities at the time the Merger was negotiated or
approved by the PaperClip stockholders. See "The Merger -- General."
ESCROW OF THE ASI PURCHASE SECURITIES. Under the terms of the Merger
Agreement, 75,000 shares of the ASI Common Stock and 75,000 Class B Warrants
issued upon consummation of the Merger will be placed in escrow pursuant to the
Escrow Agreement for two years following the closing of the Merger. In the event
any of the Merger Options and Warrants are redeemed by ASI during such period,
that number of shares and an equivalent number of Class B Warrants determined by
dividing the costs of redemption by $4.75 will be returned to ASI. At the
expiration of the two year period, any remaining shares and Class B Warrants
will be distributed to the PaperClip stockholders. Even if the stockholders of
PaperClip ultimately receive some or all of the escrowed ASI Purchase
Securities, the risk of a decline in the price of the ASI Purchase Securities
prior to distribution exists.
POSSIBLE DILUTION TO PAPERCLIP STOCKHOLDERS FROM FUTURE ASI FINANCING. ASI
must obtain additional financing to satisfy its capital needs after January
1998. If such financing is secured through an equity financing, there may be
dilution in the tangible book value per share of ASI's Common Stock and such
issuance would dilute the percentage of shares to be held by PaperClip
stockholders following the Merger. See "Capital Needs; Uncertainty of Additional
Funding" below.
TAX RISKS. It is anticipated that the Merger will be a taxable transaction
for holders of PaperClip Common Stock. In the event that, contrary to
expectations, the Merger is treated as a reorganization, within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended, holders of
PaperClip Common Stock will be required to recognize gain, if any, realized in
the transaction to the extent of any cash and the fair market value of ASI Class
B Warrants received, but will not be able to recognize any loss in the
transaction. PaperClip has not obtained, and will not obtain, a ruling from the
Internal Revenue Service or an opinion of tax counsel regarding the matters
described herein.
DIFFERENCES IN RIGHTS OF STOCKHOLDERS. Both ASI and PaperClip are Delaware
corporations subject to the DGCL. The stockholders of PaperClip, whose rights
are governed by the PaperClip Certificate, the PaperClip Bylaws and the DGCL,
will, upon consummation of the Merger, become stockholders of ASI whose rights
will be governed by the ASI Certificate and the ASI Bylaws, and will continue to
be governed by the DGCL. The rights of the ASI stockholders differ from the
rights of the PaperClip stockholders with respect to certain important matters,
including the ability of directors to elect additional directors and the ability
of stockholders to call special meetings. See "Effect of the Merger on Rights of
Stockholders."
RISKS RELATING TO ASI
CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. Based on its current
operating plan, ASI anticipates that its existing capital resources will be
adequate to satisfy its capital requirements only through January 1998. As a
result, ASI is currently seeking additional financing. Additional financing may
be either equity, debt or a combination of debt and equity. An equity financing
may result in dilution in ASI's net tangible book value per share of ASI Common
Stock and would dilute the percentage of shares to be held by PaperClip
stockholders following the Merger. There can be no assurance that ASI will be
able to secure additional debt or equity financing or that such financing will
be available on favorable terms. In addition, ASI has agreed not to sell or
offer for sale any of its securities until April 11, 1998 without the consent of
Joseph Stevens & Company L.P. ("JSC"), the Underwriter of its initial public
offering in October 1996. If ASI is unable to obtain such additional financing,
ASI's ability to repay its debts and its ability to maintain its current level
of operations or to implement its business strategy will be materially and
adversely affected. In such event, ASI will be required to reduce its overall
expenditures and may default on its obligations. See "Access Solutions
International, Inc. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
WORKING CAPITAL DEFICIENCIES; HISTORY OF LOSSES; ACCUMULATED DEFICIT;
ABILITY TO CONTINUE AS A GOING CONCERN. ASI has a history of limited working
capital and has had working capital deficiencies in each of the fiscal years
ended June 30, 1994, 1995 and 1996. As of June 30, 1994, 1995 and 1996, ASI had
working capital deficiencies of approximately $603,000, $625,000 and $1,971,000,
respectively. In addition, except for the fiscal years ended June 30, 1989, 1990
and 1991, ASI has incurred net losses since its incorporation in 1986. For the
fiscal years ended June 30, 1995, 1996 and 1997, ASI incurred net losses of
approximately $2,500,000, $3,800,000 and $3,400,000, respectively. There can be
no assurance that ASI's operations will achieve profitability at any time in the
future or, if achieved, sustain such profitability. Although management
estimates ASI had Federal and state net operating loss carry forward of
approximately $6,300,000 available as of June 30, 1997 to offset future taxable
income that may be generated within the carry forward period, due to various
limitations imposed by the Internal Revenue Service, the utilization of
$5,000,000 of such losses will be limited to no more than $330,000 per year. See
Note 9 to the ASI Financial Statements. ASI's independent accountants have
included an explanatory paragraph in their report dated August 8, 1997 on ASI's
Financial Statements stating that the financial statements have been prepared
based on the assumption that ASI will continue as a going concern and that ASI
has suffered recurring losses from operations and has incurred negative cash
flows from operating activities which raise substantial doubt about its ability
to continue as going concern. See "Access Solutions International, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the ASI Financial Statements and notes thereto.
ABSENCE OF LONG ESTABLISHED PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK
PRICE. Prior to ASI's initial public offering in October 1996, there had been no
public market in any ASI securities. To date, the public market for the ASI
Common Stock has not been very active and the market price of the ASI Common
Stock has declined below the initial public offering price.
There can be no assurance that any active public market for the ASI
Purchase Securities will develop or be sustained. The trading prices of the ASI
Purchase Securities and PaperClip Common Stock could be subject to wide
fluctuations in response to changes in the business, operations and prospects,
perceived or actual, of ASI or PaperClip; market assessments of the likelihood
that the Merger will be consummated, the timing thereof and the perceived
advisability and benefits of the Merger; general market and economic conditions
and other factors. Moreover, stock markets have experienced extreme price and
volume trading volatility in recent years, which volatility has had a
substantial effect on the market price of many technology companies, and has
often been unrelated to the operating performance of those companies.
VARIABLE OPERATING RESULTS; LENGTHY SALES CYCLES. ASI's operating results
have in the past and may in the future fluctuate significantly depending upon a
variety of factors which vary substantially over time, including industry
conditions; the timing of orders from customers; the timing of new product
introductions by ASI and competitors; customer acceleration, cancellation or
delay of shipments; the length of sales cycles; the level and timing of selling,
general administrative expenses and research and development expenses; specific
feature needs of customers; and production delays. A substantial portion of
ASI's quarterly revenues are derived from the sale of a relatively small number
of COLD systems which range in price from approximately $150,000 to $900,000. As
a result, the timing of recognition of revenue from a single order has in the
past and may in the future have a significant impact on ASI's net sales and
operating results for particular financial periods. The decision to purchase a
COLD system from ASI involves a significant commitment of capital by ASI's
customers and generally the consent of a number of internal decision-makers.
Therefore, there are frequently lengthy periods of time between the initiation
of customer contact by ASI and the closing of a sale of ASI's products. During
the lengthy sales cycle for ASI's products, ASI may expend substantial funds and
a management effort in anticipation of a sale which may not occur. These
expenditures will adversely affect ASI's revenues and results of operations.
DEPENDENCE ON PRINCIPAL PRODUCT. ASI currently derives substantially all of
its revenues from sales of its COLD systems and related software products and
maintenance services. As a result, any factor adversely affecting sales of the
COLD systems would have a material adverse effect on ASI. ASI's future financial
performance will depend in part on its ability to successfully develop and
introduce new systems or products.
RAPID TECHNOLOGICAL CHANGE; PRODUCT DEVELOPMENT. The market for ASI's
products is characterized by rapid technological developments, evolving industry
standards, swift changes in customer requirements and frequent new product
introductions and enhancements. ASI currently devotes and intends to continue to
devote substantial resources to research and development to enhance product
features and ASI's proprietary technology and knowledge. ASI's continued success
will be dependent upon its ability to continue to enhance its existing products
and to develop and introduce in a timely manner new products incorporating
technological advances and responding to customer requirements. To the extent
one or more of ASI's competitors introduces products that more fully address
customer requirements, ASI's business could be adversely affected. There can be
no assurance that ASI will be successful in developing and marketing
enhancements to its existing products or new products on a timely basis or that
any new or enhanced products will adequately address the changing needs of the
market place. If ASI is unable to develop and introduce new products or
enhancements to existing products in a timely manner in response to changing
market conditions or customer requirements, ASI's business and operating results
could be adversely affected. From time to time, ASI or its competitors may
announce new products, capabilities or technologies that have the potential to
replace or shorten the life cycles of ASI's existing products. There can be no
assurance that announcements of currently planned or other new products will not
cause customers to delay their purchasing decisions in anticipation of such
products. Such delay could have a material adverse effect on ASI's business and
operating results.
RELIANCE ON SINGLE OR LIMITED SOURCES OF SUPPLY. ASI relies on single or
limited sources for the supply of several components of its products, including
optical disk storage libraries, CPU boards, fiber optic channel hardware and
high-density integrated circuits. ASI does not maintain supply commitments with
any of its suppliers. The loss of any such source, any disruption in such
source's business or failure by it to meet ASI's needs on a timely basis could
cause shortages in component parts and could have a material adverse effect on
ASI's operations. ASI believes that other sources exist for the components of
its products, although in some instances additional time may be required to
integrate the new sources' products with ASI's production process.
COMPETITION. The computer data storage and retrieval market is highly
competitive and ASI expects such competition to intensify. Certain competitors
of ASI have substantially greater financial, marketing, development,
technological and production resources than ASI. ASI's major competitors in the
COLD systems market include IBM Corporation, FileTek Corporation, Eastman Kodak
Company, Data/Ware Corporation, Anacomp, Inc., Mobious Management Systems, Inc.,
Computer Associates International, Inc., RSD America, Inc. and Network Imaging
Systems Corp. ASI believes that the competitive factors affecting the market of
its products and services include vendor and product reputation, system
features, product quality, performance and price, as well as the quality of
customer support services and training. The relative importance of each of these
factors depends upon the specific customer involved. There can be no assurance
that ASI will be able to compete successfully in all or any of these areas
against current or future competitors. Moreover, ASI's present or future
competitors may be able to develop products comparable or superior to those
offered by ASI, offer lower price products or adapt more quickly than ASI to new
technologies or evolving customer requirements. In order to be successful in the
future, ASI must respond to technological change, customer requirements and
competitors' current products and innovations. There can be no assurance that
ASI will be able to continue to compete effectively in its present market
segment, in any new market segment into which ASI may expand, or that future
competition will not have a material adverse effect on its business, operating
results and financial condition.
DEPENDENCE ON SIGNIFICANT CUSTOMERS. Historically, ASI has sold its
products to a relatively small number of significant customers. Sales to
Prudential Securities, Inc. accounted for 10% of ASI's total net sales during
the year ended June 30, 1997. Sales to Nationwide Mutual Insurance Company, Bank
of Boston Corporation Technology Services and Bell Sygma, Inc. accounted for
35%, 22% and 11%, respectively, of ASI's total net sales during the year ended
June 30, 1996. The loss of any one of these significant customers or ASI's
inability to attract new customers could have a material adverse effect on ASI's
operations and financial condition.
DEPENDENCE ON KEY PERSONNEL. The success of ASI will depend significantly
upon the personal efforts and abilities of its key employees, particularly
Robert H. Stone, President and Chief Executive Officer. ASI has an employment
agreement with Mr. Stone and maintains a key person life insurance policy on
him. Mr. Stone was elected President and Chief Executive Officer on August 1,
1996. The loss of the services of any of ASI's key employees could have a
material adverse effect on ASI.
PROTECTION OF INTELLECTUAL PROPERTY. ASI's success depends in significant
part on maintenance and protection of its intellectual property. ASI attempts to
protect its intellectual property rights through a range of measures, including
patents, trade secrets and confidentiality agreements. ASI has not sought and
would be unable to obtain patent protection in any foreign country for any of
its technology currently patented in the United States. There can be no
assurance that ASI will be able to effectively protect its technology, that
others will not be able to develop similar technology independently or that ASI
will have the resources necessary to adequately protect and enforce rights it
may have with respect to its intellectual property. ASI recently instituted a
lawsuit against Data/Ware Development, Inc. and Eastman Kodak Company, Inc.
alleging infringement of one or more of ASI's patents. See "Information
Concerning Access Solutions International, Inc.--Business--Legal Proceedings."
Although ASI is not aware of any actual or potential assertions against it,
there can be no assurance that third party claims alleging infringement of
intellectual property rights, including infringement of patents that have been
or may be issued in the future, will not be asserted against ASI. Any assertions
of intellectual property claims could require ASI to discontinue the use of
certain processes or to cease the manufacture, use and sale of infringing
products, to incur significant litigation costs and damages, or to develop
noninfringing technology or acquire licenses to the alleged infringed
technology. Litigation may also divert the efforts of management and technical
personnel from other matters. There can be no assurance that ASI would be able
to obtain such licenses on acceptable terms or to develop noninfringing
technology.
ABSENCE OF DIVIDENDS. ASI has not paid any cash dividends on the ASI Common
Stock since its inception and ASI does not anticipate paying cash dividends in
the foreseeable future.
SECURITIES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of ASI
Common Stock could adversely affect the market price of the ASI Common Stock.
The number of shares of ASI Common Stock available for sale on the public market
is limited by restrictions under the Securities Act and lock-up agreements under
which the holders of 1,499,496 shares have agreed not to sell or otherwise
dispose of any of their shares until April 11, 1998 (the "Lock-up Period")
without the prior written consent of JSC. In addition, the Merger Agreement
provides that the PaperClip stockholders will enter into lock-up agreements
under which they will agree not to sell or otherwise dispose of any of the ASI
Purchase Securities acquired in connection with the Merger until a date between
April 11, 1998 and October 24, 1998. JSC may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. Of the 5,508,378 shares of ASI Common Stock that will be
outstanding after the Merger, the shares issued in the Merger will be freely
transferable under the Securities Act except that ASI Purchase Securities
received by persons deemed to be affiliates, as that term is defined under the
Securities Act ("Affiliates"), of PaperClip may be resold by them only in
compliance with the applicable provisions of Rule 145. Approximately ______
shares are currently eligible for sale in compliance with Rule 144 promulgated
under the Securities Act. Approximately _____ shares of the ASI Common Stock
outstanding prior to the Merger are subject to lock-up agreements and will be
eligible for sale, subject to the volume limitations of Rule 144, beginning upon
the expiration of the Lock-up Period. In addition, subject to the consent of
JSC, ASI intends to register a total of up to 214,189 shares of ASI Common Stock
issued or issuable pursuant to ASI's stock option plans. Of the shares to be so
registered, _______ shares are subject to outstanding options as of September
30, 1997, of which options to purchase a total of ____ shares are exercisable,
subject to lock-up agreements.
The Redeemable Warrants underlying the Units, the Class B Warrants, the
Merger Options and Warrants and the shares of ASI Common Stock underlying such
Redeemable Warrants, Class B Warrants and Merger Options and Warrants upon
exercise thereof, will be freely tradable without restriction under the
Securities Act, except for any Redeemable Warrants, Class B Warrants, Merger
Options and Warrants or shares of ASI Common Stock purchased by Affiliates which
will be subject to the resale limitations of Rule 144 or 145, as applicable,
under the Securities Act. In addition, holders of 750,000 New Warrants (as
defined below) and the underlying shares of ASI Common Stock and 100,000 shares
of ASI Common Stock have agreed not to, directly or indirectly, issue, offer to
sell, sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of (collectively, "Transfer") such
shares of ASI Common Stock until April 11, 1998 without the prior written
consent of JSC and ASI.
CONTINUED QUOTATION ON THE NASDAQ SMALLCAP MARKET. The Units, ASI Common
Stock, Redeemable Warrants and Class B Warrants are quoted or have been approved
for quotation upon issuance on the Nasdaq SmallCap Market; the Merger Options
and Warrants will not be so quoted or approved for quotation. No assurance can
be given that ASI will be able to satisfy the criteria for continued quotation
on the Nasdaq SmallCap Market. Failure to meet the maintenance criteria in the
future may result in the Units, ASI Common Stock, Redeemable Warrants and Class
B Warrants not being eligible for quotation. In such event, an investor may find
it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Units, ASI Common Stock, Redeemable Warrants and Class B
Warrants.
If ASI were removed from the Nasdaq SmallCap Market, trading, if any, in
the Units, the ASI Common Stock, the Redeemable Warrants or the Class B Warrants
would thereafter have to be conducted in the over-the-counter market in the
so-called "pink sheets" or, if then available, Nasdaq's OTC Bulletin Board. As a
result, an investor would find it more difficult to dispose of, and to obtain
accurate quotations as to the value of, such securities.
In addition, if the Units, ASI Common Stock, Redeemable Warrants or Class B
Warrants are delisted from trading on Nasdaq and the trading price of the ASI
Common Stock is less than $5.00 per share, trading in the ASI Common Stock would
also be subject to the requirements of Rule 15g-9 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under such
rule, broker/dealers who recommend such low-priced securities to persons other
than established customers and accredited investors must satisfy special sales
practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser's
written consent prior to the transaction. The Securities Enforcement Remedies
and Penny Stock Reform Act of 1990 also requires additional disclosure in
connection with any trades involving a stock defined as a penny stock
(generally, according to recent regulations adopted by the Commission, any
equity security not traded on an exchange or quoted on Nasdaq that has a market
price of less than $5.00 per share, subject to certain exceptions), including
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith. Such
requirements could severely limit the market liquidity of the Units, ASI Common
Stock, Redeemable Warrants and Class B Warrants and the ability of ASI
stockholders to sell their securities in the secondary market. There can be no
assurance that the Units, ASI Common Stock, Redeemable Warrants and Class B
Warrants will not be delisted or treated as a penny stock.
REGISTRATION OF SHARES UNDERLYING THE CLASS B WARRANTS AND MERGER OPTIONS
AND WARRANTS. The Class B Warrants and Merger Options and Warrants issued in the
Merger are not exercisable unless, at the time of exercise, ASI has distributed
a current prospectus covering the shares of ASI Common Stock issuable upon
exercise of such Class B Warrants and Merger Options and Warrants and such
shares have been registered, qualified or deemed to be exempt under the
securities laws of the state of residence of the holder who wishes to exercise
such Class B Warrants or Merger Options and Warrants. In addition, in the event
any Class B Warrants or Merger Options and Warrants are exercised at any time
after nine months from the date of this Proxy Statement-Prospectus, ASI will be
required to file a post-effective amendment and deliver a current prospectus
before the Class B Warrants or Merger Options and Warrants may be exercised.
Although ASI will use its best efforts to have all such shares so registered or
qualified on or before the exercise date and to maintain a current prospectus
relating thereto until the expiration of such Class B Warrants and Merger
Options and Warrants, there is no assurance that it will be able to do so.
Holders of Class B Warrants or Merger Options and Warrants who exercise such
warrants at a time ASI does not have a current prospectus may receive
unregistered and, therefore, restricted shares of ASI Common Stock. Although the
Class B Warrants and Merger Options and Warrants will not knowingly be issued to
PaperClip stockholders, optionholders and warrantholders in jurisdictions in
which the Class B Warrants or Merger Options and Warrants are not registered or
otherwise qualified for sale, purchasers may buy Class B Warrants or Merger
Options and Warrants in the after market or may move to jurisdictions in which
the shares underlying the Class B Warrants or Merger Options and Warrants are
not registered or qualified during the period that the Class B Warrants or
Merger Options and Warrants are exercisable. In this event, ASI would be unable
to issue shares to those persons desiring to exercise their Class B Warrants or
Merger Options and Warrants unless and until the shares and Class B Warrants or
Merger Options and Warrants could be qualified for sale in the jurisdiction in
which such purchasers reside, or an exemption from such qualification exists in
such jurisdiction, and holders of Class B Warrants or Merger Options and
Warrants would have no choice but to attempt to sell the Class B Warrants or
Merger Options and Warrants in a jurisdiction where such sale is permissible or
allow them to expire unexercised.
REDEMPTION OF WARRANTS. ASI will have the right to redeem certain warrants
included in the Merger Options and Warrants at any time at a price of $.05 per
Merger Warrant on 30 days' prior written notice; provided either that certain
performance criteria set forth in the warrants are met or that ASI obtains the
consent of the bankruptcy trustee for A.R. Baron. ASI has the right to redeem
all, but not less than all, of the Class B Warrants, at a price of $.05 per
Class B Warrant on 30 days' prior written notice, provided that ASI shall have
obtained the consent of JSC, and the average closing bid price of the ASI Common
Stock equals or exceeds 150% of the then exercise price per share, subject to
adjustment, for any 20 trading days within a period of 30 consecutive trading
days ending on the fifth trading day prior to the date of the notice of
redemption. In the event ASI exercises the right to redeem the Class B Warrants
or the warrants included in the Merger Options and Warrants, such warrants will
be exercisable until the close of business on the date fixed for redemption in
such notice. If any warrant called for redemption is not exercised by such time,
it will cease to be exercisable and the holder will be entitled only to the
redemption price.
REDUCED PROBABILITY OF CHANGE OF CONTROL OR ACQUISITION OF ASI DUE TO
EXISTENCE OF ANTI-TAKEOVER PROVISIONS. The ASI Certificate contains certain
provisions that reduce the probability of any change of control or acquisition
of ASI. Pursuant to the ASI Certificate, the Board of Directors has the ability
to issue Preferred Stock in one or more series with such rights, obligations and
preferences as the Board of Directors may determine without any further vote or
action by the stockholders. The rights of the holders of ASI Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisition and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of ASI. Although ASI has no present plans to issue any shares of Preferred
Stock, there can be no assurance that it will not issue Preferred Stock at some
future date. Further, certain provisions of the DGCL could delay or make more
difficult a merger, tender offer or proxy contest involving ASI. While such
provisions are intended to enable the Board of Directors to maximize stockholder
value, they may have the effect of discouraging takeovers which could be in the
best interest of certain stockholders. There is no assurance that such
provisions will not have an adverse effect on the market value of ASI's stock in
the future. In addition, the ASI Certificate provides that its directors shall
not be personally liable to ASI or its stockholders for monetary damages in the
event of a breach of fiduciary duty to the extent permitted by the DGCL.
JSC'S POTENTIAL INFLUENCE ON THE MARKET. Although JSC has been making a
market in the ASI Common Stock, it has no legal obligation to continue to do so.
The prices and the liquidity of the ASI Common Stock may be significantly
affected by the degree, if any, of JSC's continuing participation in the market.
No assurance can be given that JSC or any other broker-dealer will continue to
make a market in the ASI Common Stock or the other ASI Purchase Securities.
RISKS RELATING TO PAPERCLIP
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Although the Merger was
unanimously approved by all of the members of the PaperClip Board, in
considering approval of the Merger Agreement PaperClip's stockholders should be
aware that certain directors and officers of PaperClip have interests in the
Merger that are in addition to the interests of stockholders of PaperClip
generally and which may create perceived conflicts of interests. These interests
include the fact that two of the officers of PaperClip (one of whom is also a
director) will be employed by ASI, the fact that a shareholder received 333,333
shares of PaperClip Common Stock for advisory services that he rendered to
PaperClip in connection with the transactions between ASI and PaperClip,
including the Merger, and will be a director of ASI for at least two years
following the Merger, and the acceleration of vesting of certain PaperClip
Employee Options held by the officers and directors of PaperClip pursuant to
certain employment agreements. See "Special Factors -- Interests of Certain
Persons in the Merger."
SPECIAL MEETING INFORMATION
This Proxy Statement-Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of PaperClip for use at the
Special Meeting. The Special Meeting will be held at ______, at _____ a.m.,
local time.
The Special Meeting will be held for the purpose of considering and voting
upon (i) a proposal to adopt and approve the Merger Agreement and the
transactions contemplated thereby, (ii) a proposal to adopt and approve the
Amendment, and to conduct any other business that may properly come before the
Special Meeting. Any action may be taken on the foregoing proposals at the
Special Meeting on the date specified above, or any date or dates to which, by
original or later adjournment, the Special Meeting may be adjourned or to which
the Special Meeting may be postponed.
THE MEMBERS OF THE PAPERCLIP BOARD UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE AMENDMENT AND RECOMMENDS THAT PAPERCLIP'S STOCKHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE AMENDMENT. SEE "SPECIAL
FACTORS -- RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER,"
"SPECIAL FACTORS -- AMENDMENT TO PAPERCLIP'S CERTIFICATE OF INCORPORATION;
REASONS FOR THE AMENDMENT" AND "SPECIAL FACTORS -- INTERESTS OF CERTAIN PERSONS
IN THE MERGER."
RECORD DATE
The PaperClip Board of Directors has fixed the close of business on
_______, 1997 as the Record Date. Only the holders of record of the outstanding
shares of PaperClip Common Stock on the Record Date will be entitled to notice
of, and to vote at, the Special Meeting. At the Record Date, 8,101,521 shares of
PaperClip Common Stock were outstanding, each of which entitles the holder
thereof to one vote. The presence, in person or by proxy, of a majority of the
aggregate number of shares of PaperClip Common Stock outstanding and entitled to
vote on the Record Date is necessary to constitute a quorum at the Special
Meeting.
PROXIES; VOTING AND REVOCATION
All shares of PaperClip Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF A PROPERLY
EXECUTED PROXY HAS BEEN RETURNED AND NO INSTRUCTIONS ARE INDICATED, SUCH SHARES
OF PAPERCLIP COMMON STOCK WILL BE VOTED IN FAVOR OF THE MERGER AGREEMENT AND THE
AMENDMENT IN ACCORDANCE WITH THE RECOMMENDATION OF THE PAPERCLIP BOARD.
PaperClip does not know of any matters other than as described in the
accompanying Notice of Special Meeting that are to come before the Special
Meeting. If any other matter or matters are properly presented for action at the
Special Meeting, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment.
Votes cast by proxy or in person at the Special Meeting will be tabulated
by the election inspectors appointed for the meeting and will determine whether
or not a quorum is present. The election inspectors will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as shares not voted for purposes of determining the
approval of any matter submitted to the stockholders for a vote. Since the
affirmative vote of the holders of a majority of the outstanding shares of
PaperClip Common Stock entitled to vote on the Merger Agreement and the
Amendment is required to approve and adopt the Merger Agreement, the Amendment
and the transactions contemplated thereby, such abstentions will have the effect
of a negative vote. In addition, under the rules of the National Association of
Securities Dealers, brokers who hold shares in street name for customers who are
the beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers on the approval and adoption of the Merger
Agreement and the Amendment without specific instructions from such customers
and, thus, such shares will not be considered as present and entitled to vote on
such matters. Given that Delaware law requires the affirmative vote of the
holders of a majority of the outstanding shares of PaperClip Common Stock
entitled to vote on the Merger Agreement and the Amendment in order to adopt
such Merger Agreement and the Amendment, the failure of such customers to
provide specific instructions with respect to their shares of PaperClip Common
Stock to their broker will have the effect of a negative vote. The persons named
as proxies by a stockholder may propose and vote for one or more adjournments or
postponements of the Special Meeting to permit further solicitation of proxies
in favor of such proposal.
A stockholder of record who has given a proxy may revoke it at any time
prior to its exercise by filing an instrument of revocation with Michael
Suleski, Secretary of PaperClip (Three University Place, Hackensack, New Jersey
07601, facsimile number (201) 487-0613), by filing a duly executed proxy bearing
a later date, or by appearing at the Special Meeting in person, notifying the
Secretary, and voting by ballot at the Special Meeting. Any stockholder of
record attending the Special Meeting may vote in person whether or not a proxy
has been previously given, but the mere presence (without notifying the
Secretary) of a stockholder at the Special Meeting will not constitute
revocation of a previously given proxy.
VOTES REQUIRED
Assuming a quorum is present, the affirmative vote of the holders of a
majority of the issued and outstanding shares of PaperClip Common Stock entitled
to vote on the Merger and the Amendment is necessary to approve and adopt the
Merger Agreement and the Amendment, and the transactions contemplated thereby.
At the Record Date, PaperClip directors, executive officers and their affiliates
held 921,165 shares, or 11.4%, of the outstanding PaperClip Common Stock
entitled to vote at the Special Meeting. Consequently, assuming that each
director and executive officer of PaperClip, their respective affiliates, and
persons and entities related to the foregoing, vote in favor of the Merger
Agreement and the Amendment, which votes may affect the outcome of the vote, the
affirmative vote of the holders of an additional 3,111,596 shares of PaperClip
Common Stock, representing 38.6% of the shares issued and outstanding, would be
required. Each of the directors and executive officers of PaperClip has
indicated his or her intention to vote the PaperClip Common Stock beneficially
owned by him or her for approval of the Merger Agreement and executed a
Stockholder Agreement to such effect. The approval of (i) the Merger Agreement
and (ii) the issuance of the PaperClip Preferred Stock to the holders of the
PaperClip Convertible Notes, which is conditioned upon the approval of the
Amendment, by the stockholders is a condition to the consummation of the Merger.
If, however, the Merger Agreement is not approved and the Amendment is, then the
Amendment will be effected and the PaperClip Preferred Stock will be issued to
the PaperClip Convertible Note holders.
SOLICITATION OF PROXIES
ASI will bear the cost of solicitation of proxies by PaperClip. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their
out-of-pocket expenses in forwarding proxy materials to beneficial owners of
PaperClip Common Stock held in their names. In addition to the use of the mails,
PaperClip has retained American Stock Transfer and Trust Company to assist in
the solicitation of proxies for a fee of $5,000, plus reimbursement of
out-of-pocket expenses. Proxies may also be solicited by directors, officers and
regular employees of PaperClip, who will not be specifically compensated for
such services, by means of personal calls upon, or telephonic or telegraphic
communications with, stockholders or their representatives.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of PaperClip Common Stock entitled
to vote at the Special Meeting is necessary to constitute a quorum at the
Special Meeting. Abstentions will be counted for purposes of determining whether
a quorum is present at the Special Meeting.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF PAPERCLIP. ACCORDINGLY, STOCKHOLDERS ARE URGED TO READ
AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT-PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
In July 1996 A.R. Baron ("AR Baron"), PaperClip's investment banker and the
underwriter of PaperClip's initial public offering in September 1995 (the
"Offering"), filed for bankruptcy and went out of business. At that time,
PaperClip's executives directed Mr. Weiss, PaperClip's Chief Executive Officer,
to look for a new investment banker, a strategic partner, an acquisition by or a
merger with another company. From the beginning of July 1996 through January 2,
1997, Mr. Weiss had discussions or meetings with over fifty different firms
regarding investment banking relationships, public or private equity offerings,
the sale of PaperClip or other strategic relationships. These discussions
included several merger and acquisition firms specializing in the software
field.
One of such firms was JSC. At the first meeting Mr. Weiss was told by JSC
that it was in the process of taking ASI public and that JSC believed that
PaperClip might be a suitable acquisition candidate for ASI. JSC underwrote
ASI's initial public offering in October 1996 (the "IPO").
Following the IPO, meetings between representatives of PaperClip and ASI
occurred regarding a possible combination of the two companies. Representatives
of PaperClip met with ASI to discuss various strategic issues, including
synergies between the two companies relating to expanded development,
distribution packaging and marketing opportunities; shared industry experience
and expertise; more efficient operations and synergies in development operations
and support services; and expanded management and marketing depth.
On November 7, 1996, confidentiality agreements were executed by PaperClip
and ASI. Following the execution of the confidentiality agreements, various
information was exchanged between the parties.
During November and December 1996, representatives of PaperClip and ASI met
and determined that an overall merger between PaperClip and ASI should be
further explored. Discussions continued thereafter as to the synergies that
could be obtained by consolidating operations and by combining the two entities.
During December 1996, various meetings occurred among representatives of
PaperClip and ASI during which a proposed term sheet for an acquisition was
negotiated. PaperClip's Board reviewed the proposed terms of an acquisition at a
meeting held on December 24, 1996 and authorized the negotiation of a definitive
agreement.
On January 2, 1997 PaperClip and ASI signed a non-binding letter of intent
(the "Letter of Intent"). The Letter of Intent described a proposed taxable
asset sale transaction of substantially all of the assets and liabilities of
PaperClip to ASI, in which PaperClip would receive 1,544,438 shares of ASI
Common Stock plus an equivalent number of Class B Warrants.
On January 29, 1997, pursuant to the Letter of Intent, ASI loaned PaperClip
$300,000 at an interest rate of 12% per annum. See "The Merger -- Bridge Loan."
During the course of subsequent discussions, JSC suggested the possibility
of PaperClip merging with Discovery, a biotechnology company after ASI acquired
substantially all of its assets and assumed substantially all of its
liabilities. A number of meetings were held with Discovery and it was determined
by PaperClip to pursue a three-way transaction whereby ASI would acquire
PaperClip's assets and liabilities and PaperClip would acquire Discovery. During
January 1997, various meetings occurred among representatives of PaperClip and
Discovery during which a proposed term sheet for the merger of Discovery was
negotiated. A non-binding letter of intent with Discovery was executed on
February 21, 1997, which stated that, among other things, the Discovery
transaction was predicated upon PaperClip maintaining a listing on the Nasdaq
SmallCap Market. On March 11, 1997, PaperClip's securities were deleted from the
Nasdaq SmallCap Market due to PaperClip's failure to comply with minimum asset
and capital surplus requirements established by Nasdaq, and consequently the
Discovery transaction was abandoned.
The period between the execution of the Letter of Intent through March 11,
1997 was devoted to (i) negotiating a letter of intent with Discovery, (ii)
drafting and negotiating the agreements for the acquisition, including the
agreement with respect to ASI's $300,000 loan to PaperClip, and (iii) preparing
for meetings with Nasdaq. From mid-March 1997 through April 15, 1997, the
parties negotiated the terms of, and on April 15, 1997 entered into, an asset
purchase agreement (the "Asset Purchase Agreement") and Management Agreement.
In order to (i) reduce the post-closing expenses of both ASI and PaperClip,
(ii) eliminate the need for PaperClip to holdback a portion of the consideration
that it would have received in the asset purchase transaction in order to
satisfy its obligations under outstanding options and warrants, and to its
creditors, and (iii) avoid the need for ASI to prepay the outstanding PaperClip
Convertible Notes at closing, subsequent to April 15, 1997 ASI and PaperClip
entered into discussions to amend the structure of the transaction from an asset
purchase transaction to a merger transaction. On September 12, 1997, the parties
entered into a letter of intent to amend the structure of the transaction into a
merger, and on November ___ ,1997, the parties entered into the Merger
Agreement.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors of PaperClip acting unanimously has approved (i) the
Merger Agreement, (ii) the Amendment and (iii) the transactions contemplated
thereby, including the Merger, believes that the Merger is in the best interests
of, and is fair to, PaperClip and its stockholders, and recommends that
PaperClip's stockholders approve and adopt the Merger Agreement.
The primary reasons that the PaperClip Board approved the Merger and is
recommending its approval to the PaperClip stockholders are that it believes
that the Merger (i) represents the most attractive financial alternative
available to PaperClip's stockholders; (ii) will provide PaperClip's
stockholders with better access to capital markets, including greater liquidity;
and (iii) giving effect to the complementary strengths of ASI and PaperClip,
along with the potential software development opportunities, cost reductions,
economies of scale, greater distribution network, and other operating
efficiencies contemplated by the Merger, gives the holders of ASI Common Stock
after the closing the potential for greater long-term appreciation than the
holders of PaperClip Common Stock. After the consummation of the Merger,
PaperClip will be a wholly-owned subsidiary of ASI.
In making its determination with respect to the Asset Purchase Agreement
and subsequently for the Merger, the PaperClip Board considered, among other
things:
1. the fact that since the financial failure of AR Baron (PaperClip's
investment banker) there have been no market-makers for PaperClip's Common Stock
and the price of PaperClip Common Stock had greatly suffered as a result;
2. the fact that PaperClip needed to raise capital in order to continue,
but the amount of capital to be raised was in an order of magnitude too small to
attract quality investment banking firms, and PaperClip was unable to identify
any source for a private placement;
3. information relating to the financial performance, condition, business
operations and prospects of PaperClip and ASI and current industry economic and
market conditions;
4. the ability to take advantage of complementary operating strategies of
the two entities, including potential cost reductions;
5. the opportunity for PaperClip's stockholders to become stockholders of a
company that is traded on the NASDAQ SmallCap Market;
6. the fact that after evaluating the various options open to PaperClip,
the Merger offered the greatest likelihood of closure and subsequent success;
7. the terms of the Merger Agreement, including the exchange ratio of ASI
Purchase Securities for PaperClip Common Stock, which the PaperClip Board noted
was the result of arm's length negotiations; and
8. the fact that the PaperClip Advisory Board recommended that PaperClip
enter into the Asset Purchase Agreement.
In addition, in approving the Merger Agreement the Board of Directors of
PaperClip took into account the fact that ASI had been managing PaperClip since
April pursuant to the Management Agreement, and that PaperClip has no sources of
liquidity independent of ASI's funding under the Management Agreement.
The PaperClip Board also considered certain potentially negative factors in
its deliberations concerning the Asset Purchase Agreement and subsequently the
Merger, including among other things:
1. the fact that the total number of the ASI Purchase Securities is fixed,
subjecting PaperClip's stockholders to a risk of a decline in the price of ASI
Common Stock which would reduce the value of the consideration to be received by
PaperClip's stockholders in the Merger;
2. the fact that the transferability of the ASI Purchase Securities will be
limited by the Lock-up Agreements;
3. the risk that the complementary strengths of ASI and PaperClip and the
software development opportunities, cost reductions, economies of scale, and
other operating efficiencies contemplated by the Merger would not be realized;
4. the fact that a portion of the ASI Purchase Securities will be escrowed,
which would delay and possibly diminish the percentage of ASI Purchase
Securities which could be distributed to the stockholders of PaperClip; and
5. the risk that if the Merger could not be consummated, PaperClip would be
in a weaker position to make the necessary changes to continue on a stand-alone
basis, than if it were to pursue such changes immediately.
In addition, in approving the Merger Agreement the Board of Directors of
PaperClip took into account (i) the declining revenues of ASI; (ii) the fact
that ASI has resources to satisfy its capital requirements only through January
31, 1998 without receiving additional sources of capital; (iii) that ASI may
secure needed capital from an equity issuance which would dilute the percentage
ownership in ASI that PaperClip's stockholders receive in the Merger; and (iv)
that ASI's audited financial statements contain a going concern qualification.
Nonetheless, the Board of Directors determined to approve the Merger as the best
opportunity currently available to PaperClip.
In view of the wide variety of factors considered by the PaperClip Board,
the PaperClip Board did not quantify or otherwise attempt to assign relative
weights to the specific factors considered in making its determination. However,
in the view of the PaperClip Board, the potentially negative factors considered
by it were not sufficient, either individually or collectively, to outweigh the
positive factors it considered in its deliberations relating to the Merger.
AMENDMENT TO PAPERCLIP'S CERTIFICATE OF INCORPORATION; REASONS FOR THE AMENDMENT
In order to issue the PaperClip Preferred Stock to the PaperClip
Convertible Note holders, the Board of Directors of PaperClip has unanimously
approved (subject to stockholder approval) the Amendment to PaperClip's
Certificate of Incorporation, substantially in the form of Exhibit B attached to
this Proxy Statement-Prospectus and incorporated by reference herein, to effect
the Amendment with respect to the issuance of the PaperClip Preferred Stock;
however, such text is subject to change as may be required by the Secretary of
State. If the Amendment is approved by the actions of the PaperClip's
stockholders, PaperClip will be authorized to issue the PaperClip Preferred
Stock.
In order to facilitate the Merger and preserve cash for ASI by eliminating
the need for ASI to prepay the PaperClip Convertible Notes at the Effective
Time, the PaperClip Convertible Note holders have agreed to exchange their Notes
for the PaperClip Preferred Stock (which, on the Effective Time, will become the
Preferred Stock of the Surviving Corporation (the "Preferred Stock")). PaperClip
Convertible Notes, in the aggregate outstanding principal amount of $129,690.74
(plus unpaid interest accrued on the PaperClip Convertible Notes) will be
exchanged at a rate of one share of PaperClip Preferred Stock for $0.30 of
principal and accrued interest on the PaperClip Convertible Notes into an
aggregate of 432,303 shares of PaperClip Preferred Stock (plus unpaid interest
accrued on the PaperClip Convertible Notes which shall be exchanged for
additional shares of Preferred Stock). After 18 months, the holders of the
PaperClip Preferred Stock will have the option to put the shares of the
Preferred Stock to the Surviving Corporation or ASI for cash or ASI Common Stock
and Class B Warrants. After 30 months, the Surviving Corporation or ASI will
have the right to redeem the Preferred Stock for cash or ASI common stock and
Class B Warrants. Following the Effective Time, ASI shall, or shall cause the
Surviving Corporation to, honor the put rights of the holders of the Series A
Preferred Stock, including, without limitation, providing funds to the Surviving
Corporation to satisfy the put, if necessary. The per share put price and the
redemption price will be for the same number of shares of ASI Common Stock and
Class B Warrants as one share of PaperClip Common Stock would receive, or for
cash equal to the liquidation preference of $0.30 per share, 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 of $.30 per share or an aggregate of
$129,690.74 (plus unpaid interest accrued on the PaperClip Convertible Notes
which shall be exchanged for additional shares of Preferred Stock).
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendations of the Board of Directors with respect
to the Merger, stockholders should be aware that members of management and the
Board of Directors of PaperClip have certain interests which are described below
and which present them with conflicts of interest in connection with the Merger.
Certain directors and officers of PaperClip have interests in the Merger
that are in addition to the interests of stockholders of PaperClip generally and
which may create perceived conflicts of interests. These interests include the
fact that two of the officers of PaperClip (one of whom is also a director) will
be employed by ASI, the fact that a shareholder received 333,333 shares of
PaperClip Common Stock for advisory services that he rendered to PaperClip in
connection with the Merger, and the acceleration of vesting of certain PaperClip
Employee Options held by the officers and directors of PaperClip pursuant to
certain employment agreements. These interests are discussed below.
Pursuant to the Employment Termination Agreement and Release (the
"Termination Agreement"), as of May 15, 1997 PaperClip terminated without
"cause" the employment with PaperClip of Sol Rosenberg, the President, Chief
Technology Officer and a director of PaperClip. The severance payment payable to
Mr. Rosenberg under the Termination Agreement is approximately $120,000, of
which $60,000 has been paid to date.
William Weiss, Chief Executive Officer, Treasurer and a director of
PaperClip, is owed $50,000 by PaperClip in respect of deferred salary for 1996,
and $60,000 with respect to his salary earned to date in 1997.
In February 1997, the PaperClip Board granted to Stephen Kornfeld 333,333
shares of PaperClip Common Stock for advisory services that he rendered to
PaperClip in connection with the transactions with ASI. Mr. Kornfeld was the
beneficial owner of approximately 1% of the Common Stock of PaperClip when such
payment was made (approximately 5% after giving effect to such additional
shares). In arriving at the amount of the fee, the PaperClip Board considered
the following: (i) the value added by Mr. Kornfeld to PaperClip stockholders,
which was arrived at by ascertaining the value added by Mr. Kornfeld to the
negotiations with ASI, (ii) the amount of additional time that Mr. Kornfeld will
have to expend until the consummation of the Merger, and (iii) the fee paid to
JSC by ASI. Mr. Kornfeld will be a director of ASI for at least two years
following the closing of the Merger.
The Board of Directors was aware of these conflicts and considered them
among the other matters described under "Special Factors -- Recommendation of
the Board of Directors; Reasons for the Merger."
OPERATIONS OF ASI AFTER THE MERGER
MANAGEMENT. Senior management will be reorganized with a combination of
personnel from both companies. Robert H. Stone, presently President and Chief
Executive Officer of ASI, will remain in that position. D. Michael Bridges,
presently Director of Sales for PaperClip, will assume the duties of Vice
President of Sales for ASI after the Merger. Michael Suleski, presently a
director and Vice President of Development for PaperClip, will assume the duties
of Vice President of Development for ASI after the Merger. Denis Marchand,
Financial Controller for ASI, and Chip Rabinowitz, Acting Director of
Engineering and Development at ASI, will each remain in his current position.
For a period of two years following the Merger, ASI shall nominate one
person designated by PaperClip, who initially will be Stephen Kornfeld (who is a
shareholder of, and a consultant to, PaperClip) to ASI's Board of Directors. In
addition, during such two year period, PaperClip will be entitled to designate
one person who will be permitted to attend all meetings of ASI's Board of
Directors as an "advisor" or observer". In the event that Mr. Kornfeld or any
other designee of PaperClip resigns or is removed for cause from ASI's Board of
Directors, Mr. Kornfeld or such other designee will be entitled to designate an
additional "advisor" or "observer", who initially will be William Weiss, the
Chief Executive Officer and a director of PaperClip.
OPERATIONS. ASI's strategy for the combined operations of ASI and PaperClip
after consummation of the Merger is to provide an enterprise-wide solution for
data storage, retrieval, document management, report distribution and data
mining. This strategy is intended to leverage several key technologies and
products from both ASI's mainframe offerings and PaperClip's software line.
The lead product in this new strategic direction is PaperClip's new
document management product, PaperClip 32. With the expected release of this 32
bit suite of software in the quarter ending December 1997, users will be able to
manage all electronic documents as well as to exchange documents in a "many to
many" trading partner environment. Electronic Document Exchange ("EDX"), an open
standard like Electronic Data Interchange ("EDI"), will provide a means for
companies to exchange legally accepted documents without requiring printing to
paper and re-scanning. Another new feature, "Print to Archive" ("PTA"), will
allow the background filing of documents into the electronic folder during
routine printing, thereby eliminating the need to print, copy and file. PTA also
provides the benefit of storing "compound documents" such as electronic forms,
compound rendering and electronic signatures as legally accepted electronic
images.
Using PaperClip 32 as a "common dashboard" for all document management and
imaging solutions allows other products (developed both internally and
externally) to be integrated into complete end-user solutions. The types of
products that ASI intends to link through PaperClip 32 can be generally broken
into three categories:
1. Data Input Systems: Scanned documents, faxed documents,
computer-generated reports, forms processing, etc.
2. Data Storage Systems: Data Warehousing, Hierarchical Storage Systems
(HSM), RAID, Tape, CD-ROM, DVD, etc.
3. Data Distribution Systems: Data Mining, Customer Reporting, Internet
Browser access, etc.
