SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
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
(973) 376-7700
(Name, address, including ZIP Code, and telephone number, including area
code, of agent for service)
------------------
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.
------------------
<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 1,544,438(2) (3) $1,507,891 (4) $457(5)
Class B Warrants 1,544,438(2)
</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) The amount to be registered in the original registration statement filed
November 12, 1997 were incorrect. These numbers correctly state the amount
to be registered hereunder.
(3) Not applicable.
(4) 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).
(5) The amount of registration fee paid within the initial filing covers the
amount to be registered as corrected herein.
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>
<PAGE>
PAPERCLIP SOFTWARE, INC.
Three University Plaza
Hackensack, New Jersey 07601
January 12, 1998
Dear Fellow Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
PaperClip Software, Inc. ("PaperClip") to be held on February 17, 1998, at the
offices of Medical Registry, Inc., One University Plaza, Hackensack, New Jersey
07601, at 10:00 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 Agreement and Plan of Merger 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 12, 1997 and
amended as of January 8, 1998 (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 $.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, $.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
headings "Risk Factors" and "Special Factors -- Interest of Certain Persons in
the Merger; Conflicts of Interest" which describe, among other things, benefits
to certain PaperClip officers, directors and consultants, 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 07601
(201) 487-3503
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held
February 17, 1998
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 the offices of Medical
Registry, Inc., One University Plaza, Hackensack, New Jersey 07601, on February
17, 1998 at 10:00 a.m. Eastern Standard Time for the following purposes:
1. To consider and vote upon the approval and adoption of an Agreement and
Plan of Merger (the "Merger Agreement") dated as of November 12, 1997, as
amended as of January 8, 1998, 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
January 5, 1998 as the record date for the determination of the holders of the
Common Stock, $.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
January 12, 1998
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>
PROXY STATEMENT-PROSPECTUS
---------------------
PAPERCLIP SOFTWARE, INC.
ACCESS SOLUTIONS INTERNATIONAL, INC. Three University Plaza
650 Ten Rod Road Hackensack, New Jersey 07601
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
February 17, 1998 for the purpose of considering and voting upon (i) an
Agreement and Plan of Merger (the "Merger Agreement") dated as of November 12,
1997, as amended as of January 8, 1998, 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, $.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 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; and
(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.
It is estimated that each share of PaperClip Common Stock held by a
stockholder will receive approximately .19064 shares of a share of ASI Common
Stock and .19064 of a Class B Warrant.
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 44% of
the issued and outstanding ASI Common Stock. Among the conditions to the
consummation of the Merger is the receipt by ASI of at least $2,000,000 in gross
proceeds from a private placement of ASI securities or another source of
financing. The satisfaction of such financing condition is likely to result in
significant dilution of the percentage of shares of ASI to be held by PaperClip
stockholders following the Merger. On January 5, 1998, the last sales price of
the ASI Common Stock on the Nasdaq Small Cap Market was $1-13/16 per share and
the last reported sale price of the PaperClip Common Stock on the OTC Bulletin
Board was $2/32 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 January 14, 1998.
The date of this Proxy Statement-Prospectus is January 12, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION 5
FORWARD LOOKING STATEMENTS 5
SUMMARY 6
RISK FACTORS 18
SPECIAL MEETING INFORMATION 24
SPECIAL FACTORS 27
Background of the Merger 27
Recommendation of the Board of Directors; Reasons for the Merger 28
Amendment to PaperClip's Certificate of Incorporation; Reasons
for the Amendment 29
Interests of Certain Persons in the Merger; Conflicts of Interest 30
Operations of ASI After the Merger 30
CAPITALIZATION 33
ACCESS SOLUTIONS INTERNATIONAL, INC. SELECTED HISTORICAL
FINANCIAL DATA 34
ACCESS SOLUTIONS INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 36
PAPERCLIP SOFTWARE, INC. SELECTED HISTORICAL
FINANCIAL DATA 44
PAPERCLIP SOFTWARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 45
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 50
THE MERGER 57
General 57
Exchange of Certificates; Fractional Shares 57
PaperClip Options and Warrants 58
Bridge Loan 58
Management Agreement 59
Resale Restrictions; Lock-up Agreements 59
PaperClip Stockholder Approval 59
Conditions, Representations and Covenants 60
Termination; Amendments 60
Termination Fee 60
Financing of the Merger 60
Certain Federal Income Tax Consequences 60
Accounting Treatment 62
Regulatory Approvals 62
Rights of Dissenting Stockholders 62
Management and Operations After the Merger 64
INFORMATION CONCERNING ACCESS SOLUTIONS INTERNATIONAL, INC 67
General 67
Business 68
Facilities 72
Management 72
INFORMATION CONCERNING PAPERCLIP SOFTWARE, INC 76
General 76
Business 76
DESCRIPTION OF SECURITIES 84
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS 85
CERTAIN TRANSACTIONS 88
PRINCIPAL STOCKHOLDERS OF ASI 90
MARKET PRICES OF AND DIVIDENDS ON SECURITIES 91
INDEPENDENT PUBLIC ACCOUNTANTS 93
LEGAL MATTERS 93
EXPERTS 94
INDEX TO FINANCIAL STATEMENTS F-1
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.
<PAGE>
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 ("I/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 the 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 the offices
of Medical Registry, Inc., One University Plaza, Hackensack, New Jersey on
February 17, 1998 at 10:00 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 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; and
(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.
See "The Merger -- General."
It is estimated that each share of PaperClip Common Stock held by a
stockholder will receive approximately .19064 shares of a share of ASI Common
Stock and .19064 of a Class B Warrant.
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, as amended (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 December 31, 1997, ASI advanced approximately $2,055,000.00
to fund PaperClip's operations. Under the terms of the Management Agreement,
PaperClip pays 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 January
5, 1998 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 held 764,562
shares of PaperClip Common Stock representing approximately 9.4% 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
14.6% of the PaperClip Common Stock have executed a Stockholder Agreement, dated
as of November 12, 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,
taking into account the fact that ASI has been managing PaperClip since April
1997 pursuant to the Management Agreement and that PaperClip continues to incur
operating losses and has no sources of liquidity independent of ASI's funding
under the Management Agreement, 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 $.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 will 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, 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
Preferred Stock, including, without limitation, providing funds to the Surviving
Corporation to satisfy any exercise of the put rights, 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, taking into
account the fact that ASI has been managing PaperClip since April 1997 pursuant
to the Management Agreement and that PaperClip continues to incur operating
losses and has no sources of liquidity independent of ASI's funding under the
Management Agreement, 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.
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. In addition, such stockholder has
engaged in discussions with the Acting Chairman of the Board of ASI with respect
to such stockholder becoming Chairman of ASI after the Merger is consummated.
Moreover, the Acting Chairman of the Board of ASI intends to utilize such
stockholder's advisory services in connection with the operations of ASI until
the Merger is consummated. 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 Development for ASI after the Merger. Denis Marchand, Vice
President - Finance and Administration for ASI, and Chip Rabinowitz, General
Manager and Acting Director of Engineering and Development at ASI, will each
remain in his current position.
For a period to two years following the Merger, ASI is required to 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. Mr. Kornfeld and Mr. Gardner, the Acting Chairman of the Board of
ASI, have engaged in discussions with respect to Mr. Kornfeld becoming Chairman
of ASI after the Merger is consummated. Moreover, Mr. Gardner intends to utilize
Mr. Kornfeld's advisory services in connection with the operations of ASI ntil
the Mergear is consummated. In addition, during such two year period, PaperClip
will be entitled to designate one person, who initially will be William Weiss,
the Chief Executive Officer and a director of PaperClip, 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 March 31, 1998. 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 PaperClip 32;
introduce a new OAS/3597 controller 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. ASI currently
intends to combine administration, human resources, finance/accounting, sales
and marketing in one facility in New Jersey. PaperClip document management and
imaging research and development, support services and quality assurance testing
would remain in New Jersey. It is currently anticipated that mainframe research
and development, quality assurance testing, support services, integration
services and production services 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 by ASI of at least $2,000,000 in gross proceeds from a private
placement of ASI securities or another source of financing (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
February 21, 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) any 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 will 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 is required to
nominate one member of ASI's board designated by PaperClip, who initially will
be Stephen Kornfeld, a director of and consultant to PaperClip. Mr. Kornfeld and
Mr. Gardner, the Acting Chairman of the Board of ASI, have engaged in
discussions with respect to Mr. Knornfeld becoming Chairman of ASI after the
Merger is consummated. Moreover, Mr. Gardner intends to utilize Mr. Kornfeld's
advisory services in connection with the operations of ASI until the Merger is
consummated. 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. The 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 4 2-1/2
Fourth Quarter 3 5/8
1998
First Quarter (through January 6) 1-13/16 15/16
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 15/64 7/64
Fourth Quarter 15/64 3/64
1998
First Quarter (through January 6) 15/64 3/64
See "Market Prices of and Dividends on Securities."
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. Financial data set forth for the three months
(in the case of ASI) and the nine months (in the case of PaperClip) ended
September 30, 1997 and 1996 are not necessarily indicative of the results for
any such full fiscal year.
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
THREE MONTHS ENDED SEPTEMBER 30, YEARS ENDED JUNE 30,
(in thousands except share and per share data)
1997 1996 1997 1996 1995
----------- ----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
Net Sales:
<S> <C> <C> <C> <C> <C>
Products $193 $163 $501 $1,352 $3,126
Services 132 140 591 635 476
--- --- --- --- ---
Total net sales 325 303 1,092 1,987 3,602
Cost of sales 210 76 390 580 1,300
--- -- --- --- -----
Gross profit 115 227 701 1,407 2,302
Operating expenses 841 912 4,074 5,358(1) 4,681
--- --- ----- ------- -----
Loss from operations (726) (685) (3,373) (3,951) (2,379)
Interest (income) expense, net (25) 79 (12) 190 92
--- -- --- --- --
Loss before extraordinary item (701) (764) (3,360) (4,141) (2,471)
Extraordinary gain on debt
restructuring - - - 320 -
--- --- --- --- ---
Net loss $(701) $(764) $(3,360) $(3,821) $(2,471)
===== ===== ======= ======= =======
Net loss applicable to common
stock:
Net loss $(701) $(764) $(3,360) $(3,821) $(2,471)
Accrued dividends on
preferred stock - - - (109) 88
---- ---- ---- ---- --
$(701) $(764) $(3,360) $(3,930) $(2,559)
===== ===== ======= ======= =======
Net loss per common share:
Loss before extraordinary item $(0.18) $(0.51) $(1.05) $(1.88) $(1.14)
Extraordinary item - - - .14 -
---- ---- ---- --- ----
$(0.18) $(0.51) $(1.05) $(1.74) $(1.14)
====== ====== ====== ====== ======
Weighted average shares
of Common Stock (2)
$3,963,940 $1,511,865 $3,204,122 $2,256,150 $2,250,259
</TABLE>
<PAGE>
September 30, June 30,
1997 1997
------------- --------
(in thousands)
BALANCE SHEET DATA:
Working capital $ 477 $ 1,842
Total assets 3,332 3,980
Total liabilities 991 937
Total stockholders' equity 2,342 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.
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC
Nine Months Ended
SEPTEMBER 30, FISCAL YEAR ENDED DECEMBER 31,
STATEMENT OF OPERATIONS DATA:
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $1,153,087 $1,474,847 $1,968,750 $1,489,139 $1,059,924
Total operating expenses 3,281,416 5,185,068 6,810,850 4,701,944 3,942,020
Income (loss) from
continuing operations (2,128,329) (3,710,221) (4,842,100) (3,212,805) (2,882,096)
Other income (expense) net (30,966) 79,899 90,259 (1,024,165) ( 5,526)
Net loss (2,159,295) (3,630,322) (4,751,841) (4,236,970) (2,887,622)
Net loss per share $(0.27) $(0.47) $(0.63) $(0 .88) $(0.85)
Weighted average
number of common
shares outstanding 7,990,911 7,643,333 7,576,260 4,792,932 3,392,434
</TABLE>
<PAGE>
September 30, December 31,
---------------------------------------------------------
BALANCE SHEET DATA:
1997 1996 1995 1994
---- ---- ---- ----
Working capital $(2,644,301) $(700,859) $3,256,657 $(935,823)
Total assets 563,067 1,006,082 4,466,957 523,368
Total liabilities 3,025,589 1,364,471 723,585 1,194,992
Total stockholders'
equity (deficit) (2,462,522) (358,389) 3,743,372 (671,624)
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 and the anticipated issuance of
covertible promissory notes 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.
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Three Months Ended Year Ended
September 30, 1997 June 30, 1997
Total net sales $ 557,275 $2,997,621
Operating loss (1) (2,010,148) (9,293,668)
Net loss (2) (2,658,782) (10,597,211)
Net loss per share (0.48) (2.23)
Weighted average common
shares outstanding(3) 5,508,378 4,749,819
PRO FORMA COMBINED BALANCE SHEET DATA:
September 30, 1997
-----------------
Cash and cash equivalents (4) $ 2,534,379
Working capital (5) (310,599)
Total assets (6) 13,686,757
Convertible promissory notes (7) 1,900,000
Long-term liabilities and redeemable preferred stock (8) 129,691
Total stockholders' equity (9) 9,380,639
-----------------
(1) The pro forma adjustments for the year ended June 30, 1997 include the
amortization of intangible assets arising from the acquisition of PaperClip of
$2,265,647, partially offset by the elimination of $125,000 of management fees
for the year ended June 30, 1997. The pro forma adjustments for the three months
ended September 30, 1997 include the amortization of intangible assets arising
from the acquisition of PaperClip of $566,412, partially offset by the
elimination of $150,000 of management fees for the three months ended September
30, 1997.
(2) The pro forma adjustments for the year ended June 30, 1997 include the
amortization of intangible assets arising from the acquisition of PaperClip of
$2,265,647 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. The pro forma adjustments for the year ended June 30, 1997 also
include interest expenses of $1,346,667 related to the anticipated issuance of
convertible promissory notes. The pro forma adjustments for the three months
ended September 30, 1997 include the amortization of intangible assets arising
from the acquisition of PaperClip of $566,412, partially offset by the
elimination of $150,000 of management fees and the elimination of interest
expense of $12,118 related to PaperClip's Convertible Notes and bridge loan for
the three months ended September 30, 1997. The pro forma adjustments for the
three months ended September 30, 1997 also include interest expense of $673,334
related to the anticipated issuance of convertible promissory notes.
(3) The pro forma adjustments include the issuance of 1,544,438 shares of
ASI Common Stock.
(4) Reflects the proceeds from the anticipated issuance of convertible
promissory notes with a face value of $2,000,000, net of an offering discount of
$100,000.
(5) 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 $1,181,690 and $298,867 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 would be consummated. The pro forma adjustments also
include the impact of the anticipated issuance of convertible promissory notes,
which results in additional working capital of $146,667 representing prepaid
interest expenses related to the anticipated issuance of the related warrants.
(6) The pro forma adjustments include the elimination of the $300,000
bridge loan and advances of $1,181,690 recorded by ASI and recording $9,126,215
of intangible assets arising from the acquisition of PaperClip. The pro forma
adjustments also reflect $1,900,000 of proceeds from the anticipated issuance of
convertible promissory notes, $100,000 of issue costs, and $146,667 of deferred
interest expenses related to the anticipated issuance of warrants.
(7) Reflects the anticipated issuance of convertible promissory notes with
a face value of $2,000,000, net of an offering discount of $100,000.
(8) Reflects the conversion of PaperClip's Convertible Notes into PaperClip
redeemable preferred stock.
(9) The pro forma adjustments reflect the issuance of 1,544,438 shares of
ASI Common Stock and related warrants and the elimination of PaperClip's
stockholders' equity balance. The pro forma adjustments also reflect additional
paid-in-capital of $146,667 related to the anticipated issuance of warrants in
connection with the anticipated issuance of convertible promissory notes.
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.
As Of Or For The As Of Or For The
Three Months Ended Year Ended
SEPTEMBER 30, JUNE 30,
------------------- ----------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
HISTORICAL-ASI:
Net loss $ (0.18) $ (0.51) $(1.05) $ (1.74) $ (1.14)
Book value $ 0.59 (A) $ 0.76 (A) (A)
As Of Or For The As Of Or For The
Nine Months Ended Year Ended
SEPTEMBER 30, DECEMBER 31,
------------------- -----------------
1997 1996 1996 1995 1994
---- ---- ---- ----- ----
HISTORICAL-PAPERCLIP:
Net loss $(0.27) $(0.47) $(0.63) $(0.88) $(0.85)
Book value $(0.30) (A) $(0.05) (A) (A)
As Of Or For The As Of Or For The
Three Months Ended Year Ended
SEPTEMBER 30, JUNE 30,
------------------- ----------------
1997 1997
---- ----
PROFORMA COMBINED:
Net loss $(0.48) $ (2.23)
Book value $ 1.70 (A)
(A) - Not Presented
<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.
FINANCING CONDITION. Consummation of the Merger is subject to various
conditions, including the receipt by ASI of at least $2,000,000 in gross
proceeds from a private placement of ASI securities or another source of
financing. Satisfaction of the Financing Condition is likely to result in
significant dilution of the percentage of shares of ASI to be held by PaperClip
stockholders following the Merger. See "Risk Factors--Risks Relating to
ASI--Capital Needs; Uncertainty of Additional Funding."
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. The market value of ASI Common Stock has
declined since the date of the Asset Purchase Agreement from $3-7/8 per share to
$1-3/8 per share on the date of execution of the Merger Agreement and $15/16 on
January 5, 1998. 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 "Securities Eligible for Future Sale" below and "The
Merger -- General."
POSSIBLE DILUTION TO PAPERCLIP STOCKHOLDERS FROM FUTURE ASI FINANCING. ASI
must obtain additional financing to satisfy its capital needs after February
1998. If such financing is secured through the issuance of convertible debt (as
currently intended) or by 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
Common Stock and 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 February 1998. ASI has
entered into secured lines of credit with Mr. Chace, pursuant to which Mr. Chace
loaned ASI an aggregae of $354,000 to date secured by certain accounts
receivable. The lines of credit are payable in full on or before February 17,
1998. See "Certain Transactions -- Transactions with Mr. Chace." On December 30,
1997, ASI entered into a letter of intent with Joseph Stevens & Company, L.P.
("JSC") to undertake a private offering of a minimum of 10 and a maximum of 40
Units (the "Placement Units") for a purchase price of $50,000 per Placement
Unit. Pursuant to the terms of the letter of intent, no less than 50% of the
Placement Units sold in the private placement are to be sold pursuant to orders
received through ASI. Each Placement Unit consists of a 10% one-year mandatorily
convertible promissory note in the principal amount of $50,000 and 20,000
warrants, each warrant being exercisable for three years, commencing six months
after the closing date, to purchase one share of ASI Common Stock at an exercise
price equal to the lower of $.75 or 80% of the lowest average closing bid price
of the ASI Common Stock on the Nasdaq market for the five consecutive trading
days immediately preceding the initial, any interim or the final closing dates
of the Placement Units offering. If consummated, the offering of the Placement
Units 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. Based upon the terms of the proposed
Placement Units offering, the percentage of shares of ASI to be held by the
stockholders of PaperClip following the Merger would be reduced from
approximately 28% to a percentage ranging between approximately 13.57% and
18.29% assuming the entire $2,000,000 is raised in the Placement Units offering.
If the average closing price of the ASI Common Stock is less than $.5625 for the
five consecutive trading days preceding the applicable closing date of the
Placement Units offering, the percentage at the lower end of the range would
apply. There can be no assurance that any financing which is consummated would
not result in greater dilution of the stockholders of PaperClip. If the offering
of the Placement Units is not consummated and if ASI is unable to obtain
alternative sources of 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 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, $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. For the three
months ended September 30, 1997, ASI incurred a net loss of approximately
$701,000. 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. Until recently, ASI derived 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 1,499,702 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. The Placement Units, when issued, will be
subject to a six-month lock-up period. 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 339,965
shares are currently eligible for sale in compliance with Rule 144 promulgated
under the Securities Act; of these shares, 339,824 will be freely transferable
under the Securities Act after the Merger. Approximately 1,499,702 shares of the
ASI Common Stock outstanding prior to the Merger are subject to lock-up
agreements and will be eligible for sale 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 725,000 shares of ASI Common Stock issued or issuable
pursuant to ASI's stock option plans. Of the shares to be so registered, 214,189
shares are subject to outstanding options as of September 30, 1997, all of which
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
WORKING CAPITAL DEFICIENCIES; HISTORY OF LOSSES, ACCUMULATED DEFICIT;
ABILITY TO CONTINUE AS A GOING CONCERN. PaperClip has a history of losses and of
limited working capital. For the nine months ended September 30, 1997, PaperClip
incurred a net loss of $2,159,295. As of September 30, 1997, PaperClip had an
accumulated deficit of $18,957,301. PaperClip continues to incur operating
losses. PaperClip had negative working capital of $2,644,301 as of September 30,
1997. 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. 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.
PaperClip's independent public accountants have included explanatory language in
their report dated February 20, 1997 on PaperClip's Financial Statements as to
PaperClip's ability to continue as a going concern. See "PaperClip Software,
Inc. Management's Discussion and Analysis of Financial Condition and Results of
Operations," and PaperClip Financial Statements and notes thereto.
PRODUCT DEVELOPMENT. Existing and future competing products that may be
offered at lower prices, or that may have superior technological and performance
characteristics, could adversely affect sales of the Systems (as defined below)
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. See "Information
Concerning PaperClip Software, Inc.--Business--Product Development."
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. To date Microsoft,
Inc. ("Microsoft"), a competitor of PaperClip, 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. See "Information Concerning PaperClip Software,
Inc.--Business--Product Development."
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. In addition, the stockholder that received
333,333 shares of PaperClip Common Stock for advisory services has engaged in
discussions with the Acting Chairman of the Board of ASI with respect to such
stockholder becoming Chairman of ASI after the Merger is consummated, and prior
to consummation of the Merger, the Acting Chairman of ASI intends to use such
stockholder's advisory services in connection with the operations of ASI. 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 the offices of Medical
Registry, Inc., One University Plaza, Hackensack, New Jersey, on February 17,
1998 at 10:00 a.m., local time.
The Special Meeting will be held for the purpose of considering and voting
upon proposals to adopt and approve (i) the Merger Agreement and the
transactions contemplated thereby and (ii) 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 RECOMMEND 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 January
5, 1998 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 Plaza, 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
and the persons and entities related to the foregoing held 764,562 shares, or
9.4%, 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 3,289,217 shares of PaperClip Common Stock, representing 40.6% 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, 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 12, 1997, the parties entered into the Merger Agreement
and the First Amendment to the Management Agreement. In December 1997, ASI
presented a plan of financing to PaperClip in accordance with the then existing
condition of the Merger Agreement that a bona fide written third party proposal
for financing the Surviving Corporation for at least 12 months following the
Merger be provided to PaperClip prior to mailing of the proxy statement, and
that PaperClip be reasonably satisfied that such proposal is attainable. The
plan provided for up to $1,500,000 to be raised from a private placement of
ASI's securities. After a number of discussions, on December 30, 1997, ASI
entered into a letter of intent with JSC in connection with a private placement
of ASI's securities under which JSC undertakes to seek to raise between $500,000
and $2,000,000 of capital for ASI. In order to avoid any further delay in
consummating the capital raising transaction, the parties amended the Merger
Agreement as of January 8, 1998 to provide that the receipt of at least
$2,000,000 in gross proceeds from a private placement of ASI's securities is a
condition to the closing of the Merger. This amendment enables PaperClip to mail
the proxy statement and hold the Special Meeting, but makes the consummation of
the Merger contingent upon the receipt by ASI of the specified amount of
financing.
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, and the Board of Directors of PaperClip 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, taking into
account the fact that ASI has been managing PaperClip since April 1997 pursuant
to the Management Agreement and that PaperClip continues to incur operating
losses and has no sources of liquidity independent of ASI's funding under the
Management Agreement, 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 continues to
incur operating losses and 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;
and
4. 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 and the amendment thereto,
dated as of January 8, 1998, 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 February 28, 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 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 $.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 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 $.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. In addition, the stockholder that received
333,333 shares of PaperClip Common Stock for advisory services has engaged in
discussions with the Acting Chairman of the Board of ASI with respect to such
stockholder becoming Chairman of ASI after the Merger is consummated, and prior
to consummation of the Merger, the Acting Chairman of ASI intend to use such
stockholder's advisory services in connection with the operations of ASI. 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 approximately $80,000 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, Vice
President - Finance and Administration for ASI, and Chip Rabinowitz, General
Manager and 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 is required to 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. Mr. Kornfeld and Mr. Gardner, the Acting Chairman of the Board of
ASI, have engaged in discussions with respect to Mr. Kornfeld becoming Chairman
of ASI after the Merger is consummated. Moreover, Mr. Gardner intends to utilize
Mr. Kornfeld's advisory services in connection with the operations of ASI until
the Merger is consummated. 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, the Chief Executive Officer and a director of PaperClip.
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 March 31, 1998, 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 its 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 was introduced to the
marketplace in the fourth quarter of 1997 which removes some of the limitations
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. ASI currently intends to commbine
administation, human resources, finance/accounting, sales and marketing in one
facility in New Jersey. PaperClip document management and imaging research and
development, support services and quality assurance testing would remain in New
Jersey. It is currently anticipated that mainframe research and development,
quality assurance testing, support services, integration services and production
services 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
September 30, 1997 and (ii) as adjusted to reflect the Merger of PaperClip and
the issuance of the ASI Purchase Securities and the anticipated issuance of
convertible promissory notes and related warrants.
ACTUAL AS ADJUSTED(1)
Cash and cash equivalents $ 598,332 $ 2,534,379
========== ===========
Convertible promissory notes -- 1,900,000
---------- -----------
Total long-term debt, including current portion 25,893 42,759
---------- -----------
Redeemable 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 24,660,977
Accumulated deficit (15,317,378) (15,317,378)
------------ ------------
2,359,968 3,398,690
Less treasury stock (1,259 shares) (18,056) (18,056)
------------- ------------
Total stockholders' equity 2,341,912 9,380,639
------------- ------------
Total capitalization $2,367,805 $11,453,084
============= ============
(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.
Also reflects the anticipated issuance of convertible promissory notes and
related warrants.
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 and for the three months ended
September 30, 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. Financial data for the quarter ended September 30 are not
necessarily indicative of the results for the full fiscal year.
<TABLE>
<CAPTION>
For the Three Months
FOR THE YEARS ENDED JUNE 30, ENDED SEPTEMBER 30,
1995 1996 1997 1996 1997
------- ---- ---- ---- ----
(in thousands except share and per share data)
STATEMENT OF OPERATIONS DATA:
Net sales:
<S> <C> <C> <C> <C>
Products $ 3,126 $ 1,352 $ 501 $ 163 $ 193
Services 476 635 591 140 132
--- --- --- --- ---
Total net sales 3,602 1,987 1,092 303 325
----- ----- ----- --- ---
Cost of sales:
Products 1,115 346 133 20 138
Services 185 234 257 55 71
--- --- --- -- --
Total cost of sales 1,300 580 390 75 210
----- --- --- -- ---
Gross profit 2,302 1,407 701 227 115
Operating expenses:
Selling expenses 1,337 1,223 928 215 191
General and administrative 1,588 1,678 1,495 277 274
expenses
Research and development 1,756 1,713 1,651 420 376
expenses
Stock compensation -- 744 -- -- --
expense (1) --- --- --- --- ---
Total operating expense 4,681 5,358 4,074 913 842
----- ----- ----- --- ---
Loss from operations (2,379) (3,951) (3,372) (685) (726)
Interest expense, net 92 190 (12) (79) (25)
-- --- --- --- ---
Loss before extraordinary item (2,471) (4,141) (3,360) (764) (701)
Extraordinary gain on debt
restructuring -- 320 -- -- --
--- --- --- --- ---
Net loss $ (2,471) $ (3,821) $ (3,360) $ (764) $ (701)
=========== =========== =========== =========== ===========
Net loss applicable to common stock:
Net loss $ (2,471) $ (3,821) $ (3,360) $ (764) $ (701)
Accrued dividends on preferred stock (88) (109) -- -- --
--- ----
$ (2,559) $ (3,930) $ (3,360) $ (764) $ (701)
=========== =========== =========== =========== ===========
Primary net loss per common share:
Net loss before extraordinary item $ (1.14) $ (1.88) $ (1.05) $ (0.51) $ (0.18)
Extraordinary item -- .14 -- -- --
--- --- --- --- ---
$ (1.14) $ (1.74) $ (1.05) $ (0.51) $ (0.18)
=========== =========== =========== =========== =======
Weighted average shares of Common Stock(2) 2,250,259 2,256,150 3,204,122 1,511,865 3,963,940
</TABLE>
June 30, June 30, September 30,
1996 1997 1997
(in thousands)
BALANCE SHEET DATA:
Working capital (deficiency) $(1,971) $1,842 $ 477
Total assets 2,874 3,980 3,332
Total liabilities 3,533 937 991
Total stockholders' equity (deficit) (659) 3,043 2,342
(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 September 30, 1997, ASI
had deferred revenue in the amount of $235,196, which it will recognize through
September 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
occurred in 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 Merger
of PaperClip which is anticipated to be completed in February 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 nine 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
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.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
NET SALES. Net sales for the three months ended September 30, 1997 were
$325,056 compared with $303,135 for the three months ended September 30, 1996,
an increase of $21,921 or 7%. Product sales were $193,413 for the first quarter
of Fiscal 1998 compared with $162,797 for the first quarter of Fiscal 1997, an
increase of $30,616 or 19%. ASI realized an increase in its product sales
through its distribution agreement with PaperClip Software (see Note 2). Product
sales consisted of $157,050 for the sale of PaperClip software and the balance
for recurring media sales. There were no upgrade installations or software
enhancements sold in the first quarter of Fiscal 1998. Service revenues were
$131,643 for the first quarter of Fiscal 1998 compared with $140,338 for the
first quarter of Fiscal 1997, a decrease of $8,695 or 6%. Management anticipates
an increase in service revenues for subsequent quarters due to ongoing
negotiations with its customer base and commencement of a new service contract
with an existing customer (see Overview).
COST OF SALES. Cost of sales includes component costs, firmware license
costs, labor, travel and certain overhead costs. Costs of sales in the aggregate
increased 177% to $209,662 for the three months ended September 30, 1997 from
$75,670 for the three months ended September 30, 1996. Sales in Fiscal 1998
consisted primarily of PaperClip Software which carried a higher product cost
relative to ASI's in-house product offerings.
The cost of product sales increased 582% to $138,449 for the three months
ended September 30, 1997 from $20,312 for the three months ended September 30,
1996. The increase in product related cost of sales was a result of increased
costs related to PaperClip Software which is purchased at a distributors'
discount and, to a lesser extent, higher sales volume. The cost of services
increased by 29% to $71,213 for the three months ended September 30, 1997 from
$55,358 for the three months ended September 30, 1996. This increase was the
result of converting much of ASI's contracted maintenance to a more reliable,
but more expensive, contractor and also reflects maintenance coverage during
this period for a customer that was still under warranty for such services.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of administrative expenses and technical support. General and
administrative expenses decreased 1% or $3,178 to $274,022 for the three months
ended September 30, 1997 from $277,200 for the three months ended September 30,
1996. This decrease was due to lower personnel costs and reduced professional
fees but was offset by higher insurance expense. ASI's directors and officers
insurance increased significantly as a result of its initial public offering.
This insurance has since been renewed resulting in decreased rates of up to 28%.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased by 10% or $43,944 to $376,231 for the three months ended September 30,
1997 from $420,175 for the three months ended September 30, 1996. The decrease
in research and development was primarily due to reduced depreciation for ASI's
mainframe which became fully depreciated during the first quarter of Fiscal 1997
and from payroll reductions during the first quarter of Fiscal 1997. The reduced
depreciation was offset by increased consultant costs.
SELLING EXPENSES. Selling expenses decreased by $23,949 or 11% to $191,361
for the three months ended September 30, 1997 from $215,310 for the three months
ended September 30, 1996. The decreases were primarily the result of reduced
payroll resulting from the termination of the Vice President of Sales
in the second quarter of Fiscal 1997.
OTHER INCOME AND EXPENSES. Other income and expenses consisted of interest
expense which decreased 99% or $81,408 to $747 for the three months ended
September 30, 1997 from $82,155 for the three months ended September 30, 1996.
This decrease was the result of reduced loans outstanding. A bank loan of
approximately $220,000 and a bridge loan of approximately $1,500,000 were repaid
in October 1996 from the proceeds of ASI's initial public offering. Interest
income increased by $22,552 to $25,795 for the three months ended September 30,
1997 from $3,243 for the three months ended September 30, 1996, as a result of
investment earning from the proceeds of ASI's initial public offering.
NET LOSS. As a result of the foregoing, ASI's net loss decreased to
$701,172 ($.18 per share on 3,963,940 weighted average shares outstanding) for
the three months ended September 30, 1997 from a net loss of $764,132 ($.51 per
share on 1,511,865 weighted average shares outstanding) during the three
months ended September 30, 1996.
<TABLE>
<CAPTION>
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.
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 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.
YEAR ENDED JUNE 30, 1996 YEAR ENDED JUNE 30, 1995
------------------------ ------------------------
Net sales
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)%
=========== ====== =========== ======
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 $476,977 at September 30, 1997 as
compared to a working capital deficit of $2,916,791 at September 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.
Total cash used by operating activities during the three month period ended
September 30, 1997 and 1996 was $578,766 and $118,665, respectively. ASI's net
losses for these periods were $701,172 and $764,132, respectively. The major
uses of capital for operating activities during the three month period ended
September 30, 1997 included funding such net losses, reductions in deferred
revenue and accrued expenses. The major source of capital from operating
activities was an increase in accounts payable in the amount of $215,390.
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.
Cash used by investing activities for the three month period ended
September 30, 1997 and 1996 was $706,268 and $96,012, respectively. The cash
used by investing activities in Fiscal 1998 was incurred primarily pursuant to
the agreements with PaperClip Software.
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.
Cash used by financing activities was $6,080 for the three month period
ended September 30, 1997 and $201,167 for the three month period ended September
30, 1996. The use of cash for financing activities during the three month period
ended September 30, 1997 was for repayment of ASI's capital lease obligations.
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 September 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 February 1998. ASI has entered into secured lines of credit with
Mr. Chace, pursuant to which Mr. Chace loaned ASI an aggregate of $354,000 to
date, secured by certain accounts receivable. The lines of credit are payable in
full on or before February 17, 1998. See "Certain Transactions--Transactions
with Mr. Chace." On December 30, 1997, ASI entered into a letter of intent with
JSC to undertake a private offering of a minimum of 10 and a maximum of 40
Placement Units for a purchase price of $50,000 per Placement Unit. Pursuant to
the terms of the letter of intent, no less than 50% of the Placement Units sold
in the private placement are to be sold pursuant to orders received through ASI.
Each Placement Unit consists of a 10% one-year mandatorily convertible
promissory note in the principal amount of $50,000 and 20,000 warrants, each
warrant being exercisable for three years to purchase one share of ASI Common
Stock at an exercise price equal to the lower of $.75 or 80% of the lowest
average closing bid price of the ASI Common Stock on the Nasdaq market for the
five consecutive trading days immediately preceding the initial, any interim or
the final closing dates of the Placement Units offering. If the offering of the
Placement Units is not consummated and/or ASI has insufficient funds from
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.
SEASONALITY AND INFLATION
To date, seasonality and inflation have not had a material effect on ASI's
operations.
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.
<PAGE>
<TABLE>
<CAPTION>
PAPERCLIP SOFTWARE, INC.
SELECTED HISTORICAL FINANCIAL DATA
Nine Months
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- --- -----------------------
STATEMENT OF
OPERATIONS DATA: 1997 1996 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 1,153,087 $ 1,474,847 $ 1,968,750 $ 1,489,139
----------- ----------- ----------- -----------
Operating expenses:
Salaries and related benefits 1,084,223 1,175,561 1,391,725 1,292,654
Research and development expenses 1,037,208 2,326,510 3,066,395 1,621,849
Selling expenses 487,352 909,647 1,447,593 940,624
General and administrative expenses 672,633 773,350 905,137 846,817
----------- ----------- ----------- -----------
Total operating expenses 3,281,416 5,185,068 6,810,850 4,701,944
----------- ----------- ----------- -----------
Loss from operations (2,128,329) (3,710,221) (4,842,100) (3,212,805)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 3,211 84,323 95,820 49,635
Interest expense (34,177) (4,424) (5,561) (1,073,800)
----------- ----------- ----------- -----------
(30,966) 79, 899 90,259 (1,024,165)
----------- ----------- ----------- -----------
Net loss $(2,159,295) $(3,630,322) $(4,751,841) $(4,236,970)
=========== =========== =========== ===========
-----------
Net loss per common share $ (0.27) $ (0.47) $ (0.63) $ (0.88)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 7,990,911 7,643,333 7,576,260 4,792,932
=========== =========== =========== ===========
</TABLE>
BALANCE SHEET DATA:
September 30, December 31,
1997 1996 1995
Working capital $(2,644,301) $(700,859) $3,256,657
Total assets 563,067 1,006,082 4,466,957
Total liabilities 3,025,589 1,364,471 723,585
Total stockholders (2,462,522) (358,389) 3,743,372
equity (deficit)
<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.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS SEPTEMBER 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>
Nine Months Ended Nine Months Ended
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 1,153,087 100% $ 1,474,847 100%
----------- ----------- ----------- -----------
Operating Expenses:
Salaries and related benefits 1,084,223 94 1,175,561 80
Research and development expenses 1,037,208 90 2,326,510 158
Selling expenses 487,352 42 909,647 62
General and administrative 672,633 58 773,350 52
expenses ----------- ----------- ----------- -----------
Total operating expenses 3,281,416 285 5,185,068 352
----------- ----------- ----------- -----------
Loss from operations (2,128,329) (185) (3,710,221) (252)
----------- ----------- ----------- -----------
Other Income (Expense):
Interest income 3,211 1 84,323 6
Interest expense (34,177) (3) (4,424) --
----------- ----------- ----------- -----------
(30,966) (2) (79,899) 6
----------- ----------- ----------- -----------
Net loss $(2,159,295) (187)% $(3,630,322) 246%
=========== =========== =========== ===========
Loss per common share $ (0.27) $ (0.47)
=========== ===========
Weighted average number of
common shares outstanding 7,990,911 7,643,333
=========== ===========
</TABLE>
Net sales for the nine months ended September 30, 1997 decreased by 21.82%
over the nine months ended September 30, 1996 (from $1,474,847 to $1,153,087)
due to lower demand in the first and third quarters of 1997. Net sales were
adversely affected by a decrease in marketing efforts, which resulted from
PaperClip's financial constraints. None of such decrease was a result of a
decrease in prices.
Salaries and related benefits decreased in such period by 7.77% (from
$1,175,561 to $1,084,223) due to a reduction in general and administrative
personnel, resulting from PaperClip's financial constraints.
Research and development expenses decreased by 55.42% (from $2,326,510 to
$1,037,208) due to completion of Internet products, cessation of work on the
workflow products, and PaperClip's financial constraints.
Selling expenses decreased by 46.42% (from $909,647 to $487,352 due to a
lower marketing effort and lower promotion expenses resulting from PaperClip's
financial constraints.
General and administrative expenses decreased by 13.02% (from $773,350 to
$672,633) due to a reduction in staffing.
The net loss from operations for the nine months ended September 30, 1997
decreased by 42.64% over the nine months ended September 30, 1996 (from
$3,710,221 to $2,128,329) primarily due to a decrease in research and
development and marketing efforts in light of PaperClip's financial constraints.
Interest income for the nine months ended September 30, 1997 decreased by
96.19% over the nine months ended September 30, 1996 (from $84,323 to $3,211)
due to the loss of interest income and investments that PaperClip had in 1996,
which was used to fund operations.
Interest expenses for the nine months ended September 30, 1997 increased by
672.54% over the nine months ended September 30, 1996 (from $4,424 to $34,177)
due to accrued interest payable to ASI for the advances it has made to fund
PaperClip's operations.
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> <C> <C>
Net Sales $ 1,968,750 100% $ 1,489,139 100%
----------- ----------- ----------- -----------
Operating Expenses:
Salaries and related benefits 1,391,725 71 1,292,654 87
Research and development expenses 3,066,395 156 1,621,849 109
Selling expenses 1,447,593 73 940,624 63
General and administrative expenses 905,137 46 846,817 57
----------- ----------- ----------- -----------
Total operating expenses 6,810,850 346 4,701,944 316
----------- ----------- ----------- -----------
Loss from operations (4,842,100) (246) (3,212,805) (216)
----------- ----------- ----------- -----------
Other Income (Expense):
Interest income 95,820 5 49,635 3
Interest expense (5,561) -- (1,073,800) (72)
----------- ----------- ----------- -----------
90,259 5 (1,024,165) (69)
----------- ----------- ----------- -----------
Net loss $(4,751,841) (241)% $(4,236,970) (285)%
=========== =========== =========== ===========
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.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
<PAGE>
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> <C> <C>
Net sales $ 1,489,139 100% $ 1,059,924 100%
----------- -----------
Operating Expenses:
Salaries and related benefits 1,292,654 87 1,164,430 110
Research and development 1,621,849 109 1,166,769 110
Selling expenses 940,624 63 745,958 70
General and administrative 846,817 57 864,863 82
-----------
Total operating expenses 4,701,944 316 3,942,020 372
----------- ----------- ----------- -----------
Loss from operations (3,212,805) (216) (2,882,096) (272)
----------- ----------- ----------- -----------
Other Income (Expense):
Interest income 49,635 3 3,974 --
Interest expense (1,073,800) (72) (9,500) --
----------- -----------
Net loss $(4,236,970) (285)% $(2,887,622) (272)%
=========== =========== =========== ===========
Net loss per common share $ (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 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 nine months ended September 30, 1997 PaperClip incurred a net loss
of $2,159,295. As of September 30, 1997, PaperClip had an accumulated deficit of
$18,957,301. PaperClip continues to incur operating losses. PaperClip had
negative working capital of $700,859 and $2,644,301 as of December 31, 1996 and
September 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 December 31, 1997, ASI had advanced approximately $2,055,000
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>
<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 and anticipated issuance of convertible promissory notes and
related warrants had occurred as of July 1, 1996. The unaudited pro forma
condensed combined statement of operations of ASI for the three months ended
September 30, 1997 presents the operating results for ASI as if the proposed
Merger and anticipated issuance of convertible promissory notes and related
warrants had occurred as of July 1, 1997. The accompanying unaudited pro forma
condensed combined balance sheet as of September 30, 1997 gives effect to these
transactions as if they had occurred on September 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.
ASI and PaperClip have different fiscal year ends and classify expenses on
different line items in their financial statements. For purposes of preparing
the pro forma condensed combined financial statements, amounts related to
PaperClip have been recast to present consistent periods covered by the
statements of operations for the year ended June 30, 1997 and consistent line
item classifications.
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 and anticipated issuance of convertible promissory notes and
related warrants 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 transactions are
consummated, ASI's financial statements will reflect their effects only from the
date such transactions occur. 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 $6,962,555 for
the purchase of PaperClip used in these pro forma financial statements is
comprised of $6,892,055 related to the Merger Consideration and $70,500 of
non-recurring transaction costs. 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
Three Months Ended September 30, 1997
(Unaudited)
Historical
------------------------- Pro forma Pro forma
ACCESS PAPERCLIP ADJUSTMENTS COMBINED
------ --------- ----------- --------
Net sales:
<S> <C> <C> <C> <C>
Products $ 193,413 $232,219 $ - $425,632
Services 131,643 - - 131,643
---------- -------- -------- ---------
Total net sales 325,056 232,219 - 557,275
---------- -------- -------- ---------
Cost of sales:
Products 138,449 - 275,253 (1) 413,702
Services 71,213 - - 71,213
---------- -------- -------- ---------
Total cost of sales 209,662 - 275,253 484,915
---------- -------- -------- ---------
Gross Profit 115,394 232,219 (275,253) 72,360
---------- -------- -------- ---------
General and administrative expense 274,022 232,659 141,159(2) 647,840
Research and development expense 376,231 513,617 - 889,848
Selling expense 191,361 353,459 - 544,820
---------- -------- -------- ---------
Total expenses 841,614 1,099,735 141,159 2,082,508
---------- -------- -------- ---------
Operating loss (726,220) (867,516) (416,412) (2,010,148)
---------- -------- -------- ---------
Interest income 25,795 74 - 25,869
Interest expense (747) (12,540) (661,216)(3) (674,503)
========= ======== ========== ==========
Net loss (701,172) (879,982) (1,077,628) (2,658,782)
========= ======== ========== ==========
Dividends on PaperClip preferred stock - - (3,891)(4) (3,891)
---------- -------- -------- ---------
Net loss applicable to common stock $(701,172) $(879,982) $(1,081,519) $ (2,662,673)
========= ======== ========== ==========
Net loss per common share (5) $(0.18) $(0.48)
Weighted average common shares
outstanding (5) 3,963,940 5,508,378
See accompanying Notes to Unaudited Pro Forma Condensed Combined Statement of Operations
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended September 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 $3,303,040.
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 $5,823,171. 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 $150,000 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 would be consummated.
(3) In connection with the Merger, the 12% Convertible Notes of PaperClip will
be converted into redeemable preferred stock of PaperClip. In addition,
PaperClip has recorded interest expense related to the bridge loan. This
adjustment reflects the elimination of $3,118 and $9,000 interest expense
associated with these 12% Convertible Notes and the bridge loan,
respectively.
ASI anticipates that it will issue convertible promissory notes and related
warrants prior to the Merger. The adjustments reflect interest expense of
$673,334 related to such notes and warrants.
(4) This adjustment reflects the 12% dividends on the PaperClip redeemable
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 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 net sales 1,091,578 1,906,043 -- 2,997,621
----------- ----------- ----------- -----------
Cost of sales:
Products 133,453 -- 1,101,013 1,234,466
Services 256,777 -- -- 256,777
----------- ----------- ----------- -----------
Total cost of sales 390,230 -- 1,101,013 1,491,243
----------- ----------- ----------- -----------
Gross Profit 701,348 1,906,043 (1,101,013) 1,506,378
----------- ----------- ----------- -----------
General and administrative expense 1,494,792 1,040,914 1,039,634(2) 3,575,340
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 1,039,634 10,800,046
----------- ----------- ----------- -----------
Operating loss (3,372,846) (3,780,175) (2,140,647) (9,293,668)
----------- ----------- ----------- -----------
Interest income 112,538 30,974 -- 143,512
Interest expense
(100,066) (24,051) (1,322,938) (1,447,055)
----------- ----------- ----------- -----------
Net loss (3,360,374) (3,773,252) (3,463,585) (10,597,211)
=========== =========== =========== ===========
Dividends on PaperClip preferred stock -- (15,563)(4) (15,563)
=========== =========== =========== ===========
Net loss applicable to common stock $(3,360,374) $(3,773,252) $(3,479,148) $(10,612,774)
=========== =========== =========== ===========
$ (1.05) $ (2.23)
Net loss per common share (5)
Weighted average common shares outstanding (5) 3,205,381 4,749,819
See accompanying Notes to Unaudited Pro Forma Condensed Combined Statement of Operations
</TABLE>
<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 $3,303,040.
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 $5,823,171. 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 would be consummated.
(3) In connection with the Merger, the 12% Convertible Notes of PaperClip will
be converted into redeemable 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.