DATA INPUT SYSTEMS. Because PaperClip 32 was designed for integration from
the beginning, interfaces already exist with products from other companies,
including interfaces with high-end scanners and scanning packages, forms
processing systems and report processing solutions. ASI's integration with these
products for data input needs to be enhanced and strengthened. Only one product,
Cardiff, has been integrated using the PaperClip API. Other products have been
integrated using PaperClip's "Auto-Import" facility, which can be cumbersome and
does not present a "pleasing" interface to the end-user. With the forthcoming
release of PaperClip 32, ASI intends to encourage tighter integration with the
various front-ends by either the front-end product using the PaperClip API, or
by using DLLs provided by the other product for direct use by PaperClip.
Integration of OEM products can strengthen the combined offerings with
lower costs--both in development and support. An example is to replace the
PaperClip scanning module with a third-party scanning product, which would
eliminate testing, integration and support of new scanners, saving engineering
and customer support time and money.
PaperClip COLD, PaperClip's product for storing computer-generated reports,
was never designed to be a stand-alone product. The engineering resources
required to redesign PaperClip COLD to support higher-end services would be
high. ASI is evaluating an alternative COLD provider to integrate with
PaperClip.
GIGAPAGE, ASI's mainframe COLD product, must be integrated into the
PaperClip system. With the introduction of the new OAS system (which is based on
a Windows NT platform instead of a proprietary hardware platform), GIGAPAGE data
can be made available to client-server applications such as PaperClip. ASI
believes that the integration of this data with PaperClip products, using the
PaperClip API and/or Auto-Import facilities, is a high-priority project. ASI
will continue to market and sell GIGAPAGE to new prospects and seek to upgrade
its existing customer base. However, GIGAPAGE is no longer the flagship product
in ASI's marketing efforts or in ASI's development focus.
DATA STORAGE SYSTEMS. ASI's patented data storage system, the OAS/3590,
combined hardware data compression with intelligent management of an optical
jukebox. A new OAS/3597 controller with enhancements is expected to be
introduced to the marketplace during the fourth quarter of 1997 which will
remove some of the limitations currently controlling speed of access in linking
client-server based storage devices to mainframe systems. Most links between
networks and mainframes are accomplished using an SNA (Systems Network
Architecture, an IBM architecture) connection which is inherently slow.
Based on a Windows NT server, the new OAS/3597 looks like a standard IBM
3490-tape device. Any mainframe application, including Hierarchical Storage
Systems, can see and use this device at speeds approaching 17 megabytes per
second (as a point of reference, read/write speeds of optical drives are less
than 300 kilobytes per second). Once the data has been sent to the OAS/3597,
client-server or network applications can have direct access through a standard
network connection, effectively removing the bottleneck of SNA.
Finally, ASI intends to combine NOSS and the OAS/3597 into a single storage
solution. Grafting the enhanced NOSS API to the OAS/3597 platform is expected to
allow a wide range of physical storage systems, upgradability to future storage
devices, and connections to the enterprise storage market.
DATA DISTRIBUTION SYSTEMS. To date, neither ASI nor PaperClip has focused
much attention on data distribution systems. However, data distribution is a
central component of the document management process. ASI's input systems can
process voluminous amounts of data, and then can store it for easy retrieval by
PaperClip. The WorkFlow product can "zip" documents through cumbersome
procedures to ease bottlenecks in a company's paper-handling process. ASI plans
to further enhance this product to automatically generate customized reports
based upon this huge volume of data, send these reports to the appropriate
people, and allow users access to the more detailed information.
ASI is actively seeking partners to integrate the above-described solution
into ASI's product line. Document management and storage is in great demand by
many companies. Direct access and manipulation of those documents and the
associated data is of tremendous benefit to almost every company.
PaperClip has a partially developed product to allow Internet access to
PaperClip data. This product, known as WebServer, allows users with an Internet
browser to access PaperClip bins and folders. Allowing authorized users to
access this data through the public Internet or through corporate intranets is
important to the ultimate success of the ASI solution because it provides a
powerful document management and retrieval solution for widely dispersed work
groups.
There can be no assurances that any part of the foregoing strategy will be
successful, that ASI will have the financial or other resources available to
develop any of these products or that, if developed, any of these products will
be commercially successful.
It is expected that following the Merger significant aspects of the
operations of ASI and PaperClip will be combined to achieve greater marketing
impact and lower operating costs. Administration, human resources,
finance/accounting, sales and marketing will be combined in one facility in
PaperClip's present offices in Hackensack, New Jersey. PaperClip document
management and imaging research and development, support services and quality
assurance testing will remain in New Jersey. Mainframe research and development,
quality assurance testing, support services, integration services and production
will be located in ASI's North Kingstown, Rhode Island facility.
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of ASI (i) as of June 30,
1997 and (ii) as adjusted to reflect the Merger of PaperClip and the issuance of
the ASI Purchase Securities.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED(1)
<S> <C> <C>
Cash and cash equivalents $1,889,446 $1,971,174
========== ===========
Total long-term debt, including current portion $ 31,973 $ 61,233
---------- -----------
Mandatorily redeemable Series A
preferred stock -- 129,691
---------- -----------
Stockholders' Equity:
Preferred Stock, $0.01 par value, 1,000,000
shares authorized, -0- outstanding
-- --
Common Stock, $.01 par value, 13,000,000 shares
authorized, 3,965,199 shares issued, actual,
and 5,584,637 shares, as adjusted 39,652 55,096
Additional paid-in capital 17,637,694 20,518,071
Accumulated deficit (14,616,206) (14,616,206)
----------- -----------
3,061,140 5,956,961
Less treasury stock (1,259 shares) (18,056) (18,056)
----------- -----------
Total stockholders' equity 3,043,084 5,938,905
----------- -----------
Total capitalization $3,075,057 $6,129,829
=========== ===========
</TABLE>
(1) As adjusted to reflect the issuance of approximately 1,544,438 shares of
ASI Common Stock plus an equivalent amount of ASI Class B Warrants in
connection with the Merger of PaperClip. Each Class B Warrant entitles the
holder to purchase one share of ASI Common Stock at an exercise price of
$6.00.
BECAUSE THE NUMBER OF ASI PURCHASE SECURITIES IS FIXED AND THE MARKET PRICE OF
THE ASI COMMON STOCK IS SUBJECT TO FLUCTUATION, THE MARKET VALUE OF THE ASI
COMMON STOCK THAT HOLDERS OF THE PAPERCLIP COMMON STOCK WILL RECEIVE IN THE
MERGER MAY INCREASE OR DECREASE PRIOR TO THE CLOSING. IN ADDITION,
THE MARKET VALUE OF THE ASI COMMON STOCK AND CLASS B WARRANTS
MAY INCREASE OR DECREASE FOLLOWING THE MERGER. STOCKHOLDERS ARE
ENCOURAGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
ASI COMMON STOCK AND THE PAPERCLIP COMMON STOCK.
<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial data of ASI for the three
years ended June 30, 1995, 1996 and 1997. The data has been derived from the ASI
financial statements appearing elsewhere herein. The selected financial data set
forth below should be read in conjunction with "Access Solutions International,
Inc. Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the ASI Financial Statements, the notes thereto and other
financial and statistical information included elsewhere in this Proxy
Statement-Prospectus.
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
Net sales:
<S> <C> <C> <C>
Products .......................... $ 3,126 $ 1,352 $ 501
Services .......................... 476 635 591
----------- ----------- -----------
Total net sales ............ 3,602 1,987 1,092
----------- ----------- -----------
Cost of sales:
Products .......................... 1,115 346 133
Services .......................... 185 234 257
---------- ----------- -----------
Total cost of sales ......... 1,300 580 390
Gross profit ............................... 2,302 1,407 701
Operating expenses:
Selling expenses ......................... 1,337 1,223 928
General and administrative expenses ...... 1,588 1,678 1,495
Research and development expenses ........ 1,756 1,713 1,651
Stock compensation expense (1) ........... 744 --
----------- ----------- -----------
Total operating expense 4,681 5,358 4,074
----------- ----------- -----------
Loss from operations ....................... (2,379) (3,951) (3,372)
Interest expense, net ...................... 92 190 (12)
----------- ----------- ------------
Loss before extraordinary item ............. (2,471) (4,141) (3,360)
Extraordinary gain on debt restructuring ... -- 320 --
============ =========== ===========
Net loss ................................... $ (2,471) $ (3,821) $ (3,360)
=========== =========== ===========
Net loss applicable to common stock:
Net loss .............................. $ (2,471) $ (3,821) $ (3,360)
Accrued dividends on preferred stock .. (88) (109) --
=========== =========== ===========
$ (2,559) $ (3,930) $ (3,360)
=========== =========== ===========
Primary net loss per common share:
Net loss before extraordinary item .... $ (1.14) $ (1.88) $ (1.05)
Extraordinary item .................... -- .14 --
----------- ----------- -----------
$ (1.14) $ (1.74) $ (1.05)
=========== =========== ===========
Weighted average shares of Common Stock (2) 2,250,259 2,256,150 3,204,122
</TABLE>
June 30, June 30,
-------------- ---------------
1996 1997
(in thousands)
BALANCE SHEET DATA:
Working capital (deficiency) $(1,971) $1,842
Total assets 2,874 3,980
Total liabilities 3,533 937
Total stockholders' equity (deficit) (659) 3,043
(1) Compensation award to a former officer, including $424,830 of non-cash
expenses associated with the fair value of the stock issued. See Note 13 to
the ASI Financial Statements.
(2) Computed using the weighted average number of shares of ASI Common Stock
outstanding during the period and other potentially dilutive instruments
issued at prices below the initial public offering price during the 12
month period prior to the date of effectiveness of ASI's Registration
Statement dated October 16, 1996.
<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ASI's sales consist of sales of products and services. Products sold by ASI
consist of COLD systems, software and hardgoods including replacement disk
drives, subassemblies and miscellaneous peripherals. ASI also sells document
management software in accordance with its distribution agreement with
PaperClip. Services rendered by ASI include post-installation maintenance and
support. ASI recognizes revenue from customers upon installation of COLD systems
and, in the case of COLD systems installed for evaluation, upon acceptance by
such customers of the products. ASI sells extended service contracts on the
majority of the products it sells. Such contracts are one year in duration with
payments received either annually in advance of the commencement of the contract
or quarterly in advance. ASI recognizes revenue from service contracts on a
straight line basis over the term of the contract. The unearned portion of the
service revenue is reflected as deferred revenue. As of June 30, 1997, ASI had
deferred revenue in the amount of $329,841, which it will recognize through June
30, 1998.
ASI's operating results have in the past and may in the future fluctuate
significantly depending upon a variety of factors which vary substantially over
time, including industry conditions; the timing of orders from customers; the
timing of new product introductions by ASI and competitors; customer
acceleration, cancellation or delay of shipments; the length of sales cycles;
the level and timing of selling, general and administrative and research and
development expenses; specific feature needs of customers; and production
delays. A substantial portion of ASI's quarterly revenues are derived from the
sale of a relatively small number of COLD systems which range in price from
approximately $150,000 to $900,000. As a result, the timing of recognition of
revenue from a single product order has in the past and may in the future have a
significant impact on ASI's net sales and operating results for particular
financial periods. This volatility is counter-balanced by the increase in sales
of annual service contracts which generally accompanies an increase in systems
sales.
ASI's primary operating expenses include selling expenses, general and
administrative expenses and research and development expenses. General and
administrative expenses consist primarily of employee compensation and customer
support expenses. Research and development expenses include compensation paid to
internal research and development staff members and expenses incurred in
connection with the retention of independent research and development
consultants. ASI utilizes its own employees for research and development
functions except in certain circumstances involving product enhancements. In
those circumstances, ASI regularly retains independent experts to consult and
design new software modules which are subsequently evaluated and tested by ASI's
internal research and development staff. Upon successful testing of such product
enhancements, ASI's internal staff integrates the new products with ASI's
existing COLD systems and products.
In the past, ASI has expended substantial development resources to meet
customer commitments. The majority of these services were provided at no charge
to honor commitments made for added features when the systems were sold. These
resource expenditures have in the past placed a high overhead burden on the
GIGAPAGE product line offerings. After completion of GIGAPAGE 3.0, which is
expected to occur by the end of the second quarter of Fiscal 1998, management
believes that all significant product commitments will have been met. In the
future, development of new features will not be initiated unless customers make
a financial commitment to cover the minimum engineering costs. This is expected
to result in either significantly reduced research and development expenditures
or increased offsetting revenues for the GIGAPAGE product offerings.
ASI has historically incurred net loses and anticipates that further net
losses will be incurred prior to the time, if ever, that ASI achieves
profitability. However, ASI has recently taken certain steps intended to limit
the incurrence of future net losses. Such steps include: (i) the proposed
acquisition of PaperClip which is anticipated to be completed in early January
1998 (See Note 3); (ii) the October 1997 reduction in ASI's workforce from 24 to
15 full-time employees which is expected to reduce overhead by $150,000 per
quarter; (iii) renegotiation of ASI's outstanding maintenance contracts to
improve their profitability; and (iv) tighter control and administration of
ASI's software engineers to increase revenues from their activities. While no
assurance can be given that such steps will be sufficient to limit losses which
may be incurred in the future, ASI believes that such steps, when fully
implemented, may enable ASI to realize improved operating results. Of the 9
employees terminated, one was field support, five were product development
personnel, two were administrative staff and one was in sales. Many of the
product development personnel were employed in enhancing ASI's GIGAPAGE product
which has now been substantially completed. ASI does not believe that these
steps, particularly the reduction in the workforce, have to date or will in the
future materially adversely impact ASI's revenues and earnings.
ASI has entered into a Merger Agreement with PaperClip pursuant to which a
newly-formed subsidiary of ASI will merge with and into PaperClip, with
PaperClip surviving as a subsidiary of ASI. Since April 15, 1997, ASI has been
managing the day-to-day operations of PaperClip and advancing agreed-upon funds
pursuant to a Management Agreement. In addition, in January 1997, ASI provided a
$300,000 Bridge Loan to PaperClip for use as operating capital. Effective June
1, 1997, ASI entered into a one-year distribution agreement with PaperClip. See
"The Merger."
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto of ASI contained elsewhere herein.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
The following table presents certain items from ASI's Statement of
Operations, and such amounts as percentages of net sales, for the periods
indicated. Products and Services costs percentages are of Products and Services
sales, respectively.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997 YEAR ENDED JUNE 30, 1996
Net sales
<S> <C> <C> <C> <C>
Products $ 500,682 46% $1,352,408 68%
Services 590,896 54 634,500 32
----------- ----------- ----------- -----------
Total net sales 1,091,578 100 1,986,908 100
Cost of sales
Products 133,453 27 346,157 26
Services 256,777 43 234,229 37
----------- ----------- ----------- -----------
Total cost of sales 390,230 36 580,386 29
----------- ----------- ----------- -----------
Gross profit 701,348 64 1,406,522 71
----------- ----------- ----------- -----------
Operating expenses
Selling 928,080 85 1,223,312 62
General and administrative 1,494,792 137 2,422,005 122
Research and development 1,651,322 151 1,713,094 86
----------- ----------- ----------- -----------
Total operating expenses 4,074,194 373 5,358,411 270
----------- ----------- ----------- -----------
Interest expense, net (12,472) (1) 189,939 10
----------- -----------
Loss before extraordinary item (3,360,374) (308) (4,141,828) (208)
Extraordinary gain on debt restructuring -- -- 320,387 16
----------- ----------- ----------- -----------
Net loss $(3,360,374) (308)% $(3,821,441) (192)%
=========== =========== =========== ===========
</TABLE>
NET SALES. Net sales decreased by 45% to $1,091,578 for the year ended June
30, 1997 from $1,986,908 for the year ended June 30, 1996. Product sales
decreased 63% due to a reengineering of the GIGAPAGE product which was completed
with the release of GIGAPAGE 2.8.5 in late July of 1997. ASI has begun
installing upgrades at all its major customer sites and began offering the
enhanced product to new customers in the first quarter of Fiscal 1998 through
PaperClip's marketing and sales organization. Service revenues decreased by 7%
to $590,896 from $634,500 due to discontinuation of maintenance services for
obsolete equipment that is no longer supported.
COST OF SALES. Cost of sales includes component costs, firmware license
costs, third party equipment maintenance contractors and certain overhead costs.
Cost of sales decreased 33% to $390,230 for the year ended June 30, 1997 from
$580,386 for the year ended June 30, 1996, primarily due to lower sales volume.
Cost of sales for products decreased by 61% to $133,453 for the year ended June
30, 1997 from $345,157 for the year ended June 30, 1996. This decrease in cost
of sales for products was offset by a 10% or $22,548 increase in cost of sales
for services which was primarily due to higher maintenance service costs due to
older customer equipment in the field. Gross margin decreased to 64% from 71%
due to the lower percentage of system sales in the product sales mix as compared
to sales of peripherals, media and services which were sold at lower margins.
SELLING EXPENSES. Selling expenses decreased by 24% or $295,232 to $928,080
for the year ended June 30, 1997 from $1,223,312 for the year ended June 30,
1996. The decrease was primarily the result of a reduction in sales personnel,
reduced commission expense and lower trade show and seminar expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of administrative expenses and certain support expenses. General and
administrative expenses decreased $927,213 or 38% to $1,494,792 for the year
ended June 30, 1997 from $2,422,005 for the year ended June 30, 1996. This
decrease was attributable to several expenses incurred in Fiscal 1996 that were
not repeated in Fiscal 1997, including non-cash stock compensation of $744,000
awarded to ASI's former president, Hector Wiltshire, in Fiscal 1996,
approximately $150,000 in salary and severance to a Vice President terminated in
January 1996, and approximately $80,000 paid to stockholders to repurchase
anti-dilution rights. The expense reductions in Fiscal 1997 were partially
offset by approximately $45,000 in increased Director and Officer's insurance
premiums as a result of ASI's IPO in October 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased 4% to $1,651,322 for the year ended June 30, 1997 from $1,713,094 for
the year ended June 30, 1996. This reduction reflected ASI's greater utilization
of outside consultants. Although this strategy increased variable engineering
costs, total expenses were lower because of less full time engineering staff. In
the past, ASI has expended substantial development resources to meet customer
commitments. After completion of GIGAPAGE 3.0, which is expected to occur by the
end of the second quarter of Fiscal 1998, management believes that all
significant product commitments will have been met and expenditures incurred for
outside consultants will be significantly reduced with no corresponding increase
to ASI's Research and Development infrastructure. Future development resources
will either be sold at a cost plus basis to existing customers for development
of new features or brokered to third parties on the same basis due to the high
market demand for these resources. This is expected to result in either
significantly reduced research and development expenditures or increased
offsetting revenues for the GIGAPAGE product offerings in Fiscal 1998.
INTEREST EXPENSE, NET. Interest expense was approximately $100,000 for the
year ended June 30, 1997 and approximately $190,000 for the year ended June 30,
1996. Interest income was approximately $112,000 for the year ended June 30,
1997 with no significant interest income earned for the year ended June 30,
1996. This more favorable result was due to cash balance increases and loan
reductions as a result of ASI's IPO in October 1996.
NET LOSS. As a result of the foregoing, ASI's net loss decreased 12% to
$3,360,374 for the year ended June 30, 1997 from $3,821,144 for the year ended
June 30, 1996.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995.
The following table presents certain items from ASI's Statement of
Operations, and such amounts as percentages of net sales, for the periods
indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 YEAR ENDED JUNE 30, 1995
Net sales
<S> <C> <C> <C> <C>
Products $ 1,352,408 68% $ 3,126,022 87%
Services 634,500 32 476,039 13
----------- ----------- ----------- -----------
Total net sales 1,986,908 100 3,602,061 100
Cost of sales
Products 346,157 17 1,114,963 31
Services 234,229 12 184,744 5
----------- ----------- ----------- -----------
Total cost of sales 580,386 29 1,299,707 36
----------- ----------- ----------- -----------
Gross profit 1,406,522 71 2,302,354 64
Operating expenses
Selling 1,223,312 62 1,336,764 37
General and administrative 1,678,005 84 1,587,955 44
Research and development 1,713,094 86 1,755,891 49
Stock compensation 744,000 37 -- --
----------- ----------- ----------- -----------
Total operating expenses 5,358,411 270 4,680,610 130
Interest expense, net 189,939 10 92,319 3
----------- ----------- ----------- -----------
Loss before extraordinary item $(4,141,828) (208)% $(2,470,575) (69)%
Extraordinary gain on debt 320,387 16 -- --
restructuring ----------- ----------- ----------- -----------
Net loss $(3,821,441) (192)% $(2,470,575) (69)%
=========== =========== =========== ===========
</TABLE>
NET SALES. Net sales decreased from $3,602,061 for the year ended June 30,
1995 to $1,986,908 for the year ended June 30, 1996. This decrease was primarily
the result of a delay in completion of software enhancements which resulted in
installation postponements in the second half of fiscal 1996. Net product and
service sales were $3,126,022 and $476,039, respectively, for the year ended
June 30, 1995 compared to $1,352,408 and $634,500, respectively, for the year
ended June 30, 1996. Products sales decreased 57% during the year ended June 30,
1996 compared to the year ended June 30, 1995. Service revenue, which increases
as ASI's base of installed units expands, was 33% higher than in the
corresponding prior period. Approximately half of this increase is attributable
to an ODSM consulting contract in the amount of $66,000 that was completed and
fully recognized in the second quarter of fiscal 1996. Service revenue exclusive
of revenue generated by this consulting contract increased 19% over the
corresponding period.
COST OF SALES. Cost of sales includes component costs, firmware license
costs, labor, travel and certain overhead costs. Costs of sales in the aggregate
decreased 55% from $1,299,707 for the year ended June 30, 1995 to $580,386 for
the year ended June 30, 1996, primarily due to the reduced volume of sales. In
addition, cost of sales as a percentage of sales decreased from 36% for the year
ended June 30, 1995 to 29% for the year ended June 30, 1996. This decrease was
due to negotiated price reductions for the purchase of ASI's optical hardware
and from the sale of higher margin systems.
The cost of product sales decreased 69% from $1,114,963 for the year ended
June 30, 1995 to $346,157 for the year ended June 30, 1996 due to the decrease
in product sales. Cost of product sales as a percentage of product sales
decreased from 36% for the year ended June 30, 1995 to 26% for the year ended
June 30, 1996, a trend that has continued from fiscal 1994, when the cost of
product sales as a percentage of product sales was 72% due to inventory
write-downs and high installation start-up costs. It should not be assumed,
however, that this trend will continue. The cost of services increased by 27%
from $184,744 for the year ended June 30, 1995 to $234,229 for the year ended
June 30, 1996 due to additional service contracts required to support increased
service revenues. Cost of services as a percentage of service revenues decreased
from 39% for the year ended June 30, 1995 to 37% for the year ended June 30,
1996.
SELLING EXPENSES. Selling expenses decreased 8% from $1,336,764 for the
year ended June 30, 1995 to $1,223,312 for the year ended June 30, 1996. This
decrease was due to the net difference between lower sales commissions, the
reduction of marketing activity and staffing in the second half of fiscal 1996
and increased trade show activity in the first quarter of fiscal 1996 and higher
personnel and non-recurring recruiting costs incurred in connection with the
hiring of a vice president of sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of administrative expenses and customer support expenses. Administrative
expenses increased 10% from $1,103,287 for the year ended June 30, 1995 to
$1,216,142 for the year ended June 30, 1996. This increase was primarily due to
costs incurred in connection with a bridge financing and a proposed initial
public offering of ASI Common Stock that was abandoned in December 1995,
increased salary expense from the hiring of a vice president of Business
Operations in January 1995, and costs incurred in connection with the
Recapitalization. These amounts were offset by the termination of two vice
presidents in November 1995 and February 1996 and significantly reduced
administrative staffing in the second half of fiscal 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased 2% from $1,755,891 for the year ended June 30, 1995 to $1,713,094 for
the year ended June 30, 1996. This decrease reflected a temporary reduction in
consulting expenses resulting from a change in the primary independent
consulting firm retained by ASI. These costs were offset by payroll increases
necessary to maintain competitive salaries for personnel in the research and
development area and increased depreciation incurred as a result of computer
equipment upgrades. The increase in salary expense was partially offset by a 31%
staffing reduction in November 1995, although the net decrease in wages was only
$31,000 because of the hiring and termination of employees during the year ended
June 30, 1996, short term employment durations and the reclassification of a
customer service employee to research and development.
STOCK COMPENSATION EXPENSE. ASI incurred a one-time expense relating to the
issuance of 416,500 shares of ASI Common Stock to an officer of ASI.
Compensation expense in the aggregate amount of $744,000 was recognized in
conjunction with this transaction, including a non-cash charge of $424,830,
representing the fair value of the ASI Common Stock as determined by independent
appraisal. The difference represents an accrual of an agreed upon reimbursement
of the potential tax cost of the stock grant to the officer. See "Certain
Transactions -- Transactions with Mr. Wiltshire."
INTEREST EXPENSE, NET. Interest expense, net, increased 106% from $92,319
for the year ended June 30, 1995 to $189,939 for the year ended June 30, 1996.
Such expense increased as a result of borrowings under a secured loan, two
bridge loans, accretion on warrants issued in connection with the second bridge
loan and an increase in secured borrowings during the 1995 period. Interest
expense relating to capital leases decreased from $34,885 for the year ended
June 30, 1995 to $28,830 for the year ended June 30, 1996.
NET LOSS. As a result of the foregoing, ASI's net loss increased from
$(2,470,575) for the year ended June 30, 1995 to $(3,821,441) for the year ended
June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
ASI had a working capital surplus of $1,842,912 at June 30, 1997 as
compared to a working capital deficit of $1,971,090 at June 30, 1996. The
increase in working capital was principally attributable to cash proceeds from
ASI's IPO which was completed in October 1996.
Net cash used by operating activities in Fiscal 1997 was $3,643,301. The
major use of cash was the net loss of $3,360,374. In addition, accounts payable
decreased by $467,851 and accrued expenses decreased by $283,172.
Cash used in investing activities was $922,120 at June 30, 1997. The major
use of cash in investing activities was $829,052 in loans and advances to
PaperClip as part of the Management Agreement between ASI and PaperClip.
During Fiscal 1997, cash provided by financing activities included gross
proceeds in the amount of $9,200,013 from ASI's IPO. Cash used by financing
activities included the repayment of costs relating to the IPO totaling
$2,137,506, the repayment of all outstanding bridge loans totaling $1,363,973
and the repayment of an outstanding bank note totaling $290,000.
ASI has suffered recurring losses from operations and incurred negative
cash flows from its operating activities as it continued to develop its products
and infrastructure. The recurring losses and negative cash flows from operating
activities raise substantial doubt about ASI's ability to continue as a going
concern. As a result, ASI's independent accountants in their report dated August
8, 1997 on the Financial Statements have included an explanatory paragraph that
describes factors raising substantial doubt about ASI's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability of assets and classification of liabilities or any other
adjustments that might be necessary should ASI be unable to continue as a going
concern. In response to these factors, ASI has introduced new products and has
enhanced certain of its existing products, and is pursuing collaborative
relationships with vendors and customers which are intended to create new
opportunities to foster sales and reduce overhead for its products and services.
ASI anticipates improved financial performance based upon increased sales
resulting from its product introductions, product enhancements and new
collaborative relationships. However, there can be no assurance that such
improved financial performance will be realized by ASI.
As of June 30, 1997, ASI had no significant long-term debt. ASI believes
that the remaining proceeds from the IPO, together with funds generated from
operations, will be sufficient to meet ASI's working capital requirements only
through January 1998. ASI is currently seeking additional equity or debt
financing to fund its operations after January 1998 and until anticipated
additional funds provided by sales associated with the PaperClip acquisition and
the introduction of a new line of mainframe storage controllers scheduled to
begin selling in January 1998 are available. There can be no assurance that the
PaperClip acquisition will be consummated, that PaperClip sales will be
sufficient or that the new product lines will be successful. If ASI has
insufficient funds from the above-noted operations, further equity or debt
financing will be sought. There can be no assurance that additional funds can be
obtained on acceptable terms, if at all. If additional financing is not
available, ASI's business will be materially adversely affected. See "Risk
Factors -- Risks Relating to ASI -- Capital Needs; Uncertainty of Additional
Funding."
At June 30, 1997, ASI had federal and state net operating loss
carryforwards available to reduce any future taxable income in the approximate
amount of $9,500,000. These net operating loss carryforwards will expire in
various amounts between the years 2002 and 2011 if not previously utilized. In
the event of a change in the ownership of ASI, as defined in Section 382 of the
Internal Revenue Code, utilization of net operating loss carryforwards in
periods following such ownership changes can be significantly limited.
Management believes that ASI has incurred several changes of ownership under
these rules. As a result, utilization of the net operating loss carryforwards is
subject to various limitations, depending upon the year in which the net
operating loss originated. Management estimates that federal net operating loss
carryforwards in the approximate aggregate amount of $6,300,000 will be free
from Section 382 limitations and available to offset taxable income that ASI may
generate within the carryforward period. Of that amount, carryforwards in the
approximate amount of $1,300,000 are available for future utilization in any
year during the carryforward period without limitation. The other $5,000,000 is
subject to a limitation of approximately $330,000 per year, limiting total
utilization during the carryforward period to approximately $2,200,275. Because
the underlying calculations are complex and are subject to review by the
Internal Revenue Service, these limitation amounts could be adjusted at a later
date.
ASI believes that its current corporate infrastructure can support
significant increases in sales without proportionate increases in costs.
However, there can be no assurances that sales will increase or that any cost
advantage will result.
FORWARD LOOKING STATEMENTS
Statements contained in this Proxy Statement-Prospectus that are not
historical facts are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. In addition,
words such as "believes," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements. ASI cautions that a number of
important factors could cause actual results for Fiscal 1998 and beyond to
differ materially from those expressed in any forward-looking statements made by
or on behalf of ASI. Such statements contain a number of risks and
uncertainties, including, but not limited to, the availability and uncertainty
of additional financing, future capital needs, variable operating results,
lengthy sales cycles, dependence on ASI's COLD system product, rapid
technological change and product development, reliance on single or limited
sources of supply, intense competition, turnover in management, dependence on
significant customers, dependence on key personnel, and ASI's ability to protect
its intellectual property. See "Risk Factors." ASI cannot assure that it will be
able to anticipate or respond timely to changes which could adversely affect its
operating results in one or more fiscal quarters. Results of operations in any
past period should not be considered indicative of results to be expected in
future periods. Fluctuations in operating results may result in fluctuations in
the price of ASI's securities. In addition, the Merger involves numerous risks
and uncertainties including the potential inability to integrate successfully
the operations and services of PaperClip and the diversion of management's
attention from other business concerns. There can be no assurances that ASI will
complete the Merger or that, if completed, it will be successfully integrated
into ASI's operations or provide an acceptable return on ASI's investment.
SEASONALITY AND INFLATION
To date, seasonality and inflation have not had a material effect on ASI's
operations.
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC
SELECTED HISTORICAL FINANCIAL DATA
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
STATEMENT OF
OPERATIONS DATA: 1997 1996 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 920,868 $ 983,575 $ 1,968,750 $ 1,489,139
----------- ----------- ----------- -----------
Operating expenses:
Salaries and related benefits 719,806 752,981 1,391,725 1,292,654
Research and development expenses 655,656 1,464,053 3,066,395 1,621,849
Selling expenses 326,378 596,590 1,447,593 940,624
General and administrative expenses 479,841 492,689 905,137 846,817
----------- ----------- ----------- -----------
Total operating expenses 2,181,681 3,306,313 6,810,850 4,701,944
----------- ----------- ----------- -----------
Loss from operations (1,260,813) (2,322,738) (4,842,100) (3,212,805)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 3,137 67,983 95,820 49,635
Interest expense (21,637) (3,147) (5,561) (1,073,800)
----------- ----------- ----------- -----------
(18,500) 64,836 90,259 (1,024,165)
----------- ----------- ----------- -----------
Net loss $(1,279,313) $(2,257,902) $(4,751,841) $(4,236,970)
=========== =========== =========== ===========
Net loss per common share $ (0.16) $ (0.30) $ (0.63) $ (0.88)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 7,951,893 7,435,815 7,576,260 4,792,932
=========== =========== =========== ===========
BALANCE SHEET DATA:
June 30, December 31,
1997 1996 1995
----------- ----------- -----------
Working capital $(1,820,396) $ (700,859) $ 3,256,657
Total assets 806,794 1,006,082 4,466,957
Total liabilities 2,391,411 1,364,471 723,585
Total stockholders (1,584,617) (358,389) 3,743,372
equity (deficit)
</TABLE>
<PAGE>
PAPERCLIP SOFTWARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto of PaperClip contained elsewhere herein.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS JUNE 30, 1996.
The following table presents certain items from PaperClip's Statement of
Operations, and such amounts as percentages of net sales, for the periods
indicated.
<TABLE>
<CAPTION>
Six Months Six Months
ENDED JUNE 30, 1997 ENDED JUNE 30, 1996
------- ----------- -------------------
<S> <C> <C>
Net sales $ 920,868 $ 983,575
----------- -----------
Operating Expenses:
Salaries and related benefits 719,806 752,981
Research and development expenses 655,656 1,464,053
Selling expenses 326,378 596,590
General and administrative expenses 479,841 492,689
----------- -----------
Total operating expenses 2,181,681 3,306,313
----------- -----------
Loss from operations (1,260,813) (2,322,738)
----------- -----------
Other Income (Expense):
Interest income 3,137 67,983
Interest expense (21,637) (3,147)
----------- -----------
(18,500) (64,836)
----------- -----------
Net loss $(1,279,313) $(2,257,902)
=========== ===========
Loss per common share $ (0.16) $ (0.30)
=========== ===========
Weighted average number of
common shares outstanding 7,951,893 7,435,815
=========== ===========
</TABLE>
Net sales for the six months ended June 30, 1997 decreased by 6% over the
six months ended June 30, 1996 (from $983,575 to $920,868) due to lower demand
in the first quarter. None of such decrease was a result of a decrease in
prices.
Salaries and related benefits decreased in such period by 4% (from $752,981
to 719,806) due to a reduction in general and administrative personnel.
Research and development expenses decreased by 55% (from $1,464,053 to
$655,656) due to completion of Internet products, cessation of work on the
workflow products, and PaperClip's financial constraints.
Selling expenses decreased by 45% (from $596,590 to $326,378 due to a lower
marketing effort and lower promotion expenses resulting from financial
constraints.
General and administrative expenses decreased by 3% (from $492,689 to
$479,841) due to an increase in professional fees related to the sale of
PaperClip, which increase was partially offset by a reduction in recruiting
fees.
The net loss from operations for the six months ended June 30, 1997
decreased by 43% over the six months ended June 30, 1996 (from $2,257,902 to
$1,279,313) primarily due to a decrease in salaries and marketing efforts in
light of PaperClip's financial constraints.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
The following table presents certain items from PaperClip's Statement of
Operations, and such amounts as percentages of net sales, for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended Year Ended
DECEMBER 31, 1996 DECEMBER 31, 1995
----------- -----------
<S> <C> <C>
Net Sales $ 1,968,750 $ 1,489,139
----------- -----------
Operating Expenses:
Salaries and related benefits 1,391,725 1,292,654
Research and development expenses 3,066,395 1,621,849
Selling expenses 1,447,593 940,624
General and administrative expenses 905,137 864,817
----------- -----------
Total operating expenses 6,810,850 4,701,944
----------- -----------
Loss from operations (4,842,100) (3,212,805)
----------- ----------
Other Income (Expense):
Interest income 95,820 49,635
Interest expense (5,561) (1,073,800)
----------- -----------
90,259 (1,024,165)
----------- -----------
Net loss $(4,751,841) $(4,236,970)
============ ===========
Weighted average number of common shares outstanding
7,576,260 4,792,932
=========== ===========
</TABLE>
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 PaperClip'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 PaperClip'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).
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 (the "1995 Bridge Financing") and the
public offering completed in September 1995 (the "Offering"). As a consequence
of the increased loss from operations and interest expense and financing costs,
PaperClip's net loss was $4,751,841 or $.63 per share in 1996, as compared to a
net loss of $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.
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994.
The following table presents certain items from PaperClip's Statement of
Operations, and such amounts as percentages of net sales, for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended Year Ended
DECEMBER 31, 1995 DECEMBER 31, 1994
<S> <C> <C>
Net sales $ 1,489,139 $ 1,059,924
----------- -----------
Operating Expenses:
Salaries and related benefits 1,292,654 1,164,430
Research and development 1,621,849 1,166,769
Selling expenses 940,624 745,958
General and administrative 846,817 864,863
---------- -----------
Total operating expenses 4,701,944 3,942,020
---------- -----------
Loss from operations (3,212,805) (2,882,096)
---------- -----------
Other Income (Expense):
Interest income 49,635 3,974
Interest expense (1,073,800) (9,500)
----------- -----------
Net loss $(4,236,970) $ (2,887,622)
=========== ===========
Net loss per common share of common shares $ (0.88) $ (0.85)
Weighted average number of common shares
outstanding 4,792,932 3,392,434
=========== ===========
</TABLE>
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 to 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 1995 Bridge Financing described below. As a consequence of the
increased loss from operations and interest expense and financing costs,
PaperClip's net loss was $(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 six months ended June 30, 1997 PaperClip incurred a net loss of
$1,279,313. As of June 30, 1997, PaperClip had an accumulated deficit of
$1,807,317. PaperClip continues to incur operating losses. PaperClip had
negative working capital of $700,859 and $1,520,396 as of December 31, 1996 and
June 30, 1997, respectively.
For the years ended December 31, 1994, 1995 and 1996, PaperClip incurred
net losses of $2,887,622, $4,236,970 and $4,751,841, respectively. As of
December 31, 1996, PaperClip had an accumulated deficit of $16,798,006 and it
continues to incur operating losses. As of December 31, 1995, PaperClip had a
positive working capital of $3,256,657. As of December 31, 1996 PaperClip had a
working capital deficit of $700,859. For the years ended December 31, 1994, 1995
and 1996, PaperClip'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 accountants contains explanatory language as to
PaperClip's ability to continue as a going concern.
Prior to January 1, 1994, PaperClip was considered to be a development
stage company. PaperClip required the proceeds of the Offering or alternative
funds to conduct its proposed activities. Prior to completion of the Offering,
PaperClip funded its operations through five private placements and three
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 1995 Bridge Financing described below.
In the 1995 Bridge Financing, PaperClip issued bridge notes in the
aggregate principal amount of $2,365,000 (the "1995 Bridge Notes") and bridge
warrants to acquire an aggregate of 430,000 shares of PaperClip Common Stock
(the "1995 Bridge Warrants"). The 1995 Bridge Notes bore interest at the rate of
9% per annum and were repaid from the proceeds of PaperClip's Offering. The 1995
Bridge Warrants are exercisable for five years after their issuance date at an
exercise price of $2.25 per share. The shares issuable upon the exercise of the
1995 Bridge Warrants were registered pursuant to the registration statement
relating to the Offering, and holders of the 1995 Bridge Warrants are entitled
to certain demand and "piggyback" registration rights with respect to the
underlying shares of PaperClip Common Stock.
On September 27, 1995, PaperClip completed the Offering, pursuant to which
it issued 1,799,750 shares of PaperClip Common Stock and 1,799,750 Class A
Warrants, at prices of $5.00 per share of PaperClip Common Stock and $.10 per
Class A Warrant. Each Class A Warrant entitles the registered holder thereof to
purchase one share of PaperClip 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 PaperClip 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 PaperClip Common Stock as reported by Nasdaq
(or on such exchange on which the PaperClip 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) PaperClip 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 PaperClip Common Stock issuable
upon exercise of the 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 1995 Bridge Notes were applied by the holders thereof to the purchase of
securities in the Offering, the net cash proceeds to PaperClip 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 1995 Bridge Notes
($969,000), the interest on all the 1995 Bridge Notes ($102,000) and certain
other debt (including a $150,000 8% note payable to counsel to PaperClip, two
partners of which were directors of PaperClip 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, PaperClip had net Federal operating loss carry
forwards ("NOL") for financial reporting purposes. Due to losses sustained by
PaperClip 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, PaperClip's NOL that would be available to offset future
income may be subject to annual limitations. See Note 2 of the Notes to the
PaperClip Financial Statements.
PaperClip consummated its initial public offering in September 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. PaperClip spent approximately $3 million on the development of the
above mentioned products. With the completion of WebClip, one of the scheduled
Internet products, PaperClip launched an ambitious public relations and
advertising campaign to create market awareness of the WebClip product. As of
the date hereof, PaperClip has not realized the volume of sales that it had
hoped to achieve with the WebClip product.
In connection with obligations owed by PaperClip to a software developer,
during October 1996 PaperClip entered into an agreement which provided for the
rescheduling of payments owed by PaperClip to the developer. PaperClip 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 PaperClip paid the
Remaining Amount from the proceeds of the Bridge Loan (as defined below).
In December 1996, PaperClip borrowed an aggregate amount of $129,690 from
nine of its stockholders. The loan was evidenced by Convertible Promissory Notes
which were issued to each of the nine stockholders for their respective loan
amounts and (i) have a three year maturity, (ii) bear interest at a rate of 12%
per annum, and (iii) are convertible into PaperClip Common Stock at a rate of
$0.30 per share. In exchange for the Convertible Promissory Notes, the holders
thereof will be issued, subject to approval of the Amendment by the PaperClip
stockholders, the PaperClip Preferred Stock which will, at the Effective Time,
become the Series A Preferred Stock of the Surviving Corporation. See "The
Merger - General."
On January 29, 1997, as contemplated by the Letter of Intent, ASI agreed to
loan up to $300,000 to PaperClip to fund PaperClip's operations through the
closing date of the Merger (the "Bridge Loan"). The Bridge Loan is due and
payable on January 27, 1998, bears interest at the rate of 12% per annum payable
quarterly and is secured by a first priority security interest in all of
PaperClip's assets. As of September 30, 1997, the outstanding principal balance
of the Bridge Loan was $300,000. PaperClip will have no obligation to repay
principal of, or to pay the interest on, the Bridge Loan if the Merger is
consummated.
Pursuant to the Management Agreement, ASI has assumed the management and
control of the day-to-day operations of PaperClip pending the consummation of
the Merger. Pursuant to the Management Agreement, pending consummation of the
Merger, ASI is advancing funds to PaperClip in accordance with an agreed upon
budget. As of October 31, 1997, ASI had advanced $1,307,575 pursuant to the
Management Agreement.
There can be no assurance that the Merger will be consummated or that the
original asset sale transaction will be consummated. PaperClip 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
PaperClip's operations if a transaction with ASI cannot be consummated.
PaperClip has suffered recurring losses from operations and incurred
negative cash flows from its operating activities which raise substantial doubt
about PaperClip's ability to continue as a going concern. As a result,
PaperClip's independent accountants in their report dated February 20, 1997 on
the Financial Statements have included an explanatory paragraph that describes
factors raising substantial doubt about PaperClip's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability of assets and classification of liabilities or any other
adjustments that might be necessary should PaperClip be unable to continue as a
going concern.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined statement of operations of ASI
for the year ended June 30, 1997 presents the operating results for ASI as if
the proposed Merger had occurred as of July 1, 1996. The accompanying unaudited
pro forma condensed combined balance sheet as of June 30, 1997 gives effect to
this transaction as if it had occurred on June 30, 1997.
The unaudited pro forma condensed combined financial information should be
read in conjunction with the accompanying notes, the historical financial
statements and notes thereto of ASI included elsewhere herein and the historical
financial statements and notes thereto of PaperClip included elsewhere herein.
For purposes of preparing the pro forma condensed combined financial statements,
amounts related to PaperClip have been recast for consistency.
The unaudited pro forma condensed combined financial statements are
provided for informational purposes only and are not necessarily indicative of
the results of operations or financial condition that would have been achieved
had the Merger actually occurred as of the dates indicated or of the future
results of operations or financial condition of ASI. The pro forma adjustments
are based upon available information and certain assumptions that ASI currently
believes are reasonable in the circumstances. If the transaction is consummated,
ASI's financial statements will reflect its effect only from the date such
transactions occurs. The pro forma adjustments are applied to the historical
consolidated financial statements of ASI and PaperClip to account for the Merger
using the purchase method of accounting. Under purchase accounting, the total
purchase cost of PaperClip will be allocated to the assets and liabilities
acquired based on their relative fair values as of the date the transaction is
closed, with any excess of the total purchase price over the fair value of the
tangible assets acquired less the fair value of the liabilities assumed recorded
as intangible assets. The total consideration of $2,966,321 for the purchase of
PaperClip used in these pro forma financial statements is comprised of
$2,895,821 related to the Merger Consideration and $70,500 of non-recurring
transaction costs. The actual purchase cost of PaperClip will be based on the
value of the Merger Consideration on the date of the Merger, which may vary
significantly from the amount used in these pro forma financial statements,
primarily due to changes in the price of ASI Common Stock. As such, the amounts
are preliminary in nature. The cost allocations will be based on appraisals and
other studies, which are not yet completed. Accordingly, the final allocations
will be different from the amounts reflected herein. Although the final
allocations will differ, the pro forma condensed combined financial information
reflects ASI management's best estimate based on currently available
information.
PaperClip's fiscal year ends on December 31. ASI's fiscal year ends on June
30.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Twelve Months Ended June 30, 1997
(Unaudited)
Historical Pro forma Pro forma
Access PAPERCLIP ADJUSTMENTS COMBINED
Net sales:
<S> <C> <C> <C> <C>
Products $ 500,682 $ 1,906,043 $ - $ 2,406,725
-- --
Services 590,896 590,896
------------ ------------ ------------ ------------
Total sales net 1,091,578 1,906,043 -- 2,997,621
------------ ------------ ------------ ------------
Cost of sales:
Products 133,453 -- 747,760(1) 881,213
Services 256,777 -- -- 256,777
------------ ------------ ------------ ------------
Total cost of sales 390,230 -- 747,760 1,137,990
------------ ------------ ------------ ------------
Gross Profit 701,348 1,906,043 (747,760) 1,859,631
------------ ------------ ------------ ------------
General and administrative expense 1,494,792 1,040,914 308,472 (2) 2,844,178
Research and development expense 1,651,322 2,750,337 -- 4,401,659
Selling expense 928,080 1,894,967 -- 2,823,047
------------ ------------ ------------ ------------
Total expenses 4,074,194 5,686,218 308,472 10,068,884
------------ ------------ ------------ ------------
Operating loss (3,372,846) (3,780,175) (1,056,232) (8,209,253)
------------ ------------ -------------- ------------
Interest income 112,538 30,974 -- 143,512
Interest expense (100,066) (24,051) 23,729 (3) (100,388)
============ ============ ============== ==========
Net loss (3,360,374) (3,773,252) (1,032,503) (8,166,129)
============ ============ =============== ============
Dividends on PaperClip preferred stock -- -- (15,563) (4) (15,563)
========== ============ ============ ============
Net loss applicable to common stock $ (3,360,374) $ (3,773,252) $ (1,048,066) $ (8,181,692)
============ ============ ============ ============
Net loss per common share (5) $ (1.05) $ (1.71)
Weighted average common shares outstanding (5) 3,205,381 4,749,819
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Statement
of Operations
<PAGE>
Notes to Pro Forma Condensed Combined Statement of Operations
For the Twelve Months Ended June 30, 1997
(Unaudited)
(1) For purposes of determining the pro forma amortization of intangible
assets, ASI has estimated that the intangible assets arising from the
acquisition of PaperClip include existing software products of $2,243,280.