ASI anticipates that it will issue convertible promissory notes and related
warrants prior to the Merger. The adjustments reflect interest expense of
$1,346,667 related to such notes and warrants.
(4) This adjustment reflects the 12% dividends on the PaperClip redeemable
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
SEPTEMBER 30, 1997
(Unaudited)
Historical Pro forma Pro forma
---------- --------- ------------- ---------
ACCESS PAPERCLIP ADJUSTMENTS COMBINED
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 598,332 $ 36,047 1,900,000(1) $2,534,379
Trade accounts receivable, net of
allowance for doubtful accounts 201,265 214,085 -- 415,350
Inventories 485,972 -- -- 485,972
prepaid expenses and other current assets 181,995 1,465 246,667(2) 430,127
----------- ----------- ----------- -----------
Total current assets 1,467,564 251,597 2,146,667 3,865,828
Fixed assets, net 323,595 260,846 -- 584,441
Other assets:
Notes and advances receivable 1,481,690 -- (1,481,690)(3) --
Deposits and other assets 59,649 50,624 -- 110,273
Purchased software products -- -- 3,303,040 (4) 3,303,040
Goodwill -- -- 5,823,175 (5) 5,823,175
----------- ----------- ----------- -----------
Total assets $ 3,332,498 $ 563,067 $ 9,791,192 $13,686,757
=========== =========== =========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 647,030 $ 1,212,738 $ 45,500 (6) $ 1,905,268
Loans payable -- 1,655,557 (1,655,557)(7) --
Convertible Notes payable -- -- 1,900,000(8) 1,900,000
Current installments of capital lease
obligations 25,893 16,866 -- 42,759
Accrued salaries and wages 82,467 -- -- 82,467
Deferred revenues - prepaid service contracts 235,196 10,737 -- 245,933
----------- ----------- ----------- -----------
Total current liabilities 990,586 2,895,898 289,943 4,176,427
Notes payable -- 129,691 (129,691)(9) --
----------- ----------- ----------- -----------
Total liabilities 990,586 3,025,589 160,252 4,176,427
----------- ----------- ----------- -----------
Redeemable preferred stock -- -- 129,691(9) 129,691
Stockholders' equity: ----------- ----------- ----------- -----------
Common stock 39,652 81,015 (65,571)(10) 55,096
Additional paid-in capital 17,637,694 16,413,764 (9,390,481)(11) 24,660,977
Accumulated deficit (15,317,378) (18,957,301) 18,957,301(12) (15,317,378)
Treasury stock (18,056) -- -- (18,056)
----------- ----------- ----------- -----------
Total stockholders' equity 2,341,912 (2,462,522) 9,501,249 9,380,639
----------- ----------- ----------- -----------
Total liabilities, redeemable preferred
stock and stockholders' equity $ 3,332,498 $ 563,067 $ 9,791,192 $13,686,757
=========== =========== =========== ===========
See accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Combined Balance Sheet
September 30, 1997
(Unaudited)
(1) Reflects the proceeds from the anticipated issuance of convertible
promissory notes with a total face value of $2,000,000, net of an offering
discount of $100,000.
(2) Reflects $146,667 of deferred interest expense representing the estimated
fair value of warrants anticipated to be issued in conjunction with the
anticipated issuance of the convertible promissory notes and $100,000 of
issue costs.
(3) Reflects elimination of ASI's $300,000 bridge loan to PaperClip and
advances of $1,181,690 to PaperClip.
(4) ASI has estimated that the intangible assets arising from the acquisition
of PaperClip include existing software products of $3,303,040. 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.
(5) ASI has estimated that the intangible assets arising from the acquisition
of PaperClip include goodwill of $5,823,175. 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.
(6) Reflects the elimination of ASI's $125,000 trade payable to PaperClip,
partially offset by the accrual of $70,500 of legal, accounting, due
diligence and other costs related to the Merger. Also reflects the accrual
of $100,000 of issue costs related to the anticipated issuance of
convertible promissory notes.
(7) Reflects the elimination of PaperClip's $300,000 bridge loan, advances of
$1,181,690, trade receivables of $125,000 from ASI and $298,867 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 would be consummated.
(8) Reflects the anticipated issuance of convertible promissory notes with a
total face value of $2,000,000, net of offering discount of $100,000.
(9) In connection with the Merger, the 12% Convertible Notes of PaperClip will
be converted into redeemable preferred stock which is reflected as
temporary equity in the pro forma financial statements.
(10) Reflects the elimination of PaperClip's historical common stock balance and
the issuance of 1,544,438 shares of ASI Common Stock.
(11) 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. Also reflects $146,667 of additional paid-in capital
related to warrants anticipated to be issued in conjunction with the
planned issuance of convertible promissory notes.
(12) 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 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 Preferred Stock of the
Surviving Corporation; and
(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.
It is estimated that each share of PaperClip Common Stock held by a
stockholder will receive .19064 shares of a share of ASI Common Stock and .19064
of a Class B Warrant.
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.
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 will be deferred until the earlier of
May 31, 1998 and the closing of a 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, 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 April 15, 1997 to the date of consummation of the Merger or the
earlier termination of the Merger Agreement. Such advances are secured by a
first priority security interest in all of PaperClip's assets. 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 14.6% of the
PaperClip Common Stock.
CONDITIONS, REPRESENTATIONS AND COVENANTS
The obligations of one party, or in certain cases both parties, 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 by ASI of at least $2,000,000 in gross proceeds
from a private placement of ASI securities or another source of financing; 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
February 21, 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 and from additional financing. 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 and
from additional financing.
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) any 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., Three 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 Development for ASI after the Merger. Denis Marchand, Vice
President - Finance and Administration for ASI, and Chip Rabinowitz, General
Manager and 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 will be required to
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. Mr. Kornfeld and the Acting Chairman of the Board of ASI
have engaged in discussions with respect to Mr. Kornfeld becoming Chairman of
ASI after the Merger is consummated. Moreover, Mr. Gardner intends to utilize
Mr. Kornfeld's advisory services in connection with the operations of ASI until
the Merger is consummated. 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. 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 March 31, 1998, 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 its 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 was introduced to the
marketplace in the fourth quarter of 1997 which removes 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. ASI currently
intends to combine administration, human resources, finance/accounting, sales
and marketing in one facility in New Jersey. PaperClip document management and
imaging research and development, support services and quality assurance testing
would remain in New Jersey. It is currently anticipated that 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 November 30, 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 November
30, 1997, ASI had one full-time assembly person. 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 November 30, 1997, ASI had 14 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 1998.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS. The current ASI directors and executive
officers are as follows:
NAME AND AGE POSITION
------------ --------
Malcolm G. Chace, 62 (2).................... Director
Robert H. Stone, 47 ........................ President, Chief Executive
Officer, Director
Thomas E. Gardner, 59 (1)(2)................ Chief Financial Officer,
Treasurer, Director, Acting
Chairman
Marvyn Carton, 79 (1)....................... Director
Howard W. Yenke, 60 ........................ Director
Adrian Hancock, 50 .. ..................... Director
Denis L. Marchand, 44....................... Vice President - Finance and
Administrataion
- ----------------
(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, has been a director since May 1994 and Acting Chairman
of the Board since December 1, 1997. Mr. Gardner does not serve full time and
receives no compensation as ASI's Chairman, 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 was Chairman of the
Board from June 1997 until November 30, 1997. Mr. Yenke also served as a
consultant to ASI from June 1997 to November 18, 1997. See "Consulting
Arrangements" below. Mr. Yenke has been President and Chief Executive Officer of
Silent Systems, Inc., a PC equipment manufacturer, since November 1997. Mr.
Yenke was President, Chief Executive Officer and a director of LANart Corp., a
producer of local area network connectivity products, from June 1996 to November
1997. 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 and has served as a
consultant to ASI since November 18, 1997. See "Consulting Arrangements" below.
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 Vice President - Finance and Administration
since December 1997, and served as Financial Controller from September 1994 to
December 1997. 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.
CONSULTING ARRANGEMENTS. Mr. Yenke, a director and former Chairman of the
Board, served as a consultant to ASI from June 26, 1997 to November 18, 1997.
For such services he received $2,000 per month.
Mr. Hancock, a director, has served as a consultant to ASI since November
18, 1997. For such services he receives up to $3,300 per month for a maximum of
three months.
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
$3.75 per share (assuming no allocation of the offering price to the
Redeemable Warrants included in the Units).
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth certain
information with respect to option grants during the fiscal year ended June 30,
1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options Granted to Exercise or
Underlying Options Employees in or Base Price Expiration
Granted Fiscal Year ($/sh) Date
------------------ ------------------ ------------ -----------
NAME
<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 Underlying Value of Unexercised In-the-
Unexercised Options at Fiscal Year-End Money-Options 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.
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 December 1, 1997, there were 952 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, 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 18 in December 1997. At present, PaperClip's
full-time staff includes 7 engaged in development and systems testing, 5 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. PaperClip is currently negotiating to
retain a slightly smaller office space in New Jersey.
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.
<PAGE>
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.
In November 1997, ASI entered into a secured line of credit with Mr. Chace,
pursuant to which Mr. Chace loaned ASI $180,000 secured by certain accounts
receivable of ASI. The interest rate on the outstanding balance is the prime
rate of Fleet National Bank in effect on the date of the advance plus 2% per
annum. The line of credit is payable in full on or before January 30, 1998.
In December 1997, ASI entered into a second secured line of credit with Mr.
Chace, pursuant to which Mr. Chace agreed to loan up to $200,000 to ASI secured
by certain accounts receivable of ASI. To date, the Company has borrowed $50,000
under the line of credit. The interest rate on the outstanding balance is the
prime rate of Fleet National Bank in effect on the date of the advance plus 2%
per annum. The line of credit is payable in full on or before February 17, 1998.
In December 1997, ASI entered into a third secured line of credit with Mr.
Chace, pursuant to which Mr. Chace loaned ASI $124,000 secured by certain
accounts receivable of ASI. The interest rate on the outstanding balance is the
prime rate of Fleet National Bank in effect on the date of the advance plus 2%
per annum. The line of credit has been repaid in full.
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.
TRANSACTION 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.
TRANSACTION WITH MR. STEELE. Pursuant to an agreement dated September 30,
1997, George H. Steele, a former Vice President of ASI, was terminated without
cause by ASI and ASI agreed to pay Mr. Steele a severance payment equal to three
months and three days of his current base salary. Mr. Steele also agreed to
release all of his presently outstanding options, for which ASI agreed to grant
Mr. Steele non-qualified options pursuant to the 1996 Plan to acquire 21,082
shares of ASI Common Stock at an exercise price of $3.75, exercisable on or
before July 31, 2006.
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 November 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.
<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 811,435 20.27
as a Group (7 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 November 30, 1997, the existing stockholders of ASI would
hold 72% 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 ................................ 2-5/8 15/16 3 7/8
1998:
First Quarter (through January 6).............. 1-1/16 15/16 1-5/16 1
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................................. 9/16 1/4 11/16 3/8
1998:
First Quarter (through January 6).............. 7/16 3/8 5/8 9/16
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 ................................ 5-17/32 1-3/8 6-1/2 1-7/8
1998:
First Quarter (through January 6).............. 2-1/2 2-3/8 3 2-1/2
</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 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 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 9/16
PaperClip Warrants 3/16
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:
Third Quarter
<S> <C> <C>
(commencing September 28, 1995) 8-1/4 7
Fourth Quarter ........................ 8-1/4 1-3/4
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 ......................... 15/64 7/64
Fourth Quarter ........................ 15/64 3/64
1998:
First Quarter (through January 6) 15/64 3/64
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 ......................... -- 1/64
Fourth Quarter ........................ -- 1/100
1998:
First Quarter (through January 6)..... -- 1/100
</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.
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of PaperClip 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 stated in their report. No representatives of
Arthur Andersen LLP are expected to be present at the Special Meeting to answer
questions from stockholders.
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 have been 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
<TABLE>
<CAPTION>
PAGE
ACCESS SOLUTIONS INTERNATIONAL, INC.:
<S> <C>
Report of Independent Accountants...................................................... F-2
Balance Sheet as of June 30, 1996 and 1997............................................. F-3
Statement of Operations for the years ended June 30, 1996 and 1997..................... F-4
Statement of Changes in Mandatorily Redeemable Preferred Stock and
Stockholders' Equity (Deficit) for the years ended June 30, 1996 and 1997............. F-5
Statement of Cash Flows for the years ended June 30, 1996 and 1997..................... F-6
Notes to Financial Statements.......................................................... F-7
Condensed Balance Sheet as of September 30, 1997 (unaudited) and June 30, 1997......... F-18
Condensed Statements of Operations for the three months ended September 30, 1997
and 1996 (unaudited).................................................................. F-19
Condensed Statements of Cash Flows for the three months ended September 30, 1997
and 1996 (unaudited).................................................................. F-20
Notes to Unaudited Condensed Financial Statements...................................... F-21
PAPERCLIP SOFTWARE, INC.:
Report of Independent Accountants...................................................... F-22
Balance Sheets as of December 31, 1996 and 1995........................................ F-23
Statements of Operations for the years ended December 31, 1996 and 1995................ F-24
Statements of Stockholders Equity (Deficit) for the years ended
December 31, 1996 and 1995............................................................ F-25
Statements of Cash Flows for the years ended December 31, 1996 and 1995................ F-26
Notes to Financial Statements.......................................................... F-27
Condensed Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996..................................................................... F-33
Condensed Statements of Operations for the Three Months and Nine Months ended
September 30, 1997 and 1996 (unaudited)............................................... F-34
Condensed Statements of Cash Flows for the Nine Months ended
September 30, 1997 and 1996 (unaudited)............................................... F-35
Notes to Condensed Financial Statements................................................ F-36
</TABLE>
<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, 426,005 238,914
net of allowance for doubtful
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; 15,119 39,652
13,000,000 shares 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
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1997
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
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
Access Solutions International, Inc.
Statement of Changes in Mandatorily Redeemable Preferred Stock and
Stockholders' Equity (Deficit)
Years Ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
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:
JUNE 30,
1996 1997
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
=========== ===========
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, 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:
JUNE 30,
1996 1997
Deferred tax assets:
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 $ - $ -
========== ==========
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.
<PAGE>
As of June 30, 1996 and 1997, the following stock options were outstanding:
EXERCISE PRICE NUMBER OUTSTANDING
PER SHARE JUNE 30, 1996 JUNE 30, 1997
$ 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
====== =======
The following is a summary of stock option activity for the years ended
June 30, 1996 and 1997:
1996 1997
Outstanding, beginning of period 11,278 10,256
Granted during period 5,021 263,351
Canceled during period (6,043) (62,873)
Exercised during period - -
--------- ---------
Outstanding, end of period 10,256 210,734
========= ========
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>
ACCESS SOLUTIONS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
1997 1997
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 598,332 $1,889,446
Trade accounts receivable, net
of allowance for doubtful
accounts of $41,652 and 201,265 238,914
$53,199
Inventories 485,972 461,812
Prepaid expenses and other
current assets 181,995 183,159
---------- ----------
Total current assets 1,467,564 2,773,331
Fixed assets, net 323,595 328,309
Other Assets:
Advances - PaperClip 1,181,690 529,052
Notes receivable - PaperClip 300,000 300,000
Deposits and other assets 59,649 49,527
---------- ----------
Total other assets 1,541,339 878,579
---------- ----------
Total assets $3,332,498 $3,980,219
========== ==========
See notes to unaudited condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACCESS SOLUTIONS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
1997 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
<S> <C> <C>
Accounts payable $ 442,880 $ 227,490
Current installments of capital
lease obligations 25,893 25,257
Accrued expenses 204,150 143,227
Accrued salaries and wages 82,467 204,604
Deferred revenue-prepaid service
contracts 235,196 329,841
------------ ------------
Total current liabilities 990,586 930,419
Capital lease obligations, excluding
current installments -- 6,716
------------ ------------
Total liabilities 990,586 937,135
Stockholders' equity:
Common stock, $.01 par value,
13,000,000 shares authorized,
3,965,199 shares 39,652 39,652
issued
Additional paid-in capital 17,637,694 17,637,694
Accumulated deficit (15,317,378) (14,616,206)
------------ ------------
2,359,968 3,061,140
Treasury stock, at cost
(1,259 shares) (18,056) (18,056)
------------ ------------
Total stockholders' equity 2,341,912 3,043,084
============ ============
Total liabilities and stockholders'
equity $ 3,332,498 $ 3,980,219
============ ============
</TABLE>
Note: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to unaudited condensed financial statements.
<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS
ENDING
SEPTEMBER 30,
1997 1996
Net Sales:
Products $ 193,413 $ 162,797
Services 131,643 140,338
Total net sales 325,056 303,135
----------- ----------
Costs of sales:
Products 138,449 20,312
Services 71,213 55,358
----------- ----------
Total cost of sales 209,662 75,670
----------- ----------
Gross Profit 115,394 227,465
----------- ----------
Operating expenses:
General and administrative expense 274,022 277,200
Research and development expense 376,231 420,175
Selling expense 191,361 215,310
----------- ----------
Total operating expenses 841,614 912,685
----------- ----------
Loss from operations (726,220) (685,220)
Other revenue and expenses:
Interest income 25,795 3,243
Interest expense (747) (82,155)
----------- ----------
Total other expenses (25,048) (78,912)
----------- ----------
Net loss $(701,172) $(764,132)
============
Primary net loss per common share $(0.18) $(0.51)
Weighted average number of common
shares 3,963,940 1,511,865
See notes to unaudited condensed financial statements.
<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE
MONTHS ENDED
SEPTEMBER 30,
1997 1996
Cash flows from operating activities:
Net loss $(701,172) $(764,132)
--------- ---------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 37,040 139,299
Provision for doubtful accounts (11,547) --
Changes in operating assets and
liabilities:
Trade accounts receivable 49,197 333,110
Inventories (12,980) (15,988)
Prepaid expenses and other current
assets 1,164 11,385
Accounts payable 215,390 271,340
Accrued expenses (61,213) 36,102
Deferred revenue - prepaid service
contracts (94,645) (129,771)
--------- ---------
Total adjustments 122,406 645,477
--------- ---------
Cash used by operating activities (578,766) (118,655)
--------- ---------
Cash flows from investing activities:
Additions to fixed assets (31,980) (96,012)
Additions to other assets (979) --
Loans and advances to PaperClip (652,639) --
Deferred acquisition costs (20,670) --
--------- ---------
Cash used by investing activities (706,268) (96,012)
--------- ---------
Cash flows from financing activities:
Proceeds from bridge loans -- 37,694
Repayments of capital lease
obligations (6,080) 40,690
Net payments under note payable-bank -- (50,000)
Deferred financing costs -- (229,551)
--------- ---------
Cash used by financing activities (6,080) (201,167)
--------- ---------
Net decrease in cash and cash
equivalents (1,291,114) (415,834)
Cash, beginning of period 1,889,446 537,831
--------- ---------
Cash and cash equivalents, end of
period $ 598,332 $ 121,997
========= =========
See notes to unaudited condensed financial statements.
<PAGE>
ACCESS SOLUTIONS INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10-01 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Access Solutions International, Inc.
("ASI") annual report on Form 10-KSB for the year ended June 30, 1997.
2. PaperClip Merger and Management Agreements
On April 15, 1997, ASI and PaperClip Software, Inc. ("PaperClip") entered into
an Asset Purchase Agreement for ASI to acquire substantially all the assets and
liabilities of PaperClip (the "Agreement"). On September 12, 1997, the agreement
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 the surviving corporation or ASI to purchase such shares 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.
On January 29, 1997, ASI provided a $300,000 loan to PaperClip for use as
operating capital in exchange for a convertible note from PaperClip (the "Bridge
Loan").
On April 15, 1997, ASI and PaperClip also entered into a management agreement
(the "Management Agreement") which allows ASI to manage the day-to-day
operations of PaperClip and to advance funds on behalf of PaperClip pursuant to
an operating budget, in each case until the closing of the Merger or the
termination of the Merger Agreement.
ASI and PaperClip also entered into a one-year distribution agreement effective
June 1, 1997 pursuant to which ASI acts as a distributor for PaperClip's
products in the United States to dealers and resellers.
<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
ASSETS 1996 1995
----------- -----------
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
=========== ===========
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <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>
PAPERCLIP SOFTWARE, INC.
(FORMERLY PAPERCLIP IMAGING SOFTWARE, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES (NOTES 2 AND 6) $ 1,968,750 $ 1,489,139 $ 1,059,924
----------- ---------- ----------
OPERATING EXPENSES:
Salaries and related benefits 1,391,725 1,292,654 1,164,430
Research and development expenses (Note 2) 3,066,395 1,621,849 1,166,769
Selling expenses 1,447,593 940,624 745,958
General and administrative expenses 905,137 846,817 864,863
----------- ---------- ----------
Total operating expenses 6,810,850 4,701,944 3,942,020
----------- ---------- ----------
Loss from operations (4,842,100) (3,212,805) (2,882,096)
----------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 95,820 49,635 3,974
Interest expense and financing costs (Note 3) (5,561) (1,073,800) (9,500)
----------- ---------- ----------
90,259 (1,024,165) (5,526)
----------- ---------- ----------
Net loss ($4,751,841) ($4,236,970) ($2,887,622)
=========== ========== ==========
NET LOSS PER COMMON SHARE (Note 2) ($ .63) ($ .88) ($ .85)
=========== ========== ==========
WEIGHTED AVERAGE NUMBER COMMON
SHARES OUTSTANDING (Note 2) 7,576,260 4,792,932 3,392,434
=========== ========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<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
------------
ADDITIONAL
NUMBER PAID-IN SUBSCRIPTIONS ACCUMULATED
OF SHARES PAR VALUE CAPITAL RECEIVABLE DEFICIT
-------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 1,286,604 $ 12,866 $5,078,339 $ 0 ($ 4,921,573)
Issuance of stock for cash in private placement 364,951 3,649 1,596,717 0 0
Issuance of stock in lieu of cash compensation 17,526 175 90,825 0 0
Issuance of stock in payment of loans 81,662 817 294,183 0 0
Issuance of stock for subscription receivable, net 30,768 308 99,692 (100,000) 0
Conversion of note payable to equity in January, 1995 0 0 60,000 0 0
Net loss for 1994 0 0 0 0 (2,887,622)
------------ ---------- ------------ ------------ ------------
BALANCE, December 31, 1994 1,781,511 17,815 7,219,756 (100,000) (7,809,195)
Issuance of stock for note converted to equity in 1994 18,489 185 (185) 0 0
Payment of stock subscription receivable 0 0 0 100,000 0
Issuance of stock and warrants for cash in
public offering 1,525,931 15,260 6,495,129 0 0
Issuance of stock and warrants for Bridge Note
conversion in public offering 273,819 2,738 1,393,739 0 0
Issuance of Bridge Warrants 0 0 645,000 0 0
Sale of underwriter of purchase options 0 0 100 0 0
Net loss for 1995 0 0 0 0 (4,236,970)
------------ ---------- ------------ ------------ ------------
BALANCE, December 31, 1995 3,599,750 35,998 15,753,539 0 (12,046,165)
Exercise of Bridge Warrants 247,090 2,471 553,566 0 0
2 for 1 stock split 3,846,840 38,468 (38,468) 0 0
Exercise of stock options 28,508 285 33,338 0 0
Net loss for 1996 0 0 0 0 (4,751,841)
Options granted at less than fair value 0 0 60,420 0 0
------------ ---------- ------------ ------------ ------------
BALANCE, December 31, 1996 7,722,188 $ 77,222 $ 16,362,395 $ 0 ($16,798,006)
=== ==== ============ ========== ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<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 0 2,365,000 0
Proceeds from sale of purchase warrants 0 100 0
Repayment of bridge financing 0 (968,523) 0
Proceeds from borrowings from stockholders 0 0 450,000
Proceeds from issuance of stock for cash 0 0 1,600,365
Proceeds from exercise of bridge warrants 556,037 0 0
Proceeds from exercise of stock options 33,623 0 0
Proceeds from notes payable 129,691 0 60,000
Proceeds from common stock subscriptions receivable 0 100,000 0
Payments on capitalized leases (45,841) (33,859) 0
Payments of notes payable to stockholder 0 (155,000) 0
- -------- -
Net cash provided by financing activities 673,510 7,818,107 2,110,365
------- --------- ---------
Net (decrease) increase in cash (3,440,436) 3,526,650 (3,390)
CASH AND CASH EQUIVALENTS, beginning of year 3,661,009 134,359 137,749
--------- ------- -------
CASH AND CASH EQUIVALENTS, end of year $ 220,573 $ 3,661,009 $ 134,359
=========== =========== ===========
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 Company has
determined that technological feasibility and availability for release are
virtually simultaneous and, therefore, no development costs have been
capitalized in the accompanying financial statements.
Long-Lived Assets-
During 1995, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long - Lived
Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an entity
review its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. As a result of its review, the Company does not
believe that any impairment currently exists related to its long-lived assets.
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:
1996 PRICE 1995 PRICE
Outstanding, beginning of year 140,200 $1.13 - $2.50 0 $0
Granted 370,342 $.05 - $2.50 140,200 $1.13 - $2.50
Exercised (28,508) $1.13 - $2.55 0 $0
Canceled or expired (14,600) $1.13 0 $0
-------- ------------- ------- -------------
Outstanding, end of year 467,434 $.05 - $2.50 140,200 $1.13 - $2.50
During 1996, 50,000 options were granted to three employees at less than
fair market value. The difference of $60,420 between the exercise price and the
fair market value of the Company's stock on the grant date has been charged to
operations with a corresponding credit to additional paid in capital. Certain of
the options vest as follows: 33% in 1995, 66% in 1996 and 100% in 1997. As of
December 31, 1996, 200,519 options were exercisable at prices ranging from $.05
to $2.50 per share.
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 -- SEPTEMBER 30, 1997 (Unaudited)
AND DECEMBER 31, 1996
ASSETS September 30, 1997 December 31, 1996
<S> <C> <C>
CASH and CASH EQUIVALENTS $ 36,047 $ 220,573
ACCOUNTS RECEIVABLE (net of
allowance for doubtful accounts
of $40,000 at September 30, 1997
and December 31, 1996 214,085 275,527
PREPAID EXPENSES AND OTHER CURRENT ASSETS 1,465 33,855
-------- --------
Total current assets 251,597 529,955
-------- --------
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 (330,609) (451,902)
-------- --------
260,846 422,845
-------- --------
OTHER ASSETS 50,624 53,282
-------- --------
Total assets $ 563,067 $ 1,006,082
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 1,212,738 $ 1,125,306
LOANS PAYABLE - ASI 1,655,557
DEFERRED REVENUE 10,737 56,066
CAPITALIZED LEASE 16,866 49,442
-------- --------
Total current liabilities 2,895,898 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 8,101,521
shares on September 30, 1997 and 7,722,188 shares
at December 31, 1996
81,015 77,222
Additional paid-in capital 16,413,764 16,362,395
Accumulated deficit (18,957,301) (16,798,006
------------ -----------
Stockholders' equity (deficit) (2,462,522) (358,389)
------------ -----------
Total liabilities and stockholders'
equity (deficit) $ 563,067 $ 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 NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $232,219 $ 490,037 $1,153,087 $1,474,847
-------- --------- ---------- ----------
OPERATING EXPENSES:
Salaries and related benefits 364,417 422,580 1,084,223 1,175,561
Research and development expenses 381,552 862,457 1,037,208 2,326,510
Selling expenses 160,974 313,057 487,352 909,647
General and administrative expenses 192,792 280,661 672,633 773,350
------- ------- ------- -------
Total operating expenses 1,099,735 1,878,755 3,281,416 5,185,068
--------- --------- --------- ---------
Loss from operations (867,516) (1,388,718) (2,128,329) (3,710,221)
-------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 74 16,339 3,211 84,323
Interest expense (12,540) (1,275) (34,177) (4,424)
------- ------ ------- ------
(12,466) 15,064 (30,966) 79,899
------- ------ ------- ------
Net loss $ (879,982) $(1,373,654) $(2,159,295) ($3,630,322)
=========== =========== =========== ===========
LOSS PER COMMON SHARE $ (0.11) $ (0.18) $ (0.27) $ (0.47)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER COMMON SHARES OUTSTANDING
8,075,391 7,721,538 7,990,911 7,643,333
========= ========= ========= =========
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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
1997 1996
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(2,159,295) $(3,630,321)
Adjustments to reconcile net loss to net
cash used in operating activities - Depreciation 162,000 116,352
(Increase) decrease in accounts receivable 61,442 (118,992)
Decrease (Increase) in prepaid expenses and
other current assets 32,390 (70,000)
Decrease in other assets 2,657 241
Increase in accounts payable, accrued
expenses and deferred revenues 42,102 418,457
------ -------
Net cash used in operating activities (1,858,704) (3,284,263)
---------- ----------
INVESTING ACTIVITIES -- Purchases of equipment,
furniture and fixtures -- (126,203)
---------- --------
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 3,080 33,624
Issuance of stock for compensation 52,083
Proceeds from borrowings 1,655,557
Payments on capitalized leases (36,542) (41,780)
------- -------
Net cash provided by financing activities 1,674,178 608,300
--------- -------
Net (decrease) increase in cash (184,526) (2,802,166)
CASH, beginning of period 220,573 3,661,009
------- ---------
CASH, end of period $ 36,047 $ 858,843
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 1,700 $ 4,424
=========== ===========
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
PAPERCLIP SOFTWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 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
for the three and nine months ended at September 30, 1996 or September 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:/s/William Weiss
--------------------------------------
William Weiss, Chief Executive Officer
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:/s/Robert H. Stone
---------------------------------------
Robert H. Stone, President and CEO
PAPERCLIP ACQUISITION CORP.
By:/s/Robert H. Stone
---------------------------------------
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>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT is made as of the 8th day of January, 1998, by and between
ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware corporation ("Parent"),
PAPERCLIP SOFTWARE, INC., a Delaware corporation ("PSI"), 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, Acquisition and PSI executed and delivered a certain
Agreement and Plan of Merger dated as of November 12, 1997 (the "Merger
Agreement"), pursuant to which Acquisition will merge with and into PSI on the
terms and conditions set forth therein; and
WHEREAS, the parties hereto now desire to amend the Merger Agreement to
reflect their agreements: (i) that, as a condition to the Closing (as defined in
the Merger Agreement), Parent shall have received at least two million dollars
in gross proceeds in a private placement or other financing, (ii) that the
deadline for Closing be extended to February 21, 1998 (or such later date as may
be agreed to in writing by Access and PSI), and (iii) that the escrow
arrangement be eliminated from the Merger Agreement, and to reflect other
agreements among the parties.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Section 8.11 of the Merger Agreement is hereby amended by deleting the
existing Section 8.11 and by substituting the following paragraph therefor:
"Section 8.11. Financing. Parent shall have received at least two
million dollars ($2,000,000) in gross proceeds (before deduction of
expenses or placement fees or commissions) from a private placement of
Parent's securities or other source of financing."
2. Section 10.1(f) of the Merger Agreement is hereby amended by
substituting "February 21, 1998" for "January 31, 1998."
3. Section 6.11 of the Merger Agreement is hereby amended by adding the
following subparagraph (d) thereto:
"(d) Notwithstanding the other provisions of this Section 6.11, from
and after the date of this Amendment, PSI, and its officers, directors,
employees and representatives, shall be permitted to solicit proposals for
(but not to enter into any agreements for) financing PSI and to furnish
public and non-public information in connection therewith, in the
eventuality that the Merger Agreement is terminated due to failure of the
condition set forth in Section 8.11."
4. The fourth and fifth sentences of Section 2.4(a) are hereby amended by
deleting the existing sentences and substituting the following sentences
therefor:
"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), the Merger Consideration, without interest, determined pursuant to
Section 2.1(a). 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 the Merger Consideration determind pursuant to Section 2.1(a)."
5. Section 2.4(e) is hereby amended by deleting said section and by
substituting the following therefor:
"(e) Intentionally omitted."
6. Except as modified and amended hereby, the Merger Agreement shall remain
in full force and effect and is in all other respects ratified and confirmed.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year indicated above.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:
----------------------------------------
Robert H. Stone, President and CEO
PAPERCLIP SOFTWARE, INC.
By:
----------------------------------------
William Weiss, Chief Executive Officer
PAPERCLIP ACQUISITION CORP.
By:
----------------------------------------
Robert H. Stone, President and CEO
<PAGE>
Exhibit B
AMENDMENT TO ARTICLES OF INCORPORATION
PROPOSAL TO APPROVE AN AMENDMENT TO PAPERCLIP'S CERTIFICATE OF INCORPORATION
TO AUTHORIZE A NEW CLASS OF NON-VOTING PREFERRED STOCK OF PAPERCLIP WHICH
WILL BE EXCHANGED FOR PAPERCLIP'S 12% CONVERTIBLE NOTES
RESOLVED, that the Board of Directors is authorized to file an amendment to
PaperClip's Certificate of Incorporation following this proposal to authorize a
new class of non-voting preferred stock of PaperClip which will be exchanged for
PaperClip's 12% Convertible Notes.
AMENDMENT TO
PAPERCLIP'S CERTIFICATE OF INCORPORATION
PaperClip's Certificate of Incorporation is amended to authorize a new
class of non-voting preferred stock of PaperClip which will be exchanged for
PaperClip's 12% Convertible Notes by amending ARTICLE FOURTH of the Certificate
of Incorporation, in its entirety, to read as follows:
FOURTH. A. AUTHORIZED SHARES. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 31,000,000 shares,
consisting of (i) 30,000,000 shares of common stock, $.01 par value per share
(hereinafter referred to as "Common Stock"), and (ii) 1,000,000 shares of
non-voting preferred stock, $.01 par value per share (hereinafter referred to as
"Preferred Stock").
B. TERMS OF THE PREFERRED STOCK SHALL BE AS FOLLOWS:
1. RANK. The Preferred Stock shall rank, with respect to dividend rights
and rights on liquidation, winding up and dissolution, prior to all Junior
Securities (as hereinafter defined) of the Corporation. (All equity securities
of the Corporation other than the Preferred Stock, including the Common Stock,
are collectively referred to herein as "Junior Securities".)
2. DIVIDENDS.
(i) The holders of the shares of Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors of the Corporation
out of funds legally available for the payment of dividends, cumulative
dividends at the initial annual rate of 12% per share (expressed as a percentage
of the $.30 per share liquidation preference) (the "Dividend Rate"). Such
dividends shall be payable quarterly on the last day of January, April, July and
October of each year (each of such dates being a "dividend payment date"),
commencing April 30, 1998. Such dividends shall be paid to the holders of record
at the close of business on the date specified by the Board of Directors of the
Corporation at the time such dividend is declared; PROVIDED, HOWEVER, that such
date shall not be more than sixty (60) days nor less than ten (10) days prior to
the applicable dividend payment date. Each of such quarterly dividends (whether
payable in cash or stock as hereinafter provided) shall be fully cumulative and
shall accrue (whether or not declared), without interest, from the first day of
the quarter in which such dividend may be payable as herein provided, except
that with respect to the first quarterly dividend on each share of Preferred
Stock, such dividend shall accrue from the date the Preferred Stock is first
issued. All dividend payments shall be made in cash or stock, at the option of
the holder. If any dividend payment date is not a business day, such dividend
payment date shall be the next succeeding business day.
(ii) The amount and form of all dividends paid with respect to shares
of the Preferred Stock pursuant to paragraph (2)(i) shall be paid pro rata to
the holders entitled thereto.
(iii) (a) Holders of shares of the Preferred Stock shall be entitled
to receive the dividends provided for in paragraph (2)(i) hereof in preference
to, and in priority over, any dividends upon any of the Junior Securities.
(b) So long as any shares of the Preferred Stock are
outstanding, the Corporation shall not declare, pay or set apart for payment,
any dividend on any of the Junior Securities or make any payment on account of,
or set apart for payment, money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, any of the Junior Securities or any
warrants (other than the Class A Warrants exercisable through August 9, 2000,
the option and warrants issued to A.R. Baron, exercisable through 2000, and the
ASI mandatorily convertible notes to be issued on or about February 1998 in
connection with raising capital in an amount ranging between $500,000 and
$2,000,000), rights, calls or options exercisable for or convertible into any of
the Junior Securities, or make any distribution in respect thereof, either
directly or indirectly, and whether in cash, obligations or shares of the
Corporation or other property, UNLESS prior to, or concurrently with, such
declaration, payment, setting apart for payment, purchase, redemption or
distribution, as the case may be, all accrued and unpaid dividends on shares of
the Preferred Stock not paid on the dates provided for in paragraph 2(i) hereof
shall have been paid in full in cash. Holders of shares of Preferred Stock shall
not be entitled to any dividends, whether payable in cash, property or stock, in
excess of full cumulative dividends, as herein provided.
(iv) Each fractional share of Preferred Stock outstanding shall be
entitled to a ratably proportionate amount of all dividends accruing with
respect to each outstanding share of Preferred Stock pursuant to paragraph
(2)(i) hereof, and all such dividends with respect to such outstanding
fractional shares shall be fully cumulative and shall accrue (whether or not
declared), without interest, and shall be payable in the same manner and at such
times as provided for in paragraph (2)(i) hereof with respect to dividends on
each outstanding share of Preferred Stock.
3. LIQUIDATION PREFERENCE.
In the event of any liquidation, dissolution or winding up of the affairs
of the Corporation, the holders of shares of Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to $.30 for each share
outstanding, plus an amount in cash equal to all accrued but unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding up, without
interest, before any payment shall be made or any assets distributed to the
holders of any of the Junior Securities. Except as provided in the preceding
sentence, holders of Preferred Stock shall not be entitled to any distribution
in the event of liquidation, dissolution or winding up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay in full
the liquidation payments payable to the holders of outstanding shares of the
Preferred Stock, then the holders of all such shares shall share ratably in such
distribution of assets. The Corporation shall mail written notice of such
liquidation, dissolution or winding up, not less than twenty (20) days prior to
the payment date stated therein, to each record holder of Preferred Stock.
(ii) For the purposes of this paragraph 3, neither (a) the voluntary
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Corporation, nor (b) the consolidation or merger of the Corporation with one
or more other corporations shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary.
(iii) The liquidation payment with respect to each outstanding
fractional share of Preferred Stock shall be equal to a ratably proportionate
amount of the liquidation payment with respect to each outstanding share of
Preferred Stock.
4. PUT OPTION.
Subject to applicable law, at any time commencing on or after the date
which is eighteen months after the closing of the transaction (the "Closing")
contemplated by the Agreement and Plan of Merger dated as of November 12, 1997,
among the Corporation, Access Solutions International, Inc. ("ASI") and
PaperClip Acquisition Corp. ("Acquisition"), any holder of the Preferred Stock
will have the option to put all or part of the shares of Preferred Stock owned
by any such holder, to the Corporation or to ASI for cash or shares of ASI's
common stock and ASI's Class B Warrants, at the option of the holder; PROVIDED,
HOWEVER, that in the event (i) of any liquidation, dissolution or winding up of
the affairs of ASI, (ii) there shall be filed against ASI a voluntary or
involuntary petition under any bankruptcy, reorganization or insolvency law of
any jurisdiction, whether now or hereafter in effect, (iii) ASI shall admit in
writing its inability to pay its debts as they mature, or (iv) ASI shall make a
general assignment for the benefit of creditors, any holder of the Preferred
Stock shall have the option to put all or part of the shares of Preferred Stock
owned by any such holder to the Corporation or to ASI for cash or shares of
ASI's common stock and ASI's Class B Warrants, at the option of the holder, at
any time after the issuance of the Preferred Stock. The put price for each share
of Preferred Stock will be equal to (i) in the event of payment by shares of
ASI's common stock, (a) such fraction of a share of ASI's common stock, $.01 par
value per share, as is equal to the Conversion Ratio (as defined below), plus
(b) an equivalent number of ASI's Class B Warrants, plus (c) such number of
shares of ASI's common stock as is equal to (x) the amount of any accrued but
unpaid dividends to the date fixed for the put, (y) divided by $.30, and (z) the
result multiplied by the Conversion Ratio, or (ii) in the event of payment by
cash, the liquidation preference value, in the amount of $.30 per share, of the
Preferred Stock, plus any accrued but unpaid dividends to the date fixed for the
put. In the case of shares of Preferred Stock called for redemption by the
Corporation, the put rights will expire at the close of business on the date
fixed for redemption by the Corporation.
(ii) Any holder of Preferred Stock electing to exercise its put option
in connection with such shares, or any portion thereof, in accordance with
subparagraph (i) of this paragraph 4 shall deliver the certificates therefor to
the principal executive offices of the Corporation or ASI, duly endorsed or
accompanied by proper instruments of transfer, with a form of notice of election
to exercise its option to put the shares, fully completed and duly executed, and
pay any required taxes. Such notice shall also state: (a) the manner of payment
that the holder wishes to receive for its shares of Preferred Stock (i.e.,
whether in cash or in shares of ASI's common stock and ASI's Class B Warrants),
and (b) the address or addresses to which the payment for the shares is to be
transmitted. The put right with respect to any such shares of Preferred Stock
shall be deemed to have been exercised at the date upon which the holder
satisfies the last of such requirements and the person or persons entitled to
receive shares of ASI's common stock and ASI's Class B Warrants issuable upon
such put exercise, if applicable, shall be treated for all purposes as the
record holder or holders of ASI's common stock and ASI's Class B Warrants upon
said date. If a holder fails to notify the Corporation or ASI of the number of
shares which such holder wishes to put, such holder shall be deemed to have
elected to put all shares represented by the certificate or certificates
surrendered.
5. REDEMPTION.
(i) Subject to applicable law, at any time commencing on or after the
date which is thirty months after the Closing, the Corporation will have the
right to redeem in whole, or from time to time in part, the Preferred Stock for
cash or shares of ASI's common stock and ASI's Class B Warrants in the amount
determined below. The redemption price for each share of Preferred Stock will be
equal to (i) in the event of payment by shares of ASI's common stock, (a) such
fraction of a share of ASI's common stock, $.01 par value per share, as is equal
to the Conversion Ratio (as defined below), plus (b) an equivalent number of
ASI's Class B Warrants, plus (c) such number of shares of ASI's common stock as
is equal to (x) the amount of any accrued but unpaid dividends to the date fixed
for the redemption, (y) divided by $.30, and (z) the result multiplied by the
Conversion Ratio, or (ii) in the event of payment by cash, the liquidation
preference value, in the amount of $.30 per share, of the Preferred Stock, plus
any accrued but unpaid dividends to the date fixed for the redemption.
Redemptions shall be effected in the manner provided below. Notwithstanding the
foregoing, unless full cumulative dividends on all outstanding shares of
Preferred Stock shall have been paid or contemporaneously are declared and paid
for all past dividend periods, none of the shares of Preferred Stock shall be
redeemed unless all outstanding shares of Preferred Stock are simultaneously
redeemed.
(ii) In the event that fewer than all the outstanding shares of
Preferred Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be redeemed shall be
selected on a pro rata basis.
(iii) In the event the Corporation or ASI shall redeem shares of
Preferred Stock, notice of such redemption shall be given not less than thirty
(30) days nor more than sixty (60) days prior to the redemption date, to each
holder of record of the shares to be redeemed at such holder's address as the
same appears on the stock register of the Corporation; provided, however, that
no failure to give such notice nor any defect therein shall affect the validity
of the proceeding for the redemption of any shares of Preferred Stock to be
redeemed except as to the holder to whom the Corporation or ASI has failed to
give said notice or except as to the holder whose notice was defective.
(iv) Notice having been mailed as aforesaid, from and after the
redemption date dividends on the shares of Preferred Stock so called for
redemption shall cease to accrue, and said shares shall no longer be deemed to
be outstanding and shall have the status of authorized but unissued shares of
Preferred Stock, undesignated as to series, and all rights of the holders
thereof as stockholders of the Corporation (except the right to receive from the
Corporation or ASI the redemption price and any accrued and unpaid dividends)
shall cease. Upon surrender in accordance with said notice of the certificates
for any shares so redeemed (properly endorsed or assigned for transfer), such
shares shall be redeemed by the Corporation or ASI at the redemption price
aforesaid. In case fewer than all the shares represented by any such certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares.
6. PAYMENT WITH ASI'S COMMON STOCK OR ASI'S CLASS B WARRANTS.
(i) The term "Conversion Ratio" shall mean 1,544,438 (as adjusted pursuant
to the terms set forth below) divided by the number of shares of the
Corporation's Common Stock issued and outstanding (other than treasury shares)
immediately prior to the time that the Corporation and Acquisition file a
certificate of merger.
(ii) No fractional shares of ASI's common stock or ASI's Class B
Warrants or scrip representing fractional shares thereof shall be issued upon
the exercise of a put option or redemption of shares of Preferred Stock. In lieu
of any fractional shares of ASI's common stock or ASI's Class B Warrants which
would otherwise be issuable upon the exercise of a put option or redemption of
any shares of Preferred Stock, the Corporation or ASI shall pay a cash
adjustment based upon the fair market value of ASI's common stock or ASI's Class
B Warrants as determined in good faith by the Board of Directors.
(iii) All shares of ASI's common stock or ASI's Class B Warrants which
may be issued upon the exercise of a put option or redemption of the shares of
Preferred Stock shall be validly issued, fully paid and nonassessable.
(iv) In case ASI shall issue any shares of its common stock as a stock
dividend, subdivide the number of outstanding shares of its common stock into a
greater number of shares either through a stock split or otherwise, reclassify
or recapitalize its outstanding shares, or implement any other extraordinary
change to the capitalization of ASI, then in any such case the Board of
Directors shall, in good faith, adjust the Conversion Ratio in effect at the
time of such action in an equitable manner. If ASI shall offer to its
stockholders a right to purchase new common stock of ASI or issue other
convertible security to all of its stockholders, in either such case at a price
below the then current market price thereof, then in any such case the Board of
Directors shall, in good faith, adjust the Conversion Ratio in effect at the
time of such action in an equitable manner.
(v) The Board of Directors shall have the power to resolve in good
faith any ambiguity or correct any error in this paragraph 6 and to authorize
the filing of a Certificate of Correction with respect to any such ambiguity or
error.
7. MERGER, ETC. In case of any consolidation or merger to which the
Corporation or ASI is party (other than a merger or consolidation in which the
Corporation or ASI is the surviving entity and which does not result in any
reclassification of, or change in, outstanding shares of Common Stock or ASI's
common stock), or in case of any reclassification pursuant to which all of the
outstanding shares of Common Stock or ASI's common stock are converted into
other securities or property, the Corporation, ASI or the surviving company, as
the case may be, shall make appropriate provisions so that holders of shares of
Preferred Stock then outstanding shall have the right thereafter to convert such
shares into the kind and amount of securities or other property or assets
(including cash) which such holders would have had the right to receive upon
such consolidation, merger or reclassification had such shares been converted
immediately prior to the effective date of such consolidation, merger or
reclassification. Neither the Corporation nor ASI shall effect any such
transaction unless the provisions of this subparagraph have been complied with.
The above provisions shall similarly apply to successive consolidations, mergers
or reclassifications.
8. VOTING.
(i) Except as otherwise provided herein and as otherwise required by
law, the Preferred Stock shall have no voting rights.
(ii) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Preferred Stock so as to affect adversely
such series, without the written consent or affirmative vote of the holders of
at least 66.66% of the then outstanding shares of Preferred Stock given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as a class. For this purpose, without limiting the generality of the
foregoing, the authorization or issuance of any series of Preferred Stock which
is on a parity with or has preference or priority over the Preferred Stock as to
the right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall be deemed to affect adversely
the Preferred Stock.