The amortization period for this asset is estimated to be three years. The
final costs allocation and amortization period for PaperClip will be based
on appraisals and other studies which have not yet been completed.
Accordingly, the final amounts will be different than those presented
herein.
(2) For purposes of determining the pro forma amortization of intangible
assets, ASI has estimated that the intangible assets arising from the
acquisition of PaperClip include goodwill of $2,167,358. The amortization
period for this asset is estimated to be five years. The final costs
allocation and amortization period for PaperClip will be based on
appraisals and other studies which have not yet been completed.
Accordingly, the final amounts will be different than those presented
herein.
In addition, charges of $125,000 recorded by PaperClip for management
services provided by ASI have been eliminated. The related income was not
reflected in ASI's historical statement of operations due to the
expectation that the Merger will be consummated.
(3) In connection with the Merger, the 12% Convertible Notes of PaperClip will
be converted into mandatorily redeemable Series A preferred stock of
PaperClip. In addition, PaperClip has recorded interest expense related to
the bridge loan. This adjustment reflects the elimination of $8,429 and
$15,300 interest expense associated with these 12% Convertible Notes and
the bridge loan, respectively.
(4) This adjustment reflects the 12% dividends on the PaperClip mandatorily
redeemable Series A preferred stock issued in exchange for the 12%
Convertible Notes of PaperClip.
(5) Pro forma loss per common share is computed by dividing pro forma net loss
by ASI's historical weighted average number of common shares outstanding
after giving effect to the issuance of 1,544,438 shares in connection with
the Merger.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
Historical Pro forma Pro forma
-------------------------------------
ACCESS PAPERCLIP ADJUSTMENTS COMBINED
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $1,889,446 $ 81,728 - $1,971,174
Trade accounts receivable, net of
allowance for doubtful accounts 238,914 359,031 - 597,945
Inventories 461,812 - - 461,812
Prepaid expenses and other current
assets 183,159 565 - 183,724
-------------- -------------- --------------- ---------------
Total current assets 2,773,331 541,324 - 3,214,655
Fixed assets, net 328,309 314,846 643,155
Other assets:
Notes and advances receivable 829,052 (829,052) (1) -
Deposits and other assets 9,603 50,624 - 60,227
Remote service inventory, net 39,924 - - 39,924
Purchased software products - - 2,243,280 (2) 2,243,280
Goodwill - - 2,167,358 (3) 2,167,358
============== ============== =============== ============
Total assets $3,980,219 $806,794 $3,581,586 $8,368,599
============== ============== =============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $370,717 $1,244,063 $70,500 (4) $1,685,280
Loans payable - 969,352 (969,352) (5)
-
Current installments of capital lease
obligations 25,257 29,260 - 54,517
Accrued salaries and wages 204,604 - - 204,604
Deferred revenues - prepaid service
contracts 329,841 19,045 - 348,886
-------------- -------------- --------------- ---------------
Total current liabilities 930,419 2,261,720 (898,852) 2,293,287
Notes payable - 129,691 (129,691) (6)
-
Capital lease obligations, excluding
current installments 6,716 - - 6,716
-------------- -------------- --------------- ---------------
Total liabilities 937,135 2,391,411 ( 1,028,543) 2,300,003
-------------- -------------- --------------- ---------------
Mandatorily redeemable Series A
preferred stock - - 129,691 (6) 129,691
Stockholders' equity:
Common stock 39,652 80,655 (65,211) (7) 55,096
Additional paid-in capital 17,637,694 16,412,045 (13,531,668) (8) 20,518,071
Accumulated deficit (14,616,206) (18,077,317) 18,077,317 (9) (14,616,206)
Treasury stock (18,056) - - (18,056)
-------------- -------------- --------------- ---------------
Total stockholders' equity 3,043,084 (1,584,617) 4,480,438 5,938,905
- ---------------------------------------- -------------- -------------- --------------- ---------------
Total liabilities and stockholders' equity $3,980,219 $806,794 $3,581,586 $8,368,599
============== ============== =============== ===============
See accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Combined Balance Sheet
June 30, 1997
(Unaudited)
(1) Reflects the elimination of ASI's $300,000 bridge loan to PaperClip and
advances of $529,052 to PaperClip.
(2) ASI has estimated that the intangible assets arising from the acquisition
of PaperClip include existing software products of $2,243,280. The final
cost allocation for PaperClip will be based on appraisals and other studies
which have not yet been completed. At each balance sheet date, ASI will
review the recoverability of intangible assets based primarily on estimated
future cash flows.
(3) ASI has estimated that the intangible assets arising from the acquisition
of PaperClip include goodwill of $2,167,358. The final cost allocation for
PaperClip will be based on appraisals and other studies which have not yet
been completed. At each balance sheet date, ASI will review the
recoverability of goodwill based primarily on estimated future cash flows.
(4) Reflects the accrual of $70,500 of legal, accounting, due diligence and
other costs related to the Merger.
(5) Reflects the elimination of PaperClip's $300,000 bridge loan, advances of
$529,052 and $140,300 of interest and management fees payable. The
management fees and interest on the bridge loan were not reflected in ASI's
historical financial statements due to the expectation that the Merger will
be consummated.
(6) In connection with the Merger, the 12% Convertible Notes of PaperClip will
be converted into mandatorily redeemable Series A preferred stock which is
reflected as temporary equity in the pro forma financial statements.
(7) Reflects the elimination of PaperClip's historical common stock balance and
the issuance of 1,544,438 shares of ASI Common Stock.
(8) Reflects the elimination of PaperClip's historical additional paid-in
capital balance and the issuance of 1,544,438 shares of ASI Common Stock
and related warrants.
(9) Reflects the elimination of PaperClip's historical accumulated deficit
balance.
<PAGE>
THE MERGER
GENERAL
PaperClip and ASI have entered into the Merger Agreement which
provides that, subject to approval and adoption of the Merger Agreement by the
stockholders of PaperClip and compliance with certain other covenants and
conditions, Newco will merge into PaperClip, with PaperClip surviving as a
subsidiary of ASI. At the Effective Time:
(i) each share of PaperClip Common Stock, other than treasury shares and
shares held by Dissenting Stockholders, will be converted into the right to
receive the number of shares of ASI Common Stock and an equivalent number
of Class B Warrants determined by dividing 1,544,438 (which amount includes
75,000 shares of ASI Common Stock and 75,000 of Class B Warrants which will
be placed in escrow pursuant to the Escrow Agreement as set forth below) by
the sum of the number of shares of PaperClip Common Stock outstanding
immediately prior to the Effective Time (the "Conversion Ratio"); the Class
B Warrants will entitle the holder of each warrant to acquire one share of
ASI Common Stock for an initial exercise price of $6.00 at any time from
issuance through October 15, 2001;
(ii) each share of PaperClip Preferred Stock, which is to be issued prior
to the Effective Time in exchange for the PaperClip Convertible Notes at an
exchange rate of $.30 per share, will become Preferred Stock of the
Surviving Corporation;
(iii) each outstanding option (other than options granted to employees of
PaperClip who continue to be employed by ASI following the Effective Time
who will be offered Employee Options to purchase the ASI Common Stock in an
amount deemed appropriate by ASI's Board of Directors in substitution and
cancellation of such employees' existing PaperClip Options) and warrant to
purchase PaperClip Common Stock will be converted into Merger Options and
Warrants to purchase ASI Common Stock and Class B Warrants in an amount
equal to the Merger Consideration attributable to each share of PaperClip
Common Stock underlying such PaperClip option or warrant; and
(iv) 75,000 shares of ASI Common Stock and 75,000 Class B Warrants will be
placed in escrow pursuant to the Escrow Agreement for a two year period,
during which period, if ASI redeems any Merger Options and Warrants, the
escrowed ASI Common Stock and Class B Warrants will be returned to ASI in
an amount equal to the cost of redemption divided by $4.75 and any shares
remaining in escrow at the end of such escrow period will be distributed to
the PaperClip stockholders.
It is estimated that each share of PaperClip Common Stock held by a
stockholder will receive ______ shares of a share of ASI Common Stock and
_______ of a Class B Warrant (which includes a portion of the 75,000 shares of
ASI Common Stock and 75,000 Class B Warrants which will be placed in escrow
pursuant to the Escrow Agreement as set forth below).
The Class B Warrants will entitle the holder of each Class B Warrant to
acquire one share of ASI Common Stock for an initial exercise price of $6.00 at
any time on or before October 15, 2001. See "Description of Securities." A copy
of the Merger Agreement and the Amendment are annexed hereto as Exhibits A and
B, respectively, and are incorporated herein by reference. All references to and
summaries of the Merger Agreement, the Amendment, the Warrant Agreement, the
Management Agreement and the other agreements referred to herein are qualified
in their entirety by reference to the texts of such documents.
EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of PaperClip Common Stock into ASI Common Stock and Class B
Warrants will occur automatically at the Effective Time of the Merger. The
Effective Time will be as set forth in the Articles of Merger which will be
filed with the Secretary of State of the State of Delaware on the date on which
the closing of the Merger takes place. As soon as practicable after the
Effective Time, and in no event later than five business days thereafter,
transmittal forms will be furnished to PaperClip stockholders by Continental
Stock Transfer & Trust Company (the "Exchange Agent"). The transmittal forms
will contain instructions with respect to the surrender of the certificates
representing PaperClip Common Stock to be exchanged for certificates
representing ASI Common Stock and Class B Warrants.
PAPERCLIP STOCK CERTIFICATES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT
UNTIL A PAPERCLIP STOCKHOLDER HAS RECEIVED A TRANSMITTAL FORM AND SHOULD NOT BE
RETURNED WITH THE ENCLOSED PROXY CARD.
Until the certificates representing PaperClip Common Stock are surrendered
for exchange after the Effective Time, holders of such certificates will accrue
but will not be paid dividends or other distributions on the ASI Common Stock
into which their shares have been converted. When such certificates are
surrendered, any unpaid dividends or other distributions will be paid, without
interest. For all other purposes, PaperClip Common Stock outstanding at the
Effective Time will be deemed to evidence ownership of the shares of ASI Common
Stock and Class B Warrants into which those shares will have been converted
pursuant to the Merger.
No fractional shares of ASI Common Stock or fractional interests in Class B
Warrants will be issued to any PaperClip stockholder upon consummation of the
Merger. For each fractional share of ASI Common Stock that would otherwise be
issued, the Exchange Agent will pay cash in an amount equal to $3.75 and for
each fractional interest in a Class B Warrant that would otherwise be issued,
ASI will pay cash in an amount equal to $1.00. Calculations will be made to the
nearest one-thousandth of a share of ASI Common Stock and of a Class B Warrant
and to the nearest cent.
ASI will pay all stock transfer taxes, if any, owing in connection with the
exchange of securities of PaperClip for securities of ASI and/or cash in lieu of
fractional shares. ASI will not pay any stock transfer taxes resulting from such
issuances and/or payment to any person other than the registered owner.
For a description of the differences between the rights of the holders of
PaperClip Common Stock and ASI Common Stock, see "Effect of the Merger on Rights
of Stockholders." For a description of the securities of ASI, see "Description
of Securities."
PAPERCLIP OPTIONS AND WARRANTS
Each outstanding option and warrant to purchase PaperClip Common Stock will
be converted into Merger Options and Warrants on the same terms and conditions
to purchase ASI Common Stock and Class B Warrants in an amount equal to the
Merger Consideration attributable to each share of PaperClip Common Stock
underlying such PaperClip option or warrant.
Pursuant to the Merger Agreement, ASI will offer PaperClip employees who
continue to be employed by ASI or the Surviving Corporation with Employee
Options to purchase the ASI Common Stock in an amount deemed appropriate by
ASI's Board of Directors in substitution and cancellation of such employees'
existing PaperClip Options.
ESCROW ARRANGEMENT
Under the Merger Agreement, 75,000 shares of ASI Common Stock and 75,000
Class B Warrants will be held in escrow pursuant to the Escrow Agreement by
Continental Stock Transfer & Trust Company as Escrow Agent for two years
following the Effective Time. In the event that, within two years after the
Effective Time, ASI redeems for cash or ASI securities any of PaperClip's
warrants outstanding as of the Effective Time, the Escrow Agent will release to
ASI a number of shares of ASI Common Stock (and an equivalent number of Class B
Warrants) determined by dividing the costs of redemption by $4.75. Any shares of
ASI Common Stock and Class B Warrants remaining in escrow following the two year
period shall be distributed pro-rata to the former PaperClip stockholders.
BRIDGE LOAN
On January 29, 1997, as contemplated by the Letter of Intent, ASI agreed to
loan up to $300,000 to PaperClip to fund PaperClip's operations through the
closing date of the Merger (the "Bridge Loan"). The Bridge Loan is due and
payable on January 27, 1998, bears interest at the rate of 12% per annum payable
quarterly and is secured by a first priority security interest in all of
PaperClip's assets; if the Merger Agreement is terminated by PaperClip because
the Financing Condition is not satisfied, the due date of the Bridge Loan and
amount due under the Management Agreement shall be deferred until the earlier of
May 31, 1998 and the closing of or sale of PaperClip to a third party. As of
September 30, 1997, the outstanding principal balance of the Bridge Loan was
$300,000. PaperClip will have no obligation to repay principal of, or to pay the
interest on, the Bridge Loan if the Merger is consummated.
MANAGEMENT AGREEMENT
Under the terms of the Management Agreement dated April 15, 1997 between
ASI and PaperClip, ASI is responsible for (i) the management of the day-to-day
operations of PaperClip, and (ii) advancing on behalf of PaperClip funds as
provided for by an agreed-upon operating budget, in each case from the date of
the Management Agreement to the date of consummation of the Merger or the
earlier termination of the Merger Agreement. PaperClip will have no obligation
to pay any of the Management Agreement Payment Obligations if the Merger is
consummated.
RESALE RESTRICTIONS; LOCK-UP AGREEMENTS
All ASI Purchase Securities received by the PaperClip stockholders,
optionholders and warrantholders in the Merger will be freely transferable under
the Securities Act except for shares issued to any stockholder, optionholder or
warrantholder who may be deemed to be an "affiliate" of PaperClip for purposes
of Rule 145 under the Securities Act as of the date of the PaperClip Special
Meeting. Affiliates may not sell their shares of ASI Purchase Securities
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares, or in
compliance with Rule 145 promulgated under the Securities Act, or another
applicable exemption from the registration requirements of the Securities Act.
Persons who may be deemed "affiliates" of PaperClip generally include
individuals or entities that control or are controlled by or are under common
control with PaperClip and may include certain officers and directors of
PaperClip as well as principal stockholders of PaperClip.
Furthermore, the Merger Agreement provides that each PaperClip stockholder
will enter into a lock-up agreement (the "Lock-Up Agreement") which will provide
that during a specified period (the "PaperClip Lock-Up Period") the PaperClip
stockholders will not, without the prior written consent of JSC, directly or
indirectly, issue, offer to sell, sell, grant an option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of the ASI Common
Stock and Class B Warrants issued to it pursuant to the Merger.
The duration of the PaperClip Lock-Up Period will be from the closing of
the Merger through April 11, 1998. If a percentage reasonably satisfactory to
PaperClip at the closing of the Merger of the ASI stockholders currently subject
to lock-up agreements agree to enter into new lock-up agreements substantially
identical to the Lock-Up Agreement, the Lock-Up Period will be from the closing
of the Merger through January 15, 1998, after which time shares will be released
from the Lock-up Agreement monthly through October 24, 1998.
PAPERCLIP STOCKHOLDER APPROVAL
Among the conditions to the obligations of the parties is the approval of
the Merger Agreement and the Merger by a holders of a majority of outstanding
shares of the PaperClip Common Stock pursuant to Section 271 of the DGCL (the
"Required PaperClip Stockholder Approval"). See "Special Meeting Information --
Required Votes." Under the terms of the Merger Agreement, PaperClip has agreed
to use its best efforts to solicit sufficient stockholder proxies to obtain the
Required PaperClip Stockholder Approval. Pursuant to the Merger Agreement, those
directors and officers of PaperClip who are also stockholders of PaperClip (the
"Significant Stockholders"), have entered into a Stockholder Agreement pursuant
to which they have agreed to vote, subject to their fiduciary duty, in favor of
the transaction. The Significant Stockholders collectively hold 13.75% of the
PaperClip Common Stock.
CONDITIONS, REPRESENTATIONS AND COVENANTS
The obligations of each party to consummate the Merger are subject to the
following conditions, among others: (i) the correctness of the representations
and warranties made by each other party to the Merger Agreement, (ii) the
performance by each other party of its covenants under the Merger Agreement to
be undertaken prior to the closing, (iii) the Registration Statement shall have
been declared effective and no stop order suspending such effectiveness and no
proceedings for such purpose shall have been instituted, (iv) the approval of
PaperClip's stockholders shall have been obtained, (v) the receipt and
presentation to PaperClip's Board of Directors of a bona fide written
third-party proposal for financing of the Surviving Corporation for at least 12
months following the Merger, and the reasonable satisfaction of the PaperClip
Board that such proposal is attainable; and (vi) the absence of any order,
injunction, writ or decree issued (or commenced or threatened) by a court or
governmental authority prohibiting the consummation of the transactions
contemplated by the Merger Agreement or any indication by any court or
governmental authority of its opposition to such transactions.
To the extent permitted by applicable law, the parties may each waive
compliance with any agreement or condition to their respective obligations to
consummate the Merger.
TERMINATION; AMENDMENTS
The Merger Agreement may be terminated at any time prior to the closing by
mutual written consent of the parties or by either ASI or PaperClip if (i) any
of the above-described conditions to its obligations has not been met, (ii) the
Required PaperClip Stockholder Approval is not obtained at the PaperClip
Stockholder Meeting, (iii) the Merger has not been consummated on or prior to
January 31, 1998, (iv) the Board of Directors of PaperClip approves or
recommends a Takeover Proposal, or (v) a breach of any provision of the Merger
Agreement has been committed by the other party which has a material adverse
effect.
The Merger Agreement may be amended at any time prior to the closing of the
Merger by written agreement of ASI, Newco and PaperClip, except that after
approval of the Merger Agreement by the stockholders of PaperClip, no amendment
may be made that requires further approval by the stockholders of PaperClip
without first obtaining such approval.
TERMINATION FEE
PaperClip will be required to pay ASI a termination fee of $750,000 if (i)
the Merger Agreement is terminated as a result of a Takeover Proposal or (ii)
the Required PaperClip Stockholder Approval is not obtained and a Takeover
Proposal involving PaperClip is made public prior to the PaperClip Stockholder
Meeting.
FINANCING OF THE MERGER
As discussed above, no cash will be payable to the PaperClip Stockholders
in connection with the Merger other than with respect to fractional shares. The
cash payable in lieu of fractional shares is expected to be paid from funds
generated by operations. See "General" above.
ASI estimates that the Merger will involve expenses of approximately
$288,500, consisting primarily of legal and accounting fees and expenses,
printing costs, Nasdaq qualification costs and financial advisor fees and
expenses. Such fees are expected to be paid from funds generated from
operations. See "Access Solutions International, Inc. Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources." In addition, ASI estimates that as a result of the Merger,
PaperClip will incur Merger-related expenses of approximately $293,000. Such
expenses are also expected to be paid from funds generated from operations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the principal federal income tax
consequences to PaperClip and its stockholders of the Merger. The discussion is
based on currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations thereunder, current administrative
rulings and court decisions. All of the foregoing are subject to change
(possibly on a retroactive basis) and any such change could affect the
continuing validity of this discussion. The federal income tax discussions set
forth below may not be applicable to certain classes of taxpayers, including
insurance companies, securities dealers, financial institutions, foreign
persons, and persons who acquired shares of PaperClip Common Stock pursuant to
the exercise of employee stock options or rights or otherwise as compensation,
and persons in special situations, including persons who hold shares of
PaperClip Common Stock as part of a straddle. The following discussion assumes
that holders of PaperClip Common Stock hold such Common Stock as capital assets
(i.e., generally for investment). PaperClip stockholders are urged to consult
their tax advisors as to their respective personal tax situations, including the
applicability and effect of state, local and other tax laws.
THE MERGER.
For each holder of PaperClip Common Stock, the Merger will be a taxable
transaction for federal income tax purposes and probably also will be a taxable
transaction under applicable state, local and other income tax laws. A holder of
PaperClip Common Stock will recognize capital gain or loss equal to the
difference between (x) its tax basis in the PaperClip Common Stock surrendered
and (y) the sum of (i) the cash received, plus (ii) the fair market value of the
ASI Common Stock received and (iii) the fair market value of the ASI Class B
Warrants received. The fair market value of the ASI Common Stock and ASI Class B
Warrants will be determined on the date of the exchange pursuant to the Merger.
Gain or loss must be determined separately for each block of PaperClip Common
Stock (i.e., PaperClip Common Stock acquired at the same cost in a single
transaction) surrendered in connection with the Merger. In the case of an
individual, any such capital gain will be treated as short-term capital loss,
taxable at a maximum rate of 39.6%, if the shares were held for not more than 12
months, mid-term gain, taxable at the maximum rate of 28%, if such shares were
held for more than 12 months, but not more than 18 months, and long-term capital
gain, taxable at the maximum rate of 20%, if such shares were held for more than
18 months. In the case of a corporation, any such capital gain will be treated
as long-term capital gain, taxable at the same rates as ordinary income, if such
shares were held for more than 12 months. Capital loss recognized by a
corporation may only offset capital gain, and capital loss recognized by an
individual may only offset capital gain, plus $3,000 of other income.
Any ASI Common Stock or Class B Warrants received by a holder of PaperClip
Common Stock in exchange for PaperClip Common Stock will have a tax basis equal
to the fair market value of each ASI share and each Class B Warrant received at
the Effective Time of the Merger and will commence a new holding period for that
ASI security.
PAPERCLIP OPTIONS AND WARRANTS.
The exchange by a holder of any PaperClip Warrant and Option of such
PaperClip Warrants and Options likely will be a taxable event with respect to
the holder.
POSSIBLE REORGANIZATION.
It should be noted that, although not expected, if the Internal Revenue
Service were to successfully argue that the Merger constitutes a
"reorganization" within the meaning of Section 368(a) of the Code (e.g., because
it ignores the issuance of the PaperClip Preferred Stock), PaperClip
stockholders would include in income that portion of the gain realized which is
not in excess of the value of the consideration, other than ASI Common Stock,
received in exchange for PaperClip Common Stock, and no PaperClip stockholder
would be entitled to recognize any loss in connection with the transaction.
BACKUP WITHHOLDING.
Payments in respect of PaperClip Common Stock may be subject to
informational reporting to the Internal Revenue Service and to a 31% backup
withholding tax. Backup withholding will not apply, however, to a payment to a
Holder of PaperClip Common Stock or other payee if such shareholder or payee
completes and returns a Form W-9 or otherwise establishes an exemption from
backup withholding.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. STOCKHOLDERS SHOULD NOTE THAT PAPERCLIP HAS NOT OBTAINED, AND
WILL NOT OBTAIN, A RULING FROM THE INTERNAL REVENUE SERVICE OR AN OPINION OF
COUNSEL REGARDING THE MATTERS DESCRIBED HEREIN. EACH STOCKHOLDER IS URGED TO
CONSULT HIS, HER OR ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO THE
STOCKHOLDER OF THE PROPOSED TRANSACTIONS, INCLUDING FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a "purchase"
transaction. Under such method of accounting, the book value of the assets and
liabilities of PaperClip, as reported on its balance sheet, will be increased to
their fair market value on the effective date of the Merger and goodwill will be
recorded to the extent that the purchase price exceeds the fair market value of
the assets acquired and liabilities assumed. The income of PaperClip will be
included in the consolidated income of ASI from the effective date of the Merger
and not for the entire fiscal year.
REGULATORY APPROVALS
Other than compliance with DGCL regarding approval of the Merger Agreement
by the stockholders of PaperClip and federal and state securities laws, there
are no federal or state regulatory requirements which must be complied with or
approvals to be obtained in conjunction with the Merger.
RIGHTS OF DISSENTING STOCKHOLDERS
If the Merger is consummated, a holder of record of PaperClip Common Stock
on the Record Date who continues to hold such shares through the Effective Time
and who strictly complies with the procedures set forth under Section 262 of the
DGCL ("Section 262") will be entitled to have such shares appraised by the
Delaware Court of Chancery under Section 262 and to receive payment of the "fair
value" of such shares. This Proxy Statement-Prospectus is being sent to all
holders of record of PaperClip Common Stock at the Record Date and constitutes
notice of the appraisal rights available to such holders under Section 262. THE
STATUTORY RIGHT OF APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE
WITH THE PROCEDURES SET FORTH IN SECTION 262. FAILURE TO FOLLOW ANY OF SUCH
PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF DISSENTERS' RIGHTS UNDER
SECTION 262. The following is a summary of certain of the provisions of Section
262 and is qualified in its entirety by reference to the full text of Section
262, a copy of which is attached to this Proxy Statement-Prospectus as Exhibit
C.
A stockholder of PaperClip electing to exercise dissenters' rights under
Section 262 must deliver a separate written demand for appraisal of such
stockholder's shares to PaperClip prior to the vote on the approval of the
Merger Agreement, and must not vote for approval of the Merger Agreement. Such
written demand must be in addition to and separate from any proxy or vote
against the Merger and must reasonably inform PaperClip of the identity of the
stockholder of record and of such stockholder's intention to demand appraisal of
his shares. Merely voting against or not voting for the Merger proposal will not
constitute a demand for appraisal within the meaning of Section 262.
Stockholders electing to exercise their appraisal rights under Section 262
must not vote for adoption of the Merger Agreement. Voting for adoption of the
Merger Agreement, or delivering a proxy signed and left blank in connection with
the Special Meeting (unless the proxy is marked to vote against, or is marked to
abstain from voting on, adoption of the Merger Agreement), will constitute a
waiver of a stockholder's right of appraisal and will nullify any written demand
for appraisal submitted by the stockholder.
Only a holder of shares of PaperClip Common Stock on the Record Date is
entitled to seek appraisal. Demand for appraisal must be executed by or for the
holder of record, fully and correctly, as such holder's name appears on the
holder's stock certificates representing shares of PaperClip Common Stock. If
PaperClip Common Stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, the demand should be made in that capacity, and
if PaperClip Common Stock is owned of record by more than one person, as in a
joint tenancy or tenancy in common, the demand should be made by or for all
owners of record. An authorized agent, including one or more joint owners, may
execute the demand for appraisal for a holder of record; however, such agent
must identify the record owner or owners and expressly disclose in such demand
that the agent is acting as agent for the record owner or owners of such shares.
A record holder, such as a broker, who holds shares of PaperClip Common
Stock as a nominee for beneficial owners, may exercise appraisal rights with
respect to the shares held for all or less than all beneficial owners of shares
as to which the holder is the record owner. In such case, the written demand for
appraisal should set forth the number of shares of PaperClip Common Stock
covered by it. Unless a demand for appraisal specifies a number of shares, such
demand will be presumed to cover all shares of PaperClip Common Stock held in
the name of such record owner. BENEFICIAL OWNERS WHO ARE NOT RECORD OWNERS AND
WHO INTEND TO EXERCISE DISSENTERS' RIGHTS SHOULD INSTRUCT THE RECORD OWNER TO
COMPLY WITH THE STATUTORY REQUIREMENTS WITH RESPECT TO THE EXERCISE OF
DISSENTERS' RIGHTS BEFORE THE DATE OF THE SPECIAL MEETING.
Stockholders who elect to exercise appraisal rights should mail or deliver
their written demands to: PaperClip Software, Inc., 3 University Plaza,
Hackensack, NJ 07601, Attention: Michael Suleski. The written demand for
appraisal should specify the stockholder's name and mailing address, the number
of shares of PaperClip Common Stock and PaperClip Preferred Stock owned, and
state that the stockholder is thereby demanding appraisal.
Within ten days after the Effective Time, the Surviving Corporation is
required to send notice of the effectiveness of the Merger to each stockholder
of PaperClip who prior to the Effective Time complied with the requirements of
Section 262.
Within 120 days after the Effective Time, the Surviving Corporation or any
stockholder who has complied with the requirements of Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the
value of the shares of PaperClip Common Stock held by all stockholders seeking
appraisal. A stockholder who files such a petition must also file a copy of the
petition with the Surviving Corporation. The Surviving Corporation is then
required to file within 20 days with the Register in Chancery in which the
petition was filed a duly verified list containing the names and addresses of
all stockholders who have demanded payment for their shares. The Register in
Chancery will use this list to give notice by registered or certified mail of
the time and place of the hearing of the petition, if so ordered by the Court.
If no petition is filed by either the Surviving Corporation or a dissenting
stockholder within such 120 day period, the rights of all dissenting
stockholders to appraisal shall cease. PaperClip stockholders seeking to
exercise dissenters' rights should not assume that the Surviving Company will
file a petition with respect to the appraisal of the fair value of their shares
or that the Surviving Corporation will initiate any negotiations with respect to
the fair value of such shares. At this time, the Surviving Corporation has no
intention to take any action in this regard. Accordingly, PaperClip stockholders
who wish to seek appraisal of their shares should initiate all necessary action
with respect to the perfection of their dissenters' rights within the time
periods and in the manner prescribed in Section 262. FAILURE TO FILE THE
PETITION ON A TIMELY BASIS WILL CAUSE THE RIGHT OF STOCKHOLDERS TO AN APPRAISAL
TO CEASE.
Within 120 days after the Effective Time, any stockholder who has complied
with the foregoing provisions is entitled, upon written request, to receive from
the Surviving Corporation a statement setting forth the aggregate number of
shares of PaperClip Common Stock not voted in favor of adoption of the Merger
Agreement and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. Such written statement must be
mailed within 10 days after the written request therefor has been received by
the Surviving Corporation or within 10 days after expiration of the time for
delivery of demands for appraisal, whichever is later.
If a petition for an appraisal is timely filed by a holder of shares of
PaperClip Common Stock and a copy thereof is served upon PaperClip, PaperClip
will then be obligated within 20 days to file with the Delaware Register in
Chancery a duly verified list containing the names and addresses of all holders
of shares of Common Stock who have demanded an appraisal of their shares and
with whom agreements as to the value of their shares have not been reached.
After notice to such stockholders as required by the Court, the Delaware Court
of Chancery is empowered to conduct a hearing on such petition to determine
those holders of shares of PaperClip Common Stock who have complied with Section
262 and who have become entitled to appraisal rights thereunder. The Delaware
Court of Chancery may require the holders of shares of PaperClip Common Stock
who demanded payment for their shares to submit their stock certificates to the
Register in Chancery for notation thereon of the pendency of the appraisal
proceeding; and if any stockholder fails to comply with such direction, the
Court of Chancery may dismiss the proceedings as to such stockholder.
After determining the holders of shares of PaperClip Common Stock entitled
to appraisal, the Delaware Court of Chancery will determine the fair value of
such shares, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest to be paid,
if any, upon the amount determined to be the fair value. In determining fair
value, the court is to take into account all relevant factors. In WEINBERGER V.
UOP, INC., ET AL, decided February 1, 1983, the Delaware Supreme Court expanded
the considerations that could be considered in determining fair value in an
appraisal proceeding, stating that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "[f]air price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be ascertained as of the date of the merger which throw any light on future
prospects of the merged corporation. Section 262 provides that fair value is to
be "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In WEINBERGER, the Delaware Supreme Court held that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered."
Stockholders considering seeking appraisal should consider that the fair
value of their shares determined under Section 262 could be more, the same, or
less than the market value of the ASI securities to be received pursuant to the
Merger Agreement without the exercise of dissenters' rights. Upon completion of
the appraisal process, the Court would direct the payment of the fair value of
the shares, together with interest, if any, by the Surviving Corporation to the
stockholders who have duly demanded appraisal of their shares under Section 262
and who have not withdrawn the demand for appraisal within 60 days after the
Effective Time. The cost of the appraisal proceeding may be determined by the
Court of Chancery and assessed against the parties as the Court deems equitable
in the circumstances. Upon application of a dissenting stockholder, the Court
may order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding (including without
limitation reasonable attorneys' fees and the fees and expenses of experts) be
charged pro rata against the value of all shares of PaperClip Common Stock
entitled to appraisal. In the absence of such a determination or assessment,
each party bears its own expenses.
Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote for any purpose the
shares of PaperClip Common Stock subject to such demand or to receive payment of
dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.
A PaperClip stockholder may withdraw a demand for appraisal and accept the
terms of the Merger at any time within 60 days after the Effective Time, or
thereafter may withdraw such demand with the written approval of the Surviving
Corporation. In the event an appraisal proceeding is properly instituted, such
proceeding may not be dismissed as to any stockholder without the approval of
the Delaware Court of Chancery, and any and such approval may be conditioned on
terms the Court of Chancery deems just.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
MANAGEMENT. Upon consummation of the Merger, the directors and officers of
Newco immediately prior to the closing of the Merger shall remain the directors
and officers of the Surviving Corporation, to hold office in accordance with the
charter documents and bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
Senior management of ASI will be reorganized with a combination of
personnel from both companies. Robert H. Stone, presently President and Chief
Executive Officer of ASI, will remain in that position. D. Michael Bridges,
presently Director of Sales for PaperClip, will assume the duties of Vice
President of Sales for ASI after the Merger. Michael Suleski, presently a
director and Vice President of Development for PaperClip, will assume the duties
of Vice President of PaperClip Development for ASI after the Merger. Denis
Marchand, Financial Controller for ASI, and Chip Rabinowitz, Acting Director of
Engineering and Development at ASI, will each remain in his current position.
See "Information Concerning Access Solutions International, Inc. -- Management"
for information about the current management of ASI.
For a period of two years following the Merger, ASI shall nominate one
person designated by PaperClip, who initially will be Stephen Kornfeld (who is a
shareholder of, and a consultant to, PaperClip) to ASI's Board of Directors. In
addition, during such two year period, PaperClip will be entitled to designate
one person who will be permitted to attend all meetings of ASI's Board of
Directors as an "advisor" or "observer" who initially will be William Weiss,
Chief Executive Officer and a director of PaperClip; and in the event that Mr.
Kornfeld or any other designee of PaperClip resigns or is removed for cause from
ASI's Board of Directors, Mr. Kornfeld or such other designee will be entitled
to designate an additional "advisor" or "observer".
OPERATIONS. ASI's strategy for the combined operations of ASI and PaperClip
after consummation of the Merger is to provide an enterprise-wide solution for
data storage, retrieval, document management, report distribution and data
mining. This strategy is intended to leverage several key technologies and
products from both ASI's mainframe offerings and PaperClip's software line.
The lead product in this new strategic direction is PaperClip's new
document management product, PaperClip 32. With the expected release of this 32
bit suite of software in the quarter ending December 1997, users will be able to
manage all electronic documents as well as to exchange documents in a "many to
many" trading partner environment. Electronic Document Exchange ("EDX"), an open
standard like Electronic Data Interchange ("EDI"), will provide a means for
companies to exchange legally accepted documents without requiring printing to
paper and re-scanning. Another new feature, "Print to Archive" ("PTA"), will
allow the background filing of documents into the electronic folder during
routine printing, thereby eliminating the need to print, copy and file. PTA also
provides the benefit of storing "compound documents" such as electronic forms,
compound rendering and electronic signatures as legally accepted electronic
images.
Using PaperClip 32 as a "common dashboard" for all document management and
imaging solutions allows other products (developed both internally and
externally) to be integrated into complete end-user solutions. The types of
products that ASI intends to link through PaperClip 32 can be generally broken
into three categories:
1. Data Input Systems: Scanned documents, faxed documents,
computer-generated reports, forms processing, etc.
2. Data Storage Systems: Data Warehousing, Hierarchical Storage Systems
(HSM), RAID, Tape, CD-ROM, DVD, etc.
3. Data Distribution Systems: Data Mining, Customer Reporting, Internet
Browser access, etc.
DATA INPUT SYSTEMS. Because PaperClip 32 was designed for integration from
the beginning, interfaces already exist with products from other companies,
including interfaces with high-end scanners and scanning packages, forms
processing systems and report processing solutions. ASI's integration with these
products for data input needs to be enhanced and strengthened. Only one product,
Cardiff, has been integrated using the PaperClip API. Other products have been
integrated using PaperClip's "Auto-Import" facility, which can be cumbersome and
does not present a "pleasing" interface to the end-user. With the forthcoming
release of PaperClip 32, ASI intends to encourage tighter integration with the
various front-ends by either the front-end product using the PaperClip API, or
by using DLLs provided by the other product for direct use by PaperClip.
Integration of OEM products can strengthen the combined offerings with
lower costs--both in development and support. An example is to replace the
PaperClip scanning module with a third-party scanning product which would
eliminate testing, integration and support of new scanners, saving engineering
and customer support time and money.
PaperClip COLD, PaperClip's product for storing computer-generated reports,
was never designed to be a stand-alone product. The engineering resources
required to redesign PaperClip COLD to support higher-end services would be
high. ASI is evaluating an alternative COLD provider to integrate with
PaperClip.
GIGAPAGE, ASI's mainframe COLD product, must be integrated into the
PaperClip system. With the introduction of the new OAS system (which is based on
a Windows NT platform instead of a proprietary hardware platform), GIGAPAGE data
can be made available to client-server applications such as PaperClip. ASI
believes that the integration of this data with PaperClip products, using the
PaperClip API and/or Auto-Import facilities, is a high-priority project. ASI
will continue to market and sell GIGAPAGE to new prospects and seek to upgrade
its existing customer base. However, GIGAPAGE is no longer the flagship product
in ASI's marketing efforts or in ASI's development focus.
DATA STORAGE SYSTEMS. ASI's patented data storage system, the OAS/3590,
combined hardware data compression with intelligent management of an optical
jukebox. A new OAS/3597 controller with enhancements is being introduced to the
marketplace the fourth quarter of 1997 which will remove some of the limitations
currently controlling speed of access in linking client-server based storage
devices to mainframe systems. Most links between networks and mainframes are
accomplished using an SNA (Systems Network Architecture, an IBM architecture)
connection which is inherently slow.
Based on a Windows NT server, the new OAS/3597 looks like a standard IBM
3490-tape device. Any mainframe application, including Hierarchical Storage
Systems, can see and use this device at speeds approaching 17 megabytes per
second (as a point of reference, read/write speeds of optical drives are less
than 300 kilobytes per second). Once the data has been sent to the OAS/3597,
client-server or network applications can have direct access through a standard
network connection, effectively removing the bottleneck of SNA.
Finally, ASI intends to combine NOSS and the OAS/3597 into a single storage
solution. Grafting the enhanced NOSS API to the OAS/3597 platform is expected to
allow a wide range of physical storage systems, upgradability to future storage
devices, and connections to the enterprise storage market.
DATA DISTRIBUTION SYSTEMS. To date, neither ASI nor PaperClip has focused
much attention on data distribution systems. However, data distribution is a
central component of the document management process. ASI's input systems can
process huge amounts of data, and then can store it for easy retrieval by
PaperClip. The WorkFlow product can "zip" documents through cumbersome
procedures to ease bottlenecks in a company's paper-handling process. ASI plans
to further enhance this product to automatically generate customized reports
based upon this huge volume of data, send these reports to the appropriate
people, and allow users access to the more detailed information.
ASI is actively seeking partners to integrate the above-described solution
into ASI's product line. Document management and storage is in great demand by
many companies. Direct access and manipulation of those documents and the
associated data is of tremendous benefit to almost every company.
PaperClip has a partially developed product to allow Internet access to
PaperClip data. This product, known as WebServer, allows users with an Internet
browser to access PaperClip bins and folders. Allowing authorized users to
access this data through the public Internet or through corporate intranets is
important to the ultimate success of the ASI solution because it provides a
powerful document management and retrieval solution for widely dispersed work
groups.
There can be no assurances that any of the foregoing strategy will be
successful, that ASI will have the financial or other resources available to
develop any of these products or that, if developed, any of these products will
be commercially successful.
Significant aspects of the operations of ASI and PaperClip will be combined
to achieve greater marketing impact and lower operating costs. Administration,
human resources, finance/accounting, sales and marketing will be combined in one
facility in PaperClip's present offices in Hackensack, New Jersey. PaperClip
document management and imaging research and development, support services and
quality assurance testing will remain in New Jersey. Mainframe research and
development, quality assurance testing, support services, integration services
and production will be located in ASI's North Kingstown, Rhode Island facility.
<PAGE>
INFORMATION CONCERNING ACCESS
SOLUTIONS INTERNATIONAL, INC.
General
ASI, which was incorporated in Delaware in 1986 under the name Aquidneck
Systems International, Inc., designs, develops, assembles and markets mainframe
information storage and retrieval systems, including both hardware and software,
for large companies. In June 1996, ASI changed its name to Access Solutions
International, Inc.
ASI Bridge Financing. On May 28, 1996, ASI consummated a bridge financing
(the "1996 Bridge Financing") pursuant to which it issued an aggregate of: (i)
$1,500,000 in principal amount of promissory notes (the "1996 Bridge Notes")
which bore interest at the rate of 10% per annum and were due and payable upon
the earlier of: (a) the closing of the sale of securities or other financing of
ASI from which ASI or its subsidiary receives gross proceeds of at least
$2,500,000 or (b) May 28, 1997, and (ii) 750,000 warrants (the "1996 Bridge
Warrants"), each 1996 Bridge Warrant entitling the holder to purchase one share
of ASI Common Stock at an initial exercise price of $1.50 per share (subject to
adjustment upon the occurrence of certain events) during the three-year period
commencing May 28, 1997. Original issue discount in the amount of $150,000
associated with the 1996 Bridge Financing was amortized to interest expense over
the term of the bridge debt. The net proceeds of approximately $1,390,000 from
the 1996 Bridge Financing were used for: (i) repayment of indebtedness in the
principal amount of $85,000 to a director and principal stockholder; (ii)
research and development expenses in the approximate amount of $336,000; (iii)
selling expenses in the approximate amount of $126,000; (iv) sales commissions
in the approximate amount of $65,000; (v) customer support expenses in the
amount of $191,000; and (vi) general working capital purposes. Upon the
consummation of ASI's IPO, each 1996 Bridge Warrant automatically, without any
action by the holder thereof, converted into a Redeemable Warrant (the "New
Warrant") having terms identical to those of the Redeemable Warrants underlying
the Units. The New Warrants and the underlying shares of ASI Common Stock
issuable upon exercise of the New Warrants were registered under the Securities
Act. ASI used a portion of the proceeds of the IPO to repay the entire principal
amount of, and accrued interest on, the 1996 Bridge Notes, including $250,000
plus accrued interest to Malcolm G. Chace, a director and principal stockholder.
Recapitalization. In January 1996, ASI effected the Recapitalization of its
capital without a formal reorganization. As part of the Recapitalization, the
Board of Directors approved the reverse stock split, negotiated a conversion
(the "Conversion") of debt in the amount of $2,635,415 plus unpaid interest in
the amount of $62,129 plus warrants to purchase 4,240 shares of common stock
into 1,041,012 shares of ASI Common Stock and retained Hector D. Wiltshire as
its President and Chief Executive Officer on an interim basis. Following the
Recapitalization, approximately 2.2% of the issued and outstanding ASI Common
Stock was held by holders of ASI Common Stock prior to the Recapitalization and
approximately 69% of the issued and outstanding ASI Common Stock was held by the
holders of debt who participated in the Conversion. Additionally, in January
1996, ASI issued 416,500 shares of ASI Common Stock to Mr. Wiltshire in
consideration for (i) his agreement to serve as ASI's interim President and
Chief Executive Officer; (ii) his agreement to relinquish warrants he had
acquired in connection with the $500,000 bridge financing he provided to ASI in
September 1995; and (iii) his agreement to loan ASI $250,000 on a short-term
basis. See Note 2 to ASI's Financial Statements.
IPO. In October 1996, ASI completed the IPO pursuant to which it issued
1,226,667 Units, each Unit consisting of two shares of ASI Common Stock and one
Redeemable Warrant, in an underwritten public offering through JSC. See "Access
Solutions International, Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Following the IPO, approximately 41% of the issued and outstanding ASI Common
Stock was held by holders of ASI Common Stock prior to the IPO and approximately
59% of the issued and outstanding ASI Common Stock was held by stockholders who
participated in the IPO.
Business
ASI designs, develops, assembles and markets mainframe information storage
and retrieval systems, including both hardware and software, for large
companies. ASI believes that its proprietary COLD data storage systems provide a
faster, more reliable and more economical method of storing vast quantities of
computer-generated data than is generally available from other COLD systems or
from traditional data storage methods. ASI's COLD and optical data storage
systems, which are marketed under the brand names OAS and GIGAPAGE, are
presently sold principally to large organizations that have the need to store
and retrieve large quantities of computer-generated data.
Industry Overview. Business organizations need to archive data for a number
of reasons, including compliance with governmental regulations, retention of
historical records and maintenance of strategically valuable historical business
information. The widespread use of computers has resulted in exponential growth
in the amount of data that must be economically archived and stored while
remaining readily accessible for retrieval. In the past, organizations have
attempted to solve this problem by using one or more of four traditionally
available data storage and retrieval alternatives: magnetic disk, paper,
magnetic tape, and computer output microfiche or microfilm ("COM").
Each of these traditional storage methods has inherent disadvantages as an
archival storage medium. Magnetic disk is currently expensive and subject to
data loss upon failure. Paper is a manually cumbersome, bulky and expensive
means of long-term storage. Magnetic tape provides response times as long as 15
minutes when storing or retrieving data even when mounting is automated using
robotics. COM is cumbersome to access and time-consuming to generate. The
storage alternatives of paper, magnetic tape, and COM have nonetheless been used
for archiving because of the high cost of magnetic disk or DASD, traditionally
the most popular storage method.
ASI's Solution: Products and Services. ASI's COLD systems permit both the
storage of archival data in a less expensive manner than with DASD, paper or
COM, and quicker retrieval of such data than is possible with magnetic tape,
paper or COM. When combined with ASI's software, the result is an integrated
hardware and software solution which economically addresses archival storage and
on-line retrieval of large quantities of computer-generated data. ASI believes
its solution also achieves several technological and competitive advantages
which are not available in other COLD systems. As compared to other COLD
systems, ASI's patented directory structure and hardware data compression
capability enables more data to be stored on, and retrieved quickly from, an
optical disk, thereby maximizing the performance of the user's system while
reducing the cost of storage. ASI's integrated COLD systems enable an end user
to retrieve and view documents or reports based on a report index, which speeds
access to data. The GIGAPAGE software is designed specifically to optimize
access to robotic disk storage systems, unlike that of most competing systems.