9. REGISTRATION OF TRANSFER. The Corporation shall keep at its principal
office a register for the registration of the Preferred Stock. Upon the
surrender of any certificate representing the Preferred Stock, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of the
Preferred Stock represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
shares of the Preferred Stock as is requested by the holder of the surrendered
certificate and shall be substantially identical in form to the surrendered
certificate, and dividends shall accrue on the Preferred Stock represented by
such new certificate from the date to which dividends have been fully paid on
such Preferred Stock represented by the surrendered certificate.
10. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of any series of the Preferred Stock, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor its own agreement shall be
satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of such series represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Preferred Stock represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
11. NOTICES. Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be delivered by registered or
certified mail, return receipt requested and postage prepaid, or by reputable
overnight courier service, charges prepaid, and shall be deemed to have been
given when so mailed or sent (i) to the Corporation, at its principal executive
offices, and (ii) to any stockholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated by any such
holder).
and further
RESOLVED, that following the effectiveness of this amendment, certificates
for the shares of Preferred Stock shall be issued pursuant to procedures adopted
by PaperClip's Board of Directors; and further
RESOLVED, that the Board of Directors of PaperClip may amend and/or restate
PaperClip's Certificate of Incorporation pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware without approval of the
stockholders of PaperClip, and may direct the officers of PaperClip to take all
other acts as they deem necessary to effectuate the foregoing.
<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>
PART III
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
2.4 Form of Stockholders Agreement of certain PaperClip stockholders
2.5 Form of Amendment to Merger Agreement dated as of January 8, 1998
(included in Exhibit A of the Proxy Statement - Prospectus)
2.6 Letter of Intent with JSC dated December 30, 1997
4.2 Form of Class B Warrant Agreement (with form of Class B Warrant
attached)
4.3 Forms of Lock-Up Agreement
5 Opinion of Edwards & Angell as to legality
10.11 Letter Agreement dated November 20, 1997 between Malcolm G. Chace
and ASI and Secured Line of Credit Note dated November 20, 1997,
and First Amendment to Loan Agreement and Promissory Note dated
as of January 5, 1997
10.12 Letter Agreement dated December 10, 1997, between Malcolm G.
Chace and ASI, and Secured Line of Credit Note dated
December 10, 1997
` 10.13 Letter Agreement dated December 30, 1997 between Malcolm G. Chace
and ASI, and Secured Line of Credit Note dated December 30,
1997
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Edwards & Angell (included in Exhibit 5)
27 Financial Data Schedule
(b) Financial Statement Schedules.
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Providence,
State of Rhode Island, on January 12, 1998.
ACCESS SOLUTIONS INTERNATIONAL, INC.
BY /S/ ROBERT H. STONE
____________________________________
Robert H. Stone
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on January 12, 1998.
SIGNATURE TITLE
* Director
- -----------------------------
Malcolm G. Chace
/s/ Robert H. Stone President, Chief Executive Officer
- ----------------------------- and Director
Robert H. Stone
/s/ Denis L. Marchand Vice President-Finance and Administration
- ----------------------------- Cheif Accounting Officer
Denis L. Marchand
Director, Acting Chairman of the Board
* and Chief Financial Officer
- -----------------------------
Thomas E. Gardner
* Director
- -----------------------------
Howard W. Yenke
* Director
- -----------------------------
Adrian Hancock
*By /s/ Robert H. Stone
- ---------------------------- Robert H. Stone
As Attorney-in-fact
Exhibit 2.4
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of November __, 1997 (this "Agreement"),
by and among Access Solutions International, Inc., a Delaware corporation
("Access"), and each of the other parties signatory hereto (each a "Stockholder"
and, collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Access, PaperClip Acquisition Corp., a
wholly-owned subsidiary of Access ("Acquisition"), and PaperClip Software, Inc.,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"; initially capitalized and other terms used but not defined
herein shall have the meanings ascribed to them in the Merger Agreement),
pursuant to which Acquisiton will merge with and into the Company (the
"Merger"); and
WHEREAS, each of the Stockholders Beneficially Owns (as defined herein) the
number of shares, par value $.01 per share, of Common Stock of the Company (the
"Shares" or "Company Common Stock") set forth opposite such Stockholder's name
on Schedule I hereto;
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Access has required that the Stockholders agree, and the Stockholders
have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Provisions Concerning Company Common Stock. Each Stockholder hereby
agrees with Access that, during the period commencing on the date hereof and
continuing until the first to occur of the Closing Date and termination of the
Merger Agreement in accordance with its terms, at any meeting of the Company's
stockholders, however called, or in connection with any written consent of the
Company's stockholders, such Stockholder shall vote (or, in the case of joint
ownership, use all reasonable efforts to cause to be voted) the Shares
Beneficially Owned (as defined below) by such Stockholder, whether heretofore
owned or hereafter acquired: (i) in favor of approval of the Merger Agreement
and any actions required in furtherance thereof and hereof; (ii) against any
action or agreement that would result in a breach in any respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement (after giving effect to any materiality or
similar qualifications contained therein); and (iii) except as otherwise agreed
to in writing in advance by Access, against: (x) any takeover proposal (other
than the Merger and the transactions contemplated by the Merger Agreement), or
(y) any changes in a majority of the persons who constitute the board of
directors of the Company. Such Stockholder shall not enter into any agreement or
understanding with any person the effect of which would be inconsistent or
violative of the provisions and agreements contained in Section 1 or 2 hereof.
For purposes of this Agreement, "Beneficially Own" or "Beneficial Ownership"
with respect to any securities shall mean a person's having direct ownership of
and the right to vote such securities in his or her individual capacity.
2. Other Covenants, Representations and Warranties. Each Stockholder hereby
represents and warrants to Access as follows:
(a) Ownership of Shares. Such Stockholder is the record and Beneficial
Owner of the number of Shares set forth opposite such Stockholder's name on
Schedule I hereto. On the date hereof, the Shares set forth opposite such
Stockholder's name on Schedule I hereto constitute all of the Shares
Beneficially Owned by such Stockholder. Such Stockholder has voting power with
respect to the matters set forth in Section 1 hereof with respect to all of the
Shares set forth opposite such Stockholder's name on Schedule I hereto, with no
limitations, qualifications or restrictions on such voting rights.
(b) Power; Binding Agreement. Such Stockholder has the legal capacity,
power and authority to enter into and perform all of such Stockholder's
obligations under this Agreement. To such Stockholder's knowledge, the
execution, delivery and performance of this Agreement by such Stockholder will
not violate any law, regulation or court order or any other agreement to which
such Stockholder is a party including, without limitation, any voting agreement,
stockholder agreement or voting trust. This Agreement has been duly and validly
executed and delivered by such Stockholder and constitutes a valid and binding
agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms. If such Stockholder is married and such Stockholder's
Shares constitute community property, this Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement of,
such Stockholder's spouse, enforceable against such person in accordance with
its terms.
(c) Restriction on Transfer, Proxies and Non-Interference. Such Stockholder
shall not, directly or indirectly: (i) except as contemplated by the Merger
Agreement, offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of, any or all of
such Stockholder's Shares or any interest therein; or (ii) grant any proxies or
powers of attorney, deposit any Shares into a voting trust or enter into a
voting agreement with respect to any Shares; provided, however, that,
notwithstanding clause (i) of this sentence, (x) such Stockholder shall be
permitted to transfer any of such Stockholder's Shares to a trust or similar
entity for estate planning purposes so long as such Stockholder retains, or
another Stockholder acquires, (1) sole power to vote such Shares (and votes such
Shares in accordance with this Agreement) and (2) investment power over such
shares (and causes such trust or similar entity to retain such Shares until the
termination of this Agreement); (y) such Stockholder shall be permitted to make
one or more gifts or charitable donations of such Shares up to such number of
Shares as represents no more than 10% of the voting power represented by the
aggregate number of such Stockholder's Shares on the date hereof; and (z) such
Stockholder may pledge or margin any of such Stockholder's Shares so long as
such Stockholder retains sole power to vote such Shares (and votes in accordance
with this Agreement) for the term of this Agreement (provided that such pledge
or margin transaction shall be made only to or with a financial institution
extending credit to such Stockholder in the ordinary course of such financial
institution's business and unrelated to any transaction or transactions
involving an attempt to acquire control of the Company).
(d) Other Potential Acquirors. To the extent not in violation of such
Stockholder's fiduciary duties as a director, officer or a consultant of the
Company such Stockholder: (i) shall immediately cease any existing discussions
or negotiations, if any, with any parties conducted heretofore with respect to
any acquisition of all or any material portion of the assets of, or any equity
interest in, or merger with, the Company or its subsidiaries or any business
combination with the Company or its subsidiaries, in his, her or its capacity as
a Stockholder, and (ii) from and after the date hereof until termination of the
Merger Agreement, shall not, in such capacity as a Stockholder, directly or
indirectly, initiate, solicit or knowingly encourage (including, without
limitation, by way of furnishing non-public information or assistance), or take
any other action to facilitate knowingly, any inquiries or the making of any
takeover proposal.
(e) Reliance by Access. Such Stockholder understands and acknowledges that
Access is entering into the Merger Agreement in reliance upon such Stockholder's
execution and delivery of this Agreement.
3. Stop Transfer. Each Stockholder agrees with, and covenants to, Access
that such Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Stockholders' Shares, unless such transfer is made in
compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
4. Termination. Except as otherwise provided herein, the covenants and
agreements contained herein with respect to the Shares shall terminate upon the
earlier of: (a) the termination of the Merger Agreement in accordance with its
terms and (b) the Closing Date.
5. Stockholder Capacity. No person executing this Agreement who is or
becomes during the term hereof a director of the Company or trustee of a trust
makes any agreement or understanding herein in his or her capacity as such
director or trustee. Each Stockholder signs solely in his or her capacity as the
Beneficial Owner of such Stockholder's Shares.
6. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
(b) Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person to which legal or beneficial ownership of such Shares
shall pass, whether by operation of law or otherwise. Notwithstanding any
transfer of Shares, the transferor shall remain liable for the performance of
all obligations under this Agreement of the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with respect
to any one or more Stockholders, except upon the execution and delivery of a
written agreement executed by the relevant parties hereto; provided, however,
that Schedule I hereto may be supplemented by Access and one or more
stockholders of the Company by adding the name and other relevant information
concerning any stockholder of the Company who agrees to be bound by the terms of
this Agreement without the agreement of any other party hereto, and thereafter
such added stockholder shall be treated as a "Stockholder" for all purposes of
this Agreement.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to any Stockholder: At the address set forth on Schedule I hereto
with a copy to: Shereff, Friedman, Hoffman & Goodman, L.L.P.
919 Third Avenue
New York, NY 10038
Attention: Richard A. Goldberg, Esq.
Facsimile: (212) 758-9526
Telephone: (212) 758-9500
and
If to Access:
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Telephone: (401) 295-2691
Facsimile: (401) 295-1851
Attention: Robert H. Stone, President
and Chief Executive Officer
with a copy to: Edwards & Angell
2700 Hospital Trust Tower
Providence, RI 02903
Telephone: (401) 274-9200
Facsimile: (401) 276-6611
Attention: John E. Ottaviani, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the matter set forth above.
(f) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damage for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(h) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(i) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(j) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
IN WITNESS WHEREOF, Access and each Stockholder have caused this Agreement
to be duly executed as of the day and year first above written.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By: /s/Robert H. Stone
--------------------------------
Robert H. Stone, President and
Chief Executive Officer
-------------------------------
[Name]
-------------------------------
[Name]
-------------------------------
[Name]
-------------------------------
[Name]
-------------------------------
[Name]
-------------------------------
[Name]
<PAGE>
SCHEDULE I TO STOCKHOLDER AGREEMENT
Name and Address No. of Shares Beneficially Owned
JOSEPH STEVENS & COMPANY, INC.
INVESTMENT BANKING
33 MAIDEN LANE - NEW YORK, N.Y. 10038
TEL: (212) 361-3000 FAX: (212) 361-3333
December 30, 1997
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, R.I. 02852
Attention: Robert Stone, President
Ladies and Gentlemen:
This letter agreement confirms the mutual intentions of Access Solutions
International, Inc. (the "Company") and Joseph Stevens & Company, Inc. ("JSC" or
"Agent") to undertake a private offering of securities of the Company.
Subject to the satisfactory completion of our normal due diligence and
subject to market conditions at the time of the Offering (as hereinafter
defined), it is our intention to act as the exclusive placement agent for a
minimum 10 and a maximum of 40 Units (the "Units"), each Unit consisting of a
10% convertible promissory Note in the principal amount of $50,000 (the "Notes")
and 20,000 warrants (the "Warrants") for a purchase price of $50,000 per Unit in
a private placement offering (the "Offering") pursuant to an exemption under the
Securities Act of 1933, as amended (the "Securities Act"). The rights and
privileges of the Notes and the Warrants shall be substantially as set forth on
Exhibit A hereto. Our proposal is based on information regarding the Company
provided to us by the Company and current market conditions as of the date of
this letter, and is subject to change in the event any such information shall
change. On the closing date of the proposed private placement, the Company shall
have no more than such number of shares of Common Stock outstanding as shown on
the capitalization schedule attached hereto as Exhibit B (including any and all
(a) securities with equivalent rights as the Common Stock, (b) shares of Common
Stock, or such equivalent securities, issuable upon exercise of options,
warrants and other contract rights, (c) securities convertible directly or
indirectly into shares of Common Stock, or such equivalent securities, and
excluding any warrants issuable to JSC hereunder).
Our acting as exclusive placement agent shall be subject to the following
general terms, conditions and qualifications:
1. The Units will be marketed by the Agent as set forth herein and sold to
accredited investors in increments of $50,000 subject to the Agent's discretion.
The Agent's discount will be 10% of the purchase price of the securities sold
(the "Placement Commission") including securities sold pursuant to orders
received through the Company, provided that the Agent agrees to reduce the fees
it is entitled to receive pursuant to the Financial Advisory and Consulting
Agreement ("Consulting Agreement") by and between the Company and JSC dated
October 16, 1996 upon consummation of the Company's proposed merger with
Paperclip Software, Inc. in an amount equal to the Agent's 10% discount on the
securities sold pursuant to orders received through the Company. The Company
agrees that no less than 50% of the securities sold, in the aggregate and at
each closing, shall be pursuant to orders received through the Company.
2. There shall be no material change in the capitalization or outstanding
shares of any class of capital stock of the Company prior to the Offering,
including, without limitation, the issuance of employee options, warrants, etc.
without the consent of the Agent. Except upon the consent of JSC, the Company
shall not, for a period commencing on the date hereof and ending six (6) months
from the consummation of the Offering, sell or offer for sale any of its
securities, except pursuant to options and warrants issued on the date hereof
and except for securities to be issued in connection with the proposed merger
with PaperClip Software, Inc.
3. The Offering will be conducted pursuant to an exemption from
registration under the Securities Act. Offering materials covering the proposed
Offering, including an offering memorandum and audited financial statements
(such memorandum, as may be supplemented or amended, shall hereinafter be
referred to as the "Private Placement Memorandum"), will be promptly prepared by
the Company and its legal counsel and auditors in cooperation with the Agent and
its counsel. Upon approval of the Private Placement Memorandum by the Agent and
its counsel, all appropriate filings at the state and federal level will be
completed at the Company's expense. In this regard, all documents to be filed
shall be submitted to the Agent and their counsel for prior approval and no
amendment will be made to the Private Placement Memorandum without the prior
consent of the Agent and its counsel. The Private Placement Memorandum shall
provide that each of the Company and the Agent shall have the right, in its sole
discretion, to accept or reject any subscriptions in the Offering. The Offering
will be for a period of thirty days commencing on the date of the Private
Placement Memorandum. The Agent may, at its option, extend the Offering for
another thirty days.
4. The Company represents, warrants and covenants that the Private
Placement Memorandum will not 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 were
made, not misleading. All statements in the Private Placement Memorandum will be
true and correct as of the date of the Private Placement Memorandum and will be
true and correct on the closing date of the Offering.
5. The Company's financial and operational history, its present condition,
financial and otherwise, and its prospects, shall be substantially as
represented to us. The Company shall supply to the Agent and their counsel such
financial statements, contracts and other corporate records and documents as the
Agent or Agent's counsel may reasonably request, and the Company shall make
reasonably available for consultation such persons involved with the Company's
business as the Agent or their counsel shall deem necessary in connection with
the Agent's due diligence examination of the Company. In addition, we shall be
fully informed of any events which might have a material effect on the business,
operations, financial condition or prospects of the Company.
6. The Company shall issue and sell, at the closing of the proposed
offering to JSC and/or its designees, five (5) year warrants to purchase ten
percent (10%) of the number of shares into which the Notes issued and sold by
the Company in the Offering will be converted at a price of $.0001 per warrant
(the "JSC Warrants"), provided, that if the Notes are not converted, the JSC
Warrants shall be exercisable to purchase 60,000 Shares of Common Stock. The JSC
Warrants shall be exercisable at any time during a period of four (4) years
commencing on the date which is one year after the date of their issuance and
sale at a price equaling the conversion price per Share as determined in
accordance with Exhibit A (whether or not the Notes are converted). The Company
agrees that, for a period of seven (7) years from the date of the closing of the
Offering of tile securities to be offered (the "Closing"), if the Company
intends to file a Registration Statement or Statements for the public sale of
securities for cash (other than Form S-8, S-4 or comparable registration
statement), it will notify all of the holders of the Warrants and/or underlying
securities and if so requested it will include therein material to permit a
public offering of the securities underlying said JSC Warrants at the expense of
the Company (excluding fees and expenses of the holders' counsel and any
underwriting or selling commissions). In addition, for a period of five (5)
years from such date, upon written demand of holders(s) representing a majority
of the JSC Warrants, the Company agrees, on one occasion, to promptly register
the underlying securities at the expense of the Company (excluding fees and
expenses of the holders' counsel and any underwriting or selling commissions).
7. The Offering will be qualified for sale under the "blue sky" or
securities laws of such states as the Company and the Agent may reasonably
request. The necessary legal work for such qualifications will be carried on at
the Company's expense by counsel for the Agent.
8. The Company and the Agent each represents and acknowledges that there
are no claims for services in the nature of a finder's fee nor are there any
royalties, commissions or other payments due to any other person or entity with
respect to the proposed offering contemplated hereby except as herein set forth.
We shall compensate any of our personnel who may have acted in such capacities
as we shall determine.
9. The Company will pay all expenses related to the Offering, including,
but not limited to, the fees and expenses of its counsel, all printing and
duplication costs related to the Private Placement Memorandum and any exhibits
thereto, in such quantities as the Agent reasonably deems necessary and all
postage, mailing and express charges and other expenses in connection with the
delivery of copies of the Private Placement Memorandum. The Company shall also
bear all expenses in connection with Blue Sky registrations (including legal
fees (such fees not to exceed $10,000) and filing and legal expenses), registrar
and transfer agent fees, accounting fees, fees and expenses of the Agent's
counsel, and issue and transfer taxes, if any. In addition, the Company will pay
to the Agent a non-accountable expense allowance of three percent (3%) of the
purchase price of the securities sold in the proposed Offering, including
securities sold pursuant to orders received through the Company, $10,000 of
which is payable upon the execution and delivery of this letter, and the balance
of which is payable at the applicable closing, provided that the Agent agrees to
reduce the fees it is entitled to receive pursuant to the Consulting Agreement
upon consummation of the Company's proposed merger with Paperclip Software, Inc.
in an amount equal to the Agent's 3% non-accountable expense allowance on the
securities sold pursuant to orders received through the Company.
10. If JSC does not or fails to complete the proposed private placement and
the reasons therefor are reasonably related to a material adverse change in the
business or financial results, prospects or condition of the Company, or a
material adverse change in market conditions or if the proposed offering is not
completed because of the Company's actions or failure to take such actions as
are reasonably required hereunder and JSC is prepared to perform in accordance
with the terms herein, then, in any such case, the Company agrees to promptly
pay JSC its actual out of pocket expenses, provided that the advance referred to
in Paragraph 9 above shall be first offset against such expenses. In addition,
the Company shall remain liable for all Blue Sky counsel fees and expenses and
Blue Sky filing fees.
11. It is understood that JSC may enter into other agreements with
brokers-dealers who shall act as sub-placement agents and/or dealers in
connection with the proposed offering contemplated herein, but you shall have no
liability to such persons for fees and expenses incurred in connection with
their participation in such offering.
12. On the date of the closing, the Agent shall receive the opinion of
counsel to the Company, dated the date of the closing and addressed to the Agent
and to each purchaser of Units in the Offering, which opinion shall include
customary opinions for private placements and shall be in form and substance
reasonably satisfactory to the Agent's counsel.
13. The Company and its present or future affiliates and subsidiaries
hereby grant to the Agent a right of first refusal for a period of six (6)
months after the closing date for any issuance or sale of the assets or
securities of the Company or any of its present or future affiliates or
subsidiaries, including a public or private offering, or any merger or
consolidation of the Company or any of its present or future affiliates or
subsidiaries with or into another corporation, partnership or other entity.
During such period, the Company will not negotiate with any other placement
agent, underwriter or other person relating to any transaction described in the
preceding sentence.
14. We shall not be responsible for any expense of the Company or others
for any charges or claims related to the proposed financing or otherwise if the
sale of securities to be offered contemplated by this letter is not consummated.
This letter agreement shall serve as an indication of our mutual intention
with regard to the proposed Offering described herein and contemplated hereby
and shall not bind either party pending execution of the Placement Agent
Agreement except as to the responsibilities referred to in paragraphs 9, 10, 11,
and 14 herein.
We look forward to working with you on the proposed Offering. If the
foregoing accurately sets forth our understanding and agreement, kindly sign
this letter agreement and the enclosed executed copies and return two (2) copies
to us.
Very truly yours,
JOSEPH STEVENS & COMPANY, INC.
AS AGENT
By:/s/Joseph Sorbara
-----------------------------------
Name: Joseph Sorbara
Title: Chief Executive Officer
ACCEPTED AND AGREED TO THIS
31st day of December, 1997
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:/s/Thomas E. Gardner
--------------------------------
Thomas E. Gardner
Acting Chairman
<PAGE>
EXHIBIT A
TERMS OF CONVERTIBLE NOTES AND WARRANTS
Interest: Ten percent (10%) per annum payable on the
Maturity Date (as herein after defined); provided
that the accrued interest on each Note shall be
cancelled upon conversion of such Note pursuant to
the terms of the Note.
Conversion: The principal of each Note shall be mandatorily
converted without any action on the part of the
holder of such Note on the Conversion Date (as
defined below). The Conversion Date shall mean the
first date that the Company has a sufficient
number of authorized shares of Common Stock to
permit the conversion of the aggregate outstanding
principal of all of the Notes, provided such date
is at least 180 days after the Final Closing Date
(as defined below) and prior to the Maturity Date
of the Notes issued in the initial closing. If the
Company does not have a sufficient number of
authorized shares of Common Stock to permit the
conversion of the aggregate outstanding principal
of all of the Notes prior to the Maturity Date of
the Notes issued in the initial closing, the
principal and accrued interest thereon, of each
Note shall be due and payable upon its respective
Maturity Date. Each dollar of principal, if
converted, shall be convertible into shares of
Common Stock initially at a conversion price equal
to the lesser of (i) $.75 and (ii) 80% of the
average closing bid price of the Common Stock on
the Nasdaq SmallCap Market for the five (5)
consecutive trading days immediately preceding (a)
the initial closing date of the Offering, (b) any
interim closing date of the Offering or (c) the
final closing date of the Offering the ("Final
Closing Date"), whichever is lowest.
Adjustment of
conversion price: Upon declaration of stock dividends, stock splits,
reclassifications and recapitalizations, and
issuances below the conversion price, the
conversion price shall not exceed the initial
conversion price.
Reset: The conversion price in effect immediately prior
to the date that is six (6) months after the Final
Closing Date (the "Reset Date") will be adjusted
and reset effective as of the Reset Date if the
average closing bid price for the thirty (30)
consecutive trading days immediately preceding the
Reset Date (the "6-Month Trading Price") is less
than 150% of the then applicable conversion price
(a "Reset Event"). Upon tile occurrence of a Reset
Event, the then applicable conversion price will
be reduced to be equal to the greater of (i) the
6-Month Trading Price divided by 1.5 and (ii) 50%
of the then applicable conversion price.
Voting rights: None.
Registration rights: No later than ninety (90) days following the Final
Closing Date, the Company will file a registration
statement (the "Shelf Registration Statement")
under the Securities Act to permit resales of the
Common Stock issuable upon conversion of the Notes
and upon exercise of the Warrants, provided that
if the Company is eligible to file a registration
statement on Form S-3 in connection with such
securities the Company may delay filing such S-3
registration statement until the date which is 150
days after the Final Closing Date.
Restriction on transfer: The Notes the Warrants and the shares of Common
Stock issuable upon conversion of the Notes will
be "locked-up" for a period of six (6) months from
issuance of the Notes.
Exercise Price: The Warrants shall be exercisable to purchase one
share of Common Stock at an exercise price equal
to the lower of (i) $.75 or (ii) 80% of the
average closing bid price of the Common Stock on
the Nasdaq market for the five (5) consecutive
trading days immediately preceding (a) the initial
closing date of the Offering, (b) any interim
closing date of the Offering or (c) the Final
Closing Date, whichever is lowest.
Term: Each Warrant shall be exercisable for thirty-six
(36) months commencing one year from issuance.
Cancellation: The Warrants will be cancelled upon the Conversion
Date, if any.
Maturity Date: One year from the date of issuance.
Exhibit 4.2
================================================================================
ACCESS SOLUTIONS INTERNATIONAL, INC.
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
----------------
CLASS B WARRANT AGREEMENT
Dated as of February ____, 1998
================================================================================
<PAGE>
CLASS B WARRANT AGREEMENT, dated this ___ day of February 1998 [the Closing
Date], by and between ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware
corporation (the "Company"), and CONTINENTAL STOCK TRANSFER & TRUST COMPANY.
WITNESSETH:
WHEREAS, in connection with the merger of PaperClip Acquisition Corp.
("Acquisition"), a wholly owned subsidiary of the Company, into PaperClip
Software, Inc. ("PaperClip"), pursuant to the Agreement and Plan of Merger dated
November 12, 1997, among the Company, Acquisition and PaperClip, the Company
will issue up to [1,545,000] redeemable Class B Warrants, each such redeemable
Class B Warrant entitling the holder thereof to purchase one share of the
Company's common stock, $.01 par value per share ("Common Stock") ("Class B
Warrants") (subject to increase as provided herein);
WHEREAS, the Company desires to provide for the issuance of certificates
representing the Class B Warrants; and
WHEREAS, the Company desires the Class B Warrant Agent (as defined in
Section 1(b) hereof) to act on behalf of the Company, and the Class B Warrant
Agent is willing to so act, in connection with the issuance, registration,
transfer and exchange of certificates representing the Class B Warrants and the
exercise of the Class B Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Class B Warrants and the certificates representing the Class B Warrants
and the respective rights and obligations thereunder of the Company, the holders
of certificates representing the Class B Warrants and the Class B Warrant Agent,
the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Class B Warrant Agent" shall mean Continental Stock Transfer &
Trust Company of New York, New York, or its authorized successor.
(c) "Class B Warrant Certificate" shall mean a certificate
representing each of the Class B Warrants substantially in the form annexed
hereto as Exhibit A.
(d) "Commission" shall mean the Securities and Exchange Commission.
(e) "Common Stock" shall have the meaning set forth in Section 8(d)
hereof.
(f) "Company" shall have the meaning assigned to such term in the
first paragraph of this Agreement.
(g) "Corporate Office" shall mean the office of the Class B Warrant
Agent at which at any particular time its principal business in New York,
New York shall be administered, which office is located on the date hereof
at 2 Broadway, New York, New York 10004.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Exercise Date" shall mean, subject to the provisions of Section
5(b) hereof, as to any Class B Warrant, the date on which the Class B
Warrant Agent shall have received both: (i) the Class B Warrant Certificate
representing such Class B Warrant, with the exercise form thereon duly
executed by the Registered Holder (as defined in Section 1(o) hereof)
thereof or his attorney duly authorized in writing, and (ii) payment in
cash or by check made payable to the Class B Warrant Agent for the account
of the Company of an amount in lawful money of the United States of America
equal to the applicable Purchase Price (as defined in Section 1(m) hereof).
(j) "Initial Class B Warrant Exercise Date" shall mean February ____,
1998 [the effective date of the Closing].
(k) "Initial Class B Warrant Redemption Date" shall mean February
____, 1998 [the effective date of the Closing].
(l) "JSC" shall mean Joseph Stevens & Company, Inc., of New York, New
York and its successors.
(m) "NASD" shall mean the National Association of Securities Dealers,
Inc.
(n) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8 hereof, $6.00 per share of Common
Stock.
(o) "Redemption Date" shall mean the date (which may not occur before
the Initial Class B Warrant Redemption Date) fixed for the redemption of
the Class B Warrants in accordance with the terms hereof.
(p) "Registered Holder" shall mean the person in whose name any
certificate representing the Class B Warrants shall be registered on the
books maintained by the Class B Warrant Agent pursuant to Section 6(b)
hereof.
(q) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to
elect a majority of the board of directors of such corporation or
corporations (regardless of whether or not at the time the stock of any
other class or classes of such corporation shall have or may have voting
power by reason of the happening of any contingency) is at the time
directly or indirectly owned by the Company or by one or more Subsidiaries,
or by the Company and one or more Subsidiaries.
(r) "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company, of New York, New York, or its authorized successor.
(s) "Class B Warrant Expiration Date" shall mean, unless the Class B
Warrants are redeemed as provided in Section 9 hereof prior to such date,
5:00 p.m. (New York time) on October 15, 2001 or, if such date shall in the
State of New York be a holiday or a day on which banks are authorized to
close, then 5:00 p.m. (New York time) on the next following day which in
the State of New York is not a holiday or a day on which banks are
authorized to close, subject to the Company's right, prior to the Class B
Warrant Expiration Date, with the consent of JSC, to extend such Class B
Warrant Expiration Date on five (5) business days prior written notice to
the Registered Holders.
SECTION 2. Class B Warrants and Issuance of Class B Warrant Certificates.
(a) One Class B Warrant shall initially entitle the Registered Holder
of the Class B Warrant Certificate representing such Class B Warrant to
purchase at the Purchase Price therefor from the Initial Class B Warrant
Exercise Date until the Class B Warrant Expiration Date one (1) share of
Common Stock upon the exercise thereof, subject to modification and
adjustment as provided in Section 8 hereof.
(b) Upon execution of this Agreement, Class B Warrant Certificates
representing [1,545,000] Class B Warrants to purchase up to an aggregate of
[1,545,000] shares of Common Stock (subject to modification and adjustment
as provided in Section 8 hereof), shall be executed by the Company and
delivered to the Class B Warrant Agent.
(c) From time to time, up to the Class B Warrant Expiration Date, the
Class B Warrant Agent shall countersign and deliver Class B Warrant
Certificates in required denominations of one or whole number multiples
thereof to the person entitled thereto in connection with any transfer or
exchange permitted under this Agreement. No Class B Warrant Certificates
shall be issued except: (i) Class B Warrant Certificates initially issued
hereunder, (ii) Class B Warrant Certificates issued upon any transfer or
exchange of Class B Warrants, (iii) Class B Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Class B Warrant
Certificates pursuant to Section 7 hereof, and (iv) at the option of the
Company, Class B Warrant Certificates in such form as may be approved by
its Board of Directors, to reflect any adjustment or change in the Purchase
Price, the number of shares of Common Stock purchasable upon the exercise
of a Class B Warrant or the redemption price therefor.
SECTION 3. Form and Execution of Class B Warrant Certificates.
(a) The Class B Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Class B Warrants may be listed, or to conform
to usage. The Class B Warrant Certificates shall be dated the date of
issuance thereof (whether upon initial issuance, transfer, exchange or in
lieu of mutilated, lost, stolen or destroyed Class B Warrant Certificates).
(b) Class B Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and
by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon,
and shall have imprinted thereon a facsimile of the Company's seal. Class B
Warrant Certificates shall be manually countersigned by the Class B Warrant
Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Class B
Warrant Certificates shall cease to be such officer of the Company before
the date of issuance of the Class B Warrant Certificates or before
countersignature by the Class B Warrant Agent and issue and delivery
thereof, such Class B Warrant Certificates, nevertheless, may be
countersigned by the Class B Warrant Agent and issued and delivered with
the same force and effect as though the officer of the Company who signed
such Class B Warrant Certificates had not ceased to hold such office.
SECTION 4. Exercise.
(a) Class B Warrants in denominations of one or whole number multiples
thereof may be exercised commencing at any time on or after the Initial
Class B Warrant Exercise Date, but not after the Class B Warrant Expiration
Date, upon the terms and subject to the conditions set forth herein
(including the provisions set forth in Sections 5 and 9 hereof) and in the
applicable Class B Warrant Certificate. A Class B Warrant shall be deemed
to have been exercised immediately prior to the close of business on the
Exercise Date, provided that the Class B Warrant Certificate representing
such Class B Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing,
together with payment in cash or by check made payable to the Class B
Warrant Agent for the account of the Company of an amount in lawful money
of the United States of America equal to the applicable Purchase Price,
have been received by the Class B Warrant Agent. The person entitled to
receive the securities deliverable upon such exercise shall be treated for
all purposes as the holder of such securities as of the close of business
on the Exercise Date. As soon as practicable on or after the Exercise Date
and in any event within five (5) business days after such date, the Class B
Warrant Agent, on behalf of the Company, shall cause to be issued to the
person or persons entitled to receive the same a Common Stock certificate
or certificates for the shares of Common Stock deliverable upon such
exercise, and the Class B Warrant Agent shall deliver the same to the
person or persons entitled thereto. Upon the exercise of any Class B
Warrants, the Class B Warrant Agent shall promptly notify the Company in
writing of such fact and of the number of securities delivered upon such
exercise and shall cause all payments in cash or by check made payable to
the order of the Company in respect of the Purchase Price to be deposited
promptly in the Company's bank account or delivered to the Company.
(b) The Company shall not be obligated to issue any fractional share
interests or fractional Class B Warrant interests upon the exercise of any
Class B Warrant or Class B Warrants, nor shall it be obligated to issue
scrip or pay cash in lieu of fractional interests. Any fractional interest
shall be eliminated by rounding any fraction down to the next full share or
Class B Warrant, as the case may be, or other securities, properties or
rights.
SECTION 5. Reservation of Shares, Listing, Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
issuance upon the exercise of Class B Warrants, such number of shares of
Common Stock as shall then be issuable upon the exercise of all outstanding
Class B Warrants. The Company covenants that, upon exercise of the Class B
Warrants and payment of the Purchase Price for the shares of Common Stock
underlying the Class B Warrants, all shares of Common Stock which shall be
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable, free from all preemptive or similar rights, and free from
all taxes, liens and charges with respect to the issuance thereof, and that
upon issuance such shares shall be listed or quoted on each securities
exchange, if any, on which the other shares of outstanding Common Stock are
then listed or quoted, or if not then so listed or quoted on each place
(whether the Nasdaq Stock Market, Inc., the NASD Over-the-Counter
Electronic Bulletin Board, the National Quotation Bulletin Board "Pink
Sheets" or otherwise) on which the other shares of outstanding Common Stock
are listed or quoted.
(b) The Company covenants that if any securities reserved for the
purpose of exercise of Class B Warrants hereunder require registration
with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered
upon such exercise, then the Company will file a registration statement
under the federal securities laws or a post-effective amendment to a
registration statement, use its best efforts to cause the same to become
effective, keep such registration statement current while any of the Class
B Warrants are outstanding and deliver a prospectus which complies with
Section 10(a)(3) of the Act, to the Registered Holder exercising the Class
B Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities law or if the
Company receives a letter from the staff of the Commission stating that it
would not take any enforcement action if such registration is not
effected). The Company will use its best efforts to obtain appropriate
approvals or registrations under the state "blue sky" securities laws of
all states in which Registered Holders reside. Class B Warrants may not be
exercised by, nor may shares of Common Stock be issued to, any Registered
Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance
of Class B Warrants, or the issuance or delivery of any shares of Common
Stock upon exercise of the Class B Warrants; provided, however, that if
shares of Common Stock are to be delivered in a name other than the name of
the Registered Holder of the Class B Warrant Certificate representing any
Class B Warrant being exercised, then no such delivery shall be made unless
the person requesting the same has paid to the Class B Warrant Agent the
amount of transfer taxes or charges incident thereto, if any.
(d) The Class B Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing
shares of Common Stock or other securities required upon exercise of the
Class B Warrants, and the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Class B Warrant Certificates may be exchanged for other Class B
Warrant Certificates representing an equal aggregate number of Class B
Warrants or may be transferred in whole or in part. Class B Warrant
Certificates to be so exchanged shall be surrendered to the Class B Warrant
Agent at its Corporate Office, and the Company shall execute and the Class
B Warrant Agent shall countersign, issue and deliver in exchange therefor
the Class B Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Class B Warrant Agent shall keep, at such office, books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Class B Warrant Certificates and the transfer thereof. Upon due
presentment for registration of transfer of any Class B Warrant Certificate
at such office, the Company shall execute and the Class B Warrant Agent
shall issue and deliver to the transferee or transferees a new Class B
Warrant Certificate or Certificates representing an equal aggregate number
of Class B Warrants.
(c) With respect to any Class B Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
assignment form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
subscription or assignment, in form satisfactory to the Company and the
Class B Warrant Agent, duly executed by the Registered Holder thereof or
his attorney duly authorized in writing.
(d) No service charge shall be made for any exchange or registration
of transfer of Class B Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Class B Warrant Certificates surrendered for exercise or for
exchange shall be promptly canceled by the Class B Warrant Agent.
(f) Prior to due presentment for registration or transfer thereof, the
Company and the Class B Warrant Agent may deem and treat the Registered
Holder of any Class B Warrant Certificate as the absolute owner thereof of
each Class B Warrant represented thereby (notwithstanding any notations of
ownership or writing thereon made by anyone other than the Company or the
Class B Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Class B
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Class B Warrant Certificate and (in the
case of loss, theft or destruction) of indemnity satisfactory to them, and (in
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Class B Warrant Agent shall countersign and deliver in lieu
thereof a new Class B Warrant Certificate representing an equal number of Class
B Warrants. Applicants for a substitute Class B Warrant Certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as the Class B Warrant Agent may prescribe.
SECTION 8. Adjustments to Purchase Price and Number of Securities.
(a) Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Purchase
Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
(b) Stock Dividends and Distributions. In case the Company shall pay a
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Purchase Price
shall forthwith be proportionately decreased. An adjustment made pursuant
to this Section 8(b) shall be made as of the record date for the subject
stock dividend or distribution.
(c) Adjustment in Number of Securities. Upon each adjustment of the
Purchase Price pursuant to the provisions of this Section 8, the number of
securities issuable upon the exercise at the adjusted Purchase Price of
each Class B Warrant shall be adjusted to the nearest whole number by
multiplying a number equal to the Purchase Price in effect immediately
prior to such adjustment by the number of securities issuable upon exercise
of the Class B Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Purchase Price.
(d) Definition of Common Stock. For the purpose of this Agreement, the
term "Common Stock" shall mean: (i) the class of stock designated as Common
Stock in the Amended and Restated Certificate of Incorporation of the
Company as it may be amended or restated as of the date hereof, or (ii) any
other class of stock resulting from successive changes or reclassifications
of such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event the
Company, after the date hereof, shall issue Common Stock with greater or
superior voting rights than the shares of Common Stock outstanding as of
the date hereof, each Holder, at its option, may receive upon exercise of
any Class B Warrant either shares of Common Stock or a like number of such
securities with greater or superior voting rights.
(e) Merger or Consolidation or Sale.
(i) In case of any consolidation of the Company with, or merger
of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common
Stock), the corporation formed by such consolidation or surviving such
merger shall execute and deliver to the Holder a supplemental Class B
Warrant agreement providing that the holder of each Class B Warrant
then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Class B Warrant) to receive, upon
exercise of such Class B Warrant, the kind and amount of shares of
stock and other securities and property receivable upon such
consolidation, merger, sale or transfer by a Holder of the number of
shares of Common Stock of the Company for which such Class B Warrant
might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental Class B Warrant agreement
shall provide for adjustments which shall be identical to the
adjustments provided in this Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or
mergers.
(ii) In the event of: (A) the sale by the Company of all or
substantially all of its assets, or (B) the engagement by the Company
or any of its affiliates in a "Rule 13e-3 transaction" as defined in
paragraph (a)(3) of Rule 13e-3 of the General Rules and Regulations
under the Exchange Act or (C) a distribution to the Company's
stockholders of any cash, assets, property, rights, evidences of
indebtedness, securities or any other thing of value, or any
combination thereof, the Holders of the unexercised Class B Warrants
shall receive notice of such sale, transaction or distribution twenty
(20) days prior to the date of such sale or the record date for such
transaction or distribution, as applicable, and, if they exercise such
Class B Warrants prior to such date, they shall be entitled, in
addition to the shares of Common Stock issuable upon the exercise
thereof, to receive such property, cash, assets, rights, evidence of
indebtedness, securities or any other thing of value, or any
combination thereof, on the payment date of such sale, transaction or
distribution.
(f) No Adjustment of Exercise Price in Certain Cases. No adjustment of
the Exercise Price shall be made if the amount of said adjustment shall be
less than ten cents (10(cents) per share of Common Stock, provided,
however, that in such case any adjustment that would otherwise be required
then to be made shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least ten cents
(10(cents) per share of Common Stock.
SECTION 9. Redemption.
(a) The Company may (but, prior to April 18, 1998, only with the prior
written consent of JSC), on thirty (30) days' prior written notice, redeem
all of the Class B Warrants, in whole and not in part, at a redemption
price of five cents ($.05) per Class B Warrant; provided, however, that
before any such call for redemption of Class B Warrants can take place: (i)
the average closing bid price for the Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System, or
(ii) if not so quoted, as reported by any other recognized quotation system
on which the Common Stock is quoted, shall have for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the
fifth (5th) trading day prior to the date on which the notice contemplated
by Sections 9(b) and 9(c) hereof is given, equaled or exceeded 150% of the
then exercise price per share of Common Stock (subject to adjustment in the
event of any stock splits or other similar events as provided in Section 8
hereof).
(b) In case the Company shall exercise its right to redeem all of the
Class B Warrants, it shall give or cause to be given notice to the
Registered Holders of the Class B Warrants, by mailing to such Registered
Holders a notice of redemption, first class, postage prepaid, at their last
address as shall appear on the records of the Class B Warrant Agent. Any
notice mailed in the manner provided herein shall be conclusively presumed
to have been duly given whether or not the Registered Holder receives such
notice.
(c) The notice of redemption shall specify: (i) the redemption price,
(ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place
where the Class B Warrant Certificates shall be delivered and the
redemption price shall be paid, and (iv) that the right to exercise the
Class B Warrant shall terminate at 5:00 p.m. (New York time) on the
business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Class B Warrants shall be the "Redemption
Date" for purposes of this Agreement. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption except as to a holder: (A) to whom
notice was not mailed or (B) whose notice was defective. An affidavit of
the Class B Warrant Agent or the Secretary or Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Class B Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the
Redemption Date. The redemption price payable to the Registered Holders
shall be mailed to such persons at their addresses of record.
(e) The Company shall as soon as practicable after the Redemption
Date, and in any event within 15 months thereafter, make "generally
available to its security holders" (within the meaning of Rule 158 under
the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the Redemption Date.
SECTION 10. Concerning the Class B Warrant Agent.
(a) The Class B Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be determined
solely by the provisions hereof. The Class B Warrant Agent shall not, by
issuing and delivering Class B Warrant Certificates or by any other act
hereunder, be deemed to make any representations as to the validity or
value or authorization of the Class B Warrant Certificates or the Class B
Warrants represented thereby or of any securities or other property
delivered upon exercise of any Class B Warrant or whether any stock issued
upon exercise of any Class B Warrant is fully paid and non-assessable.
(b) The Class B Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Class B Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price provided in this
Agreement, or to determine whether any fact exists which may require any
such adjustment, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not: (i) be liable for any recital or statement of fact
contained herein or for any action taken, suffered or omitted by it in
reliance on any Class B Warrant Certificate or other document or instrument
believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any
failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Class B Warrant
Certificate, or (iii) be liable for any act or omission in connection with
this Agreement except for its own gross negligence or willful misconduct.
(c) The Class B Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it
in good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board of Directors, President or any Vice
President, Treasurer or Assistant Treasurer, or Secretary (unless other
evidence in respect thereof is herein specifically prescribed). The Class B
Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order or demand.
(e) The Company agrees to pay the Class B Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its
reasonable expenses hereunder; the Company further agrees to indemnify the
Class B Warrant Agent and hold it harmless against any and all losses,
expenses and liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Class B Warrant Agent in the execution of
its duties and powers hereunder except losses, expenses and liabilities
arising as a result of the Class B Warrant Agent's gross negligence or
willful misconduct.
(f) The Class B Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities
arising as a result of the Class B Warrant Agent's own gross negligence or
willful misconduct), after giving thirty (30) days' prior written notice to
the Company. At least fifteen (15) days prior to the date such resignation
is to become effective, the Class B Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each
Class B Warrant Certificate at the Company's expense. Upon such resignation
the Company shall appoint in writing a new Class B Warrant Agent. If the
Company shall fail to make such appointment within a period of thirty (30)
days after it has been notified in writing of such resignation by the
resigning Class B Warrant Agent, then the Registered Holder of any Class B
Warrant Certificate may apply to any court of competent jurisdiction for
the appointment of a new Class B Warrant Agent. Any new Class B Warrant
Agent, whether appointed by the Company or by such a court, shall be a bank
or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than ten million dollars
($10,000,000) or a stock transfer company doing business in New York, New
York. After acceptance in writing of such appointment by the new Class B
Warrant Agent is received by the Company, such new Class B Warrant Agent
shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named herein as the Class B Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any
reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and
delivered by the resigning Class B Warrant Agent. Not later than the
effective date of any such appointment, the Company shall file notice
thereof with the resigning Class B Warrant Agent and shall forthwith cause
a copy of such notice to be mailed to the Registered Holder of each Class B
Warrant Certificate.
(g) Any corporation into which the Class B Warrant Agent or any new
Class B Warrant Agent may be converted or merged, any corporation resulting
from any consolidation to which the Class B Warrant Agent or any new Class
B Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Class B Warrant Agent or any new Class B
Warrant Agent shall be a successor Class B Warrant Agent under this
Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Class B Warrant Agent under
the provisions of the preceding paragraph. Any such successor Class B
Warrant Agent shall promptly cause notice of its succession as Class B
Warrant Agent to be mailed to the Company and to the Registered Holders of
each Class B Warrant Certificate.
(h) The Class B Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Class B
Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effect as
though it were not Class B Warrant Agent. Nothing herein shall preclude the
Class B Warrant Agent from acting in any other capacity for the Company or
for any other legal entity.
(i) The Class B Warrant Agent shall retain for a period of two (2)
years from the date of exercise any Class B Warrant Certificate received by
it upon such exercise.
SECTION 11. Modification of Agreement.