It employs sophisticated caching to make speed of access to the data comparable
to that of magnetic disk, but at a much lower cost of storage. ASI has also
developed a system-level "driver" for optical disk robotics called ODSM.
Products. ASI's (COLD) systems are high-density hardware and software data
storage systems that are designed to store, index and retrieve formatted
computer output. COLD systems consist of an OAS controller, a storage subsystem
and GIGAPAGE application software.
Hardware Products. The hardware portion of ASI's solution, the OAS, is a
high capacity, mainframe channel-attached hybrid magnetic/optical disk storage
system, composed of the OAS controller and an optical disk robotic
"autochanger." The OAS can control various types and models of robotic
autochanger systems, which are manufactured by a number of vendors, commanding
such robots to mount and dismount disks automatically as needed in response to
requests from the host software. These autochangers, which ASI purchases from
independent third party suppliers, are installed by ASI as a part of the
integrated system at the customer site. Autochangers of varying capacities are
available to meet the needs of the marketplace, for storage requirements from
166 million pages to multiple tens of billions of pages. A brief description of
the hardware components of the OAS follows.
Optical Disk Autochangers. The entry-level optical disk autochanger
supplied by ASI supports customers with relatively modest storage volumes. When
used in conjunction with ASI's data compression technology, the capacity of this
autochanger is significantly enlarged. With compression, this entry-level
autochanger normally has the capacity to store over 166 million typical report
pages.
Because the optical drives housed within ASI's most commonly installed
autochangers are American National Standards Institute ("ANSI")-standard 5-1/4
inch multifunction drives, the optical disk platters used within the autochanger
may be a mixture of rewritable and write-once-read-many ("WORM") types. The
rewritable disks are used to store those reports that do not have to be retained
for long time periods. The disks are then re-used when the useful life of the
reports has elapsed. WORM disks preclude modification of data, as required for
data such as securities industry reports subject to the record retention rules
of the Securities and Exchange Commission.
Customer need for greater capacity is addressed by a field-upgradeable
family of optical disk autochangers. Middle range requirements are accommodated
by a system which can store from 590 million to over 1 billion report pages in a
compact (3 foot by 3 foot) floor area, while large capacity needs are served by
ASI's largest system, which stores from 860 million to more than 2.5 billion
pages. Multiple systems may be combined for even greater capacity. ASI also
provides 12 and 14 inch format WORM solutions.
The OAS Control Unit. The control unit of the OAS system is directly
attached to the mainframe via a conventional IBM-compatible interface to an
input-output ("I/0") channel of the IBM-compatible mainframe. The control unit's
dedicated I/0 hardware passes data back and forth over the channel between the
mainframe and the optical disk autochanger at up to 17 megabytes per second. The
control unit is an intelligent storage management subsystem, with self-contained
software to track and file associated media locations within the storage
sub-systems and automate the movement of media into optical disk drives within
the robotic autochanger, when applicable.
The OAS Control Unit contains a cache buffer (a large bank of RAM used for
temporary storage when transferring data from one device to another) to permit
data to be exchanged rapidly between the mainframe and the optical disk drives.
In addition, the control unit performs data compression using a patented
hardware-based implementation of the Lempel-Ziv compression algorithm. When this
hardware-based compression is combined with GIGAPAGE's host-based software data
compression, compound compression ratios of 7.5:1 and higher are achieved.
Software Products. ASI has developed an application software product for
IBM mainframe systems, GIGAPAGE, which can be installed in conjunction with the
OAS and is an end-user application for report storage and retrieval. GIGAPAGE
stores and retrieves computer-generated reports (such as customer statements) on
various combinations of storage technologies. This enables organizations to
eliminate their existing COM systems and reduce staff used for manual retrieval
of microfilm, microfiche and paper reports. GIGAPAGE also provides its users
with the ability to access report data efficiently, by displaying a retrieved
document based upon criteria established by the user. ASI believes that this
creates competitive advantages for end users who must quickly respond to
customer inquiries. GIGAPAGE changes report access from a slow, cumbersome,
manually-intensive process to a fast, near-line computer-based process.
New Product Development. ASI has improved its current OAS product (see "OAS
Control Unit" above) so that the control unit will now allow the management and
storage of mainframe data on other storage devices, such as RAID arrays, tape
and CD-ROM autochangers, as well as ASI's current optical disk autochangers. New
developments in autochanger technology as well as speed improvements in both
CD-ROM and tape subsystems have made these systems attractive storage mediums in
today's market. RAID arrays provide high-speed, fault-tolerant access to large
amounts of data. ASI's use of RAID technology combined with data compression and
intelligent caching provides customers with high throughput at attractive
prices. New products based on these developments are expected to be available
for distribution and sale in the third quarter of Fiscal 1998. There can be no
assurance that these new products will achieve market acceptance.
Customer Support and Service. In addition to being a source of revenue
generation, ASI believes that its approach to customer service and support has
been and will continue to be a significant factor in the market acceptance of
its products. Because most of ASI's products are used in complex, large-scale
mainframe data centers, the successful implementation and utilization of ASI's
products substantially depends on ASI providing a high level of customer
service, training and support. Consequently, ASI typically allocates substantial
resources to customer installations, particularly in the first few weeks before
and the first several weeks after a new installation. These resources include
field support personnel who assess the systems operating environment of the
customer prior to installation, install and test the hardware, support the
hardware and coordinate the efforts of third-party service providers that
service ASI's installed base of systems; systems engineering personnel who
install and configure the software components of ASI's systems, assist the
customer in assuring that the other elements of the customer's data center
properly interface with ASI's system, assist the customer in defining reports to
be stored on ASI's system and in supporting ASI's software; training personnel
who train the customer's data center managers and users on the operation and use
of ASI's system; a 24-hour help desk to field all customer support and service
inquiries; and third-party service organizations with whom ASI contracts to
provide on-site customer response for hardware-related issues.
In the years ended June 30, 1996 and 1997, service revenue generated from
the post-sale maintenance of COLD systems accounted for approximately 32% and
54%, respectively, of ASI's total revenues. Substantially all of ASI's customers
have elected to extend their service contracts with ASI beyond the one-year
period that is customarily afforded to customers at the time of installation of
new products.
As of October 31, 1997, the customer service and support group consisted of
four employees, one of whom is in-house and the remainder are in the field.
These personnel provide support for the engineers maintaining customer equipment
in the field and provide ASI with an opportunity to recommend future system
sales to such customers.
Marketing. The market for COLD systems is segmented into the mainframe, PC
(stand-alone or LAN-based), client/server and CD-ROM markets. Within each market
segment, product offerings may be divided into two categories: (i) COLD software
packages and (ii) COLD turnkey systems. COLD turnkey systems are generally
comprised of COLD software bundled with a controller and an optical disk system.
Generally, the highest priced COLD systems are those that are mainframe or
client/server based. Additionally, the market for COLD systems includes a
revenue component derived from the service and support of COLD systems products.
ASI advertises and markets its products and services through direct
mailings, participation and exhibition of products at industry trade shows,
personal solicitations at businesses which have been identified as likely
resellers of ASI's products and industry referrals. In September 1997 ASI
launched a direct marketing and advertising campaign into selected vertical
markets.
In June 1997 ASI began to pursue strategic marketing relationships with
other vendors of both mainframe and client/server software. This strategy shift
is designed to enable ASI to increase sales by leveraging the customer base of
other suppliers whose product offerings complement that of ASI. It is also
anticipated that the new strategy will enable ASI to increase sales through
marketing of products from these strategic partners to ASI's customers and
prospects.
Customers. Sales to Prudential Securities, Inc. accounted for 10% of ASI's
total net sales in the year ended June 30, 1997. Sales to Nationwide Mutual
Insurance Company, Bank of Boston Corporation Technology Services and Bell
Sygma, Inc. accounted for 35%, 22% and 11%, respectively, of ASI's total net
sales in the year ended June 30, 1996.
Competition. The computer data storage and retrieval industry is highly
competitive and ASI expects this level of competition to intensify. There are
certain competitors of ASI that have substantially greater financial, marketing,
development, technological and production resources than ASI. ASI's primary
competitors are IBM Corporation, FileTek Corporation, Eastman Kodak Company,
Data/Ware Corporation, Anacomp, Inc., Mobius Management Systems, Inc., Computer
Associates International, Inc., RSD America, Inc. and Network Imaging Systems
Corp. ASI believes that participants in the data storage and retrieval market
compete on the basis of a number of factors including vendor and product
reputation, system features, product quality, performance and price, and quality
of customer support services and training. ASI positions itself to compete
effectively with its competitors by offering what it believes is superior
customer service and technical support in connection with hardware and software
products which provide certain technological and user application advantages.
Principal Suppliers. ASI's principal suppliers for the production and
maintenance of its COLD systems are IBM Corporation, Hewlett Packard and DISC,
Incorporated.
Research and Development. ASI's total expenditures for research and
development for Fiscal 1997 and Fiscal 1996 were $1,651,322 and $1,713,094,
respectively. Due to the completion of all customer commitments to the GIGAPAGE
product by the end of the second quarter of Fiscal 1998, it is anticipated that
development costs for Fiscal 1998 will be substantially reduced from prior
levels.
Intellectual Property. Although ASI believes that its continued success
will depend primarily on its continuing product innovation, sales, marketing and
technical expertise, product support and customer relations, ASI believes it
also needs to protect the proprietary technology contained in its products. ASI
holds three United States patents on its directory structure and its
implementation of hardware data compression. ASI relies primarily on a
combination of patent, copyright, trademark, trade secret laws and contractual
provisions to establish and protect proprietary rights in its products. ASI
typically enters into confidentiality and/or license agreements with its
employees, strategic partners, customers and suppliers and limits access to and
distribution of its proprietary information. Despite these precautions, it may
be possible for unauthorized third parties to copy certain portions of ASI's
products, reverse engineer or otherwise obtain and use information ASI regards
as proprietary. ASI recently instituted a lawsuit against Data/Ware Development,
Inc. and Eastman Kodak Inc. alleging infringement of one or more of ASI's
patents. See "Legal Proceedings" below.
ASI is subject to the risk of litigation alleging infringement of
third-party intellectual property rights. There can be no assurance that third
parties will not assert infringement claims against ASI in the future with
respect to current or future products. Any such assertion, if found to be true
and legally enforceable, could require ASI to pay damages and could require ASI
to develop non-infringing technology or acquire licenses of technology that is
the subject of the asserted infringement, resulting in product delays, increased
costs, or both.
Assembly. Assembly of ASI's OAS is done at ASI's facility in North
Kingstown, Rhode Island. ASI designs and assembles portions of its COLD systems
which are then integrated at ASI's plant with optical disk autochanger systems
manufactured by a variety of third parties. Production of the OAS entails
testing, assembling and integrating standard and ASI-designed components and
subassemblies built by and purchased from independent suppliers. As of October
31, 1997, ASI had two part-time assembly personnel. ASI configures and tests
ASI-built and third-party-supplied hardware and software in combinations to meet
a wide variety of customer requirements.
Although ASI generally uses standard parts and components for its products,
certain components, such as CPU boards, ESCON hardware and high-density
integrated circuits, are presently available only from single or limited
sources. ASI has no supply commitments with its vendors and generally purchases
components on a purchase order basis, as opposed to entering into long-term
procurement agreements with vendors. ASI has generally been able to obtain
adequate supplies of components in a timely manner from current vendors or, when
necessary to meet production needs, from alternate vendors. ASI believes that
alternative sources of supply would not be difficult to develop over a short
period of time but that an interruption in supply or a significant increase in
the price of these components could adversely affect ASI's operating results and
business.
Employees. At October 31, 1997, ASI had 15 employees.
Legal Proceedings. On August 29, 1997, ASI filed a complaint in the United
States District Court for the District of Rhode Island against Data/Ware
Development, Inc. ("Data/Ware") and Eastman Kodak Company, Inc. ("Kodak")
alleging infringement of ASI's patents. The claim states that Data/Ware and
Kodak collectively manufacture, use and/or sell equipment for recording data on
optical media and alleges that the manufacture and sale of such equipment, and
use by purchasers thereof, infringes one or more of ASI's patents. The claim
calls for an order enjoining the defendants from further infringement of ASI's
patents, damages and interest for infringement and reasonable attorney's fees
and such other relief that the court deems proper.
Facilities
ASI's corporate headquarters are located in North Kingstown, Rhode Island,
in a leased facility consisting of approximately 10,300 square feet of space
occupied under a lease expiring in December 1997.
Management
Directors and Executive Officers. The current ASI directors and executive
officers are as follows:
Name and Age Position
- ------------ --------
Malcolm G. Chace, 62 (1)(2)............. Director
Robert H. Stone, 47 (1)................. President, Chief Executive Officer,
Director
Thomas E. Gardner, 59 (1)(2)............ Chief Financial Officer, Treasurer,
Director
Marvyn Carton, 79 (1)................... Director
Howard W. Yenke, 60 .................... Director, Chairman
Adrian Hancock, 50...................... Director
Denis L. Marchand, 44................... Financial Controller
- ----------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
All directors hold office until the annual meeting of stockholders next
following their election and/or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Information with respect to the business experience
and affiliations of the ASI directors and the executive officers is set forth
below.
Mr. Chace was Chairman of the Board of ASI from December 1994 until June
1997 and has been a director since October 1991. Mr. Chace has been a Vice
President and director of Point Gammon Corporation, a Chace family investment
company, since 1986. Mr. Chace is also Chairman of Mossberg Industries, Inc.
("Mossberg"), a manufacturer of plastic reels principally used by the wire
industry, Chairman of Bank Rhode Island, and a director of Berkshire Hathaway
Company. He previously served as a director of Rhode Island Hospital Trust
National Bank.
Mr. Stone was elected President and Chief Executive Officer of ASI on
August 1, 1996. Prior to joining ASI, Mr. Stone was Director of Marketing of
Standard Duplicating Machines Corporation since June 1994 and prior to that
President of Marketplex, Inc., a marketing services company, since 1992. From
June 1989 to February 1992, Mr. Stone was Director of Product Marketing of Riso,
Inc., a developer and distributor of high speed printing systems.
Mr. Gardner has served as Chief Financial Officer of ASI since April 1996,
Treasurer since May 1994 and has been a director since May 1994. Mr. Gardner
does not serve full time and receives no compensation as ASI's Chief Financial
Officer or Treasurer. Mr. Gardner has also served as the President of LJT
Associates (a planning and financial consulting firm) since April 1992. From
1979 to October 1992, Mr. Gardner was Senior Vice President at Rhode Island
Hospital Trust National Bank. Mr. Gardner has served on various Rhode Island and
Providence commissions and committees and currently serves as the Rhode Island
Governor's appointee to the Depositors' Economic Protection Corporation
Performance Review Committee. Mr. Gardner, through LJT Associates, is presently
providing consulting services to Point Gammon Corporation.
Mr. Carton has been a director of ASI since 1994. Mr. Carton is a Director
Emeritus of Allen & Company, Incorporated, an investment banking and financial
services company. Mr. Carton began his employment at Allen & Company,
Incorporated in September 1948 and held various positions at Allen & Company,
Incorporated until his retirement in 1991 from the office of Executive Vice
President. Mr. Carton has been a Director of Acquisition Resources Ltd., an oil
and gas company, since 1993, the Chairman of Brown University Third Century Fund
from 1981 to 1987 and Co-Chairman since then. Mr. Carton has also served in the
past as a member of the boards of directors of Syntex Corporation (a
pharmaceuticals company), Frank B. Hall (an insurance and financial services
firm), and American Axle & Manufacturing Co., among others.
Mr. Yenke has been a director of ASI since May 1997 and Chairman of the
Board since June 1997. Mr. Yenke also serves as a consultant to ASI. See
"Consulting Arrangement" below. Mr. Yenke has been President, Chief Executive
Officer and a director of LANart Corp., a producer of local area network
connectivity products, since June 1996. From November 1995 to May 1996, Mr.
Yenke was President of the Yenke Group, a consulting firm. He was President,
Chief Executive Officer and a director of Enterprise Development Cooperation,
Inc. and Technology Development Holdings Company, Inc., two affiliated venture
capital companies targeted to emerging growth technology, from November 1994 to
October 1995. From 1989 to 1994, he was President, Chief Executive Officer and a
director of Boca Research, Inc., a developer and producer of PC enhancement
products. He is also a director of Checkmate Electronics, Inc., a manufacturer
of point of sale products, Communications Systems International, a producer of
digital global positioning products for certain industries, and Rexall Sundown,
Inc., a producer of consumer health products.
Mr. Hancock has been a director of ASI since May 1997. Mr. Hancock has been
a member of the Planning Technologies Group, a consulting firm, since 1995. He
was also Director of International Operations of the Timberland Company, a
footwear and apparel manufacturer, from 1993 to 1995. From 1992 to 1993 Mr.
Hancock was a management consultant.
Mr. Marchand has served as Financial Controller since September 1994. From
July 1993 to September 1994 he was a Firm Administrator for Rubin, Hay & Gould,
P.C., a law firm located in Framingham, MA. From October 1990 through May 1993
he was the financial controller of the U.S. subsidiary of EWAG Corporation, a
high precision grinding machine manufacturer. Mr. Marchand holds an M.B.A.
degree from Bryant College, is a certified internal auditor and has successfully
passed the Uniform Certified Public Accountant's examination.
Board Committees. The Board of Directors has a Compensation Committee and
an Audit Committee. The Compensation Committee is responsible for reviewing,
approving and recommending to the Board of Directors all compensation
arrangements for executive officers of ASI and for administering the ASI 1996
Stock Option Plan. The Audit Committee is responsible for recommending to the
Board of Directors the annual engagement of the independent auditors and for
reviewing with the independent auditors the scope and results of audits, ASI's
internal accounting controls, audit practices and professional services
furnished by the independent auditors.
Director Compensation. ASI's directors do not receive cash compensation for
service on the Board of Directors, although they are reimbursed for certain
out-of-pocket expenses in connection with attendance at Board and committee
meetings. In October 1997, the ASI Board adopted, subject to stockholder
approval, the ASI 1997 Non-Employee Director Stock Option Plan (the "Directors
Plan") pursuant to which each director, other than Mr. Stone, has been granted
an option to purchase 25,000 shares of ASI Common Stock. Any non-employee
director elected in the future will automatically be granted an option to
purchase 25,000 shares of ASI Common Stock 60 days after the date of his or her
election. In addition, each non-employee director will automatically be granted
an option to purchase 5,000 shares of ASI Common Stock on the date of each
annual meeting of stockholders. Each option has an exercise price equal to the
fair market value of the ASI Common Stock on the date of grant. The initial
grants under the Directors Plan, and each grant to a director when he or she is
first elected to the Board in the future, vest in five equal annual installments
commencing on the grant date, except that the first installment of the initial
grants will not vest until the Directors Plan is approved at the next annual
meeting of ASI's stockholders. The annual grants will be fully vested. In the
event of a "change of control" (as defined in the Directors Plan), all options
will fully vest automatically.
Executive Compensation. Summary Compensation Table. The following table
sets forth certain information with respect to the compensation paid by ASI for
services rendered during the fiscal year ended June 30, 1997 to the chief
executive officer and the other executive officers of ASI whose compensation
exceeded $100,000 (the "Named Executive Officers").
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Fiscal Year Salary Bonus Securities
Name and Underlying All Other
Principal Position Options Compensations
<S> <C> <C> <C> <C> <C>
Robert H. Stone, President
and Chief Executive Officer 1997 $125,241 -- 50,000 --
1996 -- -- -- --
Hector Wiltshire,
President and Chief 1997 -- -- -- --
Executive Officer(1)....... 1996 -- -- -- $744,000(2)
</TABLE>
- -----------------------
(1) Mr. Wiltshire was interim President and Chief Executive Officer from
January 1996 to July 1996.
(2) Includes a non-cash charge of $424,830 representing the fair value of
Common Stock issued to Mr. Wiltshire in exchange for his service as
President, relinquishment of warrants from a prior bridge loan and
consideration for a $250,000 short term loan. See "Certain
Transactions-Transactions with Mr. Wiltshire." The shares would carry an
aggregate value of $1,561,875 if priced at the initial offering price of
$3.75 per share (assuming no allocation of the offering price to the
Redeemable Warrants included in the Units).
Option Grants in Last Fiscal Year. The following table sets forth certain
information with respect to option grants during the fiscal year ended June 30,
1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or Expiration
Options Granted Employees in Base Price Date
Name Fiscal Year ($/sh)
- -----
<S> <C> <C> <C> <C>
Robert H. Stone................. 40,000 17% $3.75 8/1/01
10,000(1) 4% $3.75 8/1/01
Hector Wiltshire................ -- -- -- --
</TABLE>
- ------------------------------
(1) These options expired June 30, 1997. See "Employment Agreement" below.
Year-end Option Table. During the fiscal period ended June 30, 1997, none
of the Named Executive Officers exercised any options issued by ASI. The
following table sets forth information regarding the stock options held as of
July 1, 1997 by the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money-Options
Options at Fiscal Year-End at Fiscal Year End
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Robert H. Stone................. 20,000 20,000 $0 $0
Hector Wiltshire................ -- -- -- --
</TABLE>
Stock Option Plans. In August 1996, ASI terminated the 1994 Directors Stock
Option Plan (the "1994 Directors Plan"), which was a stock option plan for
non-employee directors. There are options outstanding to purchase 1,014 shares
pursuant to the 1994 Directors Plan at an exercise price of $222 per share.
Under the 1994 Directors Plan, upon a director's election to the Board, the
director was automatically awarded an option to purchase 338 shares of ASI
Common Stock, at an exercise price equal to 100% of the fair market value on the
date the option was granted. The option then vested 25% on each of the first
through fourth anniversaries of the date of the grant.
In August 1996, ASI terminated its 1987 Stock Option and Purchase Plan and
1994 Stock Option Plan (the "Terminated Plans") and adopted the 1996 Plan
pursuant to which key employees of ASI, including directors who are employees,
are eligible to receive grants of options to purchase ASI Common Stock for
issuance under the 1996 Plan. Options granted under the 1996 Plan can be either
incentive stock options or non-qualified options, at the discretion of the
Compensation Committee. On August 1, 1996, ASI canceled the 8,351 options
outstanding under the Terminated Plans (having exercise prices ranging from $74
to $240.50 per share) and granted options to purchase 248,351 (of which 8,351
are immediately exercisable) shares of ASI Common Stock at an exercise price
equal to $3.75 per share.
Non-Plan Options. From time to time, ASI has issued options to purchase
shares of ASI Common Stock to certain consultants and in connection with certain
equity and debt financing provided to ASI. As of September 30, 1997, ASI had
non-plan options to purchase 891 shares of ASI Common Stock outstanding; of such
amount, options to purchase 236 shares, 52 shares, 18 shares and 203 shares were
held by Mr. Christopher Ingraham (a former director of ASI), Mr. Matthias Lukens
( a former officer of ASI), Mr. Chace and Mossberg, respectively. Mr. Chace is
the Chairman of Mossberg. The non-plan options are all 100% vested and the
exercise price of the options range from $74 to 399.60 per share. Mr. Ingraham
received his options as compensation for services rendered to ASI as a
consultant, each of Messrs. Chace and Lukens received his options as
compensation for serving as a director, and Mossberg received its options in
connection with certain debt financing it provided to ASI.
Employment Agreement. ASI entered into a two-year employment agreement with
Mr. Stone pursuant to which he is employed full-time as President and Chief
Executive Officer effective August 5, 1996. Pursuant to the terms of the
employment agreement, Mr. Stone receives an annual base salary of $137,500, and
is entitled to bonus compensation (payable within 10 days following the receipt
of ASI's audited financial statements for the fiscal year ended June 30, 1997)
calculated as follows: (1) if ASI has a pre-tax profit for fiscal 1997 of
$500,000 or less, 5% of such pre-tax profit; and (ii) if ASI has a pre-tax
profit for fiscal 1997 or more than $500,000, 10% of such pre-tax profit. The
bonus was paid by the grant in August 1996 to Mr. Stone of an incentive stock
option to purchase 10,000 shares of ASI Common Stock at an exercise price of
$3.75 per share, vesting only if the pre-tax profits for fiscal 1997 exceed
$500,000 and the balance (calculated by subtracting from the total bonus the
amount determined by multiplying any difference between (i) the market price per
share of the ASI Common Stock on June 30, 1997 and (ii) $3.75, by 10,000) in
cash. The options expire immediately if the above conditions are not met. Since
there was no pre-tax profit in Fiscal 1997, no bonus was payable and the options
expired on June 30, 1997. Bonuses for any subsequent fiscal years during which
Mr. Stone is employed will be determined by the Board of Directors. Mr. Stone
also was granted 40,000 incentive stock options under the 1996 Plan, with an
exercise price equal to $3.75, vesting 50% at July 31, 1997 and the remainder at
July 31, 1998, so long as he continues to be employed by ASI. Additionally, Mr.
Stone is entitled to participate in any incentive compensation, bonus and stock
option plan established by ASI for the benefit of executive level employees of
ASI to the extent prescribed by the Board of Directors. Pursuant to the terms of
the employment agreement, if Mr. Stone's employment is terminated by the Board
of Directors other than for "cause," he is entitled to receive severance
payments equal to the greater of six months salary or the balance of his then
current salary through June 30, 1997 (or, if such termination occurs after June
30, 1997, through the last day of ASI's fiscal year in which such termination
occurs). The employment agreement expires on July 31, 1998, subject to
successive automatic one-year renewals unless terminated by ASI at least 90 days
prior to the expiration of the term. Mr. Stone is restricted from competing with
ASI and prohibited from disclosing any confidential information regarding ASI
during and following his period of employment.
Consulting Arrangement. Mr. Yenke, Chairman of the Board, has served as a
consultant to ASI since June 26, 1997. For such services he receives $2,000 per
month.
<PAGE>
INFORMATION CONCERNING PAPERCLIP
SOFTWARE, INC.
General
PaperClip, a Delaware corporation, is the successor by merger in March 1992
to a New Jersey corporation with the same name organized in October 1991.
PaperClip develops and distributes document management and imaging software
product for personal computers and personal computer networks.
Since April 15, 1997, ASI has been responsible for (i) the management of
the day-to-day operations of PaperClip, subject to the oversight, review,
supervision and control of PaperClip's Board of Directors, and (ii) advancing,
on behalf of PaperClip, funds provided for by an agreed-up operating budge
pursuant to the terms of the Management Agreement. See "The Merger-Management
Agreement."
PaperClip's executive offices are located at Three University Plaza,
Hackensack, New Jersey and its telephone number is (201) 487-3503.
As of September 1, 1997, there were 919 holders of record of the PaperClip
Common Stock.
Business
About PaperClip. PaperClip'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 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 1996, PaperClip 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.
PaperClip also completed two upgrades to its Windows Network Edition and is
currently marketing Version 4.2 of the Windows Network Edition. PaperClip
enhanced its SQL (Enterprise Edition) by completing its certification with
Microsoft and Oracle SQL Database Servers. PaperClip 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.
PaperClip is currently engaged in the Beta (initial) testing of PaperClip
32, a Windows 95/NT version of the PaperClip Windows Network Edition, which
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, PaperClip
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.
PaperClip 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, and 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. PaperClip began marketing WebClip in August 1996. Despite an
ambitious public relations and advertising campaign, PaperClip has not realized
the volume of sales it had hoped to achieve with the WebClip product and has
ceased development and marketing activities of such product.
PaperClip 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 funds, in October 1996 PaperClip 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.
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. PaperClip is now also offering NOSS separately.
PaperClip markets the Systems and associated products domestically (i)
through mass distributors, including Tech Data Corporation, Law Cypress
Distributing Company and New Wave Technologies, who sell to a VAR channel that
currently consists of approximately 135 resellers and (ii) through such VARs.
PaperClip markets its products internationally through approximately 40 VARs and
through distributors, and sells directly to large corporations that require
consulting and integration services.
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 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. PaperClip's Internet products should give users the added
flexibility of accessing and managing stored documents via the Internet.
Products. PaperClip derives all of its revenues from the licensing or sale
of the Systems and associated products and services.
PaperClip has completed the development of Windows 95/NT versions of the
Systems and on the 4.2 Edition of its 16 bit system, and further enhancements
of, and additions to, its existing products. PaperClip's ability to continue to
compete will be dependent upon its ability to consummate the Merger with ASI 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 time frames, that they will perform as anticipated, achieve market
acceptance or result in revenue to PaperClip. The inability to further enhance
successfully its existing products or to develop new products may have a
material adverse effect on PaperClip'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.
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.
PaperClip is offering the Systems only in Windows Editions. PaperClip
introduced the 4.2 Editions of the Systems in 1997 and is currently Beta testing
(i.e., having its VARs and selected customers test the product) PaperClip 32
Editions. PaperClip introduced the 4.2 Editions, which were designed for a
16-bit platform, during the third quarter of 1997.
Personal Edition. During 1996, PaperClip ceased selling the Personal
Edition since the market for this product has not grown as PaperClip 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 the user is able to store Documents on a large
variety of optical disk and "jukebox" storage devices. This allows the storage
of thousands of Documents while maintaining a high level of performance. The
user also has the option to purchase a module from PaperClip 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
software failure which corrupts the database, the SQL 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.
PaperClip 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 printer 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 PaperClip's SQL Edition. PaperClip WorkFlow was
developed for PaperClip by DCL International, Ltd., an Israeli company ("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 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 PaperClip's intuitive document and image management
software, users can quickly implement workflow solutions without the need for
costly programming. PaperClip has temporarily ceased further development of the
WorkFlow products.
Internet Product Line - WebClip. PaperClip also completed WebClip, 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 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. PaperClip began marketing
WebClip in August 1996. The WebClip product, despite a strong public relations
and advertising effort by PaperClip, has not realized the volume of sales that
PaperClip had hoped that it would.
Products Under Development. PaperClip 32. PaperClip is engaged in Beta
testing the PaperClip 32 Edition. PaperClip is utilizing some of its VARs and
other selected customers to Beta test the product to accelerate the test process
and provide a wider range of testing environments. While management believes
that the PaperClip 32 Edition will work properly, there can be no assurance that
it will function effectively in the hands of end-users. PaperClip is currently
engaged in testing of PaperClip 32.
Internet Product Line - WebServer. PaperClip 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, enable users to make the documents
available to anyone with a Web Browser and make available the user's PaperClip
document repository to both Internet and Intranet users. PaperClip has
anticipated that the introduction of the WebServer would coincide with a second
release of its Windows 95 products but, because of PaperClip's lack of operating
funds, testing of WebServer has been suspended. There can be no assurance it
will be resumed in the future.
Marketing. Objectives, Internal Sales Force and Risks. Management's
marketing objectives for the Systems, which have been 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 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 PaperClip's efforts with respect to its Network and SQL Editions.
Consequently, PaperClip is expending approximately $22,000 per month to maintain
a group of six 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.
PaperClip has a field sales force of three persons.
While management will attempt to encourage VARs, distributors and other
resellers to focus on PaperClip'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 PaperClip. 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
PaperClip.
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 PaperClip: (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 PaperClip 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 with various software companies that provide
complementary products.
On June 1, 1995, PaperClip 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. PaperClip will be paid (pound)15
(approximately $24) for each bundled product. During 1996 PaperClip 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.
PaperClip has not received revenue from this product since June 1995.
Value Added Reseller Network. To date, the most significant portion of
PaperClip's sales have been made through VARs. PaperClip currently has
approximately 155 VARs, of which approximately 125 VARs are in the United States
and approximately 30 are abroad.
Business Services. In the fourth quarter of 1995, PaperClip launched its
Business Services Department. The Business Services Department sells directly to
major accounts that want to work on a direct basis with PaperClip. 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
upon request. The Business Services Department currently consists of three
employees.
International Translations. PaperClip has developed a software developers
kit to allow translations of its products into foreign languages. PaperClip has
signed agreements with four companies to translate the product into their local
language in exchange for exclusive marketing rights for that product in their
respective markets, pending achievements of minimum annual sales volumes. These
agreements include Arabic, Italian, Spanish and Portuguese versions. PaperClip
is pursuing similar arrangements for German and French versions.
Customers and Sales. PaperClip had net sales of $1,059,974 in 1994,
$1,489,139 in 1995 and $1,968,750 in 1996. Law Cypress accounted for 15% of
PaperClip's sales in 1996; no other customers in 1996 accounted for more than
10% of its sales. Four major customers (of which two are VARs and two are
distributors) accounted for 56% of sales collectively, and sales to two major
customers accounted for 39% of PaperClip's sales in 1995 and 1994, respectively.
During 1996, the Business Services Department generated important sales and
business opportunities for PaperClip.
Customer Support and Service; Warranties. PaperClip presently provides
telephone support to its VARs. The majority of PaperClip'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 PaperClip's technical support center.
Beginning in 1997, PaperClip started to limit offering the maintenance for
its 16 bit product 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).
PaperClip 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
PaperClip'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 and PaperClip'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 "Products -- Products Under Development" above.
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 Systems and/or other products offered by
PaperClip. 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
PaperClip's products and that PaperClip'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 PaperClip has sources of financing available to it (which it currently
does not), these objectives cannot be met. The inability to enhance its existing
products or to develop new products may have a material adverse effect on
PaperClip's operations and profitability.
Production. PaperClip 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. PaperClip 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. PaperClip's WebClip product is produced in a similar manner and can
be downloaded from various Internet Websites (including PaperClip'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
PaperClip's stream of revenues.
Product Protection. PaperClip relies on a combination of copyright, trade
secret and trademark laws and license agreements to protect its proprietary
rights in its technology. PaperClip 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,
PaperClip may be forced to expend significant effort, time and funds to defend
against it. If PaperClip is not successful in defending against such a claim,
PaperClip would be required to adopt a different name and would incur costs as a
result thereof.
PaperClip has applied for trademark registration of WEBCLIP with the U.S.
Patent and Trademark Office. PaperClip 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.
PaperClip distributes its products under signed software license
agreements, which grant customers perpetual licenses to, rather than ownership
of, PaperClip's products and which contain restrictions on copying, disclosure,
reverse engineering and transferability. The source code for all of PaperClip's
products is protected as a trade secret and as an unpublished copyrighted work.
In addition, PaperClip has entered into nondisclosure agreements with its
employees. There can be no assurance that the steps taken by PaperClip in this
regard will be adequate to deter misappropriations or independent third-party
development of its technology.
PaperClip 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 PaperClip's proprietary rights
in its products and technology to the same extent as U.S. laws.
Although management believes that PaperClip'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
PaperClip 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, PaperClip stopped using Ligature's products in its
software (although the license still remains in effect).
PaperClip may 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.
PaperClip is in the process of negotiating with a number of companies for
software licenses that will be necessary to complete its 32 bit product. The
outcome of these negotiations with respect to pricing of such licenses is
critical to PaperClip's ability to price the 32 bit product competitively.
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 PaperClip competes. Competition for PaperClip'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.
PaperClip 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 PaperClip, and
there can be no assurance that these competitors will not modify their existing
systems or acquire other competitors of PaperClip 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 PaperClip's leading direct competitors.
Combined, the two companies are able to offer a more complete range of workflow
and document imaging solutions than PaperClip. The WebClip product competes with
the products of a number of companies, some of which have much greater resources
than PaperClip. Competitors for PaperClip'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 PaperClip'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 PaperClip.
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 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 PaperClip.
Management believes that the principal competitive factors in the market
for PaperClip'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, PaperClip reduced its
full-time staff from 43 in 1996 to 20 in November 1997. At present, PaperClip's
full-time staff includes 7 engaged in development and systems testing, 7 engaged
in sales, marketing and technical support, 3 in Business Services and 3 engaged
in administration. PaperClip has no collective bargaining agreements and none of
its employees is represented by a labor union. PaperClip has never had a work
stoppage and considers its relationship with its employees to be satisfactory.
PaperClip'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 PaperClip.
Management believes that the future success of PaperClip will also depend in
large part upon PaperClip's ability to attract and retain highly skilled
technical, managerial and marketing personnel. Competition for such personnel in
the software industry is intense.
PaperClip employs consultants on a part-time basis to develop the 32 bit
product and to maintain and upgrade the NOSS System.
Description of Property. PaperClip's principal administrative, sales and
marketing, product development and support facilities are located in Hackensack,
New Jersey, and comprise approximately 9,900 square feet. PaperClip 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 escalations for
taxes and operating expenses over a 1995 base year. PaperClip 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, PaperClip leases a small sales office in California at a cost
of $2,343 per month.
Legal Proceedings. PaperClip is not a party to any material pending legal
proceedings.
<PAGE>
DESCRIPTION OF SECURITIES
Class B Warrants
The Class B Warrants will be issued under and subject to the terms of a
Warrant Agreement (the "Warrant Agreement") to be entered into on or prior to
the Merger between ASI and Continental Stock Transfer & Trust Company, as
warrant agent (the "Warrant Agent"). The summaries of certain provisions of the
Warrant Agreement hereunder do not purport to be complete and are subject to and
are qualified in their entirety by reference to all of the provisions of the
Warrant Agreement. Except as noted below, the Class B Warrants shall be on the
same terms and conditions as the Redeemable Warrants issued pursuant to the IPO.
General. Each Class B Warrant will entitle the registered owner thereof
(the "Class B Warrantholder") to purchase one share of ASI Common Stock at an
initial exercise price of $6.00 per share, subject to adjustment, commencing on
the date of issuance until 5:00 p.m. New York time, on October 15, 2001 (the
"Expiration Date"), unless previously redeemed. Each Class B Warrant shall be
issued in registered form and is transferable from and after the date of
issuance and prior to the Expiration Date, subject to the lock-up agreements
described in "The Merger--Resale Restrictions; Lock-up Agreements." Class B
Warrantholders are not entitled, by virtue of being Class B Warrantholders, to
receive dividends or to consent to or receive notice as stockholders in respect
of any meeting of stockholders for the election of directors of ASI or any other
matter, or to vote at any such meetings or to exercise any rights whatsoever as
stockholders of ASI. ASI has the right at any time to redeem all, but not less
than all, of the Redeemable Warrants at a redemption price of $.05 per Class B
Warrant, on 30 days' prior written notice, provided that the average closing bid
price of the ASI Common Stock for any 20 trading days in a period of 30
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption, equals or exceeds 150% of the then exercise price per
share, subject to adjustment.
It should be noted that the initial exercise price of the Redeemable
Warrants is $5.00 per share and ASI must also obtain the written consent of JSC
before it redeems any Redeemable Warrants.
Adjustments. The exercise price of the Class B Warrants and the number of
shares of ASI Common Stock issuable upon exercise of the Class B Warrants are
subject to adjustment in certain events including subdivisions or combinations
of the outstanding ASI Common Stock, stock dividends and distributions, mergers
and consolidations.
Amendments. The ASI Board of Directors, in its discretion, may amend the
terms of the Class B Warrants to, among other things, reduce the exercise price;
provided, however, that no amendment adversely affecting the rights of the
holders of the Class B Warrants may be made without the approval of the holders
of not less than a majority of the Class B Warrants then outstanding.
Exercise of Class B Warrants. The Class B Warrants may be exercised by
surrendering to the Warrant Agent a warrant certificate duly executed by the
Class B Warrantholder or his or her duly authorized agent and indicating such
Class B Warrantholder's election to exercise all or a portion of the Class B
Warrants evidenced by such warrant certificate. Surrendered warrant certificates
must be accompanied by payment of the aggregate exercise price of the Class B
Warrants to be exercised, which payment may be made, at the Class B
Warrantholder's option, in cash or by delivery of a cashier's or certified check
or any combination of the foregoing.
Upon receipt of duly executed Class B Warrants and payment of the exercise
price, ASI shall issue and cause to be delivered, to or upon the written order
of exercising Class B Warrantholders, certificates representing the number of
shares of ASI Common Stock so purchased. If fewer than all of the Class B
Warrants evidenced by any warrant certificates are exercised, a new warrant
certificate evidencing the Class B Warrants remaining unexercised will be issued
to the Class B Warrantholders.
ASI has authorized and will reserve for issuance a number of shares of ASI
Common Stock sufficient to provide for the exercise of all of the Class B
Warrants. When delivered in accordance with the Warrant Agreement, such shares
of ASI Common Stock will be fully paid and nonassessable.
ASI Common Stock
The holders of ASI Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Subject
to preferences that may be applicable to any then outstanding Preferred Stock,
holders of ASI Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. See "Market Prices Of And Dividends On Securities -- ASI." In the
event of a liquidation, dissolution or winding up of ASI, holders of the ASI
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of ASI Common Stock have no preemptive rights and no right to
convert their ASI Common Stock into any other securities. There are no
redemption or sinking fund provisions applicable to the ASI Common Stock. All
outstanding shares of ASI Common Stock upon issuance were fully paid and
nonassessable.
Preferred Stock
The ASI Certificate authorizes the issuance of 1,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"). Such shares
of Preferred Stock may be issued in one or more series from time to time with
such designations, rights, preferences and limitations as the Board of Directors
may determine. The rights, preferences and limitations of separate series of
Preferred Stock may differ with respect to such matters as may be determined by
the Board of Directors, including, without limitation, the rate of dividends,
method or nature of payment of dividends, terms of redemption, amounts payable
on liquidation, sinking fund provisions, conversion rights and voting rights.
Such undesignated shares could also be used as an anti-takeover device by ASI
since they could be issued with "super-voting rights" and placed in the control
of parties friendly to the current management. ASI has no present plans to issue
any of the designated shares.
Restrictions on Change of Control
The ASI Certificate contains certain provisions that reduce the probability
of any change of control or acquisition of ASI. Pursuant to the ASI Certificate,
the Board of Directors has the ability to issue Preferred Stock in one or more
series with such rights, obligations and preferences as the Board of Directors
may determine without any further vote or action by the stockholders. The rights
of the holders of ASI Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisition and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of ASI. Although ASI has no
present plans to issue any shares of Preferred Stock, there can be no assurance
that it will not issue Preferred Stock at some future date. Further, certain
provisions of the DGCL could delay or make more difficult a merger, tender offer
or proxy contest involving ASI. While such provisions are intended to enable the
Board of Directors to maximize stockholder value, they may have the effect of
discouraging takeovers which could be in the best interest of certain
stockholders and they may have an adverse effect on the market value of ASI's
stock in the future. In addition, the ASI Certificate provides that its
directors shall not be personally liable to ASI or its stockholders for monetary
damages in the event of a breach of fiduciary duty to the extent permitted by
the DGCL.
EFFECT OF THE MERGER ON
RIGHTS OF STOCKHOLDERS
Both ASI and PaperClip are Delaware corporations subject to the DGCL. The
stockholders of PaperClip, whose rights are governed by the PaperClip
Certificate and Bylaws and by the DGCL, will, upon consummation of the Merger,
become stockholders of ASI whose rights will be governed by the ASI Certificate
and Bylaws, and will continue to be governed by the DGCL. The following is a
summary of the material differences in the rights of the shareholder of ASI and
PaperClip and is qualified in its entirety by reference to the governing law and
the Certificate of Incorporation and Bylaws of each of ASI and PaperClip.
Certain topics discussed below are also subject to federal law and the
regulations promulgated thereunder.
Removal of Directors
The PaperClip Bylaws provide that any or all of the directors of PaperClip
may be removed, with or without cause, at any time by the vote of the
stockholders entitled to vote for the election of directors at a special meeting
called for such purpose. The PaperClip Bylaws also provide that any director may
be removed for cause by the Board.
The ASI Bylaws provide that the stockholders may, at any meeting called for
the purpose, by vote of a majority of the holders of the capital stock issued
and outstanding and entitled to vote thereon, remove any director from office.
The ASI Bylaws are silent with respect to the Board removing a director from
office; they do provide, however, that the Board may be enlarged and additional
directors elected by a vote of a majority of the directors then in office.
Number of Directors
The PaperClip Bylaws provide that the number of directors which shall
constitute the entire PaperClip Board shall not be less than three nor more than
seven, as established by the Board.
The ASI Bylaws provide that the ASI Board shall consist of one or more
members, as may be fixed for any corporate year and elected by the stockholders
of ASI at the annual meeting.
Special Meetings
The PaperClip Bylaws provide that special meetings of stockholders may be
called by the chief executive officer, and shall be called by the chief
executive officer or secretary at the request in writing of any director then in
office or of stockholders owning at least 10% of the entire capital stock of
PaperClip issued and outstanding and entitled to vote. Such a call shall state
the purpose or purposes of the proposed meeting.
The ASI Bylaws provide that special meetings of stockholders may be called
by the Board or by a writing filed with the secretary signed by the president or
by a majority of the directors.
Existence of Anti-Takeover Provisions in the ASI Certificate
As discussed under the heading "Risk Factors -- Reduced Probability of
Change of Control or Acquisition of ASI due to Existence of Anti-Takeover
Provisions," in addition to any other provisions of applicable law, the ASI
Certificate contains provisions that reduce the probability of any change of
control or acquisition of ASI.
These provisions may have the effect of discouraging or delaying takeover
attempts or other offers to purchase or otherwise acquire outstanding shares of
ASI's equity securities and, consequently, may cause the holders of such
securities to forego opportunities to sell ASI securities at an attractive
price.
Amendment of Bylaws
The PaperClip Bylaws provide that they may be altered, amended or repealed
or new by-laws may be adopted by the stockholders or by the Board, when such
power is conferred upon the Board by the certificate of incorporation, at any
regular meeting of the stockholders or of the Board or at any special meeting of
the stockholders or of the Board if notice of said alteration, amendment, repeal
or adoption of new by-laws be contained in the notice of such special meeting.
The PaperClip Certificate provides that the Board may amend, alter or repeal the
Bylaws.
The ASI Bylaws provide that they may be made, altered or amended at any
annual or special meeting of the stockholders called for the purpose of which
notice shall specify the subject matter of the proposed alteration or amendment
or new by-law or the article or articles to be affected thereby. The Bylaws also
provide that if the certificate of incorporation so provides, then the Bylaws
may be made, altered or amended by a majority of the whole number of directors.
The ASI Certificate provides that the Board may alter, amend or repeal any
Bylaws.
Appraisal Rights
Holders of PaperClip Common Stock who do not vote in favor of the Merger
Agreement and who comply with the requirements of Section 262 of the DGCL will
be entitled to appraisal or dissenters' rights. See "The Merger--Rights of
Dissenting Stockholders."