The Class B Warrant Agent and the Company may by supplemental agreement
make any changes or corrections in this Agreement: (a) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained, or (b) that they may
deem necessary or desirable and which shall not adversely affect the interests
of the holders of Class B Warrant Certificates; provided, however, that this
Agreement shall not otherwise be modified, supplemented or altered in any
respect except with the consent in writing of the Registered Holders holding not
less than sixty-six and two-thirds percent (66-2/3%) of the Class B Warrants
then outstanding; provided, further, that no change in the number or nature of
the securities purchasable upon the exercise of any Class B Warrant, and no
change that increases the Purchase Price of any Class B Warrant, other than such
changes as are specifically set forth in this Agreement as originally executed,
shall be made without the consent in writing of each of the Registered Holders
affected by such change.
SECTION 12. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been made or given when delivered or
mailed first-class postage prepaid or delivered to a telegraph office for
transmission, if to the Registered Holder of a Class B Warrant Certificate, at
the address of such holder as shown on the registry books maintained by the
Class B Warrant Agent; if to the Company at Access Solutions International,
Inc., 650 Ten Rod Road, North Kingstown, RI 02852, Attention: Robert H. Stone,
President and Chief Executive Officer, or at such other address as may have been
furnished to the Class B Warrant Agent in writing by the Company; and if to the
Class B Warrant Agent, at its Corporate Office, or at such other address as may
have been furnished to the Company in writing by the Class B Warrant Agent.
SECTION 13. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to conflicts of laws rules
or principals.
SECTION 14. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Class B Warrant Agent and their respective successors and assigns
and the Registered Holders from time to time of Class B Warrant Certificates or
any of them. Except as hereinafter stated, nothing in this Agreement is intended
or shall be construed to confer upon any other person any right, remedy or claim
or to impose upon any other person any duty, liability or obligation.
SECTION 15. Counterparts.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ACCESS SOLUTIONS INTERNATIONAL, CONTINENTAL STOCK TRANSFER & INC.
TRUST COMPANY
As Class B Warrant Agent
By: By:
----------------------------- -------------------------------
Name: Name:
Title: Title:
<PAGE>
EXHIBIT A
No. WB ___________ VOID AFTER October 15, 2001
_________ CLASS B WARRANTS
REDEEMABLE CLASS B WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
ACCESS SOLUTIONS INTERNATIONAL, INC.
CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED __________________________________,
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Class B Warrants (the "Class B Warrants") specified above. One Class
B Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Class B Warrant
Agreement (as hereinafter defined), one fully paid and non-assessable share of
Common Stock, $.01 par value per share, of Access Solutions International, Inc.,
a Delaware corporation (the "Company"), at any time from February ___, 1998 [the
date of the Closing] and prior to the Expiration Date (as hereinafter defined)
upon the presentation and surrender of this Class B Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the corporate office
of Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004, as Class B Warrant Agent, or its successor (the "Class B Warrant Agent"),
accompanied by payment of $6.00 subject to adjustment (the "Purchase Price"), in
lawful money of the United States of America in cash or by check made payable to
the Class B Warrant Agent for the account of the Company.
This Class B Warrant Certificate is, and each Class B Warrant represented
hereby is, issued pursuant to and subject in all respects to the terms and
conditions set forth in the Class B Warrant Agreement (the "Class B Warrant
Agreement"), dated February ___, 1998 [the date of the Closing], by and between
the Company and the Class B Warrant Agent.
In the event of certain contingencies provided for in the Class B Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Class B Warrant represented hereby are
subject to modification or adjustment.
Each Class B Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all of the Class B Warrants represented hereby, the
Company shall cancel this Class B Warrant Certificate upon the surrender hereof
and shall execute and deliver a new Class B Warrant Certificate or Class B
Warrant Certificates of like tenor, which the Class B Warrant Agent shall
countersign, for the balance of such Class B Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on October
15, 2001. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
p.m. (New York time) on the next day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Class B Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Class B Warrants are outstanding, and deliver a prospectus which complies
with Section 10(a)(3) of the Act to the Registered Holder exercising this Class
B Warrant. This Class B Warrant shall not be exercisable by a Registered Holder
in any state where such exercise would be unlawful.
This Class B Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Class B Warrant Agent,
for a new Class B Warrant Certificate or Class B Warrant Certificates of like
tenor representing an equal aggregate number of Class B Warrants, each of such
new Class B Warrant Certificates to represent such number of Class B Warrants as
shall be designated by such Registered Holder at the time of such surrender.
Upon due presentment and payment of any tax or other charge imposed in
connection therewith or incident thereto, for registration of transfer of this
Class B Warrant Certificate at such office, a new Class B Warrant Certificate or
Class B Warrant Certificates representing an equal aggregate number of Class B
Warrants will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Class B Warrant Agreement.
Prior to the exercise of any Class B Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Class B
Warrant Agreement.
Subject to the provisions of the Class B Warrant Agreement, this Class B
Warrant may be redeemed at the option of the Company, in whole and not in part,
at a redemption price of $.05 per Class B Warrant, at any time, provided that
the average closing bid price for the Company's Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System (or, if
not so quoted, as reported by any other recognized quotation system on which the
price of the Common Stock is quoted), shall have, for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the fifth
(5th) trading day prior to the date on which the Notice of Redemption (as
defined below) is given, equaled or exceeded 150% of the then exercise price per
share (subject to adjustment in the event of any stock splits or other similar
events). Notice of redemption (the "Notice of Redemption") shall be given not
later than the thirtieth (30th) day before the date fixed for redemption, all as
provided in the Class B Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to this
Class B Warrant except to receive the $.05 per Class B Warrant upon surrender of
this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Class B Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Class B Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Class B Warrant
Agent) for all purposes and shall not be affected by any notice to the contrary,
except as provided in the Class B Warrant Agreement.
This Class B Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Class B Warrant Certificate is not valid unless countersigned by the
Class B Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Class B Warrant Certificate
to be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ___________, 1998
ACCESS SOLUTIONS INTERNATIONAL,
INC.
[SEAL]
By:
-----------------------------------
Name:
Title:
ATTEST:
By:
-----------------------------------
Name:
COUNTERSIGNED: Title:
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY, as Class B Warrant Agent
By:
---------------------------------
Authorized Officer
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Class B Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_____ Class B Warrants represented by this Class B Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Class B Warrants, and
requests that certificates for such securities shall be issued in name of:
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
------------------------------
------------------------------
------------------------------
------------------------------
(please print or type name and address)
and be delivered to
------------------------------
------------------------------
(please print or type name and address)
and if such number of Class B Warrants shall not be all the Class B Warrants
evidenced by this Class B Warrant Certificate, that a new Class B Warrant
Certificate for the balance of such Class B Warrants be registered in the name
of, and delivered to, the Registered Holder at the address stated below.
Dated: ______________________ X
------------------------------
------------------------------
------------------------------
Address
------------------------------
SSN or Taxpayer ID Number
------------------------------
Signature Guaranteed
------------------------------
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Class B Warrants
FOR VALUE RECEIVED, __________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
----------------------------------
----------------------------------
----------------------------------
(please print or type name and address)
________________________ of the Class B Warrants represented by this Class B
Warrant Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Class B Warrant Certificate on
the books of the Company, with full power of substitution in the premises.
Dated: _______________________ X
----------------------------------
-----------------------------------
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS CLASS B WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST
BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
Exhibit 4.3
Exhibit C-1
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Joseph Stevens & Company, Inc.
33 Maiden Lane
New York, NY 10038
Ladies and Gentlemen:
In order to induce Access Solutions International, Inc., (the "Company") to
enter into an Agreement and Plan of Merger ("Merger Agreement") with respect to
the merger of PaperClip Acquisition Corp., a wholly-owned subsidiary of the
Company, with and into PaperClip Software, Inc., ("PaperClip") with PaperClip
surviving as a subsidiary of the Company, the undersigned intending to be
legally bound, hereby agrees that for a period commencing on the date hereof and
ending on April 11, 1998 (the "Lock-up Period"), he, she or it will not, without
the prior written consent of Joseph Stevens & Company, Inc. ("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 any shares of
common stock of the Company, $.01 par value per share ("Company Purchase
Shares"), plus an equivalent number of the Company's Class B Warrants ("Company
Purchase Warrants") (the Company Purchase Shares and the Company Purchase
Warrants are sometimes referred to herein collectively as the "Company Purchase
Securities"), which are issued to the undersigned by the Company under the
Merger Agreement, whether or not beneficially owned by the undersigned, or
dispose of any beneficial interest therein; PROVIDED, however, that nothing
contained herein shall prohibit any transfer of any Company Purchase Securities
through any private transfer to a U.S. Person (as defined in the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder) by
any shareholders of PaperClip, PROVIDED, FURTHER, however, that as a
precondition to any such transfers, any transferees must agree in writing to be
bound by the terms of this agreement.
In order to enable the aforesaid covenants, the undersigned hereby consents
to the placing of legends and/or stop-transfer orders with the Transfer Agent of
the Company's securities with respect to any of the Company Purchase Securities
registered in the name of the undersigned or any of its transferees or
beneficially owned by the undersigned or any of its transferees.
This Agreement shall be governed and construed and enforced in accordance
with the internal laws of the State of New York without giving effect to the
choice of law of conflicts of laws principles thereof.
Dated:_________________, 1998
--------------------------------
(Signature)
- ----------------------------- --------------------------------
(Address) (Name)
- ----------------------------- --------------------------------
Social Security No. or
Federal Tax I.D. Number
Exhibit 4.3
Exhibit C-2
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Joseph Stevens & Company, Inc.
33 Maiden Lane
New York, NY 10038
Ladies and Gentlemen:
In order to induce Access Solutions International, Inc., (the "Company") to
enter into an Agreement and Plan of Merger ("Merger Agreement") with respect to
the merger of PaperClip Acquisition Corp., a wholly-owned subsidiary of the
Company, with and into PaperClip Software, Inc., ("PaperClip") with PaperClip
surviving as a subsidiary of the Company, the undersigned intending to be
legally bound, hereby agrees that for a period commencing on the date hereof and
ending on October 24, 1998 (the "Lock-up Period"), it will not, without the
prior written consent of Joseph Stevens & Company, Inc. ("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 any shares of
common stock of the Company, $.01 par value per share ("Company Purchase
Shares"), plus an equivalent number of the Company's Class B Warrants ("Company
Purchase Warrants") (the Company Purchase Shares and the Company Purchase
Warrants are sometimes referred to herein collectively as the "Company Purchase
Securities"), which are issued to the undersigned by the Company under the
Merger Agreement, whether or not beneficially owned by the undersigned, or
dispose of any beneficial interest therein; PROVIDED, however, that nothing
contained herein shall prohibit any transfer of any Company Purchase Securities
through any private transfer to a U.S. Person (as defined in the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder) by
any shareholders of PaperClip, PROVIDED, FURTHER, however, that as a
precondition to any such transfers, any transferees must agree in writing to be
bound by the terms of this agreement; PROVIDED, however, that the undersigned
and its transferees, as the case may be, may sell nor more than the following
percentages of Company Purchase Shares or Company Purchase Warrants,
respectively, on and after the dates described below, and PROVIDED, FURTHER,
however, that in either case such percentage of Company Purchase Shares or
Company Purchase Warrants shall be cumulative, i.e. any unsold portion of such
Shares or Warrants, as the case may be, which were available for sale in any
preceding month or months will be added to the amount allowed for sale of such
Shares or Warrants, as the case may be, in any subsequent month -
Percent
COMMENCING OF HOLDINGS
January 5, 1998 2%
February 15,1998 3%
March 17, 1998 4%
April 18, 1998 6%
May 19, 1998 8%
June 20, 1998 10%
July 21, 1998 14%
August 22, 1998 16%
September 23, 1998 18%
October 24, 1998 19%
100%
In order to enable the aforesaid covenants, the undersigned hereby consents
to the placing of legends and/or stop-transfer orders with the Transfer Agent of
the Company's securities with respect to any of the Company Purchase Securities
registered in the name of the undersigned or any of its transferees or
beneficially owned by the undersigned or any of its transferees.
This Agreement shall be governed and construed and enforced in accordance
with the internal laws of the State of New York without giving effect to the
choice of law of conflicts of laws principles thereof.
Dated:_________________, 1998
--------------------------------
(Signature)
- ----------------------------- --------------------------------
(Address) (Name)
- ----------------------------- --------------------------------
Social Security No. or Federal Tax I.D. Number
Exhibit 5
January 9, 1998
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, RI 02852
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 (the "Registration
Statement") filed by Access Solutions International, Inc. (the "Company") with
the Securities and Exchange Commission in connection with the registration under
the Securities Act of 1933, as amended, of up to 1,544,438 shares of Common
Stock, $.01 par value (the "Common Stock") and 1,544,438 Class B Warrants
("Class B Warrants").
We have served as counsel for the Company and, as such, are familiar with
its corporate proceedings. We have also examined such documents, records and
proceedings as we have deemed pertinent in connection with the issuance of said
Common Stock and Class B Warrants.
Based upon such examination, it is our opinion that the Common Stock and
Class B Warrants, when issued and paid for as contemplated by the Prospectus
which is part of the Registration Statement, will be validly issued, fully paid
and nonassessable.
John E. Ottaviani, a partner of Edwards & Angell, is the Secretary of the
Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to our firm in the Prospectus which is part of
the Registration Statement.
Very truly yours,
/s/ Edwards & Angell
--------------------------
EDWARDS & ANGELL
Exhibit 10.11
November 20, 1997
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, Rhode Island 02852
Ladies and Gentlemen:
This letter is written to set forth our agreement whereby MALCOLM G. CHACE
("Lender"), will lend to ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware
corporation ("Borrower"), the maximum principal sum of One Hundred Eighty
Thousand ($180,000.00) Dollars (the "Loan").
The Loan will be evidenced by Borrower's Secured Line of Credit Note (the
"Note"). Each advance will bear interest at the annual fixed rate equivalent to
the sum of the "Prime Rate" of Fleet National Bank on the date of such advance,
plus two (2%) percent. The Loan shall be due and payable on January 5, 1998,
unless repaid in full prior to such time. Borrower shall be required to make
mandatory repayments upon the partial or complete collection of any of the
accounts receivable that constitute the Collateral (as defined in the Security
Agreement), and shall deliver to Lender said collected amount as and when
received by it which Lender shall apply to the outstanding balance of the Loan.
The initial advance shall be made in an amount equal to $180,000. Any
subsequent advances shall be made upon evidence satisfactory to Lender of a
corresponding invoice.
The proceeds of the Loan will be used solely for working capital purposes.
The Note shall be secured by a security agreement of even date herewith
granting Lender a security interest in certain accounts receivable of Borrower
(the "Security Agreement").
To induce Lender to enter into this Agreement, Borrower does hereby
covenant and agree to and with Lender that, until payment in full of any and all
indebtedness of Borrower to Lender, whether now existing or hereafter arising,
Borrower shall promptly advise Lender of any material adverse change in
Borrower's condition, financial or otherwise, or of the occurrence of any event
of default by Borrower under any agreement between Borrower and Lender, or of
the occurrence of any event which upon notice or lapse of time or both would
constitute such an event of default.
In each case of happening of any of the following events (each of which is
herein and in the Note sometimes called an "Event of Default"):
(a) any representation or warranty of Borrower made herein, or in any
report, certificate, financial statement or other instrument furnished in
connection with this Agreement, or the borrowing hereunder, shall prove to
be false or misleading in any material respect;
(b) default in the payment of any installment of the principal of, or
interest on, the Note or any other indebtedness of Borrower to Lender when
the same shall become due and payable, whether at the due date thereof or
at a date fixed for prepayment or by acceleration or otherwise; or
(c) default in the due observance or performance of any covenant,
condition or agreement contained herein, in the Note or in the Security
Agreement; or
(d) default with respect to any evidence of indebtedness of Borrower
(other than to Lender), if the effect of such default is to accelerate the
maturity of such indebtedness or to permit the holder thereof to cause such
indebtedness to become due prior to the stated maturity thereof, or if any
indebtedness of Borrower (other than to Lender) is not paid, when due and
payable, whether at the due date thereof or a date fixed for prepayment or
otherwise; or
(e) the occurrence of an "Event of Default" as defined in the Security
Agreement; or
(f) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian or liquidator of it or any of its property,
(ii) admit in writing its inability to pay its debts as they mature, (iii)
make a general assignment for the benefit of creditors, (iv) be adjudicated
a bankrupt or insolvent or be the subject of an order for relief under
Title 11 of the United States Code or (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations
of a petition filed against it in any proceeding under any such law or if
corporate action shall be taken for the purpose of effecting any of the
foregoing; or
(g) an order, judgment or decree shall be entered, without the
application, approval or consent of Borrower by any court of competent
jurisdiction, approving a petition seeking reorganization of Borrower or
appointing a receiver, trustee, custodian or liquidator of Borrower or of
all or a substantial part of the assets of Borrower, and such order,
judgment or decree shall continue unstayed and in effect for any period of
thirty (30) days; or
(h) the occurrence of any attachment of any deposits or other property
of Borrower in the hands or possession of Lender, or the occurrence of any
attachment of any other property of Borrower in an amount exceeding Ten
Thousand Dollars ($10,000) which shall not be discharged within thirty (30)
days of the date of such attachment; or
then and in every such Event of Default and at any time thereafter during the
continuance of such event, the Note and any and all other indebtedness of
Borrower to Lender shall become immediately due and payable, both as to
principal and interest, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, anything contained herein or in
the Note or other evidence of such indebtedness to the contrary notwithstanding.
In case any one or more Events of Default shall occur and be continuing, the
Lender may proceed to protect and enforce its rights by an action at law, suit
in equity or other appropriate proceeding, whether for the specific performance
of any agreement contained in this Agreement, the Security Agreement or the
Note, or for an injunction against a violation of any of the terms hereof or
thereof or in and of the exercise of any power granted hereby or thereby or by
law.
Upon the occurrence of any Event of Default, the rights, powers, privileges
and other remedies available to Lender under this Agreement or at law or in
equity may be exercised by Lender at any time and from time to time, whether or
not the indebtedness evidenced and secured by the Note shall be due and payable,
and whether or not the Lender shall have any foreclosure proceedings or other
action for the enforcement of its rights and remedies under the Note or the
Security Agreement.
All costs and expenses, including reasonable attorneys' fees related to the
negotiation, making or collection of the line of credit, are the responsibility
of Borrower. This Agreement shall be governed by the laws of the State of Rhode
Island.
Please indicate your acceptance of this Agreement by signing below and
returning to us a copy of this letter.
Very truly yours,
-------------------------------
Malcolm G. Chace
Accepted and agreed to this _____ day of November, 1997.
ACCESS SOLUTIONS
INTERNATIONAL, INC.
By
-----------------------------
Title:
Exhibit 10.11
SECURED LINE OF CREDIT NOTE
$180,000 November 20, 1997
FOR VALUE RECEIVED, ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware
corporation, with its principal office at 650 Ten Rod Road, North Kingstown,
Rhode Island 02852 ("Borrower"), promises to pay to MALCOLM G. CHACE, with an
office at 731 Hospital Trust Building, Providence, Rhode Island 02903
("Lender"), the maximum principal sum of One Hundred Eighty Thousand ($180,000)
Dollars, together with interest in arrears on the unpaid principal balance from
time to time outstanding from the date hereof until the entire principal amount
due hereunder is paid in full at a fixed rate per annum equivalent to the sum of
the "Prime Rate" of Fleet National Bank in effect on the date of such advance,
plus two (2%) percent. Interest shall be calculated on the basis of a three
hundred sixty (360) day year counting the actual number of days elapsed.
Principal plus all accrued and unpaid interest is due and payable in full
on or before January 5, 1998. All repayments as required hereunder will be
applied first to accrued and unpaid interest hereunder, calculated in arrears,
and then to the principal balance outstanding hereunder.
Payments of both principal and interest as required hereunder shall be made
in lawful money of the United States of America in immediately available funds
at the address set forth above for Lender.
This Note is the "Note" referred to in, made pursuant to the terms of, and
governed by that certain Letter Agreement by and between Lender and Borrower of
even date herewith (hereinafter, as amended or otherwise modified from time to
time, the "Letter Agreement"), which Letter Agreement is hereby incorporated
herein as if set forth at length. This Note is secured, inter alia, by that
certain Security Agreement of even date herewith between Borrower and Lender and
is entitled to the benefits thereof.
Upon the partial or complete collection of any of the Collateral (as
defined in the Security Agreement), Borrower shall deliver to Lender said
collected amount as and when received by Borrower, which Lender shall apply to
the outstanding balance of the Loan (as defined in the Letter Agreement).
If an Event of Default as defined in the Letter Agreement, or the Security
Agreement has occurred and is continuing, the entire unpaid principal balance
hereunder, and all other sums paid by Lender to or on behalf of Borrower
pursuant to the terms of this Note, the Letter Agreement or the Security
Agreement together with unpaid interest thereon, shall at the option of Lender
become immediately due and payable without further notice or demand and Lender
may forthwith exercise the remedies available to Lender at law and in equity as
well as those remedies set forth in this Note, the Letter Agreement or the
Security Agreement and one or more executions may forthwith issue on any
judgment or judgments obtained by virtue thereof; and no failure on the part of
Lender to exercise any of Lender's rights hereunder shall be deemed a waiver of
any such rights or of any default.
Borrower hereby waives presentment for payment, protest and demand, and
notice of protest, demand and/or dishonor and nonpayment of this Note, notice of
any Event of Default under the Security Agreement except as specifically
provided therein, and all other notices or demands otherwise required by law
that Borrower may lawfully waive. Borrower expressly agrees that this Note, or
any payment hereunder, may be extended from time to time, without in any way
affecting the liability of Borrower. No unilateral consent or waiver by Lender
with respect to any action or failure to act which, without consent, would
constitute a breach of any provision of this Note shall be valid and binding
unless in writing and signed by Lender.
The rights and obligations of Borrower and all provisions hereof shall be
governed by and construed in accordance with the laws of the State of Rhode
Island, except to the extent that such laws are superseded by Federal
enactments.
Borrower hereby submits to the jurisdiction of the courts of the State of
Rhode Island and the United States District Court for the District of Rhode
Island, as well as to the jurisdiction of all courts to which an appeal may be
taken or other review sought from the aforesaid courts, for the purpose of any
suit, action or other proceeding arising out of Borrower's obligations under or
with respect to this Note, and expressly waives any and all objections it may
have as to venue in any of such courts. BORROWER AND LENDER EACH HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF
THEM AGAINST THE OTHER ON ANY MATTERS WHATSOEVER (INCLUDING, WITHOUT LIMITATION,
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS NOTE, THE LETTER AGREEMENT, THE SECURITY AGREEMENT OR ANY OTHER
AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN). No party to this Note, including but not
limited to any assignee of or successor to Borrower or Lender, shall seek a jury
trial in any lawsuit, proceeding, counterclaim, or any other litigation
procedure based upon, or arising out of, this Note, the Letter Agreement, the
Security Agreement or any related instruments or the relationship between the
parties. No party will seek to consolidate any such action, in which a jury
trial has been waived, with any other action in which a jury trial cannot be or
has not been waived. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED
BY BORROWER AND LENDER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
All agreements between Borrower and Lender are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to Lender for the use, forbearance or detention of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof, provided, however, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. In this regard, it
is expressly agreed that it is the intent of Borrower and Lender in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the State of Rhode Island from time to time in effect. If, from
any circumstance whatsoever, fulfillment of any provision hereof or of the
Letter Agreement or the Security Agreement at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then the obligation to be fulfilled shall automatically be
reduced to the limit of such validity, and if from any circumstances Lender
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. This provision shall control every other provision of all agreements
between Borrower and Lender.
If this Note shall not be paid when due and shall be placed by the holder
hereof in the hands of any attorney for collection, through legal proceedings or
otherwise, Borrower will pay a reasonable attorney's fee to the holder hereof
together with reasonable costs and expenses of collection.
Borrower shall remain primarily liable on this Note and the Security
Agreement until full payment, unaffected by any agreement or transaction between
Lender and any subsequent borrowers as to payment of principal, interest or
other moneys, by any forbearance or extension of time, guaranty or assumption by
others, or by any other matter, as to all of which notice is hereby waived by
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
duly authorized officer as of the day and year first above written.