Preemptive Rights
Under the DGCL, preemptive rights to stockholders apply only when so
provided in the certificate of incorporation of a corporation. Neither the ASI
Certificate nor the PaperClip Certificate provides for preemptive rights.
Notice of Adjourned Meeting
The PaperClip Bylaws provide that if any meeting of the stockholders is
adjourned and the adjournment is for more than 30 days or if, after the
adjournment, a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
The ASI Bylaws provide that if a meeting is adjourned, the meeting may be
held as adjourned without further notice.
Filling Vacancies on the Board
The PaperClip Bylaws provide that if at the time of filling any vacancy or
any newly-created directorship, the directors then in office shall constitute
less than a majority of the whole Board (as constituted immediately prior to any
such increase), the Court of Chancery may, upon application of any stockholder
or stockholders holding at least 10% of the total number of shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly-created directorships,
or to replace the directors chosen by the directors then in office.
The ASI Bylaws have no similar provision; under the DGCL Section 223, the
majority of the directors in office, although less than a quorum, or the sole
remaining director may fill vacancies on the board of directors.
Quorum of the Board of Directors
The Bylaws of both ASI and PaperClip provide that the vote of a majority of
directors present at any meeting at which quorum is present will be the act of
the Board.
The ASI Bylaws further provide that the affirmative vote in good faith of a
majority of the disinterested directors, even though the disinterested directors
will be fewer than a quorum, will be sufficient to authorize a contract or
Merger in which one or more directors have an interest if the material facts as
to such interest and the relation of the interested directors to the contract or
Merger have been disclosed or are known to the directors. The PaperClip Bylaws
have no similar provision; however, the same procedures apply as a matter of law
pursuant to DGCL Section 144.
CERTAIN TRANSACTIONS
Certain Transactions between ASI and PaperClip
On January 29, 1997, ASI provided a $300,000 loan to PaperClip for use as
operating capital in exchange for a convertible note of PaperClip. See "The
Merger -- Bridge Loan."
Since April 15, 1997, ASI has been responsible for (i) the management of
the day-to-day operations of PaperClip, subject to the oversight, review,
supervision and control of PaperClip's Board of Directors, and (ii) advancing,
on behalf of PaperClip, funds provided for by an agreed-upon operating budget
pursuant to the terms of the Management Agreement. See "The Merger-Management
Agreement."
ASI and PaperClip entered into a one-year non-exclusive regional
distribution agreement commencing June 1, 1997. Under the terms of this
agreement, ASI acts as a distributor for PaperClip's products in the United
States to dealers and resellers. ASI's sole compensation under this agreement is
its gross profit on any products sold, which is equal to any excess of the price
at which ASI distributes the products to its customers over the price at which
PaperClip licenses the products to ASI.
Certain Transactions between ASI and its Affiliates
Transactions with Mr. Chace. In connection with the 1996 Bridge Financing,
Mr. Chace purchased from ASI five units, each consisting of a $50,000 promissory
note and a warrant to purchase 25,000 shares of ASI Common Stock. A portion of
the proceeds of the IPO were used to repay the indebtedness incurred in
connection with the 1996 Bridge Financing. Additionally, upon consummation of
the IPO, Mr. Chace received 125,000 New Warrants in exchange for the 1996 Bridge
Warrants he had acquired in connection with the 1996 Bridge Financing.
Transactions with Mr. Wiltshire. In January 1996, ASI issued 416,500 shares
of ASI Common Stock to Hector D. Wiltshire in consideration for (i) Mr.
Wiltshire's agreement to serve as ASI's interim President and Chief Executive
Officer; (ii) his agreement to relinquish the warrants he had acquired in
connection with the $500,000 bridge financing he provided to ASI in September
1995; and (iii) his agreement to lend ASI $250,000 on a short-term basis. As a
result, ASI incurred a compensation expense in the amount of $744,000, including
a non-cash charge of $424,830 representing the fair value of the ASI Common
Stock as determined by independent appraisal. ASI has agreed to reimburse Mr.
Wiltshire for any federal and state income taxes payable by him associated with
the valuation for tax purposes of such ASI Common Stock. Mr. Wiltshire
simultaneously transferred 208,250 shares to each of his two adult children.
In January 1996, ASI borrowed $250,000 from Mr. Wiltshire. This loan,
secured by certain accounts receivable of ASI, bore interest at the rate of the
prime rate plus 2% per annum (10.25% on February 29, 1996) and was repaid in
full on February 29, 1996.
Transactions with Mr. Lukens. Pursuant to an agreement dated as of July 14,
1997, Matthias E. Lukens, Jr., a former President and Chief Executive Officer
and a former Vice President-Research and Development of ASI, resigned as an
officer and employee of ASI and ASI agreed to pay Mr. Lukens severance benefits
equal to six months salary or $57,200. ASI also agreed to exchange incentive
stock options to purchase 24,311 shares of ASI Common Stock at an exercise price
of $3.75 pursuant to the 1996 Plan for non-qualified stock options to purchase
24,311 shares of ASI Common Stock at an exercise price of $3.75 pursuant to the
1996 Plan.
Fairness of Certain Transactions. ASI believes that the terms of each of
the foregoing transactions are at least as favorable to ASI as could be obtained
from third parties in arms' length transactions. Article XI of the ASI By-laws
governs transactions between ASI and its directors. An affirmative vote of a
majority of disinterested directors is required to authorize a contract or
transaction entered into with a director of ASI; provided, however, that the
director's interest in the contract or transaction is disclosed or known to the
disinterested directors. Any future contract or transaction between ASI and its
directors will be transacted in accordance with the provisions of the By-laws.
Any future contract or transaction between ASI and its officers and affiliates
will be transacted in the same manner.
Certain Transactions between PaperClip and its Affiliates
In February 1997, the PaperClip Board granted to Stephen Kornfeld 333,333
shares of PaperClip Common Stock for advisory services that he rendered to
PaperClip in connection with the Merger. Mr. Kornfeld was the beneficial owner
of approximately 1% of the PaperClip Common Stock when such payment was made
(approximately 5% after giving effect to such additional shares). In arriving at
the amount of the fee, the PaperClip Board considered the following: (i) the
value added by Mr. Kornfeld to PaperClip stockholders, which was arrived at by
ascertaining value added by Mr. Kornfeld to the negotiations with ASI, (ii) the
amount of additional time that Mr. Kornfeld will have to expend until the
consummation of the Merger, and (iii) the fee paid to JSC by ASI.
PRINCIPAL STOCKHOLDERS OF ASI
The following table sets forth certain information known to ASI with
respect to beneficial ownership of the ASI Common Stock as of September 30, 1997
by (i) each stockholder who is known by ASI to own beneficially more than 5% of
the outstanding ASI Common Stock, (ii) each of ASI's directors, (iii) the Named
Executive Officers and (iv) all directors and executive officers as a group.
Unless otherwise indicated, each has sole voting and investment power with
respect to the shares beneficially owned.
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Shares of Common Stock Percentage of
Beneficial Owner Beneficially Owned Common Stock
<S> <C> <C>
Malcolm G. Chace (1) 757,381 19.10%
c/o Point Gammon Corporation
731 Hospital Trust Building
Providence, RI 02903
Robert H. Stone (2) 20,000 *
c/o Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Marvyn Carton (3) 507 *
675 Sanctuary Drive
Boca Raton, FL 33431
Thomas E. Gardner (4) 13,891 *
c/o Point Gammon Corporation
731 Hospital Trust Building
Providence, RI 02903
Howard W. Yenke --- ---
c/o LANart Corp.
145 Rosemary Street
Needham, MA 02194
Adrian Hancock --- ---
c/o The Planning Technologies Group
92 Hayden Avenue
Lexington, MA 02173
Directors and Executive Officers as a 811,435 20.27
Group (8 persons)(5)
</TABLE>
- ---------------------------------------
(1) Includes 169 shares of ASI Common Stock issuable upon exercise of currently
exercisable stock options. Excludes 203 shares of ASI Common Stock owned of
record by Mossberg, of which Mr. Chace is the Chairman of the Board of
Directors. Mr. Chace disclaims beneficial ownership of the shares of ASI
Common Stock owned of record by Mossberg.
(2) Consists of 20,000 shares of ASI Common Stock issuable upon exercise of
currently exercisable stock options.
(3) Includes 169 shares of ASI Common Stock issuable upon exercise of currently
exercisable stock options.
(4) Includes 67 shares of ASI Common Stock jointly held with Leslie A. Gardner.
(5) Includes 39,258 shares of ASI Common Stock issuable upon exercise of
currently exercisable options.
* Less than 1%
After giving effect to the Merger and the Proposed Securities Issuance on a
pro forma basis as of ________, 1997, the existing stockholders of ASI would
hold ________% of the ASI Common Stock and the PaperClip stockholders would hold
28%.
MARKET PRICES OF AND
DIVIDENDS ON SECURITIES
ASI
The ASI Common Stock, the Redeemable Warrants and Units consisting of two
shares of Common Stock and one Redeemable Warrant are currently traded on the
Nasdaq SmallCap Market under the symbols "ASIC," "ASICW" and "ASICU,"
respectively. ASI's IPO was completed on October 16, 1996. Prior to that date
there was no market for the ASI Common Stock, Redeemable Warrants or Units. On
January 6, 1997, the day before the public announcement of the Merger, the
closing bid and asked prices for the ASI Common Stock, Redeemable Warrants and
Units were as follows:
Closing Bid Closing Asked
ASI Common Stock 3-7/8 4-1/4
Redeemable Warrant 1-5/16 1-3/8
Unit 9 9-3/4
The following table sets forth, for the periods indicated, the high and low
closing bid and asked/sales prices for the ASI Common Stock, Redeemable Warrants
and Units, as reported on the Nasdaq SmallCap Market. Since such prices
represent quotations between dealers, they do not include markups, markdowns or
commissions and do not necessarily represent actual transactions.
ASI Common Stock
<TABLE>
<CAPTION>
Bid Asked
------------ -----------
High Low High Low
1996:
<S> <C> <C> <C> <C>
Fourth Quarter (commencing October
16, 1996) ...................................... 4-7/8 3-1/2 6-1/2 4
1997:
First Quarter .................................. 5 3-1/2 5-1/4 4
Second Quarter ................................. 4-3/8 3 4-1/2 3-1/4
Third Quarter .................................. 3-3/4 2-1/2 4 2-5/8
Fourth Quarter(through October 31) ............. 2-5/8 1-3/8 3 1-5/8
Redeemable Warrants
Bid Asked
------------ ------------
High Low High Low
1996:
Fourth Quarter (commencing October
16, 1996)....................................... 2-3/8 1 3-1/4 1-1/2
1997:
First Quarter .................................. 1-3/8 15/16 1-1/2 1-1/8
Second Quarter ................................. 1 3/4 1-1/4 13/16
Third Quarter .................................. 3/4 3/4 1-1/18 7/8
Fourth Quarter (through October 31) ............ 3/4 5/8 1 3/4
Units
Bid Asked
------------ --------------
High Low High Low
1996:
Fourth Quarter (commencing October
16, 1996)....................................... 11-1/2 8 12-1/2 9-3/4
1997:
First Quarter .................................. 1-3/8 8 11-3/8 9-1/4
Second Quarter ................................. 9-3/8 7 10-1/2 7-1/8
Third Quarter .................................. 8-1/4 5-1/2 9 6-1/2
Fourth Quarter (through October 31) ............ 5-1/2 3-1/2 6-1/2 3-5/8
</TABLE>
PaperClip
The PaperClip Common Stock and PaperClip Warrants had been quoted on the
Nasdaq National Market from September 27, 1995 to March 11, 1997, when they were
delisted from the Masdaq National Market due to PaperClip's failure to comply
with the minimum asset and capital surplus requirements established by Nasdaq.
Since such date, the PaperClip Common Stock and PaperClip Warrants have been
posted on the OTC Bulletin Board. On January 6, 1997, the day before the public
announcement of the Merger, the closing bid and asked prices for the PaperClip
Common Stock and PaperClip Warrants were as follows:
Closing Bid
PaperClip Common Stock
PaperClip Warrants
The following table sets forth, for the periods indicated, the high and low
closing bid and asked/sales prices for the PaperClip Common Stock and PaperClip
Warrants, as reported on the Nasdaq National Market through March 11, 1997 and
thereafter on the OTC Bulletin Board. Since such prices represent quotations
between dealers, they do not include markups, markdowns or commissions and do
not necessarily represent actual transactions.
PaperClip Common Stock
<TABLE>
<CAPTION>
Bid
--------------
High Low
1995:
<S> <C> <C>
Third Quarter (commencing September
28, 1995) ........................................ 8-1/4 7
Fourth Quarter ................................... 8-1/4 1-3/4
Bid
--------------
High Low
1996:
First Quarter .................................... 11-3/8 2
Second Quarter ................................... 5-7/8 1-1/2
Third Quarter .................................... 2-11/16 1-19/32
Fourth Quarter ................................... 1-3/4 5/16
1997:
First Quarter .................................... 3/4 9/32
Second Quarter ................................... 1/4 3/32
Third Quarter .................................... -- 3/32
Fourth Quarter(through October 31) ............... 3/14 5/64
PaperClip Warrants
Bid
--------------
High Low
1995:
Third Quarter (commencing September
28, 1995) ........................................ -- 1-3/8
Fourth Quarter ................................... -- 1/2
1996:
First Quarter .................................... -- 1
Second Quarter ................................... -- 5/8
Third Quarter .................................... -- 1/2
Fourth Quarter ................................... -- 3/16
1997:
First Quarter .................................... -- 3/16
Second Quarter ................................... -- 1/16
Third Quarter .................................... -- --
Fourth Quarter (through October 31) .............. -- --
</TABLE>
Dividend Policy
ASI has not declared or paid cash dividends on ASI Common Stock, presently
intends to retain earnings for use in its business and does not anticipate
paying cash dividends in the foreseeable future. The payment of future cash
dividends on the ASI Common Stock will be at the discretion of the ASI Board of
Directors and will depend on its earnings, financial condition, cash flows,
capital requirements and other considerations as the Board of Directors may
consider relevant, including any contractual prohibitions with respect to the
payment of dividends.
PaperClip has not declared or paid cash dividends on the PaperClip Common
Stock since its organization.
<PAGE>
LEGAL MATTERS
The legality of the shares of ASI Common Stock, the Class B Warrants and
the Merger Options and Warrants to be issued to PaperClip pursuant to the Merger
and certain other legal matters in connection with the Merger will be passed
upon by Edwards & Angell, 150 John F. Kennedy Parkway, Short Hills, New Jersey
07078. John E. Ottaviani, a partner of Edwards & Angell, is Secretary of ASI.
EXPERTS
The financial statements of Access Solutions International, Inc. as of June
30, 1997 and 1996 and for the years then ended included in this Proxy Statement
- - Prospectus have been so included in reliance on the report (which contains an
explanatory paragraph relating to Access Solutions International, Inc.'s ability
to continue as a going concern as described in Note 1 to the financial
statements) of Price Waterhouse LLP, independent accountants to Access Solutions
International, Inc., and given on the authority of said firm as experts in
auditing and accounting.
The financial statements of PaperClip Software, Inc. as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 included in this Proxy Statement - Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report. Reference is made to said report which
includes an explanatory comment relating to the ability of PaperClip Software,
Inc. to continue as a going concern discussed in Note 1 to the financial
statements.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ACCESS SOLUTIONS INTERNATIONAL, INC.:
Report of Independent Accountants
Balance Sheet as of June 30, 1996 and 1997
Statement of Operations for the years ended June 30, 1996 and 1997
Statement of Changes in Mandatorily Redeemable Preferred Stock and
Stockholders' Equity (Deficit) for the years ended June 30, 1996 and 1997
Statement of Cash Flows for the years ended June 30, 1996 and 1997
Notes to Financial Statements
PAPERCLIP SOFTWARE, INC.:
Report of Independent Accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996 and 1995
Statements of Stockholders Equity (Deficit) for the years ended December
31, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1996 and 1995
Notes to Financial Statements
Condensed Balance Sheets as of June 30, 1997 (unaudited) and December 31,
1996
Condensed Statements of Operations for the Three Months and Six Months
ended June 30, 1997 and 1996 (unaudited)
Condensed Statements of Cash Flows for the Six Months ended June 30, 1997
and 1996 (unaudited)
Notes to Condensed Financial Statements
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Access Solutions International, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in mandatorily redeemable preferred stock and
stockholders' equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of Access Solutions International, Inc., at
June 30, 1997 and 1996, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company
has suffered recurring losses from operations and has incurred negative cash
flows from operating activities which raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Price Waterhouse LLP
Boston, Massachusetts
August 8, 1997, except as to Note 14
which is as of September 12, 1997
<PAGE>
Access Solutions International, Inc.
Balance Sheet
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30,
1996 1997
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 537,831 $1,889,446
Trade accounts receivable, net of allowance for doubtful 426,005 238,914
accounts of $50,304 and $53,199 in fiscal 1996 and 1997,
respectively
Inventories 504,450 461,812
Prepaid expenses and other current assets 61,995 183,159
---------- ----------
Total current assets 1,530,281 2,773,331
---------- ----------
Fixed assets, net 592,461 328,309
---------- ----------
Other assets:
Advances - PaperClip -- 529,052
Note receivable - PaperClip -- 300,000
Deposits and other assets 90,940 9,603
Service contract inventory 79,549 39,924
Deferred financing costs 581,065 --
---------- ----------
Total other assets 751,554 878,579
---------- ----------
Total assets $2,874,296 $3,980,219
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Access Solutions International, Inc.
Balance Sheet
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30,
1996 1997
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
<S> <C> <C>
Note payable - bank $ 290,000 $ --
Bridge loan 1,363,973 --
Current portion of capital lease obligations 72,562 25,257
Accounts payable 695,341 227,490
Accrued expenses 163,769 143,227
Accrued salaries and wages 467,234 204,604
Deferred revenue - prepaid service contracts 448,492 329,841
------------ ------------
Total current liabilities 3,501,371 930,419
Capital lease obligations, excluding current portion 31,974 6,716
------------ ------------
Total liabilities 3,533,345 937,135
------------ ------------
Commitments (Note 8)
Stockholders' equity (deficit):
Common stock, $.01 par value; 13,000,000 shares 15,119 39,652
authorized; 1,511,865 and 3,965,199 shares issued
in fiscal 1996 and 1997, respectively
Additional paid-in-capital 10,599,720 17,637,694
Accumulated deficit (11,255,832) (14,616,206)
------------ ------------
(640,993) 3,061,140
Treasury stock, at cost (1,259 shares) (18,056) (18,056)
------------ ------------
Total stockholders' equity (deficit) (659,049) 3,043,084
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 2,874,296 $ 3,980,219
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Access Solutions International, Inc.
Statement of Operations
Years Ended June 30, 1996 and 1997
- -------------------------------------------------------------------------------
Year Ended June 30,
1996 1997
<TABLE>
<CAPTION>
Net sales:
<S> <C> <C>
Products $ 1,352,408 $ 500,682
Services 634,500 590,896
----------- -----------
Total net sales 1,986,908 1,091,578
----------- -----------
Cost of sales:
Products 346,157 133,453
Services 234,229 256,777
----------- -----------
Total cost of sales 580,386 390,230
Gross profit 1,406,522 701,348
----------- -----------
General and administrative expense 1,678,005 1,494,792
Research and development expense 1,713,094 1,651,322
Selling expense 1,223,312 928,080
Stock related compensation 744,000 --
----------- -----------
Total operating expenses 5,358,411 4,074,194
----------- -----------
Loss from operations (3,951,889) (3,372,846)
Interest income 11,856 112,538
Interest expense - related party (88,181) --
Interest expense (113,614) (100,066)
----------- -----------
Loss before extraordinary item (4,141,828) (3,360,374)
Extraordinary gain on debt restructuring 320,387 --
----------- -----------
Net loss $(3,821,441) $(3,360,374)
=========== ===========
Net loss applicable to common stock:
Net loss $(3,821,441) $(3,360,374)
Accrued dividends on preferred stock (108,890) --
----------- -----------
$(3,930,331) $(3,360,374)
=========== ===========
Primary net loss per common share:
Loss before extraordinary item $ (1.88) $ (1.05)
Extraordinary item .14 --
----------- -----------
$ (1.74) $ (1.05)
=========== ===========
Weighted average number of common shares outstanding 2,256,150 3,204,122
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Access Solutions International, Inc.
Statement of Changes in Mandatorily Redeemable Preferred Stock and Stockholders' Equity (Deficit)
Years Ended June 30, 1996 and 1997
Mandatorily Redeemable
Preferred Stock Common Stock
--------------- ------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balances at June 30, 1995 50,000 $2,088,462 34,140 $341
Accrued dividends on - 108,890 - -
preferred stock
Conversion of preferred (50,000) (2,197,352) 7,423 75
stock
Conversion of debt, - - 1,053,802 10,538
primarily related party
Compensation related to - - 416,500 4,165
stock grant
Shares purchased for - - - -
treasury
Warrants issued with - - - -
bridge loan
Net loss - - - -
------------ ------------ ------------ --------
Balances at June 30, 1996 - - 1,511,865 15,119
Shares and warrants 2,453,334 24,533
issued in public
offering, net of expenses
Net loss - - - -
------------ ------------ ------------ --------
Balances at June 30, 1997 - $ - 3,965,199 $39,652
============ ============ ============ ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(continued)
Stockholders' Equity (Deficit)
Accumulated Treasury Stock
Paid-In Capital Deficit Shares Amount Total
<S> <C> <C> <C> <C> <C>
Balances at June 30, 1995 $5,428,229 $(7,325,501) 362 $(17,141) $(1,914,072)
Accrued dividends on - (108,890) - - (108,890)
preferred stock
Conversion of preferred 2,197,277 - - - 2,197,352
stock
Conversion of debt, 2,403,549 - - - 2,414,087
primarily related party
Compensation related to 420,665 - - - 424,830
stock grant
Shares purchased for - - 897 (915) (915)
treasury
Warrants issued with 150,000 - - - 150,000
bridge loan
Net loss - (3,821,441) - - (3,821,441)
---------- ---------- ------ ---------- ----------
Balances at June 30, 1996 10,599,720 (11,255,832) 1,259 (18,056) (659,049)
Shares and warrants 7,037,974 - - - 7,062,507
issued in public
offering, net of expenses
Net loss - (3,360,374) - - (3,360,374)
---------- ------ ---------- ----------
Balances at June 30, 1997 $17,637,694 $(14,616,206) 1,259 $(18,056) $3,043,084
=========== ============= ====== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Access Solutions International, Inc.
Statement of Cash Flows
Years Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1997
Cash flows from operating activities:
<S> <C> <C>
Net loss $(3,821,441) $(3,360,374)
----------- -----------
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 245,622 364,194
Stock compensation award 424,830 --
Debt restructuring gain (320,387) --
Interest expense settled with issuance of common stock 62,129 --
Provision for doubtful accounts (9,696) 16,762
Other non-cash expenses 36,930 --
Changes in operating assets and liabilities:
Trade accounts receivable 399,300 170,329
Inventories 83,567 82,263
Deposits 3,673 74,363
Prepaid expenses and other current assets 13,393 (121,164)
Accounts payable 228,590 (467,851)
Accrued expenses 208,913 (283,172)
Deferred revenue 78,384 (118,651)
----------- -----------
Total adjustments 1,455,248 (282,927)
----------- -----------
Cash used by operating activities, net (2,366,193) (3,643,301)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (103,604) (93,068)
Additions to other assets (9,480) --
Loans and advances to PaperClip -- (829,052)
----------- -----------
Cash used for investing activities, net (113,084) (922,120)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Access Solutions International, Inc.
Statement of Cash Flows (continued)
Years Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1997
Cash flows from financing activities:
<S> <C> <C>
Proceeds from public offering of common stock $ -- $ 9,200,013
Costs relating to public offering of common stock -- (2,137,506)
Proceeds from related party loans 2,468,415 --
(Repayments) of related party loans (1,258,000) --
Proceeds from (repayments of) bridge loans 2,413,971 (1,363,973)
Issuance of warrants 150,000 --
Repayments on capital lease obligations (174,140) (72,563)
Net payments under note payable - bank (150,000) (290,000)
Purchase of treasury stock (915) --
Deferred financing cost (581,065) 581,065
Cash provided by financing activities, net 2,868,266 5,917,036
----------- -----------
Net increase in cash and cash equivalents 388,989 1,351,615
Cash and cash equivalents, beginning of period 148,842 537,831
----------- -----------
Cash and cash equivalents, end of period $ 537,831 $ 1,889,446
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Access Solutions International, Inc.
Notes to Financial Statements
1. Business Purpose and Significant Accounting Policies
Business Purpose
Access Solutions International, Inc. (formerly Aquidneck Systems
International, Inc.) (the "Company" or "ASI") develops, assembles, sells
and services optical data storage systems consisting of integrated computer
hardware and software for the archival storage and retrieval of
computer-generated information. The Company's optical data storage systems
are sold principally to large organizations that need to store and retrieve
large quantities of computer-generated data. To date, the Company's
customers primarily operate in the financial services and insurance
industries.
ASI has suffered recurring losses from operations and has incurred negative
cash flows from operating activities as it has continued to develop its
products and infrastructure. The Company has introduced new products and
has enhanced certain of its existing products. ASI is also planning to
establish additional collaborative relationships with vendors and customers
which will create new opportunities to foster sales of its products and
services. Management anticipates improved financial performance based upon
increased sales resulting from its product introductions, product
enhancements and new collaborative relationships. The recurring losses and
negative cash flow from operating activities raise substantial doubt about
the Company's ability to continue as a going concern. These financial
statements do not include any adjustments relating to the recoverability of
assets and classification of liabilities or any other adjustments that
might be necessary should the Company be unable to continue as a going
concern.
As of June 30, 1997, the Company believes that the remaining proceeds from
its initial public offering, together with funds generated from operations,
will be sufficient to meet the Company's working capital requirements
through January 1998. ASI is currently seeking additional equity or debt
financing to fund its operations after January 1998 and until anticipated
additional funds provided by sales associated with the PaperClip
acquisition and the introduction of a new line of mainframe storage
controllers scheduled to begin selling in January 1998 are available.
However, there can be no assurance that the PaperClip acquisition (see Note
3) will be consummated, that PaperClip sales will be sufficient or that the
new product lines will be successful. If the Company has insufficient funds
from the above noted operations, further equity or debt financing will be
sought. There can be no assurance that such additional funds can be
obtained on acceptable terms, if at all. If additional funds are not
available, the Company's business will be materially adversely affected.
In January 1996, the Company completed a recapitalization (see Note 2)
which included a reverse stock split in which each share of issued common
stock was converted into 1/74th of a share of common stock. Accordingly,
all references in these financial statements to number of shares, per share
amounts (other than par value) and stock option data have been
retroactively restated to give effect to this reverse split.
On October 21, 1996, the Company consummated an initial public offering
(IPO) of 1,066,667 Units. Each Unit consisted of two shares of common stock
and one redeemable common stock purchase warrant. Each warrant entitles the
holder to purchase one share of common stock at an initial exercise price
of $5.00 per share, subject to adjustments, through October 15, 2001. The
shares of common stock and warrants comprising the Units are separately
tradable. An over-allotment option to purchase an additional 160,000 Units
upon the same terms and conditions set forth above was exercised by the
Company's underwriter on October 29, 1996. An aggregate of 2,453,334 shares
of common stock and 1,226,667 warrants were issued by the Company,
resulting in net proceeds of $7,062,507.
A summary of significant accounting policies used by the Company in the
preparation of these financial statements is as follows:
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist primarily
of components used in production, finished goods held for sale and for
service needs, and optical disk storage libraries purchased from third
party vendors for resale to the Company's customers as part of integrated
systems. Base stock service inventories are maintained at customer
locations as required under service contracts.
The Company's products consist of integrated computer hardware and
software. Rapid technological change and frequent new product introductions
and enhancements could result in excess inventory quantities over current
requirements based on the projected level of sales. The amount of loss that
is reasonably possible should such technological developments be realized
is not estimable.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the
assets. The estimated useful life of all fixed assets is 5-7 years. Assets
recorded under capital leases are amortized over the estimated useful lives
or lease terms, whichever is shorter.
Revenue Recognition
Product revenues include the sale of optical archiving systems, software
licenses, peripheral hardware, and consumable media.
Revenue from the sale of optical archiving systems and software licenses is
recognized when the system is installed and only insignificant
post-installation obligations remain. In the case of systems installed
subject to acceptance criteria, revenue is recognized upon acceptance of
the system by the customer. Revenue from hardware upgrades is recognized
upon shipment.
Service revenues include post installation software and hardware
maintenance and consulting services.
The Company provides the first year of software maintenance to customers as
part of the software license purchase price and recognizes the revenue upon
installation of the software. Costs associated with initial year
maintenance are not significant and enhancements provided during this
period are minimal and are expected to be minimal. All software maintenance
contracts after the first year are billed in advance of the service period
and revenues are deferred and recognized ratably over the contract term.
Hardware maintenance is billed for varying terms, and is deferred and
recognized ratably over the term of the agreement. Revenues from consulting
services are recognized upon customers' acceptances or during the period in
which services are provided if customer acceptance is not required and such
amounts are fixed and determinable.
Software Development Costs
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established and until the related product is
available for general release to customers, any additional material amounts
of development costs are capitalized and amortized to cost of sales over
the economic life of the related product. Costs eligible for capitalization
have not been significant to date.
Income Taxes
Income taxes are accounted using an asset and liability method of
accounting for deferred income taxes. Under this method, deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those differences are expected to
be recovered or settled.
Net Loss Per Share
Net loss per share is computed based on the weighted average number of
shares of common stock outstanding. Common stock equivalents have not been
included in the computation because their effect would be antidilutive.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock or other potentially dilutive instruments issued at
prices below the estimated public offering price per share during the
twelve month period prior to the filing or subsequent to the balance sheet
date but before the effective date of the initial public offering have been
included in the calculation as if outstanding for all periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, (FAS 128) "Earnings per Share," which is required to be adopted
for the quarter ended December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share
and to restate all prior periods. The impact is expected to result in no
change in the loss per share for the fiscal years presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the period reported.
Actual results could differ from those estimates.
Reliance on Single or Limited Sources of Supply
The Company currently purchases all of its optical disk storage libraries,
CPU boards, fiber optic channel hardware and high-density integrated
circuits from single or limited sources. Although there are a limited
number of manufacturers of these components, management believes that other
suppliers could provide similar products on comparable terms. Total or
partial loss of any such source, however, could cause a delay in
manufacturing and a possible loss of sales, which would affect operating
results adversely.
Stock Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting
for its stock-based compensation plans. The Company provides additional pro
forma disclosures as required under Statement of Financial Accounting
Standards, "Accounting for Stock-Based Compensation." See Note 10.
Reclassification
Certain items in previously issued financial statements have been
reclassified for comparative purposes.
2. Recapitalization (Including Related Party Transactions)
In January 1996, the Company effected several changes to its debt and
equity capital. The changes included a reverse stock split in which each
share of issued common stock was converted into 1/74th of a share of common
stock.
In September 1995, the Company sold 26 units, each unit consisting of a
$50,000 promissory note and a warrant to purchase 265 shares of common
stock at a price per share of $220. The value of the warrants was
insignificant. The total proceeds from the private placement were
$1,300,000. In January 1996, the promissory notes and warrants plus unpaid
interest in the amount of $21,370 were converted into 614,733 shares of
common stock of the Company. A director of the Company was among the
private investors who received shares of the Company in the exchange. Total
interest expense on these promissory notes was $55,562, of which $21,370
was satisfied through the issuance of shares. The Company recognized an
extraordinary gain relating to the portion of the debt restructuring
involving non-related parties. The extraordinary gain of $320,387 was based
on the difference between the fair value of the equity interest granted,
$289,476 and the carrying amount of the non-related party debt, $609,863.
The fair value of the equity interest granted was determined by independent
appraisal.
In January 1996, a director of the Company exchanged the balance due him
under a line of credit agreement totaling $1,335,415 plus unpaid interest
of $40,759 for 426,279 shares of common stock of the Company. Total
interest expense on this line of credit was $40,759, all of which was
satisfied through the issuance of shares.
The Company converted all of its outstanding Series A preferred stock into
7,423 shares of common stock as described in Note 12.
In conjunction with the recapitalization, the Company purchased 897 shares
of common stock from certain stockholders. The selling stockholders also
surrendered certain anti-dilution rights they had previously obtained in a
May 1993 private placement offering. The total amount paid by the Company
for the purchase of these shares and shareholder rights was $85,274 which
represents a return of proceeds previously invested by the stockholders. Of
this amount, $915, representing the fair value of the 897 shares acquired,
was charged to treasury stock and $84,359, representing the excess of the
amount paid over the estimated fair value of the shares, was charged to
general and administrative expenses. The fair value of shares acquired was
determined by independent appraisal.
3. PaperClip Asset Purchase and Management Agreements
On April 15, 1997, the Company and PaperClip entered into a definitive
agreement for the Company to acquire substantially all the assets and
liabilities of PaperClip provided the transaction occurs by October 31,
1997. Consummation of this transaction is subject to various conditions
including approval by the PaperClip stockholders. Under the agreement, the
Company will acquire substantially all of the assets and assume
substantially all of the liabilities of PaperClip for a purchase price of
approximately 1,544,000 shares of the Company's common stock plus an
equivalent number of the Company's Class B Warrants. Each Class B Warrant
will entitle the holder to purchase one share of the Company's common stock
at the exercise price of $6.00 per share. On January 29, 1997, the Company
provided a $300,000 bridge loan to PaperClip for use as operating capital
in exchange for a 12% convertible note from PaperClip secured by
substantially all the assets of PaperClip. In accordance with an agreement
between the parties, the Company has made unsecured advances to PaperClip
of $529,052 for funding of working capital requirements. In addition,
PaperClip will have the right to designate one member to the Company's
board of directors.
On April 15, 1997, the Company and PaperClip also entered into a management
agreement which provides for the Company to manage the day-to-day
operations of PaperClip until the closing of the acquisition or the
termination of the asset purchase agreement. The management agreement
designates the Company as responsible for the management of the day-to-day
operations of the PaperClip business, subject at all times to the
supervision and control of PaperClip management. Under the agreement,
PaperClip is required to pay the Company $50,000 per month up to a maximum
amount of $300,000.
In the event the acquisition is not consummated by October 31, 1997,
PaperClip is required to repay to the Company all loans, advances and
receivables. Based on projected increases in PaperClip's revenues and cash
flows from operations, it is expected that PaperClip would be able to repay
these amounts in the event the acquisition is not consummated. However, it
is reasonably possible that in the event the acquisition is not consummated
and the projected increase in revenues and operating cash flows do not
occur, PaperClip would be unable to repay some or all of the amounts due to
the Company. See Note 14.
4. Inventories
Inventories consist of the following:
June 30,
1996 1997
Production inventory $ 470,715 $ 440,922
Service inventory 113,284 60,814
--------- ---------
583,999 501,736
Inventory for service contracts (79,549) (39,924)
--------- ---------
Inventory available for sale $ 504,450 $ 461,812
========= =========
Inventory required at customer sites under service contacts is excluded
from current assets as it is not expected to be consumed in the next year.
5. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
June 30,
1996 1997
<S> <C> <C>
Computers and office equipment $763,168 $785,510
Furniture and fixtures 38,261 38,993
Purchased computer software 195,773 258,792
Computer equipment held under capital leases 561,249 115,523
------- -------
1,558,451 1,198,818
Accumulated depreciation and amortization (965,990) (870,509)
-------- --------
Net fixed assets $592,461 $328,309
======== ========
</TABLE>
Depreciation and amortization expense related to fixed assets was $238,087
and $357,220 during fiscal 1996 and fiscal 1997, respectively.
6. Notes Payable - Related Parties
In May 1995, the Company entered into a line of credit with a corporation
pursuant to which the Company borrowed $200,000 secured by certain accounts
receivable of the Company. The interest rate on the outstanding balance of
the line of credit was the prime rate in effect on the date of each advance
plus 2% annum. The balance outstanding was $100,000 at June 30, 1995. The
line of credit was repaid and terminated in September 1995. A director of
the Company is the Chairman of that corporation.
In May 1995, the Company entered into a line of credit with a trust,
pursuant to which the Trustees loaned the Company $250,000 secured by
certain accounts receivable of the Company. The interest rate on the
outstanding balance of the line of credit was the prime rate in effect on
the date of each advance plus 2% per annum. The line of credit was
increased to $300,000 in June 1995 and the balance outstanding was $275,000
at June 30, 1995. The line of credit was repaid in July 1995. The Company
made several additional borrowings and repayments under this line of credit
throughout the first half of fiscal 1996. The final repayment was made in
December 1995 when the line of credit was terminated. A director of the
Corporation is the beneficiary of said trust.
In August 1995, the Company entered into a line of credit agreement with a
director pursuant to which the Company borrowed $1,335,415 at various
dates. This amount was partially secured by certain future accounts
receivable of the Company. Interest on the outstanding balance of the line
of credit was payable at the prime rate plus 2%. In connection with the
recapitalization described in Note 2, the director subsequently exchanged
all indebtedness due under the line of credit in the principal amount of
$1,335,415, plus $40,759 of unpaid interest, for 426,279 shares of common
stock.
In February 1996, the Company borrowed $250,000 from a director. Such
borrowings were evidenced by a demand promissory note which bore interest
at the rate of 10.25% per annum. The note, which was secured by certain
accounts receivables, was repaid in full in February 1996.
In March 1996, the Company borrowed $250,000 from a director. Such
borrowings were secured by certain accounts receivable and were evidenced
by a demand promissory note which bore interest at the rate of 10% per
annum. The note was converted to a bridge loan in May 1996 (see Note 7).
In April 1996, the Company borrowed $85,000 from a director for working
capital purposes. The borrowings were evidenced by a demand promissory note
which bore interest at the rate of 10% per annum. The note was repaid in
full in May 1996.
7. Bridge Loan
On May 28, 1996 the Company consummated a bridge financing pursuant to
which it issued an aggregate of $1,500,000 principal amount of promissory
notes which bear interest at 10% per annum. The notes are due and payable
on the earlier of the closing of the sale of securities or other financing
of the Company from which the Company receives gross proceeds of at least
$2,500,000 or May 28, 1997. In conjunction with the bridge financing the
Company issued 750,000 warrants. Each warrant entitles the holder to
purchase one share of common stock for $1.50 during the three year period
commencing May 28, 1997. The Company estimated the value of the warrants to
be $150,000. This amount has been recorded as paid-in capital and was
accreted to interest expense over the term of the bridge financing. Upon
consummation of the public offering in October 1996, each warrant
automatically converted to a warrant with the same terms and conditions as
the warrants issued in conjunction with the public offering (Note 1).
8. Commitments
Operating Lease
The Company leases building space for office and plant facilities. In
February 1996, the Company renegotiated the lease, extending it at
substantially the same rate through December 31, 1997. Under the revised
terms either party may terminate the lease with 60 days notice after
December 31, 1997. Total rent expense for the years ended June 30, 1996 and
1997 amounted to approximately $82,000 and $78,000, respectively.
The Company's remaining obligation under the building lease through the
lease extension is approximately $39,000.
Capital Leases
The Company leases certain computer equipment under capital lease
obligations totaling $34,142 at June 30, 1997. The related assets are
included in fixed assets. Depreciation expense related to leased assets was
approximately $241,850 and $112,000 during fiscal 1997 and 1996,
respectively. Accumulated depreciation related to leased assets was $85,229
and $289,106 at June 30, 1997 and 1996, respectively.
Obligations under the capital leases are recorded at the present value of
future minimum lease payments using the interest rate implicit in the lease
agreements. At June 30, 1997, the future minimum annual lease payments,
together with the present value of the net minimum annual lease payments
under the capital leases, are as follows:
Period Ending June 30,
June 30, 1998 $27,314
June 30, 1999 6,828
-----
34,142
Less: amount representing interest 2,169
Present value of net minimum lease payments 31,973
Less: current portion 25,257
Long-term portion of obligation under capital leases $6,716
------
PaperClip Commitment
In connection with the management agreement with PaperClip, the Company is
required to advance an additional $630,000 during the first half of the
Company's Fiscal 1998.
9. Income Taxes
The tax effects of net operating loss ("NOL") carryforwards and temporary
differences that give rise to the deferred tax assets and liabilities at
June 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
June 30,
1996 1997
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforwards $3,240,000 $4,060,457
Research and development costs capitalized for tax purposes 617,000 1,088,190
Compensation related reserves 24,000 20,963
Provision for doubtful accounts 20,100 16,013
Inventory 88,800 85,457
------ ------
3,989,900 5,271,080
Deferred tax liabilities:
Fixed assets (1,600) (1,415)
------ ------
Valuation allowance (3,988,300) (5,269,665)
---------- ----------
Net deferred tax asset $ - $ -
================ ================
</TABLE>
<PAGE>
The Company records a valuation allowance for deferred tax assets, if based
on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The Company
has determined that a full valuation allowance is required in light of its
history of operating losses since its inception.
At June 30, 1997, the Company has total federal and state NOL
carryforwards, prior to any limitations, available to reduce future taxable
income of approximately $9,500,000, which expire in various amounts between
the years 2002 and 2011, if not previously utilized. In the event of an
ownership change, as defined under Section 382 of the Internal Revenue
Code, utilization of NOL carryforwards in the period following the
ownership change can be significantly limited. The Company has incurred
several changes of ownership under these rules. As a result, utilization of
the NOLs is subject to various limitations, depending upon the year in
which the NOL originated. As of June 30, 1997 management estimates that
approximately $6,300,000 of the Company's federal NOL carryforwards will be
available to offset taxable income that may be generated within the
carryforward period. Of this amount, approximately $1,300,000 is available
for future utilization without limitation. The other $5,000,000 is subject
to a limitation of approximately $330,000 of utilization per year limiting
total utilization during the carryforward period to approximately
$2,200,275. However, because the limitation calculations are complex and
subject to review by the Internal Revenue Service, these limitations could
be adjusted at a later date.
10. Stock Options
In 1987 the Company adopted an employee and director stock option plan (the
"1987 Plan"), pursuant to which the Company made grants of options through
November 1994. As of June 30, 1996, there were options outstanding to
purchase 1,921 shares under the 1987 Plan. In November 1994 the Company
adopted a new employee stock option plan (the "1994 Employee Plan") and a
stock option plan for non-employee directors (the "1994 Directors Plan").
The Company has reserved a number of shares of common stock for the 1994
Employee Plan equal to the difference between 12,162 and the number of
shares issuable upon the exercise of options outstanding from time to time
under the 1987 Plan. As of June 30, 1996, there were options outstanding to
purchase 6,430 shares under the 1994 Employee Plan. As of June 30, 1996,
there were options outstanding to purchase 1,014 shares under the 1994
Directors Plan. The Company has also granted options from time to time to
consultants and in connection with equity and debt offerings. These options
were granted at exercise prices which were not less than the fair market
value of the common stock on the date the option was granted. As of June
30, 1996, there were non-plan options outstanding to purchase 891 shares.
Both the 1987 Plan and the 1994 Plan provided for the grant of incentive
stock options and non-qualified stock options. Incentive stock options
under both plans were granted at an exercise price not less than the fair
market value of the common stock on the date the option was granted.
Non-qualified stock options under the 1987 Plan were granted at exercise
prices not less than 50% of the fair market value of the common stock on
the date the option was granted, while non-qualified stock options under
the 1994 Plan were granted at exercise prices not less than the fair market
value of the common stock on the date the option was granted. Options were
to be exercised within ten (10) years from grant, except for incentive
stock options issued to 10% stockholders which were to be exercised within
five (5) years from grant. Options outstanding under the 1987 Plan and the
1994 Employee Plan vested at the rate of 20% on the first anniversary of
the date of grant and 5% at the end of each additional three-month period
of service. Options under the 1994 Directors Plan vested ratably over four
years. Non-plan options vested in accordance with the terms of the
particular option agreement. The range of vesting periods under non-plan
options is from zero to three years.
In August 1996, the Company terminated the 1994 Directors' Plan. In August
1996 the Company also terminated its 1987 Stock Option and Purchase Plan
and 1994 Stock Option Plans (the "Terminated Plans") and adopted the 1996
Plan pursuant to which key employees of the Company, including directors
who are employees, are eligible to receive grants of options to purchase
common stock, at the discretion of the Compensation Committee. The Company
has reserved 500,000 shares of common stock for issuance under the 1996
Plan. Options granted under the 1996 Plan can be either incentive stock
options or non-qualified options, at the discretion of the Compensation
Committee. On August 1, 1996 the Company canceled the 8,351 options
outstanding under the Terminated Plans (having exercise prices ranging from
$74 to $240.50 per share) and granted options to purchase 263,351 (of the
263,351 options granted, 8,351 were immediately exercisable and the
remainder vested in equal installments on the first and second anniversary
of the grant) shares of Common Stock at an exercise price equal to $3.75
per share. On November 4, 1996, the Company granted options to purchase
15,000 shares of Common Stock at an exercise price of $4.13 per share.
These options vest in equal installments on the first and second
anniversary of the grant. The options must be exercised within five years
of the date of grant.
As of June 30, 1996 and 1997, the following stock options were outstanding:
<PAGE>
<TABLE>
<CAPTION>
Exercise Price Number Outstanding
Per Share June 30, 1996 June 30, 1997
<S> <C> <C> <C>
$ 3.75 - 193,837
4.13 - 15,000
74.00 891 92
119.88 186 -
148.00 98 16
222.00 8,344 1,352
240.50 435 135
351.50 14 14
399.60 288 288
--- ---
10,256 210,734
====== =======
</TABLE>
The following is a summary of stock option activity for the years ended
June 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Outstanding, beginning of period 11,278 10,256
Granted during period 5,021 263,351
Canceled during period (6,043) (63,873)
Exercised during period - -
---------- -----------
Outstanding, end of period 10,256 210,734
====== =======
</TABLE>
The fair value of each option granted in Fiscal 1997 is estimated on the
date of grant using the Black-Sholes option-pricing model. The following
assumptions were used in the model:
Dividend yield 0.0%
Risk-free yields 6.16%-6.31%
Expected volatility 0.0%-4.2%
Option terms 5 years
Had compensation cost for option grants to employees pursuant to the
Company's stock option plans been determined based upon the fair value at
the grant date for awards under the plan consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company's net loss and net
loss per share, for the year ended June 30, 1997 would have been increased
by approximately $118,000 or $.04 per share. Because additional option
grants are expected to be made each year, the pro forma impact on the year
ended June 30, 1997 is not representative of the pro forma effects on
reported net income in future years.
11. International Sales and Major Customers
The Company sells optical archiving systems and related licenses for
software products to customers domestically and internationally.
International sales have all been denominated in U.S. dollars and were
$214,000 and $107,483 in the year ended June 30, 1996 and 1997,
respectively. The Company's sales to Canada represented 11% and 10% of
total revenues for the year ended June 30, 1996 and 1997, respectively.
Sales to three customers accounted for 35%, 22%, and 11% of revenues for
the year ended June 30, 1996. Sales to one customer accounted for 10% of
revenue for the year ended June 30, 1997.
12. Mandatorily Redeemable Preferred Stock
In January 1995, the Company sold 50,000 shares of Series A preferred
stock, $.01 par value, in a private placement to a trust for the benefit of
one of the Company's directors. The selling price of $40 per share resulted
in gross proceeds of $2,000,000. The Series A preferred stock had certain
preferred liquidation, dividend and other rights, and was convertible into
common stock upon consummation of an initial public offering of at least
$4,000,000, at a rate of .135 shares of common stock for each share of
Series A preferred stock. Dividends on the Series A preferred stock were
cumulative at a rate of $4 per share annually. Accrued dividends were
charged to accumulated deficit in the statement of mandatorily redeemable
preferred stock and stockholders' equity (deficit).
During the year ended June 30, 1996, the Company converted all of these
shares and accumulated dividends on the preferred shares in the amount of
$197,352 into 7,423 shares of common stock.
13. Supplemental Disclosures of Cash Flow Information
Cash paid for interest for the years ended June 30, 1996 and 1997 was
approximately $130,000 and $75,000, respectively.
During the year ended June 30, 1996 there were a number of transactions in
which the Company issued common stock without receiving any cash proceeds.
In conjunction with the recapitalization discussed in Note 2, the Company
issued 1,041,012 shares of common stock in forgiveness of debt totaling
$2,697,544. As discussed in Note 12 during the period the Company issued
7,423 shares of common stock in exchange for outstanding preferred stock
and accumulated unpaid dividends in the aggregate amount of $2,197,352. In
January 1996 the Company issued 416,500 shares of common stock to an
officer. Compensation expense in the aggregate amount of $744,000 was
recognized in conjunction with this transaction including a non-cash charge
of $424,830, representing the fair value of the common stock as determined
by independent appraisal. The Company also issued 12,790 shares of common
stock to various related parties (including 7,500 shares issued to a former
officer of the Company) in satisfaction of services rendered to the Company
totaling $36,930.
During the year ended June 30, 1996, the Company acquired approximately
$34,000 of computer equipment under a capital lease.
14. Subsequent Event
On September 12, 1997, the acquisition agreement between ASI and PaperClip
was amended (the "Amended Agreement") to change the acquisition to a
merger. As a result of this amendment, a newly-formed subsidiary of ASI
will merge into PaperClip with PaperClip surviving as a subsidiary of ASI
(the "Merger"). Consummation of this transaction is subject to various
conditions, including approval by the PaperClip stockholders. Under the
terms of the Amended Agreement, the PaperClip stockholders will be entitled
to receive an aggregate of approximately 1.5 million shares of ASI's Common
Stock 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.
In connection with the Merger, the holders of PaperClip's outstanding 12%
Convertible Notes due December 1999 will exchange such notes for an
aggregate of approximately 400,000 shares of non-voting redeemable
preferred stock of PaperClip. After 18 months, the holders of the preferred
stock will have the option to require ASI to purchase such shares 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 Company expects the Amended Agreement to be put to a
vote of PaperClip stockholders during the second quarter of ASI's Fiscal
1998.
<PAGE>
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
<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
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
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 77,222 35,998
1996 and 1995, respectively
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.
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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.
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK
-------------------------
NUMBER ADDITIONAL
OF SHARES PAR VALUE PAID-IN SUBSCRIPTIONS ACCUMULATED
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 364,951 3,649 1,596,717 0 0
private placement
Issuance of stock in lieu of cash 17,526 175 90,825 0 0
compensation
Issuance of stock in payment of 81,662 817 294,183 0 0
loans
Issuance of stock for subscription 30,768 308 99,692 (100,000) 0
receivable, net
Conversion of note payable to 0 0 60,000 0 0
equity in January, 1995
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 18,489 185 (185) 0 0
converted to equity in 1994
Payment of stock subscription 0 0 0 100,000 0
receivable
Issuance of stock and warrants for 1,525,931 15,260 6,495,129 0 0
cash in public offering
Issuance of stock and warrants for 273,819 2,738 1,393,739 0 0
Bridge Note conversion in public
offering
Issuance of Bridge Warrants 0 0 645,000 0 0
Sale of underwriter of purchase 0 0 100 0 0
options
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 0 0 60,420 0 0
value
----------- ---------- --------------- ----------------- ------------------
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.
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.) STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
--------------------- ------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
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 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 50,000
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
===================== =================== ===================
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
===================== =================== ===================
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<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.
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 2Company 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.
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.
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 stockholders 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.
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.
Stock option transactions for the 1993 Stock Option Plan are summarized as
follows-
Year Ended December 31
1996 Exercise Price 1995 Exercise 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:
<TABLE>
<CAPTION>
1996 Price 1995 Price
---- ----- ---- ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
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.
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
CONDENSED BALANCE SHEETS -- JUNE 30, 1997 (Unaudited)
AND DECEMBER 31, 1996
ASSETS June 30, 1997 December 31, 1996
- ------
----------------------- ----------------------
<S> <C> <C>
CASH and CASH EQUIVALENTS $81,728 $220,573
ACCOUNTS RECEIVABLE (net of allowance for doubtful accounts of
$40,000 at June 30, 1997 and December 31, 1996 359,031 275,527
PREPAID EXPENSES AND OTHER CURRENT ASSETS 565 33,855
-----------------------
Total Current assets 441,324 529,955
-----------------------
EQUIPMENT, FURNITURE AND FIXTURES
Computer and office equipment 386,597 669,889
Furniture and fixtures 204,858 204,858
-----------------------
591,455 874,747
Less - Accumulated depreciation (276,609) (451,902)
-----------------------
314,846 422,845
-----------------------
OTHER ASSETS 50,624 53,282
-----------------------
Total assets $806,794 $1,006,082
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $1,244,063 $1,125,306
LOANS PAYABLE - ASI 969,352
DEFERRED REVENUE 19,045 56,066
CAPITALIZED LEASE 29,260 49,442
-----------------------
Total current liabilities 2,261,720 1,230,814
NOTES PAYABLE 129,691 129,691
CAPITAL LEASE, NET OF CURRENT PORTION 3,966
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, authorized 30,000,000 shares; $.01 par value;
issued and outstanding 8,065,521 shares on June 30,
1997 and 7,722,188 shares at December 31, 1996 80,655 77,222
Additional paid-in capital 16,412,045 16,362,395
Accumulated deficit (18,077,317) (16,798,006)
-----------------------
Stockholders' equity (deficit) (1,584,617) (358,389)
-----------------------
Total liabilities and stockholders' equity (deficit) $806,794 $1,006,082
======================= ==============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
UNAUDITED
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $635,559 $495,545 $920,868 $983,575
- --------- -------- -------- -------- --------
OPERATING EXPENSES:
Salaries and related benefits 410,437 389,789 719,806 752,981
Research and development expenses 275,171 830,828 655,656 1,464,053
Selling expenses 119,158 402,771 326,378 596,590
General and administrative expenses 211,637 247,623 479,841 492,689
------- ------- ------- -------
Total operating expenses 1,016,403 1,871,011 2,181,681 3,306,313
--------- --------- --------- ---------
Loss from operations (380,844) (1,375,466) (1,260,813) (2,322,738)
--------- --------- --------- --------
OTHER INCOME (EXPENSE):
Interest income 687 41,658 3,137 67,983
Interest expense (14,254) (1,672) (21,637) (3,147)
--------- --------- --------- --------
(13,567) 39,986 (18,500) 64,836
--------- --------- --------- --------
Net loss ($396,411) ($1,335,480) ($1,279,313) ($2,257,902)
================
LOSS PER COMMON SHARE ($0.05) ($0.18) ($0.16) ($0.30)
================= ============== ============== =============
WEIGHTED AVERAGE NUMBER COMMON SHARES
OUTSTANDING 8,065,521 7,620,692 7,951,893 7,435,815
================ ============= ============== =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
UNAUDITED
1997 1996
----------------------- ----------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($1,279,313) ($2,257,902)
Adjustments to reconcile net loss to net cash used in
operating activities - Depreciation 107,999 75,852
(Increase) in accounts receivable (83,504) (107,026)
Decrease (Increase) in prepaid expenses and other current
assets 33,290 (21,683)
Decrease in other assets 2,658 366
Increase in accounts payable, accrued expenses and
deferred revenues 81,738 59,307
----------------------- ---------------------
Net cash used in operating activities (1,137,132) (2,251,086)
----------------------- --------------------
INVESTING ACTIVITIES -- Purchases of equipment, furniture and
fixtures (107,587)
----------------------- ----------------------
FINANCING ACTIVITIES:
Proceeds from issuance of stock in exchange for Bridge
Warrants and cash 616,456
Proceeds from issuance of stock in exchange for Stock
Options and Cash 1,000 33,624
Issuance of stock for compensation 52,083
Proceeds from borrowings 969,352
Payments on capitalized leases (24,148) (22,520)
----------------------- --------------------
Net cash provided by financing activities 998,287 --------------------
----------------------- 627,560
Net (decrease) increase in cash (138,845) (1,731,113)
CASH, beginning of period 220,573 3,661,009
----------------------- -------------------
CASH, end of period $81,728 $1,929,896
======================= ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $1,700 $1,672
======================= ===================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
PAPERCLIP SOFTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information, the instructions to Form 10-QSB and item 310 (b) of Regulation SB.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included. For
further information, refer to the Financial Statements and footnotes thereto
included in the Company's Registration Statement and Prospectus and Form 10-KSB
(for the year ended December 31, 1996) as filed with the Securities and Exchange
Commission.
NOTE B -- LOSS PER SHARE
The loss per share amounts in the statement of operations have been computed in
accordance with a Staff Accounting Bulletin (SAB) of the Securities and Exchange
Commission. According to the SAB, common stock and common stock warrants issued
are to be treated as common stock equivalents outstanding for all periods
presented if such common stock was issued or such common stock warrants may be
exercised, at a price substantially below the public offering price. As a
consequence of the Company's offering of 1,799,750 shares of its common stock at
$5.00 per share in an initial public offering, its warrants issued to the Bridge
Note holders, entitling the holders thereof to acquire an aggregate of 430,000
shares of the Company's common stock at an exercise price of $2.25, would be
treated as common stock equivalents unless their inclusion be antidilutive. The
unexercised Bridge Warrants have not been treated as common stock equivalents at
June 30, 1996 or June 30, 1997 as their inclusion would be antidilutive. The
share data contained in this note does not take into account a 2 for 1 stock
split effected as of May 1996.
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF MERGER
among
PAPERCLIP SOFTWARE, INC.
ACCESS SOLUTIONS INTERNATIONAL, INC.
and
PAPERCLIP ACQUISITION CORP.
November 12, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER.........................................................2
Section 1.1. The Merger..................................................2
Section 1.2. The Closing.................................................2
Section 1.3. Actions at the Closing......................................2
Section 1.4. Additional Actions..........................................2
Section 1.5. Certificate of Incorporation................................3
Section 1.6. By-laws.....................................................3
Section 1.7. Directors and Officers......................................3
Section 1.8. No Further Rights...........................................3
ARTICLE II CONVERSION OF SECURITIES, EXCHANGE OF CERTIFICATES................3
Section 2.1. Conversion of Shares........................................3
Section 2.2. Options and Warrants........................................4
Section 2.3. Appraisal Rights............................................5
Section 2.4. Exchange of Shares..........................................5
Section 2.5. Closing of Transfer Books...................................7
Section 2.6. Preferred Stock.............................................7
Section 2.7. Options and Warrants........................................7
ARTICLE III OTHER AGREEMENTS.................................................7
Section 3.1. Preparation of Form S-4 and the Proxy Statements; Stockholder
Meetings; Other Filings.....................................7
Section 3.2. Parent Board of Directors...................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES BY PSI.............................10
Section 4.1. Corporate Existence and Qualification of PSI................10
Section 4.2. PSI's Corporate Documents...................................10
Section 4.3. Authorization of Agreement..................................10
Section 4.4. No Violation................................................11
Section 4.5. SEC Documents; Undisclosed Liabilities......................11
Section 4.6. Inventory...................................................12
Section 4.7. Accounts Receivable.........................................12
Section 4.8. Material Contracts and Obligations..........................13
Section 4.9. Title to Real Property; Liens; Condition of Properties......14
Section 4.10. Licenses...................................................14
Section 4.11. Arm's-Length Transactions, Conflicts of Interest...........15
Section 4.12. Intellectual Property......................................15
Section 4.13. Absence of Certain Developments............................15
Section 4.14. Undisclosed Liabilities....................................16
Section 4.15. Litigation; Compliance with Law............................17
Section 4.16. Employee Claims against PSI................................17
Section 4.17. Intentionally Omitted......................................18
Section 4.18. Employee Benefit Plans.....................................18
Section 4.19. Labor Relations............................................18
Section 4.20. Insurance Policies.........................................19
Section 4.21. Bank Accounts..............................................19
Section 4.22. Capitalization.............................................19
Section 4.23. Disclosure.................................................19
ARTICLE V REPRESENTATIONS AND WARRANTIES BY PARENT AND ACQUISITION...........20
Section 5.1. Corporate Existence and Qualification.......................20
Section 5.2. Access's Corporate Documents................................20
Section 5.3. Authorization of Agreement, Etc.............................21
Section 5.4. Absence of Certain Developments.............................21
Section 5.5. Undisclosed Liabilities.....................................21
Section 5.6. Litigation; Compliance with Law.............................21
Section 5.7. Capitalization; Status of Access Common Shares..............22
Section 5.8. SEC Filings.................................................22
Section 5.9. Information Supplied by Parent or Acquisition...............23
ARTICLE VI CONDUCT PRIOR TO CLOSING..........................................23
Section 6.1. Carry On in Ordinary Course.................................23
Section 6.2. No General Increases........................................23
Section 6.3. Contracts and Commitments...................................24
Section 6.4. Dispositions and Sale of Assets.............................24
Section 6.5. Preservation of Organization................................24
Section 6.6. No Default..................................................24
Section 6.7. Compliance with Laws........................................24
Section 6.8. Operation of Business.......................................24
Section 6.9. Consents....................................................24
Section 6.10. Advisement of Changes......................................25
Section 6.11. No Solicitation............................................25
Section 6.12. No Delaying Transactions...................................26
Section 6.13. Lock-Up Agreements.........................................26
Section 6.14. Best Efforts...............................................26
ARTICLE VII CONDITIONS TO OBLIGATIONS OF PARENT AND ACQUISITION..............26
Section 7.1. Compliance by PSI; Correctness of Representations and
Warranties of PSI...........................................26
Section 7.2. Certified Resolutions of PSI................................27
Section 7.3. Approval by Parent's and Acquisition's Counsel..............27
Section 7.4. Opinions of Counsel for PSI.................................27
Section 7.5. Consents of Third Parties...................................28
Section 7.6. Certificate of Chief Executive Officer of PSI...............28
Section 7.7. Approval of Governmental Authorities........................28
Section 7.8. Corporate Authority.........................................29
Section 7.9. Exchange of PSI Convertible Notes...........................29
Section 7.10. Approval of Parent Stockholders............................29
Section 7.11. Form S-4 Effective.........................................29
Section 7.12. Termination of Certain Agreements..........................29
Section 7.13. Certificate of Merger......................................29
ARTICLE VIII CONDITIONS TO OBLIGATIONS OF PSI................................29
Section 8.1. Compliance by Parent and Acquisition; Correctness of
Representations and Warranties..............................30
Section 8.2. Certified Resolutions of Parent and Acquisition.............30
Section 8.3. Approval by PSI's Counsel...................................30
Section 8.4. Opinion of Edwards & Angell.................................30
Section 8.5. Certificate of President of Parent and Acquisition..........31
Section 8.6. Approval of Governmental Authorities........................31
Section 8.7. Corporate Authority.........................................32
Section 8.8. Access Merger Securities....................................32
Section 8.9. Form S-4 Effective..........................................32
Section 8.10. Certificate of Merger......................................32
ARTICLE IX FEES AND EXPENSES.................................................32
Section 9.1. Fees and Expenses...........................................32
Section 9.2. Termination Fee.............................................32
ARTICLE X TERMINATION AND EFFECT.............................................33
Section 10.1. Termination of Agreement...................................33
Section 10.2. Effect of Termination......................................34
ARTICLE XI ACKNOWLEDGMENTS OF PSI............................................34
Section 11.1. Restricted Securities......................................34
Section 11.2. Access to Information......................................35
ARTICLE XII BROKERS' COMMISSIONS.............................................35
ARTICLE XIII ACCESS TO FACILITIES, PROPERTIES AND RECORDS....................36
ARTICLE XIV SURVIVAL OF REPRESENTATIONS......................................36
ARTICLE XV MISCELLANEOUS.....................................................36
Section 15.1. Amendment to Agreement; Waivers; Procedure.................36
Section 15.2. Binding Effect.............................................37
Section 15.3. Entire Agreement...........................................37
Section 15.4. Headings...................................................37
Section 15.5. Confidential Information; Publicity........................37
Section 15.6. Notices....................................................38
Section 15.7. Indemnification and Insurance..............................39
Section 15.8. Counterparts...............................................40
Section 15.9. No Benefit to Others.......................................40
Section 15.10. Governing Law.............................................40
Section 15.11. No Waiver.................................................40
Section 15.12. Severability..............................................40
Section 15.13. Time of Essence...........................................40
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, made as of the 12th day of November, 1997, by
and among PAPERCLIP SOFTWARE, INC., a Delaware corporation ("PSI"), ACCESS
SOLUTIONS INTERNATIONAL, INC., a Delaware corporation ("Parent") and PAPERCLIP
ACQUISITION CORP. a Delaware corporation and wholly-owned subsidiary of Parent
("Acquisition"). Parent and Acquisition are hereinafter sometimes referred to
collectively as Access.
W I T N E S S E T H:
WHEREAS, Parent and PSI are parties to that certain Asset Purchase
Agreement dated as of April 15, 1997 (the "Asset Purchase Agreement"), pursuant
to which Parent agreed to purchase and PSI agreed to sell to Parent
substantially all of the assets of PSI on the terms and conditions set forth
therein; and
WHEREAS, the Boards of Directors of each of PSI, Acquisition and Parent
have now agreed that it is in their best interests for Acquisition to merge with
and into PSI upon the terms and conditions set forth herein; and
WHEREAS, the Boards of Directors of PSI, Acquisition and Parent have
approved such merger; and
WHEREAS, PSI is engaged in the business of developing and distributing
computer software for document management and imaging systems (hereinafter
generally called the "Business"); and
WHEREAS, as a condition to the willingness of Access to enter into this
Agreement, those directors and officers of PSI who are also stockholders of PSI
(the "PSI Significant Stockholders") have entered into that certain Stockholder
Agreement of even date ("PSI Stockholder Agreement"), which provides, among
other things, that each PSI Significant Stockholder will vote the shares of PSI
Common Stock which he owns in favor of the approval and adoption of this
Agreement and the consummation of the transactions contemplated hereby; and
WHEREAS, as a further condition to the willingness of Access to enter into
this Agreement, PSI has entered into an amendment to that certain Management
Agreement dated April 15, 1997 (the "Management Agreement") which provides,
among other things, that Access will continue to manage PSI's operations from
the date hereof until the consummation of the transactions contemplated hereby
or the earlier termination of this Agreement; and
WHEREAS, this Agreement contemplates that the common stockholders of PSI
will receive capital stock of Parent in exchange for their capital stock of PSI.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger.
Upon and subject to the terms and conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("DGCL"), Acquisition shall
be merged with and into PSI (with such merger referred to herein as the
"Merger") at the Effective Time (as defined below). From and after the Effective
Time, as a result of the Merger, the separate corporate existence of Acquisition
shall cease and PSI shall continue as the surviving corporation in the Merger
(the "Surviving Corporation") and a subsidiary of Parent. The "Effective Time"
shall be the time at which PSI and Acquisition file a certificate of merger in
substantially the form attached hereto as Exhibit A (the "Certificate of
Merger") in accordance with the relevant provisions of the DGCL, with the
Secretary of State of the State of Delaware. The Merger shall have the effects
set forth in Sections 251 and 259 of the DGCL.
Section 1.2. The Closing.
The closing of the Merger (the "Closing") shall take place at the offices
of Edwards & Angell in Providence, Rhode Island, commencing at 10:00 a.m. local
time on the first business day after the receipt of PSI Stockholder Approval
and, if required, Parent Stockholder Approval (as defined in Section 3.1),
provided that on or prior thereto, all the conditions to the obligations of the
parties hereto to consummate the transactions contemplated hereby as set forth
in Articles VII and VIII have been satisfied or waived, or on such other
mutually agreeable later date as soon as practicable after the satisfaction or
waiver of all conditions to the obligations of the parties hereto to consummate
the transactions contemplated hereby (the "Closing Date").
Section 1.3. Actions at the Closing.
At the Closing, subject to the satisfaction or waiver of all of the
conditions set forth in Articles VII and VIII not theretofore satisfied or
waived: (a) PSI and Acquisition shall file with the Secretary of State of the
State of Delaware the Certificate of Merger, and (b) Acquisition shall deliver
the Merger Consideration (as defined below) to such bank or trust company as may
be designated by Parent and approved by PSI (such approval not to be withheld or
delayed unreasonably) to act as the exchange agent (the "Exchange Agent") in
accordance with Section 2.5.
Section 1.4. Additional Actions.
The Surviving Corporation may, at any time after the Effective Time, take
any action, including executing and delivering any document, in the name and on
behalf of either PSI or Acquisition, in order to consummate the transactions
contemplated by this Agreement.
Section 1.5. Certificate of Incorporation.
The Certificate of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of PSI as amended and restated in the Certificate
of Merger.
Section 1.6. By-laws.
The By-laws of Acquisition immediately prior to the Effective Time shall
become the By-laws of the Surviving Corporation, except that the name of the
corporation set forth therein shall be changed to PaperClip Software, Inc.
Section 1.7. Directors and Officers.
The directors of Acquisition immediately prior to the Effective Time shall
become the directors of the Surviving Corporation as of the Effective Time. The
officers of Acquisition immediately prior to the Effective Time shall be the
officers of the Surviving Corporation after the Effective Time, retaining their
respective positions. The directors and officers of PSI immediately prior to the
Effective Time shall cease being officers and directors of PSI as of the
Effective Time and shall not become officers or directors of the Surviving
Corporation.
Section 1.8. No Further Rights.
From and after the Effective Time, no PSI Common Shares (as defined in
Section 2.1 below) shall be deemed to be outstanding, and holders of
certificates of PSI Common Shares shall cease to have any rights with respect
thereto, other than the right to receive Merger Consideration (as defined below)
in accordance herewith. The rights of holders of certificates of PSI Preferred
Shares (as defined in Section 2.1 below) shall be as described in this
Agreement.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1. Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Acquisition or PSI or the
holder of any of the following securities:
(a) Each share of common stock, $.01 par value per share, of PSI ("PSI
Common Stock") issued and outstanding immediately prior to the Effective Time
(other than shares of PSI Common Stock owned by stockholders who, pursuant to
the DGCL, properly perfect their rights to appraisal in accordance with Section
262 of the DGCL ("Dissenting Stockholders"), and shares of PSI Common Stock held
in PSI's treasury) shall be converted into the right to receive: (i) such number
of shares of Parent's common stock, $.01 par value, equal to the "Conversion
Ratio" (the "Access Merger Shares"); and (ii) an equivalent number of Parent's
Class B Warrants (the "Access Merger Warrants") (collectively the "Merger
Consideration"). The Conversion Ratio shall equal 1,544,438, divided by the
number of shares of PSI Common Stock issued and outstanding immediately prior to
the Effective Time.
(b) Each PSI Share held in PSI's treasury immediately prior to the
Effective Time shall, by virtue of the Merger and without any further action, be
canceled and retired without payment of any consideration therefor.
(c) Each share of common stock, $.01 par value per share, of Acquisition
("Acquisition Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted into and thereafter evidence one share of
common stock, $.01 par value per share, of the Surviving Corporation.
(d) Each share of PSI's Series A Preferred Stock, $.01 par value ("PSI
Preferred Stock"), issued and outstanding immediately prior to the Effective
Time shall become one share of Series A Preferred Stock, $.01 par value, of the
Surviving Corporation. Following the Effective Time, Parent shall, or shall
cause the Surviving Corporation to, honor the put rights of the holders of the
Series A Preferred Stock, including, without limitation, providing funds to the
Surviving Corporation to satisfy the put, if necessary.
(e) Stockholders of record of PSI, in each case as of the Effective Time
("PSI Stockholders"), other than Dissenting Stockholders, shall be entitled to
receive the Merger Consideration into which their shares of PSI Common Stock or
PSI Preferred Stock (collectively, the "PSI Shares") shall be converted pursuant
to Section 2.1(a) upon tender of their PSI Shares as set forth in Section 2.4
below.
Section 2.2. Options and Warrants.
(a) At the Effective Time: (i) all options to purchase PSI Shares issued by
PSI pursuant to its stock option plans or otherwise ("Options") other than
options described in Section 2.2(c), and (ii) all warrants to purchase PSI
Shares ("Warrants") (collectively the number of PSI shares which can be
purchased under Options and Warrants shall be referred to as the "O&W PSI
Shares"), shall be converted into the right to receive the Merger Consideration
which would have been received for each share of PSI Common Stock underlying
such Option or Warrant upon the same terms and conditions set forth in such
Option or Warrant, including, without limitation, the expiration date and
exercise price.
(b) At or prior to the Effective Time, the Parent or the Surviving
Corporation shall deliver to the holders of the Options and Warrants subject to
Section 2.2(a) appropriate notices setting forth such holders' rights pursuant
to such Options or Warrants and instructions for surrendering to the Exchange
Agent such Option or Warrant in exchange for the Merger Consideration.
(c) At the Effective Time, Parent will offer PSI employees who continue to
be employed by Parent or the Surviving Corporation options to purchase Parent
common stock in an amount deemed appropriate by Parent's Board of Directors in
substitution and cancellation of such employees' existing Options.
Section 2.3. Appraisal Rights.
(a) Notwithstanding any provision of this Agreement to the contrary, any
PSI Shares held by a Dissenting Stockholder shall not be converted into the
right to receive Merger Consideration pursuant to Section 2.1(a), but such
Dissenting Stockholder shall only be entitled to such payments as are provided
by the DGCL.
(b) If, on or after the Effective Time, any Dissenting Stockholder shall
effectively withdraw or lose (through failure to perfect or otherwise) such
Dissenting Stockholder's right to appraisal, then, as of the later of the
Effective Time or the occurrence of such event, such Dissenting Stockholder's
PSI Shares shall be treated under this Agreement as if they had been converted
as of the Effective Time into the right to receive Merger Consideration as
provided in Section 2.1(a), without interest thereon.
(c) PSI shall give the Parent: (i) prompt notice of any written demands for
appraisal of any PSI Shares, withdrawals of such demands, and any other
instruments that relate to such demands received by PSI, and (ii) the right to
participate in all negotiations and proceedings with respect to demands for
appraisal under the DGCL. PSI shall not, without the prior written consent of
the Parent, make any payment with respect to any demands for appraisal of PSI
Shares or offer to settle or settle any such demands.
Section 2.4. Exchange of Shares.
(a) Prior to the Effective Time, the Parent and PSI shall appoint the
Exchange Agent to effect the exchange for the Merger Consideration of
certificates that, immediately prior to the Effective Time, represented PSI
Shares ("Certificates"). On the Closing Date, the Parent shall deliver to the
Exchange Agent or its nominee, in trust for the benefit of holders of
Certificates, the Merger Consideration. As soon as practicable after the
Effective Time, the Parent shall cause the Exchange Agent to send a notice and a
transmittal form to each holder of record of a Certificate advising such holder
of the effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent such Certificate in exchange for the Merger Consideration (which
procedure shall include the execution and delivery by such holder of the Lock-Up
Agreement described in Section 6.13 to the extent that the Lock-Up Period (as
defined in the Lock-Up Agreement) shall not have expired). Each holder of a
Certificate, upon proper surrender thereof to the Exchange Agent in accordance
with the instructions in such notice, shall be entitled to receive in exchange
therefor (subject to any taxes required to be withheld) 95.14% of the Merger
Consideration, without interest, determined pursuant to Sections 2.1(a); the
balance of the Merger Consideration will be distributed pursuant to the Escrow
Agreement described in Section 2.4(e). Until properly surrendered, from and
after the Effective Time each such Certificate shall be deemed for all purposes
to evidence only the right to receive 95.14% of the Merger Consideration
determined pursuant to Sections 2.1(a). Holders of Certificates shall not be
entitled to receive Merger Consideration to which they would otherwise be
entitled until such Certificates are properly surrendered, or an affidavit is
delivered pursuant to Section 2.4(c).
(b) If any Merger Consideration is to be issued or paid in the name of a
person other than the person in whose name the Certificate surrendered in
exchange therefor is registered, it shall be a condition to the issuance and
payment of such Merger Consideration that: (i) the Certificate so surrendered
shall be transferable, and shall be properly assigned, endorsed or accompanied
by appropriate stock powers, (ii) such transfer shall otherwise be proper, and
(iii) the person requesting such transfer shall pay to the Exchange Agent any
transfer or other taxes payable by reason of the foregoing or establish to the
satisfaction of the Exchange Agent that such taxes have been paid or are not
required to be paid. Notwithstanding the foregoing, neither the Exchange Agent
nor any party shall be liable to a holder of PSI Shares for any Merger
Consideration issuable or payable to such holder that is delivered to a public
official in accordance with applicable abandoned property, escheat or similar
laws.
(c) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed, the Parent shall direct the
Exchange Agent to issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration issuable or payable in exchange therefor
pursuant to Section 2.1. The Board of Directors of the Parent may, in its
discretion and as a condition precedent to the issuance or payment thereof, if
required by the Exchange Agent, require the owner of such lost, stolen or
destroyed Certificate to give the Parent a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against the Parent with
respect to the Certificate alleged to have been lost, stolen or destroyed.
(d) Promptly following the date which is twelve (12) months after the
Closing Date, the Exchange Agent shall return to the Parent all Merger
Consideration in its possession. Thereafter, the Exchange Agent's duties shall
terminate. Thereafter, each holder of a Certificate may surrender such
Certificate to the Parent and, subject to applicable abandoned property, escheat
and similar laws, receive in exchange therefor the Merger Consideration without
interest.
(e) On the Closing Date, Parent will issue to an escrow agent a certificate
for 75,000 of the Access Merger Shares and a certificate for 75,000 of the
Access Merger Warrants. Such certificates will be placed into escrow pursuant to
the terms and conditions set forth in an Escrow Agreement containing such terms
and conditions as shall be mutually agreeable to Parent and PSI.
(f) Prior to the Effective Date, Parent, at its option, may determine that
fractional shares of Parent Common Stock or fractional interests in Class B
Warrants will not be issued to any PSI stockholder following the Effective Time.
If ASI makes such determination, for each fractional share of ASI Common Stock
that would otherwise be issued, ASI will pay cash based upon a value of $3.75
for each whole share, and for each fractional interest in a Class B Warrant that
would otherwise be issued, Parent will pay cash based upon a value of $1.00 for
each whole Class B Warrant. Calculations will be made to the nearest
one-thousandth of a share of Parent Common Stock and of a Class B Warrant and to
the nearest cent.
Section 2.5. Closing of Transfer Books. At the Effective Time, the stock
transfer books of PSI shall be closed and no transfer of PSI Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, the Parent or the Exchange Agent, they shall be
canceled and exchanged for Merger Consideration in accordance with Section 2.1,
subject to applicable law in the case of PSI Shares held by Dissenting
Stockholders.
Section 2.6. Preferred Stock. Prior to the Effective Time, the PSI
Convertible Notes (in the aggregate outstanding principal amount of $129,690.74
plus unpaid interest accrued on the PSI Convertible Notes through the date of
exchange), as set forth on Schedule 2.6, will be exchanged at the rate of one
share of PSI Preferred Stock for each $.30 of principal and accrued interest on
the PSI Convertible Notes into an aggregate of 432,303 (plus the number of
shares determined by dividing the amount of such unpaid interest by $.30 per
share) of preferred shares of PSI (the "PSI Preferred Stock"). PSI Preferred
Stock shall be subject to the rights, conditions and qualifications set forth on
Exhibit B attached hereto.
Section 2.7. Options and Warrants. On the Closing Date, the Parent shall
deliver to the Exchange Agent or its nominee option agreements and warrants to
purchase Parent Common Stock and Class B Warrants (the "Merger Options and
Warrants") in an amount equal to the Merger Consideration attributable to each
share of PSI Common Stock underlying each outstanding Option (other than options
described in Section 2.2(c)) and Warrant, and otherwise containing substantially
the same terms as are contained in the applicable option agreement or warrant.
As soon as practicable after the Effective Time, Parent shall cause the Exchange
Agent to send a notice and transmittal form to each holder of Options and
Warrants (other than holders of Options described in Section 2.2(c)), advising
such holder of the effectiveness of the Merger and the procedure for
surrendering to the Exchange Agent such Options or Warrants in exchange for the
Merger Options and Warrants.
ARTICLE III
OTHER AGREEMENTS
Section 3.1. Preparation of Form S-4 and the Proxy Statements; Stockholder
Meetings; Other Filings.
(a) PSI will, as soon as reasonably practicable following the date of this
Agreement, take all action necessary in accordance with applicable law and its
Certificate of Incorporation and By-laws to convene a meeting of its
stockholders (the "PSI Stockholder Meeting") for the purpose of obtaining the
affirmative vote to approve and adopt this Agreement and the transactions
contemplated hereby at the PSI Stockholder Meeting of the holders of a majority
of the votes represented by the outstanding PSI Common Stock ("PSI Stockholder
Approval"). The proxy statement for such meeting shall contain the
recommendation of PSI's Board of Directors that the stockholders vote to approve
and adopt this Agreement and the transactions contemplated hereby, and such
recommendation shall not be withdrawn; provided, however, that such
recommendation is subject to the exercise of the discretion of PSI's Board of
Directors of its fiduciary duties to PSI's shareholders. PSI shall use its
reasonable best efforts to solicit from its stockholders proxies in favor of
such adoption and approval and shall take all other action necessary to secure
the vote of stockholders required by DGCL to effect the transactions
contemplated hereby.
(b) As soon as practicable after execution and delivery of this Agreement,
PSI shall prepare in accordance with the applicable requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and DGCL, a proxy
statement in connection with the PSI Stockholder Meeting (the "Proxy
Statement"). Parent shall cooperate with PSI in the preparation and filing of
the Proxy Statement, including any and all amendments and supplements thereto.
Parent and PSI will cooperate in order for Parent to prepare and file with the
United States Securities and Exchange Commission ("SEC") a registration
statement on Form S-4 in connection with the issuance of the Access Merger
Securities (the "Form S-4"), in which the Proxy Statement will be included as a
part of a proxy statement/prospectus. PSI and Parent shall each use all
reasonable efforts to have the Form S-4 declared effective under the Securities
Act of 1933, as amended ("Securities Act") as soon as practicable after such
filing. PSI will use all reasonable efforts to cause the Proxy Statement to be
mailed to each of PSI's stockholders and, if Parent elects or is required to do
so, Parent will use all reasonable efforts to cause the Proxy Statement to be
mailed to Parent's stockholders, in each case as promptly as reasonably
practicable after the Form S-4 is declared effective under the Securities Act.
Parent will also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or filing a general consent to
service of process) required to be taken under any applicable state securities
or blue sky laws in connection with the issuance of the Access Merger Securities
and PSI shall furnish all information concerning PSI and its stockholders as may
be reasonably requested in connection with any such action.
(c) If the Board of Directors of Parent determines that it is necessary or
desirable to do so, Parent will, as soon as reasonably practicable following the
date of this Agreement, take all action necessary in accordance with applicable
law and its Restated Certificate of Incorporation and By-laws to convene a
meeting of its stockholders (the "Access Stockholder Meeting") for the purpose
of obtaining the affirmative vote at the Access Stockholder Meeting of the
holders of a majority of the votes represented by the outstanding Parent Common
Stock ("Access Stockholder Approval"). The proxy statement for such meeting
(which shall be part of the proxy statement/prospectus contained in the Form
S-4) shall contain the recommendation of Parent's Board of Directors that the
stockholders vote to approve and adopt this Agreement and the transactions
contemplated hereby, and such recommendation shall not be withdrawn; provided,
however, that such recommendation is subject to the exercise of the discretion
of Parent's Board of Directors of its fiduciary duties to Parent's shareholders.
Parent shall use its reasonable best efforts to solicit from its stockholders
proxies in favor of such adoption and approval and shall take all other action
necessary to secure the vote of stockholders required by DGCL to effect the
transactions contemplated hereby.
(d) As soon as practicable after the execution and delivery of this
Agreement, PSI and Parent shall promptly and properly prepare and file any other
schedules, statements, reports, or other documents required (if any) under the
Exchange Act, the Securities Act, or any other federal or state securities laws
relating to the transactions contemplated hereby (the "Other Filings"). Each
party shall notify the other party hereto promptly of the receipt by such party
of any stop order, comments or requests for additional information from any
governmental official with respect to the Proxy Statement, the Form S-4 or any
Other Filing made by such party and will supply the other party with copies of
all correspondence between such party and its representatives, on the one hand,
and the appropriate government official, on the other hand, with respect to the
Proxy Statement, Form S-4 and Other Filings made by such party. Each of PSI and
Access shall use reasonable efforts to obtain and furnish the information
required to be included in the Form S-4, the Proxy Statement and any Other
Filing and, after consultation with the other party, to respond promptly to any
comments made by any government official with respect to any filing.
(e) PSI shall use all reasonable efforts to cause to be delivered to Parent
a so-called "cold comfort" letter of Arthur Andersen LLP, PSI's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective, addressed to Parent, in form
reasonably satisfactory to Parent and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(f) Parent shall use all reasonable efforts to cause to be delivered to PSI
a so-called "cold comfort" letter of Price Waterhouse LLP, Parent's independent
public accountants, dated a date within two business days before the date on
which the Form S-4 shall become effective, addressed to PSI, in form reasonably
satisfactory to PSI and customary in scope and substance for letters delivered
by independent public accountants in connection with the registration statements
similar to the Form S-4.
(g) Parent agrees to use reasonable efforts to effect, prior to the Closing
Date, the listing on the NASDAQ Small Cap market, upon official notice of
issuance, of the Access Merger Shares and the Access Merger Warrants to be
issued hereunder.
(h) PSI hereby agrees to indemnify and hold harmless Parent and its
directors, officers, advisors and agents and Parent hereby agrees to indemnify
and holds harmless PSI and its directors, officers, advisors and agents, from
and against any loss, claim, damage, cost, liability, obligation or expense
(including reasonable attorney's fees and costs of investigation) to which any
indemnified party may become subject under the Securities Act, Exchange Act, or
otherwise, insofar as such loss, claim, damage, cost, liability, obligation or
expense or actions in respect thereof: (i) relates solely to a claim brought
against such indemnified party by a third party who is not affiliated with
either the indemnified party or the indemnifying party; and (ii) arises out of
or is based upon any untrue statement or alleged untrue statement of a material
fact contained in the Form S-4 or the Proxy Statement or arises out of or is
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein with
respect to such indemnifying party not misleading; and (iii) such untrue
statement or omission or alleged omission is made in any information with
respect to the indemnifying party furnished in writing by such indemnifying
party specifically for inclusion in the Proxy Statement, Form S-4 or any Other
Filing.
Section 3.2. Parent Board of Directors.
For a period of two years following the Closing Date, Parent shall nominate
one person designated by PSI (who initially shall be Stephen Kornfeld) to
Parent's Board of Directors. In addition, during such two-year period, PSI will
be entitled to designate one person who will be permitted to attend all meetings
of Parent's Board of Directors as an "advisor" or "observer"; and, in the event
that Mr. Kornfeld or any other designee of PSI resigns or is removed for cause
from Parent's Board of Directors, Mr. Kornfeld or such other designee will be
entitled to designate an additional "advisor" or "observer".
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY PSI
In order to induce Parent and Acquisition to enter into this Agreement and
to consummate the transactions contemplated hereunder, PSI makes the following
representations, warranties, covenants and agreements (it being understood that
Parent has been managing the day to day operations of the Business since April
15, 1997 pursuant to the Management Agreement, and that it shall not be deemed a
breach of any of the following representations and warranties for PSI to fail to
disclose a matter known to Parent but not known to PSI) :
Section 4.1. Corporate Existence and Qualification of PSI.
PSI is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to own its properties and to carry on its business as it is now
being conducted. PSI is qualified to do business as a foreign corporation in the
states set forth in Schedule 4.1. PSI has no subsidiaries.
Section 4.2. PSI's Corporate Documents.
Copies of the Certificate of Incorporation and By-Laws, including the
respective amendments thereto, of PSI, certified by the Secretary of PSI, have
been delivered to Parent, and such copies are true, complete and correct.
Section 4.3. Authorization of Agreement.
(a) PSI has all requisite corporate power to enter into this Agreement and
to consummate the transactions contemplated hereby. Except for PSI Stockholder
Approval, all corporate and other actions required to be taken by PSI to
authorize it to carry out this Agreement and the transactions contemplated
hereby have been, or as of the Closing Date shall have been, duly and properly
taken. This Agreement and the Management Agreement have been duly executed and
delivered by PSI, and each constitutes a valid and binding obligation of PSI,
enforceable against PSI in accordance with its terms.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Federal, state or local governmental or any
court, administrative or regulatory agency or commission ("Governmental Entity")
is required by or with respect to PSI in connection with the execution and
delivery of this Agreement by PSI or the consummation of the transactions
contemplated by this Agreement, except: (i) the filing with the SEC of the Form
S-4 and the Proxy Statement, and (ii) such filings with Governmental Entities as
might be required to satisfy the applicable requirements of state securities or
blue sky laws in connection with the transactions contemplated by this
Agreement.
Section 4.4. No Violation.
Neither the execution and delivery by PSI of this Agreement nor the
consummation of the transactions contemplated hereby violate or will violate any
provision of law applicable to, or any provision of the Certificate of
Incorporation or By-laws of, PSI or conflict with or will result in any breach
of any term, condition or provision of, or constitute or will constitute (with
due notice or lapse of time or both) a default under, or will result in the
creation or imposition of any lien, charge or encumbrance upon any of PSI's
assets, any mortgage, deed of trust or other agreement or instrument to which
PSI is a party except to the extent PSI shall have obtained a waiver or release
thereof.
Section 4.5. SEC Documents; Undisclosed Liabilities.
(a) PSI has filed with the SEC PSI's registration statement on Form SB-2
(the "PSI SB-2"), which became effective on August 9, 1995 (the "PSI SB-2
Effective Date"), and all required reports, schedules, forms, statements and
other documents since PSI's SB-2 Effective Date (together with the PSI Form
SB-2, the "PSI SEC Documents"). As of their respective dates, the PSI SEC
Documents complied as to form in all material respects with the requirements of
the Securities Act, or the Exchange Act, as the case may be, and none of the PSI
SEC Documents when filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) As of their respective dates, the financial statements of PSI included
in the PSI SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, were prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by the rules and regulations of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present, in all material respects, the financial position of PSI as
of the dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
(c) Attached hereto as Schedule 4.5 are the audited financial statements of
PSI for the year ended December 31, 1996 ("PSI 1996 Financial Statements"). The
PSI 1996 Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis and fairly present,
in all material respects, the financial position of PSI as of such date and the
results of its operations and cash flows for the period then ended.
(d) Except as set forth in the filed PSI SEC Documents, or in Schedule 4.5,
as of the date of this Agreement, PSI does not have any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
required by generally accepted accounting principles to be recognized or
disclosed on a balance sheet of PSI or in the notes thereto and which,
individually or in the aggregate, would have a material adverse effect on PSI.
(e) None of the information contained in the Proxy Statement or any Other
Filing shall, on the date the Proxy Statement is first mailed to stockholders or
any such Other Filing is made, as the case may be, at the time of PSI
Stockholders Meeting or on the Closing Date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they will be made, not misleading. Notwithstanding the foregoing, PSI
makes no representations or warranties with respect to any information supplied
by Parent or Acquisition specifically for use in any of the foregoing documents.
The Proxy Statement shall comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder and any Other Filings filed by PSI shall comply as to
form in all material respects with all applicable requirements of law.
Section 4.6. Inventory.
Except as set forth on Schedule 4.6 hereto, all inventory set forth on the
PSI 1996 Financial Statements, and all additions to inventory since December 31,
1996, consist of items of a quantity and quality usable or salable in the
ordinary course of the business at prevailing market prices without discount.
All inventories not written off have been priced at the lower of cost or market
on a first in, first out basis. Except as set forth in Schedule 4.6 hereto,
since December 31, 1996, no inventory items have been sold or disposed of except
in the ordinary course of business. Schedule 4.6 sets forth the locations of all
items of inventory.
Section 4.7. Accounts Receivable.
All accounts receivable as shown on the PSI 1996 Financial Statements or on
the accounting records of PSI as of the date hereof are valid, genuine and
subsisting, have arisen in the ordinary course of business from customers
believed to be commercially responsible, and the reserves shown on PSI's 1996
Financial Statements are adequate and calculated consistent with past practice
and consistent with generally accepted accounting principles. Since December 31,
1996, any proceeds collected on accounts receivable have been applied only to
liabilities set forth on the PSI 1996 Financial Statements.
Section 4.8. Material Contracts and Obligations.
(a) Except for matters relating to real property listed on Schedule 4.9
hereto, Schedule 4.8(a) is a true, complete and accurate list prepared by PSI,
categorized by subject matter, of the following contracts, agreements,
commitments, options, liens, licenses, mortgages, other security interests,
understandings or promises, whether written or oral ("Contract"), to which PSI
is a party or by which it is or any of its properties or assets are bound:
(i) purchase or sale orders and agreements to or with any one customer
or supplier for the sale of products or services of an amount or value in
excess of $5,000;
(ii) all employment contracts with any officer, consultant, director
or employee;
(iii) all plans, contracts or arrangements providing for stock options
or stock purchases, bonuses, pensions, deferred compensation, retirement
payments, profit-sharing or the like;
(iv) all contracts for construction or for the purchase of equipment,
machinery and other items;
(v) all contracts relating to the rental or use of equipment, other
personal property or fixtures (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $5,000 and with terms of less than one
year);
(vi) all license agreements, either as licensor or licensee;
(vii) all joint venture contracts and agreements involving a sharing
of profits;
(viii) all franchise agreements;
(ix) all distributor, sales agency and other similar agreements;
(x) all loan or guaranty agreements, credit agreements, notes or other
evidences of indebtedness, indentures or instruments evidencing liens or
secured transactions; and
(xi) all other contracts, except those which: (i) are cancelable on 30
days' or less notice without any penalty or other financial obligation, or
(ii) if not so cancelable, involve annual aggregate payments by or to PSI
of $5,000 or less.
Each of the Contracts were entered into in the ordinary course of business, is
valid, binding and enforceable by or against PSI and is in full force and
effect. Except as set forth on Schedule 4.8(a), neither PSI nor (to the
knowledge of PSI) any other party thereto is in default in any respect under the
terms of any material Contract. PSI has delivered to Parent true and complete
copies or descriptions of the Contracts required to be listed in
Schedule 4.8(a).
(b) Neither the execution and delivery of this Agreement nor the
consummation of any of the transactions contemplated hereby, nor compliance with
the terms and provisions hereof, will result in the creation or imposition of
any lien upon any of the property or assets of PSI, or conflict in any way with
the provisions of or result in a breach of or termination of or a default or
acceleration of any obligation under, or except as set forth on Schedule 4.8(b),
require the consent of any person pursuant to, any such Contract.
(c) There is no term or provision of any Contract to which PSI is a party
or by which it or any of its properties are bound, or of any provision of any
state, Federal or foreign law, judgment, decree, order, statute, rule or
regulation applicable to or binding upon PSI or its properties, which materially
adversely affects the business, condition, affairs or operations of PSI or any
of its properties or assets.
Section 4.9. Title to Real Property; Liens; Condition of Properties.
(a) Schedule 4.9 contains an accurate legal description by categories of
PSI's real estate and easements and other rights in real property, owned or
leased by or to PSI. All such leases of real property are valid, binding and
enforceable in accordance with their terms, and, except as set forth on Schedule
4.9, neither PSI nor, to PSI's knowledge, any other party thereto is in default
thereunder.
(b) To the best of PSI's knowledge PSI has all of the property and property
rights used or necessary in the operation of the Business as presently
conducted. Except for minor defects in title which do not materially affect
their use or value, and except for leased assets set forth on Schedule 4.9, PSI
owns good and marketable title to all of its real and personal property free and
clear of all security interests, mortgages, pledges, liens, conditional sales
agreements, leases, encumbrances, charges, or claims of third parties of any
nature whatsoever except as set forth on Schedule 4.8(a) or 4.9 hereto, all of
which shall be released and discharged prior to the Closing Date.
(c) To PSI's knowledge, all real estate leased to PSI, and all machinery,
equipment, leasehold improvements, furniture, furnishings, plant and office
equipment and other fixed assets of PSI, and PSI's use of the same, comply in
all material respects with all applicable ordinances and regulations and
building, zoning or other laws. All such assets are and will be, as of the
Closing Date, in good working order and condition and suitable for use in the
operation of the business of PSI, subject to ordinary wear and tear.
Section 4.10. Licenses.
The licenses listed on Schedule 4.10 hereto (the "Licenses") constitute all
licenses, permits, and governmental authorizations and approvals necessary for
the operation of PSI's business. PSI has duly obtained and legally and validly
holds all the Licenses, all of which are valid and in full force and effect. No
proceeding (judicial, administrative, or otherwise) has been commenced or to
PSI's knowledge threatened which could lead to a revocation, suspension, or
limitation of the rights under any License, and PSI is in compliance with each
of the Licenses and knows of no state of fact which could lead to any such
revocation, suspension, or limitation. The Licenses expire on the dates set
forth on Schedule 4.10, and PSI has no reason to believe that any of the
Licenses will not be renewed, nor has any person or entity informed PSI that
such person or entity intends to oppose any such renewal. PSI has delivered to
Parent true and complete copies of each of the Licenses.
Section 4.11. Arm's-Length Transactions, Conflicts of Interest.
To the knowledge of PSI: (a) all transactions by PSI with parties other
than PSI are and have been conducted on an arm's-length basis, and (b) neither
the elected officers of PSI nor the key employees of PSI, or their respective
spouses, have (or had during the past three fiscal years) any material direct or
indirect ownership or profit participation in outside business enterprises with
which PSI had material purchases, sales or business dealings.
Section 4.12. Intellectual Property.
There is set forth in Schedule 4.12 hereto a true and complete list of all
domestic and foreign patents, copyrights, trademarks, trade names, and all
registrations or applications with respect thereto, and all licenses or rights
under the same relating to the Business presently owned by PSI. There is not
outstanding with respect thereto any license or other permission granted by PSI
to any other person, firm or corporation, except as set forth in Schedule 4.12.
PSI owns or possesses adequate licenses or other rights (to the extent that the
license fees provided for in the applicable license agreements have been paid)
to use every item of intellectual property used in its business and the same are
sufficient to conduct the business substantially as now conducted. There are no
outstanding claims asserted against PSI alleging infringement of any patent,
copyright, trademark, trade name, trade secret, license or other intellectual
property right of any other person, firm or corporation, and PSI does not hold,
nor is PSI aware that there exists any adversely held patent, copyright,
trademark, trade name or license or other intellectual property right on which
such a claim could reasonably be based. PSI does not know of any person, firm or
corporation producing, selling or using products or services which constitute an
infringement of any of PSI's intellectual property rights or other proprietary
rights.
Section 4.13. Absence of Certain Developments.
Except as set forth on Schedule 4.13 attached hereto or on any other
Schedule to the Agreement, since December 31, 1996, PSI has not:
(i) entered into any contract, commitment or agreement under which PSI
has outstanding indebtedness, obligation or liability for borrowed money or
deferred purchase price of property in excess of $10,000 or has the right
or obligation to incur such indebtedness, obligation or liability;
(ii) discharged or satisfied any lien or paid any obligation or
liability (absolute or contingent), other than in the ordinary course of
business;
(iii) mortgaged or pledged any of its assets, tangible or intangible,
or subjected them to any lien, except liens for current property taxes not
yet due and payable;
(iv) sold, leased, subleased, assigned or transferred any of its
tangible or intangible assets, except in the ordinary course of business,
or canceled any debts or claims;
(v) suffered any substantial losses on the sale or disposition of
individual items of non-inventory property or waived any rights of material
value (other than in connection with the cancellation of sales orders),
whether or not in the ordinary course of business, or received notice of
cancellation of any firm order in excess of $5,000;
(vi) made any changes in employee compensation, vacation policies or
fringe benefit plans, except in the ordinary course of business and
consistent with past practices and not in excess of 5% of any employee's
compensation level during its most recently completed fiscal year;
(vii) entered into any other transaction other than in the ordinary
course of business, or entered into any other material single transaction,
whether or not in the ordinary course of business which involves payments
by or to PSI in excess of $50,000 with respect to the purchase of raw
materials, $50,000 with respect to the sale of inventory, and $50,000 with
respect to other transactions:
(viii) suffered damage, destruction or other casualty loss, or
forfeiture of, any property or assets having a value in excess of $10,000,
whether or not covered by insurance or which has had or may reasonably be
expected to have a material adverse effect on its business, financial
condition or prospects;
(ix) made any capital expenditures, additions or improvements or
commitments for the same, except those made in the ordinary course of
business which in the aggregate do not exceed $20,000;
(x) made any voluntary prepayments of indebtedness or lease
obligations;
(xi) made any change in accounting procedures or practices;
(xii) authorized or effected any declaration, setting aside or payment
of any dividends or other distribution (whether in cash, stock or property)
with respect to any of PSI's capital stock;
(xiii) authorized or effected any split, combination or
reclassification of any of its capital stock or any issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock; or
(xiv) entered into any agreement or understanding to do any of the
foregoing.
Section 4.14. Undisclosed Liabilities.
Except as set forth on Schedule 4.14, PSI does not have any material
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, and PSI does not know of any basis for any
claim against PSI for any such material liabilities or obligations, except: (i)
to the extent set forth in this Agreement or in the Schedules hereto or shown in
the PSI 1996 Financial Statements or (ii) liabilities or obligations incurred in
the ordinary course of business since December 31, 1996.
Section 4.15. Litigation; Compliance with Law.
Except as set forth on Schedule 4.15, there are no actions, suits, claims,
proceedings or investigations (whether or not purportedly on behalf of or
against PSI) pending or, to PSI's knowledge, threatened against PSI at law or in
equity, or before or by any Federal, state, municipal or other governmental
court, department, commission, board, bureau, agency or instrumentality,
domestic or foreign. PSI is not in default with respect to any order, writ,
injunction or decree of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality.
PSI has complied in all material respects with all laws, regulations and orders
applicable to the Business, including, without limitation, all laws relating to
the safe conduct of business and environmental protection and conservation. PSI
has not received notification of any asserted past or present failure so to
comply with any of such laws or with the Federal Occupational Safety and Health
Act that has not been remedied. PSI has no knowledge of any pending or
threatened litigation or government action which could prohibit or interfere
with the performance of this Agreement.
Section 4.16. Employee Claims against PSI.
Except as set forth on Schedule 4.16, no officer or employee of PSI has any
claim or claims against PSI, and PSI is not obligated or liable to any of such
persons in any way or for any amounts, except current salaries, wages and
current and accrued vacation pay and bonuses, severance obligations,
reimbursable business expenses incurred in the ordinary course of business and
incentive compensation.
Section 4.17. Intentionally Omitted.
Section 4.18. Employee Benefit Plans.
(a) Schedule 4.18 contains a true and complete list as of the date of this
Agreement of all employee benefit plans or arrangements applicable to the
employees of PSI and all fixed or contingent liabilities or obligations of PSI
with respect to any person now or formerly employed by PSI including, without
limitation, pension or thrift plans, individual or supplemental pension or
accrued compensation arrangements, contributions to hospitalization or other
health or life insurance programs, incentive plans, bonus arrangements and
vacation, sick leave, disability and termination arrangements or policies,
including workers' compensation policies. Except as listed in Schedule 4.18, PSI
maintains no other employee benefit plan or arrangement applicable to the
employees of PSI and possesses no other fixed or contingent liabilities or
obligations with respect to any person now employed by PSI. Schedule 4.18 also
includes true and complete copies of all employee handbooks, rules and
regulations.
(b) PSI has furnished Parent with copies of all applicable plan documents,
trust documents, insurance contract summary plan descriptions of the written
plans and arrangements listed in Schedule 4.18 and with descriptions, in
writing, of the unwritten plans and arrangements listed in Schedule 4.18.
(c) PSI has no employee benefit plans that are tax qualified plans under
Sections 401 et seq. of the Internal Revenue Code of 1986, as amended (the
"Code").
(d) All employee benefit and welfare plans or arrangements listed in
Schedule 4.18 were established and have been executed, managed and administered
in all material respects in accordance with all applicable requirements of the
Code, of the Employee Retirement Income Security Act of 1974, as amended, and of
other applicable laws. PSI is not aware of the existence of any governmental
audit or examination of any of such plans or arrangements or of any facts which
would lead it to believe that any such audit or examination is pending or
threatened. There have been no federal pension law excise taxes assessed against
any of the benefit or welfare plans, and PSI is not aware of any proceedings or
events that could result in the assessment of such excise taxes.
(e) There exists no action, suit or claim (other than routine claims for
benefits) with respect to any of such plans or arrangements pending or, to the
knowledge of PSI, threatened against any of such plans or arrangements, and PSI
possesses no knowledge of any facts which could give rise to any such action,
suit or claim. Except as set forth in Schedule 4.18, PSI is not a party to any
multi-employer pension benefit or welfare plans.
Section 4.19. Labor Relations.
PSI is not a party to or subject to any collective bargaining agreements.
Except as described in Schedule 4.8(a) hereto, PSI has no written or oral
contracts of employment with any employee. PSI has provided Parent with true and
complete copies of all such written contracts of employment and true and
accurate memoranda of any such oral contracts.
PSI has complied in all material respects with all applicable laws, rules
and regulations relating to the employment of labor including, without
limitation, those related to wages, hours, collective bargaining, occupational
safety, discrimination, and the payment of social security and other payroll
related taxes, and it has not received any notice alleging that it has failed to
comply in any material respect with any of the foregoing. There are no material
controversies, disputes or proceedings pending or, to the best of its knowledge,
threatened, between PSI and PSI's employees (singly or collectively). In this
regard, PSI is now in material compliance with all Federal, state and local laws
respecting employment and employment practices, terms and conditions of
employment, and wages and hours, and is not engaged in any unfair labor practice
within the meaning of Section 8(a) of the Labor Management Relations Act of
1947. There are no claims or complaints pending or to PSI's knowledge threatened
against PSI before any court or governmental agency involving allegedly unlawful
employment practices relating to PSI, except as referred to in Schedule 4.19. To
the knowledge of PSI, there are no union campaigns being conducted to solicit
cards from employees to authorize any additional unions or to request a National
Labor Relations Board certification election with respect to any of PSI's
employees.
Section 4.20. Insurance Policies.
PSI has furnished Parent with a list, attached hereto as Schedule 4.20,
which sets forth a brief description of all policies of fire, liability and
other forms of insurance currently maintained in force by PSI in respect to
PSI's business and assets.
Section 4.21. Bank Accounts.
Schedule 4.21 attached hereto sets forth the name and location of each bank
in which PSI has an account, lock box or safe-deposit box and names of all
persons authorized to draw thereon or have access thereto.
Section 4.22. Capitalization.
(a) The authorized capital of PSI consists of 30,000,000 shares of common
stock, $.01 par value ("PSI Common Stock"). As of the close of business on
September 30, 1997: (i) 8,101,521 shares of PSI Common Stock were issued and
outstanding; (ii) no shares of PSI Common Stock were held by PSI in its
treasury; (iii) 954,079 shares of PSI Common Stock were reserved for issuance
pursuant to PSI's stock option plans; (iv) 365,820 shares of PSI Common Stock
were reserved for issuance under bridge warrants exercisable through April 2000;
(v) 45,608 shares of PSI Common Stock were reserved for issuance under warrants
issued in connection with 8% secured notes; (vi) 3,599,500 shares of PSI Common
Stock were reserved for issuance under Class A Warrants exercisable through
August 9, 2000; (vii) 359,950 shares of PSI Common Stock were reserved for
issuance under an option exercisable through 2000; (viii) 359,950 shares of PSI
Common Stock were reserved for issuance under Class A Warrants exercisable
through 2000; and (ix) 432,303 shares of PSI Common Stock were reserved for
issuance in connection with the principal portion of PSI Convertible Notes.
(b) Except as set forth above, at the close of business on September 30,
1997, no shares of capital stock or other voting securities of PSI were issued,
reserved for issuance or outstanding. From September 30, 1997 to the date of
this Agreement, no shares of capital stock or other securities of PSI have been
issued. PSI's outstanding convertible securities are set forth on Schedule 4.22.
Except as set forth on Schedule 4.22, there are no other outstanding securities,
options, warrants, rights, agreements, arrangements or undertakings of any kind,
to which PSI is a party or by which it is bound, obligating PSI to issue, grant,
extend or enter into any such security, option, warrant, right, agreement,
arrangement or undertaking, and no events have occurred that would cause that
would lower the exercise price or increase the number of shares of PSI Common
Stock into which any such securities can be converted.
Section 4.23. Disclosure.
PSI has provided Parent with complete and accurate information as to PSI
and its affairs. No representation or warranty made by PSI set forth herein, or
in any Schedule hereto, in any supplement to any Schedule, in the Management
Agreement, or in any certificate or other document delivered or to be delivered
in connection with the transactions contemplated by this Agreement contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make the statement not misleading in light
of the circumstances in which it was made.
ARTICLE V
REPRESENTATIONS AND WARRANTIES BY PARENT AND ACQUISITION
In order to induce PSI to enter into this Agreement and to consummate the
transactions contemplated hereunder, each of Parent and Acquisition makes the
following representations, warranties, covenants and agreements:
Section 5.1. Corporate Existence and Qualification.
Each of Parent and Acquisition is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own its properties and to carry
on its business as it is now being conducted and as it will be conducted on the
Closing Date. Parent is qualified to do business as a foreign corporation in all
states where the conduct of its business so requires, including Rhode Island and
New York. The only subsidiary of Parent is Acquisition.
Section 5.2. Access's Corporate Documents.
Copies of (i) the Restated Certificate of Incorporation and By-Laws,
including the respective amendments thereto, of Parent, certified by the
Assistant Secretary of Parent, and (ii) the Certificate of Incorporation and
By-Laws of Acquisition, certified by the Assistant Secretary of Acquisition have
been, or as of the Closing Date shall have been, delivered to PSI, and such
copies are true, complete and correct.
Section 5.3. Authorization of Agreement, Etc.
(a) Each of Parent and Acquisition has all requisite corporate power to
enter into this Agreement and to consummate the transactions contemplated
hereby. Except for the Parent Stockholder Approval, all corporate and other
actions required to be taken by each of Parent and Acquisition to authorize it
to carry out this Agreement and the transactions contemplated hereby, have been,
or as of the Closing Date shall have been, duly and properly taken. This
Agreement has been duly executed and delivered by each of Parent and
Acquisition, and constitutes a valid and binding obligation of each of Parent
and Acquisition, enforceable against each of Parent and Acquisition,
respectively, in accordance with its terms. The Management Agreement has been
duly executed and delivered by Parent, and constitutes a valid and binding
obligation of Parent, enforceable against Parent in accordance with its terms.
Neither the execution and delivery by each of Parent and Acquisition of this
Agreement, the merger contemplated hereby nor the delivery of the Access Merger
Shares, the Access Merger Warrants or the Series A Preferred Stock of the
Surviving Corporation, violate or will violate any provision of law applicable
to, or any provision of the corporate charter or by-laws of Parent or
Acquisition, or conflict with or will result in any breach of any term,
condition or provision of, or constitute or will constitute (with due notice or
lapse of time or both) a default under, or will result in the creation or
imposition of any lien, charge or encumbrance upon any property of Parent,
Acquisition, or upon the Access Merger Securities or Preferred Stock Shares,
pursuant to the terms of, any mortgage, deed of trust or other agreement or
instrument to which either Parent or Acquisition is a party or by which or to
which either Parent or Acquisition or the Access Merger Shares, the Access
Merger Warrants or the Series A Preferred Stock of the Surviving Corporation,
are subject or bound, except to the extent that Parent or Acquisition shall have
obtained a waiver or release thereof.
(b) The execution and delivery by each of Parent and Acquisition of this
Agreement the merger contemplated hereby and the delivery of the Access Merger
Shares, the Access Merger Warrants or the Series A Preferred Stock of the
Surviving Corporation or any other transaction contemplated hereby require no
consent, approval, order or authorization of, or registration, declaration or
filing with any Governmental Entity except as referenced in Section 5.8.
Section 5.4. Absence of Certain Developments.
Except as set forth in Schedule 5.4 attached hereto, since December 31,
1996, Parent has not: (i) had any change or changes in its condition,
operations, business, properties, assets or liabilities of any character,
whether or not in the ordinary course of business, that has had individually or
in the aggregate, a material adverse effect; (ii) made any changes in accounting
procedures or practices; (iii) authorized or effected any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any of Parent's capital stock; or (iv) entered into
any agreement or understanding to do any of the foregoing.
Section 5.5. Undisclosed Liabilities.
Neither Parent nor Acquisition have any material liabilities or
obligations, whether accrued, absolute, contingent or otherwise, and whether due
or to become due, and neither Parent nor Acquisition have any knowledge of any
basis for any claim against Parent or Acquisition for any such material
liabilities or obligations, except: (i) to the extent set forth in this
Agreement or in the Schedules hereto or shown in Parent's December 31, 1996
unaudited financial statements or (ii) liabilities or obligations incurred in
the ordinary course of business since December 31, 1996.
Section 5.6. Litigation; Compliance with Law.
There are no actions, suits, claims, proceedings or investigations pending
or, to either Parent or Acquisition's knowledge, threatened against Parent or
Acquisition at law or in equity, or before or by any Federal, state, municipal
or other governmental court, department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Neither Parent nor Acquisition is in
default with respect to any order, writ, injunction or decree of any court or
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality pertaining to it. Each of Parent and
Acquisition has complied in all material respects with all laws, regulations and
orders applicable to their respective businesses, including, without limitation,
all laws relating to the safe conduct of business and environment protection and
conservation. Neither Parent nor Acquisition have received notification of any
asserted past or present failure so to comply with any of such laws or with the
federal Occupational Safety and Health Act that has not been remedied. Neither
Parent nor Acquisition have knowledge of any pending or threatened litigation or
government action which would prohibit or interfere with their respective
performance of this Agreement.
Section 5.7. Capitalization; Status of Access Common Shares.
(a) The authorized capital stock of Parent consists of 13,000,000 shares of
Common Stock, par value $.01 per share, and 1,000,000 shares of preferred stock,
par value $.01 per share. Except as set forth in the Prospectus dated
November 16, 1996, previously delivered by Parent to PSI or as set forth on
Schedule 5.7 hereto, there are not, and on the Closing will not be, outstanding:
(i) any options, warrants or other rights to purchase any capital stock of
Parent; (ii) any securities convertible into or exchangeable for shares of such
stock; or (iii) any other commitments of any kind for the issuance of additional
shares of capital stock or options, warrants or other securities of Parent.
(b) The authorized capital stock of Acquisition consists of 1000 shares of
Common Stock, par value $.01 per share, and 200,000 shares of preferred stock,
par value $.01 per share.
(c) Except as set forth above, no shares of capital stock or other voting
securities of Parent or Acquisition are issued, reserved for issuance or
outstanding. There are no other outstanding securities, options, warrants,
rights, agreements, arrangements or undertakings of any kind, to which either
Parent or Acquisition is a party or by which either is bound, obligating Parent
or Acquisition to issue, grant, extend or enter into any such security, option,
warrant, right, agreement, arrangement or undertaking.
(d) The Access Merger Shares and the Access Merger Warrants to be delivered
to the stockholders of PSI (or for their account) in connection with the
transactions contemplated hereby will be, at the time of delivery, duly
authorized, fully paid and non-assessable and free and clear of all liens,
claims and encumbrances. At the time of delivery the Access Merger Shares and
the Access Merger Warrants shall be free of any transfer restriction legends
other than the legend provided for in Section 11.1 hereof.
Section 5.8. SEC Filings.
(a) Parent has filed with the SEC all reports and filings required to be
filed with the SEC pursuant to the Securities Act, the Exchange Act, and any
other applicable federal securities laws, including without limitation: (i) its
Prospectus dated October 16, 1996, relating to its offering of 1,066,667 Units,
each Unit consisting of two shares of common stock and one redeemable warrant;
(ii) its quarterly reports on Form 10-QSB for the quarterly periods ending
September 30, 1996, December 31, 1996, and March 31, 1997, respectively; and
(iii) its annual report on Form 10-KSB for the fiscal year ending June 30, 1997.
(b) All of the reports and filings referred to in subparagraph (a) and any
that are filed prior to the Closing comply and will comply in all material
respects as to form and substance with the applicable federal securities laws
pursuant to which they were filed. To the best of Parent's knowledge, no such
report or other filing, or any exhibit, schedule or attachment thereto (whether
or not incorporated by reference) contains or will contain any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances in which such statements were made.
(c) Except as may be disclosed in such reports and filings, there has not
been any material adverse change in the business, operations or liabilities or
prospects of Parent since June 30, 1997, and the filings and reports listed in
the clauses (i), (ii) and (iii) inclusive, of subparagraph (a), fairly and
accurately reflect such business, operations and liabilities and prospects as of
the respective dates thereof. Without limiting the generality of the foregoing
sentence, Parent has not filed a report on Form 8-K since June 30, 1997.
Section 5.9. Information Supplied by Parent or Acquisition.
None of the information supplied or to be supplied by Parent or Acquisition
for inclusion or incorporation by reference in the Proxy Statement, in any other
filing of PSI or in the Form S-4 will, at the time of the PSI Stockholder
Meeting or on the Closing Date, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statement not misleading in light of the circumstances under which they
were or will be made.
ARTICLE VI
CONDUCT PRIOR TO CLOSING
From and after the execution of this Agreement, and until the Closing Date:
Section 6.1. Carry On in Ordinary Course.
PSI shall carry on in the ordinary course of business and substantially in
the same manner as heretofore, and shall not make or institute any unusual or
novel methods of purchase, sale, lease, management, accounting or operation, or
make any capital expenditures, or issue or agree to issue any convertible
securities or PSI Common Stock (except upon conversion of any convertible
securities listed on Schedule 4.22), or take any action other than in the
ordinary course.
Section 6.2. No General Increases.
Without the prior written consent of Parent, PSI shall not grant any
general or uniform increase in the rates of pay of its employees nor grant any
general or uniform increase in the benefits under any bonus or pension plan or
other contract or commitment relating to its employees; and except as approved
in writing by Parent, PSI shall not increase the compensation payable or to
become payable to officers or key salaried employees of PSI, or increase any
bonus, insurance, pension or other benefit plan, payment or arrangement made to,
for or with any of such officers, key salaried employees or agents of PSI.
Section 6.3. Contracts and Commitments.
PSI shall not enter into any contract or commitment or engage in any
transaction not in the usual and ordinary course of business of and consistent
with the business practices of PSI without the prior written consent of Parent;
provided, however, that PSI shall be permitted to issue the PSI Preferred Stock
to the holders of the PSI Convertible Notes in exchange for such PSI Convertible
Notes.
Section 6.4. Dispositions and Sale of Assets.
PSI shall not sell or dispose of or agree to sell or dispose of, any of its
assets (other than inventory in the ordinary course of business).
Section 6.5. Preservation of Organization.
PSI shall use its reasonable best efforts, provided that no material
expenditure is required, to preserve intact its business organization, to keep
available the services of current employees and to preserve its present
relationships with its suppliers and customers and others having business
relations with PSI.
Section 6.6. No Default.
PSI shall not knowingly do any act or omit to do any act, or (to the extent
controllable by PSI) permit any act or omission to act, which will cause a
breach of any material contract, commitment, judgment, order, injunction or
obligation relating to PSI's assets or business.
Section 6.7. Compliance with Laws.
PSI shall duly comply with all applicable laws in all material respects as
may be required for the operation of its business and for the valid and
effective merger and the consummation of the transactions contemplated hereby.
Section 6.8. Operation of Business.
PSI shall take or suffer no action as shall render any warranty or
representation contained in Article IV untrue, inaccurate or misleading at
Closing.
Section 6.9. Consents.
PSI shall use its best efforts to obtain all written consents of third
parties necessary to effectuate the Merger and transactions contemplated hereby,
but shall not be obligated to make any payments to third parties in so doing
unless PSI has heretofore agreed with any third party to make such payments.
Section 6.10. Advisement of Changes.
PSI, Parent or Acquisition, as the case may be, shall promptly advise the
other party orally and in writing upon its becoming aware of: (i) any
representation or warranty made by it in this Agreement being untrue or
inaccurate as of the date made in any material respect, (ii) the failure by it
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or (iii)
any change or event which would have a material adverse effect on such party or
on the ability of the conditions set forth in Articles VII or VIII to be
satisfied; provided however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement. Should either
party become aware of a condition that requires a change in the Schedules to
this Agreement to ensure they were accurate on the date made, PSI, Parent or
Acquisition, as the case may be, will promptly deliver to the other party a
supplement to such Schedules specifying such change.
Section 6.11. No Solicitation.
(a) PSI shall not, nor shall it authorize or permit any officer, director
or employee of or any investment banker, attorney or other advisor or
representative of, PSI, directly or indirectly: (i) solicit, initiate or
knowingly encourage the submission of any takeover proposal (as defined below),
(ii) enter into any agreement providing for any takeover proposal or (iii)
participate in any negotiations regarding, or furnish to any person any
non-public information with respect to, or take any other action knowingly to
facilitate the making of, any takeover proposal; provided, however, that if, at
any time prior to the receipt of PSI Stockholder Approval, the Board of
Directors of PSI determines in good faith that it is necessary to do so in order
to comply with its fiduciary duties to PSI's stockholders under applicable law,
as advised by outside counsel, PSI may, with respect to an actual or potential
unsolicited takeover proposal and subject to compliance with Section 6.11: (x)
furnish non-public information with respect to PSI to such person making such
actual or potential unsolicited takeover proposal and (y) participate in
negotiations regarding such proposal.
(b) Neither the Board of Directors of PSI nor any committee thereof shall:
(i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Parent or Acquisition, the approval or recommendation by such Board of Directors
or any such committee of this Agreement or the Closing, (ii) approve or
recommend or propose to approve or recommend, any takeover proposal or (iii)
enter into any agreement with respect to any takeover proposal.
(c) In addition to the obligations of PSI set forth in paragraphs (a) and
(b) of this Section 6.11, PSI shall promptly advise Parent orally and in writing
of any request for information or of any takeover proposal or any inquiry with
respect to or which could reasonably be expected to lead to any takeover
proposal which, in any such case, is either: (i) in writing or (ii) made to any
executive officer or director or representative of PSI, the identity of the
person making any such request (to the extent practicable), takeover proposal or
inquiry and all the material terms and conditions thereof. PSI will keep Parent
fully informed of the status and details (including amendments or proposed
amendments) of any such request, takeover proposal or inquiry.
For purposes of this Agreement, the term takeover proposal shall mean any
proposal for a merger, consolidation or other business combination involving PSI
or any proposal or offer to acquire in any manner, directly or indirectly, an
equity interest in, any voting securities of, or a substantial portion of the
assets of PSI other than the transactions contemplated by this Agreement.
Section 6.12. No Delaying Transactions.
Between the date of this Agreement and the Closing Date, PSI, Parent and
Acquisition will not enter into any transaction or enter into negotiations for
any transaction that will delay the consummation of the transactions
contemplated by this Agreement.
Section 6.13. Lock-Up Agreements.
Prior to the Closing, Parent shall use its reasonable best efforts to cause
such of its shareholders who have executed so-called "lock-up" agreements to
execute a new lock-up agreement containing a schedule substantially in the form
of the schedule set forth in Exhibit D-1. If PSI is reasonably satisfied with
the percentage of such shareholders of Parent who have executed such a lock-up
agreement, then, following the Effective Date, in order to obtain the Merger
Consideration as set forth in Section 2.4, PSI's shareholders shall execute and
deliver a lock-up agreement substantially in the form of Exhibit D-1. Otherwise,
PSI's shareholders shall execute and deliver a lock-up agreement substantially
in the form of Exhibit D-2 (the form of lock-up agreement to be so executed and
delivered by PSI's shareholders shall be referred to as the Lock-Up Agreement).
Section 6.14. Best Efforts.
Between the date of this Agreement and the Closing Date, PSI, Parent and
Acquisition will each use its reasonable best efforts to cause the conditions in
Article VII and VIII to be satisfied.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF PARENT AND ACQUISITION
The obligations of each of Parent and Acquisition to take the actions
required to be taken by each of Parent and Acquisition, respectively, at the
Closing are subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Parent or Acquisition,
in whole or in part):
Section 7.1. Compliance by PSI; Correctness of Representations and
Warranties of PSI.
Except to the extent that PSI has delegated operational control of the
Business to Parent pursuant to the Management Agreement, PSI shall have complied
with and performed in all material respects all the terms, covenants and
conditions of this Agreement to be complied with and performed (except as would
not have a material adverse effect on the business or assets of PSI), and each
of the representations and warranties made by PSI under this Agreement shall be
true and correct in all material respects as of the date of this Agreement
(other than those representations and warranties that expressly relate to an
earlier date).
Section 7.2. Certified Resolutions of PSI.
PSI Stockholder Approval shall have been obtained, and PSI shall have
delivered to Parent a certificate signed by the Secretary or Assistant Secretary
of PSI under its corporate seal setting forth the votes constituting the
authorization and approval of the board of directors and stockholders of PSI of
the Merger contemplated hereby on the terms set forth herein.
Section 7.3. Approval by Parent's and Acquisition's Counsel.
All actions, proceedings, instruments and documents required to carry out
this Agreement or incidental thereto and all other related legal matters have
been approved by counsel for Parent and Acquisition, which approval will not be
unreasonably withheld.
Section 7.4. Opinions of Counsel for PSI.
(a) Parent and Acquisition shall have received an opinion of Shereff,
Friedman, Hoffman & Goodman, LLP, counsel for PSI, dated the Closing Date, in
form and substance reasonably satisfactory to Parent, Acquisition and its
counsel, to the effect that: (i) PSI is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority, to carry on its business as it is now being
conducted and to own or hold under lease the properties and assets it now owns
or holds under lease; (ii) PSI has all requisite corporate power and authority
to enter into this Agreement, to merge with Acquisition as provided in this
Agreement and to carry out any other transactions and agreements contemplated
hereby; (iii) to such counsel's knowledge, Section 4.22 accurately sets forth
the capitalization of PSI (except as to the PSI Preferred Stock which is to be
issued after the date hereof); (iv) all corporate and other proceedings required
to be taken by or on the part of PSI to authorize PSI to carry out this
Agreement and for PSI to merge with Acquisition and enter into and perform its
obligations under any other closing documents have been duly and properly taken
including any necessary approval by the stockholders of PSI of the transactions
contemplated by this Agreement; (v) this Agreement and other closing documents
have been duly executed and delivered by PSI and constitute valid and binding
obligations of PSI enforceable in accordance with their terms; (vi) the
execution, delivery and performance of this Agreement will not contravene any
applicable provision of law, any order of any court or other agency of
government known to such counsel, the Certificate of Incorporation or By-Laws of
PSI, or, to such counsel's knowledge, conflict with or result in any breach of
the terms of, or constitute a default under, any indenture, agreement or other
instrument to which PSI is a party or by which PSI or any of its assets is bound
other than as would not have a material adverse effect on the business of PSI;
(vii) the execution and delivery of the Agreement and the consummation of the
transactions contemplated by the Agreement do not require any authorization,
consent, approval, exemption or other action by or notice to any court,
arbitrator, administrative or governmental body pursuant to any applicable law,
statute, ordinance, rule or regulation applicable to PSI other than as would not
have a material adverse effect on the business of PSI; (viii) there are no
agreements known to such counsel pursuant to which PSI has pledged its assets,
or granted a lien, security interest or encumbrance on any of the assets of PSI
except as set forth in Schedule 4.9; and (x) to the best of such counsel's
knowledge, the information supplied by PSI in the Form S-4 (including any
documents incorporated by reference therein) on the effective date of the Form
S-4, the date of mailing of the Proxy Statement, and the date of the PSI
Stockholder Meeting did not contain any untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
In delivering such opinion and to the extent specified in such opinion and
deemed appropriate by such counsel and counsel to Parent and Acquisition, such
counsel may rely, as to factual matters, upon certificates of the officers of
PSI and upon opinions of associate counsel satisfactory to Parent and
Acquisition and its counsel. Such opinion shall be limited to matters of New
York law, Delaware law and federal law.
(b) Parent and Acquisition shall have received an opinion of Cowan,
Liebowitz & Latman, P.C., patent and trademark counsel to PSI, in form and
substance reasonably satisfactory to Parent, Acquisition and their counsel.
Section 7.5. Consents of Third Parties.
All necessary consents, waivers or approvals of third parties required for
the lawful consummation of the transactions contemplated by this Agreement as
set forth on Schedule 4.8(b) shall have been obtained (and shown by evidence
reasonably satisfactory to Parent) and shall be in full force and effect.
Section 7.6. Certificate of Chief Executive Officer of PSI.
PSI shall have delivered to Parent and Acquisition a certificate of its
Chief Executive Officer, certifying, in such form as Parent and Acquisition may
reasonably request, as to the fulfillment of the conditions set forth in
Sections 7.1 and 7.5.
Section 7.7. Approval of Governmental Authorities.
No court or governmental authority shall have issued any order, writ,
injunction or decree prohibiting Parent or Acquisition from consummating the
transactions contemplated hereby or shall have commenced or threatened any
lawsuit concerning such transactions or indicated its opposition to such
transactions.
Section 7.8. Corporate Authority.
Parent shall have received all documents it shall have reasonably requested
from PSI relating to the existence and corporate and tax good standing of PSI
and the authority of PSI to enter into and consummate the transactions
contemplated by this Agreement.
Section 7.9. Exchange of PSI Convertible Notes.
PSI shall have consummated the exchange of all of the PSI Convertible Notes
for PSI Preferred Stock and shall have provided evidence thereof reasonably
satisfactory to Parent and its counsel.
Section 7.10. Approval of Parent Stockholders.
If applicable pursuant to Section 3.1(c), the Parent Stockholder Approval
shall have been obtained.
Section 7.11. Form S-4 Effective.
The Form S-4 shall have become effective, and, at the Closing Date, no stop
order suspending the effectiveness of the Form S-4 shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the SEC.
Section 7.12. Termination of Certain Agreements.
PSI shall have terminated and provided evidence to Parent thereof, without
further obligation or recourse, on terms reasonably satisfactory to both PSI and
Parent, (i) the Consulting Agreement between PSI and Stephen Kornfeld, (ii) the
Employment Agreement between PSI and William Weiss, and (iii) the Underwriting
Agreement and Merger and Acquisitions Agreement between PSI and A.R. Baron.
Section 7.13. Certificate of Merger. Parent shall have received evidence of
filing with the Secretary of State of the State of Delaware of the Certificate
of Merger pursuant to Section 251 of the DGCL with respect to the Merger.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF PSI
The obligation of PSI to take the actions required to be taken by PSI at
the Closing is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by PSI, in whole or in
part):
Section 8.1. Compliance by Parent and Acquisition; Correctness of
Representations and Warranties.
Each of Parent and Acquisition shall have complied with and performed in
all material respects all the terms, covenants and conditions of this Agreement
to be complied with and performed (except as would not have a material adverse
effect on Parent or Acquisition), and all of the representations and warranties
made by Parent or Acquisition under this Agreement shall be true and correct in
all material respects as of the date of this Agreement (other than those
representations and warranties that expressly relate to an earlier date).
Section 8.2. Certified Resolutions of Parent and Acquisition.
Each of Parent and Acquisition shall have delivered to PSI a certificate
signed by its Secretary or Assistant Secretary, respectively, under its
corporate seal, setting forth the votes or consents constituting the
authorization and approval of the directors (and, if applicable pursuant to
Section 3.1(c), the stockholders) of Parent and Acquisition of this Agreement
and the transactions contemplated hereby on the terms set forth herein.
Section 8.3. Approval by PSI's Counsel.
All actions, proceedings, instruments and documents required to carry out
this Agreement or incidental thereto, and all other related legal matters, shall
have been approved by counsel for PSI, which approval will not be unreasonably
withheld.
Section 8.4. Opinion of Edwards & Angell.
PSI shall have received an opinion of Edwards & Angell, counsel for Parent
and Acquisition, dated the Closing Date, in form and substance reasonably
satisfactory to PSI and its counsel to the effect that: (i) each of Parent and
Acquisition is a corporation duly organized and existing and in good standing
under the laws of the State of Delaware and has full corporate power and
authority to carry on its business as it is now being conducted and to own or
hold under lease the properties and assets it now owns or holds under lease;
(ii) Parent is qualified to do business in Rhode Island and New Jersey; (iii)
each of Parent and Acquisition has all requisite corporate power and authority
to enter into this Agreement, to enter into the Merger transaction, to deliver
the Access Merger Securities and the shares of Series A Preferred Stock of the
Surviving Corporation and to carry out any of the transactions and agreements
contemplated hereby; (iv) all corporate and other proceedings required to be
taken on the part of each of Parent and Acquisition to authorize it to enter
into this Agreement and to perform their respective obligations hereunder have
been duly and properly taken; (v) this Agreement and the other closing documents
have been duly executed and delivered by, and constitute the valid and binding
obligations of each of, Parent and Acquisition enforceable in accordance with
their terms; (vi) the execution, delivery and performance of this Agreement will
not violate any provision of law, any order of any court or other agency of
government known to such counsel, the corporate charter or By-Laws of either
Parent or Acquisition, or to such counsel's knowledge, conflict with or result
in any breach of the terms of, or constitute a default under, any indenture,
agreement, or other instrument to which either Parent or Acquisition is a party
or by which either or both of Parent or Acquisition or any of their respective
assets are bound other than as would not have a material adverse effect on
either or both of Parent or Acquisition; (vii) the execution and delivery of
this Agreement and consummation of the transactions contemplated by the
Agreement do not require any authorization, consent, approval, exemption or
other action by or notice to any court, arbitrator, administrative or
governmental body pursuant to any law, statute, ordinance, rule or regulation
applicable to either or both of Parent or Acquisition other than as would not
have a material adverse effect on Parent or Acquisition; (viii) to such
counsel's knowledge, Section 5.7 accurately sets forth the capitalization of
each of Parent and Acquisition; (ix) to the best of such counsel's knowledge,
the information supplied by Parent in the Form S-4 (including documents
incorporated by reference therein) on the effective date of the Form S-4, the
date of mailing, and the date of the Parent Stockholder Meeting (if applicable)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; (x) Acquisition's corporate existence as a separate entity has
ceased, and all of the issued and outstanding common stock of the Surviving
Corporation is owned by Parent, and (xi) each of the Access Merger Securities
and shares of Series A Preferred Stock delivered to the stockholders of PSI are
duly authorized, fully paid and non-assessable, free and clear of liens, claims
and encumbrances and any transfer restrictions and legends other than, with
respect to the Access Merger Securities, the legend provided in Section 11.1
hereof and the Lock-Up Agreement, and, with respect to the shares of Series A
Preferred Stock of the Surviving Corporation, any legends reflecting that such
securities are not registered under the Securities Act or any state securities
law.
In delivering such opinion and to the extent specified in such opinion and
deemed appropriate by such counsel and counsel to PSI, such counsel may rely, as
to factual matters, upon certificates of the officers of Parent and Acquisition
and, upon opinions of associate counsel satisfactory to PSI and its counsel.
Such opinion shall be limited to matters of New York law, Delaware law and
federal law.
Section 8.5. Certificate of President of Parent and Acquisition.
Each of Parent and Acquisition shall have delivered to PSI a certificate of
its President certifying, in such form as PSI may reasonably request, as to the
fulfillment of the conditions set forth in Section 8.1 hereof.
Section 8.6. Approval of Governmental Authorities.
No court or governmental authority shall have issued any order, writ,
injunction or decree prohibiting PSI from consummating the transactions
contemplated hereby, or shall have commenced or threatened any lawsuit
concerning such transactions or indicated its opposition to such transactions.
Section 8.7. Corporate Authority.
PSI shall have received all documents it shall have reasonably requested
from each of Parent and Acquisition relating to the existence and corporate and
tax good standing of Parent and Acquisition.
Section 8.8. Access Merger Securities.
Parent shall have delivered certificates representing the Access Merger
Securities to the Exchange Agent.
Section 8.9. Form S-4 Effective.
The Form S-4 shall have become effective, and on the Closing Date, no stop
order suspending the effectiveness of the Form S-4 shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the SEC.
Section 8.10. Certificate of Merger.
PSI shall have received evidence of filing with the Secretary of State of
the State of Delaware of the Certificate of Merger pursuant to Section 251 of
the DGCL with respect to the Merger.
Section 8.11 Plan of Financing. Prior to the mailing of the Proxy Statement
to PSI's shareholders, Parent shall have received and presented to PSI's Board
of Directors a copy of a bona fide written third-party proposal for financing
the Surviving Corporation for at least 12 months following the Merger, and PSI's
Board of Directors shall be reasonably satisfied that the proposal is
attainable. If, within 5 business days of its receipt of such proposal, PSI's
Board of Directors does not object to the mailing of the Proxy Statement on the
grounds that it has not received the proposal or is not reasonably satisfied
that it is attainable, Parent shall be deemed to have presented a satisfactory
plan of financing and PSI shall not thereafter have any rights under this
Section 8.11.
ARTICLE IX
FEES AND EXPENSES
Section 9.1. Fees and Expenses.
Parent, Acquisition and PSI will pay their respective expenses, including
the expenses of their legal and accounting representatives and management
consultants, in connection with the origin, negotiation, execution and
performance of this Agreement, provided, however, that if the Closing occurs,
Parent and Acquisition shall assume and pay at the Closing PSI's reasonable
expenses in connection therewith.
Section 9.2. Termination Fee.
PSI shall pay, or cause to be paid, in same day funds to Parent or
Acquisition Seven Hundred Fifty Thousand Dollars ($750,000) (the "Termination
Fee") upon demand if: (i) Parent, Acquisition or PSI terminates this Agreement
pursuant to Section 10.1(g); or (ii) if Parent, Acquisition or PSI terminates
this Agreement pursuant to Section 10.1(c) where there shall have been made
public prior to the PSI Stockholder Meeting a takeover proposal involving PSI.
PSI acknowledges that the agreement contained in this Section 9.2 is an integral
part of the transactions contemplated by this Agreement, and that, without this
agreement, Parent and Acquisition would not enter into this Agreement.
Accordingly, if PSI fails promptly to pay the amount due pursuant to this
Section 9.2, and in order to obtain such payment, Parent or Acquisition
commences a suit that results in a judgment against PSI for the Termination Fee,
PSI shall pay to Parent or Acquisition its reasonable costs and expenses
(including reasonable attorneys' fees) in connection with such suit, together
with interest on the amount of the Termination Fee at the prime rate of Fleet
National Bank in effect on the date such payment was required to be made.
ARTICLE X
TERMINATION AND EFFECT
Section 10.1. Termination of Agreement.
This Agreement may be terminated by notice given prior to or at the
Closing, whether before or after PSI Stockholder Approval or the Parent
Stockholder Approval:
(a) At the election of PSI, if any one or more of the conditions in
Article VIII to the obligation of PSI to Closing has not been satisfied as
of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of PSI to comply with its
obligations under this Agreement) and PSI has not waived such condition on
or before the Closing Date;
(b) At the election of Parent or Acquisition, if any one or more of
the conditions in Article IX to the obligations of Parent or Acquisition to
Closing has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure
of Parent or Acquisition to comply with its obligations under this
Agreement) and Parent or Acquisition has not waived such condition on or
before the Closing Date;
(c) At the election of PSI, Parent or Acquisition, if PSI Stockholders
Meeting shall have concluded without PSI Stockholder Approval having been
obtained;
(d) At the election of Parent or Acquisition, if the Access
Stockholder Meeting shall have concluded without the Access Stockholder
Approval having been obtained (if applicable);
(e) At the election of PSI or Access, if a breach of any provision of
this Agreement has been committed by the other party which has a material
adverse effect and such breach has not been waived;
(f) At the election of Access or PSI, if the Closing shall not have
taken place on or before January 31, 1998 (or such later date as may be
agreed to in writing by Access and PSI), provided that the party exercising
such right of termination shall not then be in default under its
obligations hereunder;
(g) At the election of PSI or Access, if the Board of Directors of PSI
approves or recommends a bona fide takeover proposal to merge with or into
PSI or to acquire, directly or indirectly, all or a substantial portion of
the shares of PSI Common Stock then outstanding or all or substantially all
of the assets of PSI and otherwise on terms that the Board of Directors of
PSI determines in its good faith judgment to be more favorable to PSI's
stockholders than the transactions contemplated by this Agreement; or
(h) By mutual written consent of Access and PSI.
Section 10.2. Effect of Termination.
If this Agreement is terminated pursuant to Section 10.1, all further
obligations of the parties under this Agreement will terminate, and this
Agreement shall become null and void and of no further effect, except for the
provisions of Sections 9 and 15.5, without any liability on the part of any
party or any of its employees, representatives, agents, directors, officers or
stockholders; provided, however, that if this Agreement is terminated by a party
because of a willful breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's willful failure to
comply with its obligations under this Agreement, the terminating party's right
to pursue all legal remedies will survive such termination; and, provided,
further, that recovery for any damages suffered shall be limited to actual out
of pocket expenses incurred as a result of such breach; and provided, further,
that if this Agreement is terminated due to failure to obtain the Access
Director Approval or the Access Stockholder Approval (if applicable), or due to
the failure of the condition contained in Section 8.11 of this Agreement, Access
will amend the Convertible Promissory Note dated January 29, 1997, issued by PSI
so as to extend the Maturity Date (as defined therein) to May 31, 1998. If a
condition precedent to any party's obligation is not satisfied, nothing
contained herein shall be deemed to require such party to terminate this
Agreement, rather than to waive such condition and proceed with the Closing.
ARTICLE XI
ACKNOWLEDGMENTS OF PSI
Section 11.1. Restricted Securities.
All certificates representing the Access Merger Securities shall be stamped
with a legend in substantially the following form:
The holder of this certificate has agreed, prior to [insert
termination date of Lock-Up], not to directly or indirectly issue, offer to
sell, sell, grant an option for the sale of, transfer, assign, hypothecate,
pledge, or otherwise dispose of or encumber (either pursuant to Rule 144 of
the regulations under the Securities Act of 1933, as amended, or
otherwise), the securities represented by this certificate, whether or not
beneficially owned or registered in the name of the holder, without the
prior written consent of Access Solutions International, Inc. ("Company")
and Joseph Stevens & Company, Inc., ("JSC"), except to the extent set forth
in an agreement dated [__________, 1997] among the holder of this
certificate, the Company and JSC and any subsequent agreement among the
holder of this certificate, the Company and JSC.
Section 11.2. Access to Information.
PSI acknowledges receipt and review of Parent's Prospectus dated October
16, 1996, Forms 10-QSB for the quarterly periods ending September 30, 1996,
December 31, 1996 and March 31, 1997, and Form 10-KSB for the fiscal year ending
June 30, 1997. PSI is aware of the financial condition of Parent, has had ample
opportunity to investigate and ask questions regarding same, and does not have
any unanswered questions regarding same.
ARTICLE XII
BROKERS' COMMISSIONS
The parties hereby agree and warrant to each other that there are no claims
for brokerage commissions, or placement or finders' fees in connection with the
transactions contemplated by this Agreement, other than JSC, the expenses of
which will be paid by Parent or Acquisition. Each of Parent and Acquisition
hereby agrees to indemnify and hold PSI harmless from the commissions, fees or
claims of any person, firm or corporation employed or retained or claiming to be
employed or retained, by Access to bring about, or to represent it, in the
transactions contemplated hereby. PSI hereby agrees to indemnify and hold each
of Parent and Acquisition harmless from the commissions, fees or claims of any
person, firm or corporation employed or retained or claiming to be employed or
retained, by PSI or its agents to bring about, or to represent it, in the
transactions contemplated hereby.
ARTICLE XIII
ACCESS TO FACILITIES, PROPERTIES AND RECORDS
From and after the date of this Agreement, each party hereto shall afford
to the officers, attorneys, accountants and other authorized representatives of
the other party hereto free and full access to the facilities, properties, books
and records of business and such party in order that the other party may have
full opportunity to make such investigation as it shall desire to make of the
affairs of such party, provided that such investigation shall not unreasonably
interfere with the operations of the business and shall at all times be governed
by those certain Confidentiality Agreements between PSI and Parent dated
November 7, 1996 ("Confidentiality Agreements") which agreements shall remain in
full force and effect. Parent, Acquisition and PSI agree that the
Confidentiality Agreements are hereby amended to include Acquisition as a party
to each Agreement such that Acquisition is entitled to the same benefits and is
subject to the same obligations as Parent.
ARTICLE XIV
SURVIVAL OF REPRESENTATIONS
PSI, Parent and Acquisition each agree that the representations and
warranties contained in this Agreement shall terminate upon the Closing, and
thereafter shall have no further force or effect.
ARTICLE XV
MISCELLANEOUS
Section 15.1. Amendment to Agreement; Waivers; Procedure.
(a) Each of Access and Acquisition may, by written notice to the other: (i)
extend the time for the performance of any of the obligations or other acts of
the other party, (ii) waive any inaccuracies in the representations of the other
party contained in this Agreement or in any document delivered pursuant to this
Agreement, and (iii) waive any compliance with any of the covenants of the other
party contained in this Agreement and waive performance of any of the
obligations of the other party.
(b) This Agreement may be amended by the parties at any time before or
after PSI Stockholder Approval or the Access Stockholder Approval (if
applicable); provided, however, that after any such approval, there shall not be
made any amendment that by law requires further approval by the stockholders of
PSI or Parent without first obtaining such further approval. Neither this
Agreement nor any provisions hereof may be amended, modified or waived except by
an instrument in writing signed on behalf of Parent, Acquisition and PSI.
(c) In order to be effective, a termination of this Agreement pursuant to
Section 10.1, or an amendment, extension or waiver pursuant to this Section
15.1, shall require in the case of Parent, Acquisition or PSI, action by its
Board of Directors or the duly authorized designee of its Board of Directors.
Section 15.2. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that neither Access nor PSI may assign this Agreement in whole or in part
without the prior written consent of the other party, which consent will not be
unreasonably withheld or delayed.
Section 15.3. Entire Agreement.
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including (i) the Letter of Intent between PSI
and Parent dated January 2, 1997, (ii) the letter from Parent to PSI dated
March 26, 1997, (iii) the letter from PSI to Parent dated September 11, 1997,
and (iv) the Asset Purchase Agreement). This Agreement and the Schedules and
Exhibits referred to herein, along with the Management Agreement, the
Shareholders' Agreements and the Confidentiality Agreements, contain the entire
agreement of the parties hereto with respect to the merger and the other
transactions contemplated herein, and any reference herein to this Agreement
shall be deemed to include the Schedules and Exhibits hereto. In the event of
any inconsistency between the statements in the body of this Agreement and those
in the Schedules, the statements in the body of this Agreement will control.
Section 15.4. Headings.
The descriptive headings in the Agreement are inserted for convenience only
and do not constitute a part of this Agreement.
Section 15.5. Confidential Information; Publicity.
Any confidential information obtained by any party hereto from any other
party hereto shall not be disclosed or used by any such party should such
transactions not be effected, and each party shall be bound by the terms and
provisions of the Confidentiality Agreements (which shall remain in full force
and effect) and return to the other all documents and written information
obtained from such other party as such other party's counsel may request in
writing. Except as in the reasonable opinion of counsel to a party may be
required by law, the parties agree that they will not make any public disclosure
of the transactions contemplated by this Agreement, including announcements to
employees, without the prior written approval of the content of such disclosure
from each other, which approval will not be unreasonably withheld.
Section 15.6. Notices.
Any notice, waiver, request, information or other document to be given
hereunder to any of the parties by the other shall be in writing and will be
deemed to have been duly given when: (a) delivered personally (with written
confirmation of receipt), (b) sent by telecopier (with written confirmation of
receipt), provided that a copy is mailed by certified mail, return receipt
requested, or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case as
follows:
If to Parent or Acquisition, addressed to:
ACCESS SOLUTIONS INTERNATIONAL, INC.
650 Ten Rod Road
North Kingstown, RI 02852
Attention: Robert H. Stone, President and CEO
Telecopy No.: (401) 295-1851
with a copy (which shall not constitute notice) to:
John E. Ottaviani, Esq.
Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 02903
Telecopy No.: (401) 276-6611
If to PSI, addressed to:
PAPERCLIP SOFTWARE, INC.
Three University Plaza
Hackensack, NJ 07601
Attention: William Weiss, Chief Executive Officer
Telecopy No.: (201) 487-0613
with a copy (which shall not constitute notice) to:
Richard A. Goldberg, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
Telecopy No.: (212) 758-9526
Any party may change the address to which notices are to be sent to it by
giving written notice of such change of address to the other parties in the
manner herein provided for giving notice.
Section 15.7. Indemnification and Insurance.
(a) The certificate of incorporation of the Surviving Corporation shall
contain the provisions with respect to the elimination of personal liability of
directors of PSI to shareholders of PSI set forth in Article NINTH of the
Certificate of Incorporation of PSI as in effect at the Effective Time, and such
provisions shall not be amended, repealed or otherwise modified for a period of
six (6) years from the Effective Time in any manner that would adversely affect
the rights thereunder of individuals who at the time of execution and delivery
of this Agreement were directors, officers, employees or agents of PSI, unless
such modification is required by law. To the extent permitted by applicable law,
Acquisition and Parent agree that all rights to indemnification now existing in
favor of the directors and officers of PSI as provided in PSI's certificate of
incorporation and by-laws in effect on the date hereof shall survive the Merger
and shall continue in full force and effect for a period of six (6) years from
the Effective Time, and each of Parent and Acquisition agrees that it will
honor, or cause to be honored, all such rights to indemnification.
(b) PSI shall, to the fullest extent permitted under applicable law or
under PSI's certificate of incorporation or by-laws and regardless or whether
the Merger becomes effective, indemnify and hold harmless, and after the
Effective Time, Parent and the Surviving Corporation shall, to the fullest
extent permitted under applicable law or under PSI's certificate of
incorporation or by-laws, indemnify and hold harmless, each present and former
director, officer, employee, fiduciary and agent of PSI (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to any action or omission occurring prior to the Effective
Time (including, without limitation, any claim, action, suit, proceeding or
investigation arising out of or pertaining to the transactions contemplated by
this Agreement) for a period of six (6) years after the date hereof and in the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) PSI or Parent or the Surviving
Corporation, as the case may be, shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to PSI or the Surviving Corporation, promptly after statements
therefor are received, (ii) PSI and the Surviving Corporation will cooperate in
the defense of any such matter, and (iii) any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under the DGCL and PSI's or the Surviving Corporation's
certificate of incorporation or by-laws shall be made by independent counsel
mutually acceptable to the Surviving Corporation and the Indemnified Party;
provided, however, that none of PSI, Parent or the Surviving Corporation shall
be liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld) and provided further that, in the event any
claim or claims for indemnification are asserted or made within such six-year
period, all rights to indemnification in respect of any such claim or claims
shall continue until the disposition of any and all such claims. The Indemnified
Parties as a group may retain only one law firm to represent them with respect
to any such matter unless there is, under applicable standards of professional
conduct, a conflict of any significant issue between the positions of any two or
more Indemnified Parties.
Section 15.8. Counterparts.
This Agreement may be executed in two or more counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, and all such
counterparts together shall be deemed to constitute but one agreement.
Section 15.9. No Benefit to Others.
The representations, warranties, covenants and agreements contained in this
Agreement are for the sole benefit of the parties hereto and their successors
and permitted assigns, and they shall not be construed as conferring any rights
on any other persons, except, if and to the extent that Parent fails to deliver
the Merger Consideration to the Exchange Agent, the holders of PSI's common
stock may enforce such obligation against Parent.
Section 15.10. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York (without regard to the conflicts of law principles
thereof).
Section 15.11. No Waiver.
Unless otherwise expressly stated, the rights and remedies of the parties
to this Agreement are cumulative and not alternative. Neither the failure nor
any delay by any party in exercising any right, power or privilege under this
Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power or privilege, and no single or partial exercise of
any such right, power or privilege will preclude any other or further exercise
of such right, power or privilege or the exercise of any other right, power or
privilege.
Section 15.12. Severability.
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in force and effect to the
extent not held invalid or unenforceable.
Section 15.13. Time of Essence.
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
[Signatures on Following Page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
PAPERCLIP SOFTWARE, INC.
By:________________________________
William Weiss, Chief Executive Officer
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:_______________________________
Robert H. Stone, President and CEO
PAPERCLIP ACQUISITION CORP.
By:_______________________________
Robert H. Stone, President and CEO
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedules
Schedule 2.6 PSI Convertible Note Holders
Schedule 4.1 Where PSI is Qualified as a Foreign Corporation
Schedule 4.5 PSI 1996 Financial Statements
Schedule 4.6 Exceptions to Inventory
Schedule 4.8(a) Contracts
Schedule 4.8(b) Required Consents
Schedule 4.9 Real Property, Liens
Schedule 4.10 Permits and Licenses
Schedule 4.12 Intellectual Property
Schedule 4.13 Certain Developments Since December 31, 1996
Schedule 4.14 Other Liabilities
Schedule 4.15 Litigation
Schedule 4.16 Employee Claims Against PSI
Schedule 4.18 Employee Benefit Plans
Schedule 4.20 Insurance
Schedule 4.21 Deposits
Schedule 4.22 Outstanding Convertible Securities
Schedule 5.4 Certain Developments Since December 31, 1996
Schedule 5.7 Changes to Parent Capitalization
Exhibits
Exhibit A Form of Certificate of Merger
Exhibit B PSI Preferred Stock
Exhibits C-1 and C-2 Forms of Lock-Up Agreement
<PAGE>
EXHIBIT B
PSI Preferred Stock
PSI Preferred Stock (which at the Effective Date will be converted into the
Series A Preferred Stock of the Surviving Corporation) will be non-voting and
have a liquidation preference of $.30 per share or an aggregate of $129,690.74
(plus unpaid interest accrued on the PSI Convertible Notes plus accrued but
unpaid dividends on the PSI Preferred Stock). The dividend rate will be 12% per
annum. Holders of PSI Preferred Stock will have an option to put the shares to
the Surviving Corporation or Parent after 18 months from the Closing Date, in
exchange for cash or Parent Common Stock and Parent Class B Warrants. After 30
months from the Closing Date, the Surviving Corporation or Parent will have the
right to redeem the PSI Preferred Stock for cash or Parent Common Stock and
Class B Warrants. Both the put price and the redemption price for each share of
PSI Preferred Stock will be equal to any accrued but unpaid dividends plus (i)
in the event of payment by Parent Common Stock, the Conversion Ratio multiplied
by one Access Merger Share and the Conversion Ratio multiplied by one Access
Merger Warrant, or (ii) in the event of payment by cash, the liquidation
preference value of the PSI Preferred Stock.
<PAGE>
Exhibit B
Amendment to PaperClip's Certificate of Incorporation
(to be filed by amendment)
<PAGE>
Exhibit C
Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to the provisions of
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with the provisions of subsection (d) of this section and
who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to ss.228 of this Chapter shall be entitled to an
appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsections (b) and (c) of this Section. As
used in this Section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a non-stock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a non-stock
corporation; and the words "depository receipt" means a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251, 252, 254, 257, 258, 263 or 264 of this
Chapter;
(1) Provided, however, that no appraisal rights under this Section shall be
available for the shares of any class or series of stock which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held or record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this Chapter.
(2) Notwithstanding the provisions of subsection (b)(1) of this Section,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement or merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this Chapter to accept for such
stock anything except (i) shares of stock of the corporation surviving or
resulting from such merger or consolidation (or depository receipts in respect
thereof); (ii) shares of stock of any other corporation for depository receipts
in respect thereof which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or held
of record by more than 2,000 holders; (iii) cash in lieu of fractional shares or
fractional depository receipts described in the foregoing clauses (i) and (ii);
or (iv) any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares, or fractional depository receipts described in the
foregoing clauses (i), (ii) and (iii) of this subsection.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this Chapter is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this Section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this Section, including those set forth in subsections (d) and
(e), shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this Section is to be submitted for approval at a meeting to
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this Section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with the provisions of this subsection and has not voted in favor
of or consented to the merger or consolidation of the date that the merger or
consolidation as become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this Chapter, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal rights
of the effective date of the merger or consolidation and that appraisal rights
are available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this Section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient it if
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with the provisions of subsections (a) and (d) hereof and who is
otherwise entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the merger or consolidation, any stockholder shall have
the right to withdraw his demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with requirements
of subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such as duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publications
as the Court deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs thereof shall be borne
by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with the provisions of this Section and who have
become entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest which the surviving or resulting corporation would have had to pay
to borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this Section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this Section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any other state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this Section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this Section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this Section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation into which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended, provides
in regard to indemnification of directors and officers as follows:
"145. Indemnification of Officers, Directors, Employees and Agents; Insurance.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action, suit or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a present or former director, officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made with
respect to a person who is a director or officer at the time of such
determination (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum or (2) by a
committee of such directors designated by a majority vote of such directors,
even though less than a quorum, (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plans; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees)."
ASI's By-Laws provides in regard to indemnification of directors and
officers as follows:
"The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, he had no reasonable cause to believe his conduct was unlawful;
provided, however, that in the case of an action by or in the right of the
corporation, no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that he shall have been adjudged to be entitled
nevertheless to indemnity for such expenses; and provided, further, that any
indemnification under this Article shall be made only as authorized in the
specific case upon a determination that such person has met the applicable
standard of conduct set forth herein, such determination to be made (a) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, event or proceeding, or (b) if such a quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders. Such indemnification may include payment by the corporation of
expenses incurred in defending a civil or criminal action or proceeding, upon
receipt of an undertaking by the person indemnified to repay such payment if he
shall be adjudicated to be not entitled to indemnification under these
provisions. The rights of indemnification hereby provided shall not be exclusive
of or affect other rights to which any director, officer, employee or agent may
be entitled. As used in this paragraph, the terms "director", "officer",
"employee" or "agent" include their respective heirs, executors and
administrators; an "interested" director or officer is one against whom as such
the proceeding in question or another proceeding on the same or similar grounds
is then pending; references to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; references to "serving at the
request of the corporation" shall include any service as a director, officer,
employee or agent of the corporation which imposes duties on or involves
services by such person with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to
herein. Any indemnification to which a person is entitled under this paragraph
shall be provided although the person to be indemnified is no longer such a
director, officer, employee or agent."
Pursuant to such by-law and as authorized by statute, ASI maintains
insurance on behalf of its directors and officers against liability asserted
against such persons in such capacity whether or not such directors or officers
have the right to indemnification pursuant to the by-law or otherwise.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Merger Agreement dated as of November _, 1997 between PaperClip and
ASI (attached to Proxy Statement/Prospectus as Exhibit A)
2.2 Management Agreement dated as of April 15, 1997 between PaperClip and
ASI (incorporated by reference to Exhibit 2(b) of ASI's Current Report
in Form 8-K dated April 18, 1997)
2.3 First Amendment to Management Agreement dated November ___, 1997
2.4 Escrow Agreement (to be filed by amendment)
3.1 Amended and Restated Articles of Incorporation of ASI (incorporated by
reference to Exhibit 3(a) of ASI's Registration Statement on Form
SB-2, File No. 333-5285)
3.2 By-laws of ASI (incorporated by reference to Exhibit 3(b) of ASI's
Registration Statement on Form SB-2, File No. 333-5285)
4.1 Redeemable Warrant Agreement dated October 16, 1996 (incorporated by
reference to Exhibit 3(c) of ASI's Registration Statement on Form
SB-2, File No. 333-5285)
4.2 Form of Warrant Agreement (with form of Class B Warrant attached) (to
be filed by amendment)
4.3 Forms of Lock-Up Agreement (to be filed by amendment)
5 Opinion of Edwards & Angell as to legality (to be filed by amendment)
10.1 Real Estate Lease dated 1993 by and between Bakeford Properties and
ASI, as amended by Agreement dated December 6, 1995, and as further
amended by Agreement dated February 8, 1996 (incorporated by reference
to Exhibit 10(a) of ASI's Registration Statement on Form SB-2, File
No. 333-5285)
10.2 ASI's 1987 Stock Option Plan (incorporated by reference to Exhibit
10(b) of ASI's Registration Statement on Form SB-2, File No. 333-5285)
10.3 ASI's 1994 Stock Option Plan (incorporated by reference to Exhibit
10(c) of ASI's Registration Statement on Form SB-2, File No. 333-5285)
10.4 ASI's 1996 Stock Option Plan (incorporated by reference to Exhibit
10(d) of ASI's Registration Statement on Form SB-2, File No. 333-5285)
10.5 ASI's 1994 Non-Employee Directors' Stock Option Plan (incorporated by
reference to Exhibit 10(e) of ASI's Registration Statement on Form
SB-2, File No. 333-5285)
10.6 ASI's 1997 Non-Employee Director Stock Option Plan
10.7 Employment Agreement dated as of July 31, 1996 between ASI and Robert
H. Stone (incorporated by reference to Exhibit 10(aa) of ASI's
Registration Statement on Form SB-2, File No. 333-5285)
10.8 Loan Agreement dated as of January 22, 1996 by and between ASI and
Hector D. Wiltshire (incorporated by reference to Exhibit 10(p) of
ASI's Registration Statement on Form SB-2, File No. 333-5285)
10.9 Distribution Agreement dated July 29, 1997 between ASI and PaperClip
(incorporated by reference to Exhibit 10.7 of ASI's Annual Report on
Form 10-KSB for the year ending June 30, 1997)
10.10 Employment Termination Agreement and Release dated September 30, 1997
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Edwards & Angell (to be included in Exhibit 5)
24 Powers of Attorney (included on signature pages to this Registration
Statement)
99.1 Form of Proxy
(b) Financial Statement Schedules.
Not Applicable.
Item 22. Undertakings.
The undersigned Registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to Item 20 of this Registration
Statement, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES AND AMENDMENTS
Each person whose signature appears below hereby constitutes and appoints
the President, the Chief Financial Officer or the Secretary of Registrant, or
any one of them, acting alone, as his true and lawful attorney-in-fact, with
full power and authority to execute in the name, place and stead of each such
person in any and all capacities and to file, an amendment or amendments to the
Registration Statement (and all exhibits thereto) and any documents relating
thereto, which amendments may make such changes in the Registration Statement as
said officer or officers so acting deem(s) advisable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Providence, State of Rhode
Island, on ______, 1997.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:/s/ Robert H. Stone
-----------------------------------
Robert H. Stone
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on _________, 1997.
Signature Title
/s/ Malcolm G. Chace Director
- -------------------------------
Malcolm G. Chace
/s/ Robert H. Stone President, Chief Executive Officer and Director
- -------------------------------
Robert H. Stone
/s/ Denis L. Marchand Chief Accounting Officer
- -------------------------------
Denis L. Marchand
/s/ Thomas E. Gardner Chief Financial Officer and Director
- -------------------------------
Thomas E. Gardner
/s/ Marvyn Carton Director
- -------------------------------
Marvyn Carton
/s/ Howard W. Yenke Director, Chairman of the Board
- -------------------------------
Howard W. Yenke
/s/ Adrian Hancock Director
- -------------------------------
Adrian Hancock
EXHIBIT 2.3
FIRST AMENDMENT TO MANAGEMENT AGREEMENT
THIS AMENDMENT is made as of the _____ day of November, 1997, by and
between ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware corporation having an
address at 650 Ten Rod Road, North Kingstown, Rhode Island 02852 (the "Manager")
and PAPERCLIP SOFTWARE, INC., a Delaware corporation having an address at Three
University Plaza, Hackensack, New Jersey 07601 (the "Owner").
W I T N E S S E T H T H A T:
WHEREAS, Owner and Manager executed and delivered a certain Management
Agreement dated as of April 15, 1997 (the "Management Agreement), pursuant to
which Manager is managing the day-to-day operations of Owner pending the
acquisition of substantially all of the assets of Owner by Manager; and
WHEREAS, Owner and Manager had previously entered into an Asset Purchase
Agreement dated as of April 15, 1997 ("Asset Purchase Agreement"), pursuant to
which Manager would acquire substantially all of the assets of Owner; and
WHEREAS, Owner and Manager are entering into an Agreement and Plan of
Merger of even date ("Merger Agreement"), which will supersede and replace the
Asset Purchase Agreement; and
WHEREAS, the parties hereto now desire to change references to the Asset
Purchase Agreement in the Management Agreement to refer to the Merger Agreement,
and to change all references to the purchase and sale of the Business or of the
assets of Owner, and all similar and related concepts in the Management
Agreement, to refer to a merger of a wholly-owned subsidiary of Manager with and
into Owner, with Owner remaining as the surviving corporation.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. All references to the "Purchase Agreement" in the Management Agreement
shall be deemed to refer to the Merger Agreement.
2. Section 4.3 of the Management Agreement is hereby amended by inserting
the following clause at the end thereof:
"; provided, however, that if the Merger Agreement is terminated due to the
failure of the condition contained in Section 8.11 of the Merger Agreement, then
the Management Fee, the Out-of-Pocket Expenses and the Advances and any interest
thereon will not be due and payable until the earlier of: (i) May 31, 1998, (ii)
a sale of substantially all of the Owner's assets or greater than 50% of its
common stock or (iii) a merger of Owner. Owner hereby grants to Manager a
security interest in all of Owner's assets to secure all amounts due to Manager
under this Management Agreement."
3. The reference to Article XII of the Purchase Agreement contained in
Section 7.1 of the Management Agreement is hereby amended to refer to Article X
of the Merger Agreement.
4. Except as modified and amended hereby, the Management Agreement shall
remain in full force and effect and is in all other respects ratified and
confirmed.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year indicated above.
MANAGER:
ACCESS SOLUTIONS INTERNATIONAL,
INC.
By: ________________________________
Robert H. Stone, President and
CEO
OWNER:
PAPERCLIP SOFTWARE, INC.
By: _________________________________
William Weiss, Chief Executive
Officer
EXHIBIT 10.6
ACCESS SOLUTIONS INTERNATIONAL, INC.
1997 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Section 1
Title
This Plan shall be known as the "Access International, Inc. 1997
Non-Employee Director Stock Option Plan".
Section 2
Purpose of Plan
2.1. Purpose. The purpose of the Access Solutions International, Inc. 1997
Non- Employee Director Stock Option Plan is to promote the interests of Access
Solutions International, Inc. (hereinafter, the "Company") by providing an
inducement to obtain and retain the services of qualified persons who are not
employees or officers of the Company to serve as members of its Board of
Directors (the "Board").
2.2 Effective Date. This Plan shall become effective upon signature by the
President of the Company after approval by the Board, but is subject to approval
by a majority of the Company's stockholders given by written consent or by
voting on such a matter at the next annual meeting of stockholders of the
Company at which a quorum is present. Any Options granted pursuant to this Plan
prior to such stockholder approval by the Company are valid, subject to such
approval.
Section 3
Definitions
3.1 "Board" means the Board of Directors of the Company.
3.2 "Common Stock" means shares of Common Stock, $.01 par value, of the
Company.
3.3 "Company" means Access Solutions International, Inc., a Delaware
corporation.
3.4 "Director" means a member of the Board who is not an employee of the
Company.
3.5 "Disability" means inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a continuous period of not less than twelve months, as determined
pursuant to Section 22(e)(3) of the Internal Revenue Code of 1986, as amended.
3.6 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
References to any provisions of the Exchange Act include rules and regulations
thereunder and successor provisions and rules thereto.
3.7 "Option" means any non-qualified stock Option granted under the Plan.
3.8 "Option Agreement" means any written agreement pursuant to the Plan
between the Company and a Director regarding any Option.
3.9 "Optionee" means a Director who has delivered to the Company a signed
Option Agreement.
3.10 "Option Shares" means shares of Common Stock that are issued or may be
required to be issued upon exercise of an Option and shares that are issued
thereafter with respect to such shares, including shares issued by reason of a
stock split, consolidation, dividend, stock exchange, recapitalization,
reclassification or the like.
3.11 "Plan" means this Access Solutions International, Inc. 1997
Non-Employee Director Stock Option Plan, as amended from time to time.
Section 4
Administration
4.1 Administration. This Plan shall be administered by the Board. The grant
of Options to purchase shares of Common Stock under this Plan and the amount,
price and nature of the awards shall be automatic as described in Section 5.
Subject to the provisions of this Plan, the Board, in its sole discretion, is
authorized to do all things necessary and/or desirable in connection with the
administration of the Plan, including, without limitation, (i) subject to
Section 8 hereof, adopt, amend and rescind rules and regulations relating to the
Plan, and (ii) interpret and construe the Plan and the terms and conditions of
any Option granted hereunder. The Boards determination of all matters referred
to its discretion shall be final and conclusive.
4.2 Board Determinations. No member of the Board nor any officer, director,
employee or agent of the Company shall be liable for any action or determination
made, or other action taken, in good faith with respect to the Plan or any
Option.
Section 5
Terms and Conditions of Options
5.1 Automatic Grant of Options. Subject to the availability of shares under
this Plan:
(a) each director who is not an employee of the Company and who: (i) is a
member of the Board on the Effective Date of this Plan automatically shall be
granted Options to purchase 25,000 shares of Common Stock on the Effective Date
of this Plan; or (ii) is initially appointed or elected to the Board (and not on
account of any subsequent election or reelection of such director) after the
Effective Date of the Plan automatically shall be granted Options to purchase
25,000 shares of Common Stock sixty (60) days following such appointment or
election.
(b) each director who is not an employee of the Company automatically shall
be granted, without further action by the Board, an Option to purchase 5,000
shares of Common Stock on the date of each annual meeting or special meeting in
lieu of annual meeting of stockholders held after the Effective Date of the Plan
(including the 1997 Annual Meeting.)
5.2 Exercise Price. The purchase price of Option Shares granted under an
Option shall be one hundred percent (100%) of the fair market value of the
Option Shares on the date the Option is granted. If shares of Common Stock shall
then be traded on a national securities exchange, such fair market value shall
not be less than the mean of the highest and lowest sales price of the Common
Stock upon such exchange on the day on which the Option shall have been granted,
or if no sale shall have been made on such day, upon the next preceding day upon
which such a sale shall have been made. If shares of Common Stock shall then be
traded "over the counter", such fair market value shall not be less than the
mean between the dealer "bid" and "ask" prices quoted by a recognized specialist
of the Common Stock on the date upon which the Option shall have been granted,
or if no such quotation shall have been made on such day, on the next preceding
day on which such a quotation shall have been made. If the shares of Common
Stock are not traded either over-the-counter or on a national securities
exchange at the time that an Option is granted, the Board shall determine such
fair market value.
5.3 Period of Option. Except as otherwise provided herein, each Option
granted hereunder shall expire on the date which is ten (10) years after the
date of grant of the Option.
5.4 Vesting of Options. (a) Subject to the provisions of Sections 5.4(b)
and (c), an Option granted pursuant to Section 5.1(a) shall vest in the Optionee
and become exercisable in five equal annual installments of 20% of the total
number of shares of Common Stock subject to the Option beginning on the date of
the grant, so long as the Optionee remains a member of the Board; provided,
however, that any Option granted prior to the date of shareholder approval of
this Plan as referred to in Section 2 hereof shall not vest and become
exercisable until the date of such shareholder approval. Options granted under
Section 5.1(b) shall vest and become exercisable immediately upon grant.
(b) In the event of the death of any Optionee, all Options held by such
Optionee on the date of his death shall become fully vested and immediately
exercisable and the estate of such Optionee shall have the right, for a period
of one year following such death, to exercise the Options of the Optionee, but
not after the expiration date of the Option.
(c) In the event of the resignation of an Optionee due to disability, all
Options held by such Optionee on the date of such resignation shall become fully
vested and exercisable and such Optionee shall have the right, for a period of
one year following the date of such resignation, exercise the Options of the
Optionee, but not after the expiration date of the Option.
5.5 Forfeiture of Options. In the event that an Optionee is removed from
the Board for a serious breach of conduct, all Options, whether vested or
otherwise, shall be immediately forfeited and non-exercisable. Without
limitation, activities which shall constitute a serious breach of conduct
include: (i) disclosure or misuse of confidential information, (ii) activities
in violation of the Corporation's policies, including without limitation, the
Corporation's insider trading policy, and (iii) engaging in activities which
adversely affect or which are inimical, contrary or harmful to the interests of
the Corporation.
5.6 Exercise of Options. (a) Subject to the terms and conditions of this
Plan and the Option Agreements, an Option may be exercised by the holder
thereof, in whole or in part, by giving written notice, signed by such holder,
to the Company stating the number of shares of Common Stock with respect to
which the Option is being exercised, accompanied by payment in full of the
aggregate exercise price in cash or by personal check payable to the Company. No
Option may be exercised with respect to any fractional share.
(b) As promptly as administratively practicable following the receipt of
the exercise notice hereunder, the Company shall issue a stock certificate
registered in the name of the Optionee exercising such Option, representing the
number of shares of Common Stock issued to such Optionee upon exercise of the
Option.
5.7 Transferability of Options. Any Option granted pursuant to this Plan
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the Optionee's lifetime only by him or her.
5.8 Stock Option Agreement. Each grant of an Option under this Plan shall
be evidenced by an agreement duly executed on behalf of the Company and the
Optionee, dated as of the applicable date of the grant. Each such agreement
shall set forth the number of Option Shares, the exercise price and the date
upon which the Option becomes exercisable, and shall incorporate by reference
the terms and conditions of this Plan.
Section 6
Stock Subject to the Plan
6.1 Available Shares. The total number of shares of Common Stock for which
Options may be granted under this Plan shall not exceed 250,000 shares, subject
to adjustment in accordance with paragraph 10 of this Plan.
6.2 Authorized Shares. Shares subject to this Plan are authorized but
unissued shares or shares that were once issued and subsequently reacquired by
the Company. If any Options granted under this Plan are surrendered before
exercise or lapse without exercise, in whole or in part, the shares reserved
therefor shall continue to be available under this Plan.
6.3 Termination or Expiration of Options. If any Option shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares of Common Stock previously subject to the Option shall again be available
for the purposes of the Plan.
Section 7
Adjustments for Changes in Capitalization and Change in Control
7.1. Change in Outstanding Common Stock. If the outstanding securities of
the class then subject to this Plan are increased, decreased, changed into or
exchanged for a different number or kind of shares of the Company through
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split, upon proper authorization of the Board, an appropriate
and proportionate adjustment shall be made in the number and type of shares or
other securities or cash or other property that may be acquired pursuant to the
Options theretofore granted under this Plan and the maximum number and type of
shares or other securities that may be issued pursuant to Options thereafter
granted under this Plan.
7.2 Option Agreement. Each Option Agreement may contain such provisions as
the Board, in its discretion, shall determine to be appropriate for the
termination of, adjustment in or vesting or repurchase of shares and Options, in
the event of the dissolution or liquidation of the Company, or upon any
consolidation or merger involving the Company, or upon sale or transfer of all
or substantially all of the assets of the Company, or upon exchange by the
stockholders of the Corporation of 80% or more of the shares of the Company for
securities of another entity.
7.3 No Prohibition on Company. The existence of any Option shall not in any
way prevent the Company from engaging in any of the transactions described in
this Section 7, nor shall it confer any rights upon the holder of any such
Option to participate in any such transaction, except those expressly conferred
by the Plan and the Option Agreement pursuant to which such Option shall have
been granted.
7.4 Assumption of Option. Nothing contained in this Plan shall prevent the
assumption of an Option, or the substitution of a new Option for an Option, by
any corporation, or the parent or subsidiary of any corporation, that becomes
the employer of an Optionee by reason of a merger, consolidation, acquisition,
reorganization or liquidation.
7.5 Change in Control. (a) In the case of a Change in Control (as defined
below) of the Corporation, each Option then outstanding shall immediately be
nonforfeitable and exercisable in full.
(b) A Change in Control shall occur if:
(i) any "person" or "group of persons", as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act, directly or indirectly
purchases or otherwise becomes the "beneficial owner" (as defined in Rule
13d-4 of the Exchange Act) of, or has the right to acquire such beneficial
ownership (whether or not such right is exercisable immediately, with the
passage of time, or subject to any condition) of, or otherwise has the
authority to vote directly or indirectly, securities representing forty
percent (40%) or more of the combined voting power of all voting securities
of the Corporation then outstanding, unless through a transaction arranged
by, or consummated with the prior approval of the Board; or
(ii) the Company becomes a party to a merger, consolidation or share
exchange in which either;
(A) the Company will not be the surviving corporation; or
(B) the Company will be the surviving Corporation and any outstanding
shares of Common Stock will be converted into shares of any other Company
(other than a reincorporation or the establishment of a holding company
involving no change in ownership of the Company) or other securities or
cash or other property (excluding payments made solely for fractional
shares); or
(iii) the stockholders of the Corporation shall approve the sale of
all or substantially all of the Corporation's business and/or assets to a
person or entity which is not a wholly-owned subsidiary of the Corporation;
or
(iv) any other event that a majority of the Board, in its sole
discretion, shall determine constitutes a Change of Control.
Section 8
Amendment and Termination of the Plan
8.1 Termination. Unless the Plan shall have been terminated sooner, the
Plan shall terminate on, and no Option shall be granted after: (a) the later of
the tenth (10th) anniversary of: (i) the date upon or as of which the Plan is
adopted, or (ii) the date upon which the Plan is approved by the shareholders of
the Company; or (b) the date upon which the total number of shares set forth in
Section 6.1 of the Plan shall have been issued pursuant to the Plan.
8.2 Shareholder Amendment. The shareholders of the Company may terminate,
modify or amend the Plan at any time. However, no such amendment or termination
shall deprive the recipient of any Option theretofore granted under this Plan,
without the consent of the recipient, of any of his or her rights thereunder or
with respect thereto.
8.3 Board Amendment. The Board also may amend, modify or terminate this
Plan at any time and in any manner. However, no such amendment or termination
shall deprive the recipient of any Option theretofore granted under this Plan,
without the consent of the recipient, of any of his or her rights thereunder or
with respect thereto.
Section 9
No Rights as Stockholder
Neither the recipient of an Option under this Plan or an Optionee's
successor or successors in interest shall have rights as a stockholder of the
Company with respect to any Option Shares until the date of issuance of a stock
certificate for such shares of Common Stock. Neither this Plan nor the granting
of an Option hereunder, nor any other action taken pursuant to this Plan shall
constitute or be evidence of any agreement or understanding, express or implied,
that a director has a right to continue as a director for any period of time or
at any particular rate of compensation.
Section 10
Governing Law
The Plan and all rights and obligations under this Plan shall be construed
in accordance with and covered by the laws of the State of Delaware.
EXECUTED as of the 24th day of October, 1997.
ACCESS SOLUTIONS INTERNATIONAL INC.
By:____________________________________
EXHIBIT 10.10
EMPLOYMENT TERMINATION AGREEMENT AND RELEASE
ACCESS SOLUTIONS INTERNATIONAL, INC., (the "Company"), and GEORGE H. STEELE, III
("Steele") hereby agree as follows:
1. The Company hereby terminates Steele without cause from employment and as an
officer of the Company effective September 30, 1997.
2. The Company shall pay to Steele a severance payment equal to three months and
three days of his current base salary, payable in equal installments on the
Company's current payroll schedule, subject to withholdings required by law. The
Company shall also pay Steele accrued leave of 109 hours.
3. Steele agrees to fully cooperate with the Company and provide the Company
with his assistance in matters in which Steele was involved on behalf of the
Company prior to his termination, including assistance in the prosecution and/or
defense by the Company of any patent infringement claims. The Company shall
compensate Steele for such assistance as the Company may request from time to
time as an independent contractor on an hourly basis at a rate equivalent to the
current hourly rate being paid to Steele, and to reimburse Steele for any
reasonable out-of-pocket expenses incurred in connection therewith.
4. In consideration of Steele's agreement to release any and all presently
outstanding options to acquire shares of the Company's capital stock, the
Company agrees to grant Steele non-qualified stock options to acquire 21,082
shares of the Company's common stock at an exercise price of $3.75, exercisable
on or before July 31, 2006, on substantially the same terms and conditions as
Steele's existing incentive stock options.
5. Steele acknowledges that there may be tax consequences to him arising from
the transactions contemplated by this Agreement, and agrees that he is
responsible for payment of any federal, state or local income taxes imposed on
him as a result of the transactions described in this Agreement.
6. The Company shall continue to provide its current medical and dental coverage
for Steele until such coverage is obtained by him elsewhere, or until December
31, 1997, whichever is sooner. Following that date, the Company will respect
Steele's rights, if any, to continued medical coverage at his own expense under
the Consolidated Omnibus Budget Reconciliation Act (COBRA).
7. The execution of this Agreement shall not be construed as an admission of a
violation of any statute or law or breach of any duty or obligation by either
the Company or Steele.
8. This Agreement is confidential and shall not be made public by either the
Company or Steele except as required by law or if necessary in order to enforce
this Agreement.
9. Steele acknowledges that the payments provided for in paragraphs 2, 3, 4 and
6 of this Agreement are greater than any to which he may have otherwise been
entitled under any existing Company separation, benefit or compensation policy.
In consideration of the foregoing, Steele hereby releases and forever discharges
the Company, its present and former officers, employees, agents, partners,
subsidiaries, successors and assigns from any and all liabilities, causes of
action, debts, claims and demands both in law and in equity known or unknown,
fixed or contingent, which he may have or claim to have based upon or in any way
related to employment or termination of employment with the Company and hereby
covenants not to file a lawsuit or charge to assert such claims. This includes
but is not limited to claims arising under federal, state or local laws
prohibiting employment discrimination, including specifically the Age
Discrimination in Employment Act of 1967, as amended ("ADEA"), or claims growing
out of any legal restrictions on the Company's right to terminate its employees.
The Company hereby releases and forever discharges Steele from any and all
liabilities, causes of action, debts, claims and demands both in law and in
equity known or unknown, fixed or contingent, which the Company may have or
claim to have based upon or in any way related to Steele's employment with the
Company and hereby covenants not to file a lawsuit or charge to assert such
claims. The Company reaffirms its obligation to indemnify Steele pursuant to the
Company's By-laws a Certificate of Incorporation to the fullest extent permitted
by said By-laws and Certificate and by Delaware corporate law.
10. The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provisions were
omitted.
11. Steele understands that various State and Federal laws prohibit employment
discrimination based on age, sex, race, color, national origin, religion,
handicap or veteran status. These laws are enforced through the Equal Employment
Opportunity Commission (EEOC), Department of Labor and state human rights
agencies. Steele acknowledges that he has been advised by the Company to discuss
this Agreement with his attorney and has been encouraged to take this Employment
Termination Agreement and Release home for up to twenty-one days so that he can
thoroughly review and understand the effect of this release before acting on it.
12. Steele has carefully read and fully understands all of the provisions of
this Termination Agreement and Release which sets forth the entire understanding
between him and the Company. This Agreement may not be changed orally but only
by an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. Steele
acknowledges that he has not relied upon any representation or statement,
written or oral, not set forth in this document.
13. Steele may revoke his agreement to the terms hereof at any time during the
seven-day period immediately following the date of his signature below
("revocation period") by delivering written notice of his revocation to the
Company. This Agreement shall become effective upon the expiration of the
revocation period.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:_________________________________ _________________________________
Title: ______________________________ George H. Steele, III
Dated: _____________________________ Dated:___________________________
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement - Prospectus constituting
part of this Registration Statement on Form S-4 of Access Solutions
International, Inc. of our report dated August 8, 1997, except as to Note 14
which is as of September 12, 1997, relating to the financial statements of
Access Solutions International, Inc. Which appears in such Proxy Statement -
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Proxy Statement - Propsectus.
PRICE WATERHOUSE LLP
Boston, Massachusetts
November 13, 1997
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of the Proxy
Statement - Prospectus. It should be noted that we have not audited any
financial statements of PaperClip Software, Inc. subsequent to December 31, 1996
or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
November 10, 1997
Exhibit 99.1
[FRONT]
PaperClip Software, Inc.
PROXY
Special Meeting of Stockholders, _______________, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William Weiss and Michael Suleski, as
Proxies, each with full power to appoint his substitute, and hereby authorizes
them to appear and vote as designated below, all shares of Common Stock of
PaperClip Software, Inc. held of record by the undersigned on ________________,
1997, at the Special Meeting of Stockholders to be held on ______________, 1997,
and any adjournments or postponements thereof.
The undersigned hereby directs this Proxy to be voted as follows:
1. Proposal to approve and adopt a Merger Agreement (the "Merger
Agreement") dated as of November 12, 1997 among the Company, Access Solutions
International, Inc. ("ASI"), and PaperClip Acquisition Corp. a newly-formed
subsidiary of ASI ("Newco"), pursuant to which Newco will merge with and into
PaperClip, with PaperClip surviving as a subsidiary of ASI, for an aggregate
merger consideration equal to 1,544,438 shares (which amount includes 75,000
shares of ASI Common Stock and 75,000 Class B Warrants which will be placed in
escrow pursuant to the Escrow Agreement) of ASI Common Stock, par value $.01 per
share (the "ASI Common Stock"), and an equal number of ASI Class B Warrants,
which will entitle the holder of each warrant to acquire one share of ASI Common
Stock at $6.00 per share.
FOR AGAINST ABSTAIN
2. Proposal to consider and vote upon an amendment to the Company's
Certificate of Incorporation to authorize a new class of non-voting preferred
stock of the Company which shall be exchanged for the Company's 12% Convertible
Notes, in the aggregate outstanding principal amount of $129,690.74 (plus unpaid
interest accrued on such notes).
FOR AGAINST ABSTAIN
3. In their discretion, the named proxies may vote on such other business
as may properly come before the Special Meeting, or any adjournments or
postponements thereof.
The undersigned acknowledges receipt of the accompanying Proxy
Statement-Prospectus dated ____________, 1997.
<PAGE>
[BACK]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 AND 3.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE WITH
THE STOCKHOLDER'S SPECIFICATIONS ABOVE. THE PROXY CONFERS DISCRETIONARY
AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE TIME OF THE
MAILING OF THE NOTICE OF THE SPECIAL MEETING OF STOCKHOLDERS TO THE UNDERSIGNED.
Date:____________________________
---------------------------------
Signature of stockholder
--------------------------------
Signature if held jointly
NOTE: Please mark, date, sign and
return this Proxy promptly using
the enclosed envelope. When
shares are held by joint tenants,
both should sign. If signing as
attorney, executor,
administrator, trustee or
guardian, please give full title.
If a corporation or partnership,
please sign in corporate or
partnership name by an authorized
person.