WITNESS: ACCESS SOLUTIONS INTERNATIONAL, INC.
By:
----------------------------------
Title:
FIRST AMENDMENT TO LOAN AGREEMENT AND PROMISSORY NOTE
THIS AMENDMENT is made as of the 5th day of January, 1998, by and between
MALCOLM G. CHACE, an individual having an address at 731 Hospital Trust Tower,
Providence, Rhode Island 02903 (the "Lender") and ACCESS SOLUTIONS
INTERNATIONAL, INC., a Delaware corporation having an address at 650 Ten Rod
Road, North Kingstown, Rhode Island 02852 (the "Borrower").
W I T N E S S E T H T H A T:
WHEREAS, the Borrower executed and delivered to the Lender a certain letter
agreement dated November 20, 1997, pursuant to which the Lender agreed to loan
to the Borrower the maximum principal sum of $180,000 ("Loan Agreement"), which
Loan Agreement is incorporated by reference herein and made a part hereof; and
WHEREAS, the Borrower executed and delivered to the Lender a certain
Promissory Note dated November 20, 1997 in the principal amount of $180,000,
which Note is hereby incorporated by reference herein and made a part hereof
(the "Note"); and
WHEREAS, the parties desire to extend the maturity date of the Note to
January 30, 1998; and
WHEREAS, the parties hereto desire to amend the Loan Agreement and the Note
in the manner hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. All outstanding obligations under the Loan Agreement and the Note,
including principal, interest, and fees, shall be due and payable on January 30,
1998.
2. Security for the Note is evidenced by, among other things, a Security
Agreement dated November 20, 1997, and as further amended on the date hereof,
and UCC financing statements filed with the Rhode Island Secretary of State
("Security Instruments"). All references to the Note in the Security Instruments
shall be deemed to include this amendment to the Note and any other amendments
which may be executed.
4. Except as modified and amended hereby, the Note shall remain in full
force and effect and is in all other respects ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year indicated above.
LENDER: BORROWER
ACCESS SOLUTIONS INTERNATIONAL, INC.
________________________________ By: ________________________________
Malcolm G. Chace Title: _____________________________
Exhibit 10.12
December 10, 1997
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, Rhode Island 02852
Ladies and Gentlemen:
This letter is written to set forth our agreement whereby MALCOLM G. CHACE
("Lender"), will lend to ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware
corporation ("Borrower"), the maximum principal sum of One Hundred Twenty-Four
Thousand ($124,000) Dollars (the "Loan").
The Loan will be evidenced by Borrower's Secured Line of Credit Note (the
"Note"). Each advance will bear interest at the annual fixed rate equivalent to
the sum of the "Prime Rate" of Fleet National Bank on the date of such advance,
plus two (2%) percent. The Loan shall be due and payable on January 26, 1998,
unless repaid in full prior to such time. Borrower shall be required to make
mandatory repayments upon the partial or complete collection of any of the
accounts receivable that constitute the Collateral (as defined in the Security
Agreement), and shall deliver to Lender said collected amount as and when
received by it which Lender shall apply to the outstanding balance of the Loan.
The initial advance shall be made in an amount equal to $124,000. Any
subsequent advances shall be made upon evidence satisfactory to Lender of a
corresponding invoice.
The proceeds of the Loan will be used solely for working capital purposes.
The Note shall be secured by a security agreement of even date herewith
granting Lender a security interest in certain accounts receivable of Borrower
(the "Security Agreement").
To induce Lender to enter into this Agreement, Borrower does hereby
covenant and agree to and with Lender that, until payment in full of any and all
indebtedness of Borrower to Lender, whether now existing or hereafter arising,
Borrower shall promptly advise Lender of any material adverse change in
Borrower's condition, financial or otherwise, or of the occurrence of any event
of default by Borrower under any agreement between Borrower and Lender, or of
the occurrence of any event which upon notice or lapse of time or both would
constitute such an event of default.
In each case of happening of any of the following events (each of which is
herein and in the Note sometimes called an "Event of Default"):
(a) any representation or warranty of Borrower made herein, or in any
report, certificate, financial statement or other instrument furnished in
connection with this Agreement, or the borrowing hereunder, shall prove to
be false or misleading in any material respect;
(b) default in the payment of any installment of the principal of, or
interest on, the Note or any other indebtedness of Borrower to Lender when
the same shall become due and payable, whether at the due date thereof or
at a date fixed for prepayment or by acceleration or otherwise; or
(c) default in the due observance or performance of any covenant,
condition or agreement contained herein, in the Note or in the Security
Agreement; or
(d) default with respect to any evidence of indebtedness of Borrower
(other than to Lender), if the effect of such default is to accelerate the
maturity of such indebtedness or to permit the holder thereof to cause such
indebtedness to become due prior to the stated maturity thereof, or if any
indebtedness of Borrower (other than to Lender) is not paid, when due and
payable, whether at the due date thereof or a date fixed for prepayment or
otherwise; or
(e) the occurrence of an "Event of Default" as defined in the Security
Agreement; or
(f) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian or liquidator of it or any of its property,
(ii) admit in writing its inability to pay its debts as they mature, (iii)
make a general assignment for the benefit of creditors, (iv) be adjudicated
a bankrupt or insolvent or be the subject of an order for relief under
Title 11 of the United States Code or (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations
of a petition filed against it in any proceeding under any such law or if
corporate action shall be taken for the purpose of effecting any of the
foregoing; or
(g) an order, judgment or decree shall be entered, without the
application, approval or consent of Borrower by any court of competent
jurisdiction, approving a petition seeking reorganization of Borrower or
appointing a receiver, trustee, custodian or liquidator of Borrower or of
all or a substantial part of the assets of Borrower, and such order,
judgment or decree shall continue unstayed and in effect for any period of
thirty (30) days; or
(h) the occurrence of any attachment of any deposits or other property
of Borrower in the hands or possession of Lender, or the occurrence of any
attachment of any other property of Borrower in an amount exceeding Ten
Thousand Dollars ($10,000) which shall not be discharged within thirty (30)
days of the date of such attachment; or
then and in every such Event of Default and at any time thereafter during the
continuance of such event, the Note and any and all other indebtedness of
Borrower to Lender shall become immediately due and payable, both as to
principal and interest, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, anything contained herein or in
the Note or other evidence of such indebtedness to the contrary notwithstanding.
In case any one or more Events of Default shall occur and be continuing, the
Lender may proceed to protect and enforce its rights by an action at law, suit
in equity or other appropriate proceeding, whether for the specific performance
of any agreement contained in this Agreement, the Security Agreement or the
Note, or for an injunction against a violation of any of the terms hereof or
thereof or in and of the exercise of any power granted hereby or thereby or by
law.
Upon the occurrence of any Event of Default, the rights, powers, privileges
and other remedies available to Lender under this Agreement or at law or in
equity may be exercised by Lender at any time and from time to time, whether or
not the indebtedness evidenced and secured by the Note shall be due and payable,
and whether or not the Lender shall have any foreclosure proceedings or other
action for the enforcement of its rights and remedies under the Note or the
Security Agreement.
All costs and expenses, including reasonable attorneys' fees related to the
negotiation, making or collection of the line of credit, are the responsibility
of Borrower. This Agreement shall be governed by the laws of the State of Rhode
Island.
Please indicate your acceptance of this Agreement by signing below and
returning to us a copy of this letter.
Very truly yours,
------------------------------------
Malcolm G. Chace
Accepted and agreed to this _____ day of December, 1997.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:
----------------------------------
Title:
Exhibit 10.12
SECURED LINE OF CREDIT NOTE
$124,000 December 10, 1997
FOR VALUE RECEIVED, ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware
corporation, with its principal office at 650 Ten Rod Road, North Kingstown,
Rhode Island 02852 ("Borrower"), promises to pay to MALCOLM G. CHACE, with an
office at 731 Hospital Trust Building, Providence, Rhode Island 02903
("Lender"), the maximum principal sum of One Hundred Twenty-Four Thousand
($124,000) Dollars, together with interest in arrears on the unpaid principal
balance from time to time outstanding from the date hereof until the entire
principal amount due hereunder is paid in full at a fixed rate per annum
equivalent to the sum of the "Prime Rate" of Fleet National Bank in effect on
the date of such advance, plus two (2%) percent. Interest shall be calculated on
the basis of a three hundred sixty (360) day year counting the actual number of
days elapsed.
Principal plus all accrued and unpaid interest is due and payable in full
on or before January 26, 1998. All repayments as required hereunder will be
applied first to accrued and unpaid interest hereunder, calculated in arrears,
and then to the principal balance outstanding hereunder.
Payments of both principal and interest as required hereunder shall be made
in lawful money of the United States of America in immediately available funds
at the address set forth above for Lender.
This Note is the "Note" referred to in, made pursuant to the terms of, and
governed by that certain Letter Agreement by and between Lender and Borrower of
even date herewith (hereinafter, as amended or otherwise modified from time to
time, the "Letter Agreement"), which Letter Agreement is hereby incorporated
herein as if set forth at length. This Note is secured, inter alia, by that
certain Security Agreement of even date herewith between Borrower and Lender and
is entitled to the benefits thereof.
Upon the partial or complete collection of any of the Collateral (as
defined in the Security Agreement), Borrower shall deliver to Lender said
collected amount as and when received by Borrower, which Lender shall apply to
the outstanding balance of the Loan (as defined in the Letter Agreement).
If an Event of Default as defined in the Letter Agreement, or the Security
Agreement has occurred and is continuing, the entire unpaid principal balance
hereunder, and all other sums paid by Lender to or on behalf of Borrower
pursuant to the terms of this Note, the Letter Agreement or the Security
Agreement together with unpaid interest thereon, shall at the option of Lender
become immediately due and payable without further notice or demand and Lender
may forthwith exercise the remedies available to Lender at law and in equity as
well as those remedies set forth in this Note, the Letter Agreement or the
Security Agreement and one or more executions may forthwith issue on any
judgment or judgments obtained by virtue thereof; and no failure on the part of
Lender to exercise any of Lender's rights hereunder shall be deemed a waiver of
any such rights or of any default.
Borrower hereby waives presentment for payment, protest and demand, and
notice of protest, demand and/or dishonor and nonpayment of this Note, notice of
any Event of Default under the Security Agreement except as specifically
provided therein, and all other notices or demands otherwise required by law
that Borrower may lawfully waive. Borrower expressly agrees that this Note, or
any payment hereunder, may be extended from time to time, without in any way
affecting the liability of Borrower. No unilateral consent or waiver by Lender
with respect to any action or failure to act which, without consent, would
constitute a breach of any provision of this Note shall be valid and binding
unless in writing and signed by Lender.
The rights and obligations of Borrower and all provisions hereof shall be
governed by and construed in accordance with the laws of the State of Rhode
Island, except to the extent that such laws are superseded by Federal
enactments.
Borrower hereby submits to the jurisdiction of the courts of the State of
Rhode Island and the United States District Court for the District of Rhode
Island, as well as to the jurisdiction of all courts to which an appeal may be
taken or other review sought from the aforesaid courts, for the purpose of any
suit, action or other proceeding arising out of Borrower's obligations under or
with respect to this Note, and expressly waives any and all objections it may
have as to venue in any of such courts. BORROWER AND LENDER EACH HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF
THEM AGAINST THE OTHER ON ANY MATTERS WHATSOEVER (INCLUDING, WITHOUT LIMITATION,
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS NOTE, THE LETTER AGREEMENT, THE SECURITY AGREEMENT OR ANY OTHER
AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN). No party to this Note, including but not
limited to any assignee of or successor to Borrower or Lender, shall seek a jury
trial in any lawsuit, proceeding, counterclaim, or any other litigation
procedure based upon, or arising out of, this Note, the Letter Agreement, the
Security Agreement or any related instruments or the relationship between the
parties. No party will seek to consolidate any such action, in which a jury
trial has been waived, with any other action in which a jury trial cannot be or
has not been waived. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED
BY BORROWER AND LENDER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
All agreements between Borrower and Lender are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to Lender for the use, forbearance or detention of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof, provided, however, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. In this regard, it
is expressly agreed that it is the intent of Borrower and Lender in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the State of Rhode Island from time to time in effect. If, from
any circumstance whatsoever, fulfillment of any provision hereof or of the
Letter Agreement or the Security Agreement at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then the obligation to be fulfilled shall automatically be
reduced to the limit of such validity, and if from any circumstances Lender
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. This provision shall control every other provision of all agreements
between Borrower and Lender.
If this Note shall not be paid when due and shall be placed by the holder
hereof in the hands of any attorney for collection, through legal proceedings or
otherwise, Borrower will pay a reasonable attorney's fee to the holder hereof
together with reasonable costs and expenses of collection.
Borrower shall remain primarily liable on this Note and the Security
Agreement until full payment, unaffected by any agreement or transaction between
Lender and any subsequent borrowers as to payment of principal, interest or
other moneys, by any forbearance or extension of time, guaranty or assumption by
others, or by any other matter, as to all of which notice is hereby waived by
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
duly authorized officer as of the day and year first above written.
WITNESS: ACCESS SOLUTIONS INTERNATIONAL, INC.
By:
----------------------------------
Title:
Exhibit 10.13
December 30, 1997
Access Solutions International, Inc.
650 Ten Rod Road
North Kingstown, Rhode Island 02852
Ladies and Gentlemen:
This letter is written to set forth our agreement whereby MALCOLM G. CHACE
("Lender"), will lend to ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware
corporation ("Borrower"), the maximum principal sum of Two Hundred Thousand
($200,000) Dollars (the "Loan").
The Loan will be evidenced by Borrower's Secured Line of Credit Note (the
"Note"). Each advance will bear interest at the annual fixed rate equivalent to
the sum of the "Prime Rate" of Fleet National Bank on the date of such advance,
plus two (2%) percent. The Loan shall be due and payable on February 17, 1998,
unless repaid in full prior to such time. Borrower shall be required to make
mandatory repayments upon the partial or complete collection of any of the
accounts receivable that constitute the Collateral (as defined in the Security
Agreement), and shall deliver to Lender said collected amount as and when
received by it which Lender shall apply to the outstanding balance of the Loan.
The initial advance shall be made in an amount equal to $50,000. Any
subsequent advances shall be made upon evidence satisfactory to Lender of a
corresponding invoice and such other conditions as Lender may requrie from tiem
to time in Lender's sole discretion.
The proceeds of the Loan will be used solely for working capital purposes.
The Note shall be secured by a security agreement of even date herewith
granting Lender a security interest in certain accounts receivable of Borrower
(the "Security Agreement").
To induce Lender to enter into this Agreement, Borrower does hereby
covenant and agree to and with Lender that, until payment in full of any and all
indebtedness of Borrower to Lender, whether now existing or hereafter arising,
Borrower shall promptly advise Lender of any material adverse change in
Borrower's condition, financial or otherwise, or of the occurrence of any event
of default by Borrower under any agreement between Borrower and Lender, or of
the occurrence of any event which upon notice or lapse of time or both would
constitute such an event of default.
In each case of happening of any of the following events (each of which is
herein and in the Note sometimes called an "Event of Default"):
(a) any representation or warranty of Borrower made herein, or in any
report, certificate, financial statement or other instrument furnished in
connection with this Agreement, or the borrowing hereunder, shall prove to
be false or misleading in any material respect;
(b) default in the payment of any installment of the principal of, or
interest on, the Note or any other indebtedness of Borrower to Lender when
the same shall become due and payable, whether at the due date thereof or
at a date fixed for prepayment or by acceleration or otherwise; or
(c) default in the due observance or performance of any covenant,
condition or agreement contained herein, in the Note or in the Security
Agreement; or
(d) default with respect to any evidence of indebtedness of Borrower
(other than to Lender), if the effect of such default is to accelerate the
maturity of such indebtedness or to permit the holder thereof to cause such
indebtedness to become due prior to the stated maturity thereof, or if any
indebtedness of Borrower (other than to Lender) is not paid, when due and
payable, whether at the due date thereof or a date fixed for prepayment or
otherwise; or
(e) the occurrence of an "Event of Default" as defined in the Security
Agreement; or
(f) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian or liquidator of it or any of its property,
(ii) admit in writing its inability to pay its debts as they mature, (iii)
make a general assignment for the benefit of creditors, (iv) be adjudicated
a bankrupt or insolvent or be the subject of an order for relief under
Title 11 of the United States Code or (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations
of a petition filed against it in any proceeding under any such law or if
corporate action shall be taken for the purpose of effecting any of the
foregoing; or
(g) an order, judgment or decree shall be entered, without the
application, approval or consent of Borrower by any court of competent
jurisdiction, approving a petition seeking reorganization of Borrower or
appointing a receiver, trustee, custodian or liquidator of Borrower or of
all or a substantial part of the assets of Borrower, and such order,
judgment or decree shall continue unstayed and in effect for any period of
thirty (30) days; or
(h) the occurrence of any attachment of any deposits or other property
of Borrower in the hands or possession of Lender, or the occurrence of any
attachment of any other property of Borrower in an amount exceeding Ten
Thousand Dollars ($10,000) which shall not be discharged within thirty (30)
days of the date of such attachment; or
then and in every such Event of Default and at any time thereafter during the
continuance of such event, the Note and any and all other indebtedness of
Borrower to Lender shall become immediately due and payable, both as to
principal and interest, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived, anything contained herein or in
the Note or other evidence of such indebtedness to the contrary notwithstanding.
In case any one or more Events of Default shall occur and be continuing, the
Lender may proceed to protect and enforce its rights by an action at law, suit
in equity or other appropriate proceeding, whether for the specific performance
of any agreement contained in this Agreement, the Security Agreement or the
Note, or for an injunction against a violation of any of the terms hereof or
thereof or in and of the exercise of any power granted hereby or thereby or by
law.
Upon the occurrence of any Event of Default, the rights, powers, privileges
and other remedies available to Lender under this Agreement or at law or in
equity may be exercised by Lender at any time and from time to time, whether or
not the indebtedness evidenced and secured by the Note shall be due and payable,
and whether or not the Lender shall have any foreclosure proceedings or other
action for the enforcement of its rights and remedies under the Note or the
Security Agreement.
All costs and expenses, including reasonable attorneys' fees related to the
negotiation, making or collection of the line of credit, are the responsibility
of Borrower. This Agreement shall be governed by the laws of the State of Rhode
Island.
Please indicate your acceptance of this Agreement by signing below and
returning to us a copy of this letter.
Very truly yours,
------------------------------------
Malcolm G. Chace
Accepted and agreed to this _____ day of December, 1997.
ACCESS SOLUTIONS INTERNATIONAL, INC.
By:
----------------------------------
Title:
Exhibit 10.13
SECURED LINE OF CREDIT NOTE
$200,000 December 30, 1997
FOR VALUE RECEIVED, ACCESS SOLUTIONS INTERNATIONAL, INC., a Delaware
corporation, with its principal office at 650 Ten Rod Road, North Kingstown,
Rhode Island 02852 ("Borrower"), promises to pay to MALCOLM G. CHACE, with an
office at 731 Hospital Trust Building, Providence, Rhode Island 02903
("Lender"), the maximum principal sum of Two Hundred Thousand ($200,000)
Dollars, together with interest in arrears on the unpaid principal balance from
time to time outstanding from the date hereof until the entire principal amount
due hereunder is paid in full at a fixed rate per annum equivalent to the sum of
the "Prime Rate" of Fleet National Bank in effect on the date of such advance,
plus two (2%) percent. Interest shall be calculated on the basis of a three
hundred sixty (360) day year counting the actual number of days elapsed.
Principal plus all accrued and unpaid interest is due and payable in full
on or before February 17, 1998. All repayments as required hereunder will be
applied first to accrued and unpaid interest hereunder, calculated in arrears,
and then to the principal balance outstanding hereunder.
Payments of both principal and interest as required hereunder shall be made
in lawful money of the United States of America in immediately available funds
at the address set forth above for Lender.
This Note is the "Note" referred to in, made pursuant to the terms of, and
governed by that certain Letter Agreement by and between Lender and Borrower of
even date herewith (hereinafter, as amended or otherwise modified from time to
time, the "Letter Agreement"), which Letter Agreement is hereby incorporated
herein as if set forth at length. This Note is secured, inter alia, by that
certain Security Agreement of even date herewith between Borrower and Lender and
is entitled to the benefits thereof.
Upon the partial or complete collection of any of the Collateral (as
defined in the Security Agreement), Borrower shall deliver to Lender said
collected amount as and when received by Borrower, which Lender shall apply to
the outstanding balance of the Loan (as defined in the Letter Agreement).
If an Event of Default as defined in the Letter Agreement, or the Security
Agreement has occurred and is continuing, the entire unpaid principal balance
hereunder, and all other sums paid by Lender to or on behalf of Borrower
pursuant to the terms of this Note, the Letter Agreement or the Security
Agreement together with unpaid interest thereon, shall at the option of Lender
become immediately due and payable without further notice or demand and Lender
may forthwith exercise the remedies available to Lender at law and in equity as
well as those remedies set forth in this Note, the Letter Agreement or the
Security Agreement and one or more executions may forthwith issue on any
judgment or judgments obtained by virtue thereof; and no failure on the part of
Lender to exercise any of Lender's rights hereunder shall be deemed a waiver of
any such rights or of any default.
Borrower hereby waives presentment for payment, protest and demand, and
notice of protest, demand and/or dishonor and nonpayment of this Note, notice of
any Event of Default under the Security Agreement except as specifically
provided therein, and all other notices or demands otherwise required by law
that Borrower may lawfully waive. Borrower expressly agrees that this Note, or
any payment hereunder, may be extended from time to time, without in any way
affecting the liability of Borrower. No unilateral consent or waiver by Lender
with respect to any action or failure to act which, without consent, would
constitute a breach of any provision of this Note shall be valid and binding
unless in writing and signed by Lender.
The rights and obligations of Borrower and all provisions hereof shall be
governed by and construed in accordance with the laws of the State of Rhode
Island, except to the extent that such laws are superseded by Federal
enactments.
Borrower hereby submits to the jurisdiction of the courts of the State of
Rhode Island and the United States District Court for the District of Rhode
Island, as well as to the jurisdiction of all courts to which an appeal may be
taken or other review sought from the aforesaid courts, for the purpose of any
suit, action or other proceeding arising out of Borrower's obligations under or
with respect to this Note, and expressly waives any and all objections it may
have as to venue in any of such courts. BORROWER AND LENDER EACH HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF
THEM AGAINST THE OTHER ON ANY MATTERS WHATSOEVER (INCLUDING, WITHOUT LIMITATION,
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS NOTE, THE LETTER AGREEMENT, THE SECURITY AGREEMENT OR ANY OTHER
AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN). No party to this Note, including but not
limited to any assignee of or successor to Borrower or Lender, shall seek a jury
trial in any lawsuit, proceeding, counterclaim, or any other litigation
procedure based upon, or arising out of, this Note, the Letter Agreement, the
Security Agreement or any related instruments or the relationship between the
parties. No party will seek to consolidate any such action, in which a jury
trial has been waived, with any other action in which a jury trial cannot be or
has not been waived. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED
BY BORROWER AND LENDER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
All agreements between Borrower and Lender are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to Lender for the use, forbearance or detention of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof, provided, however, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. In this regard, it
is expressly agreed that it is the intent of Borrower and Lender in the
execution, delivery and acceptance of this Note to contract in strict compliance
with the laws of the State of Rhode Island from time to time in effect. If, from
any circumstance whatsoever, fulfillment of any provision hereof or of the
Letter Agreement or the Security Agreement at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then the obligation to be fulfilled shall automatically be
reduced to the limit of such validity, and if from any circumstances Lender
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. This provision shall control every other provision of all agreements
between Borrower and Lender.
If this Note shall not be paid when due and shall be placed by the holder
hereof in the hands of any attorney for collection, through legal proceedings or
otherwise, Borrower will pay a reasonable attorney's fee to the holder hereof
together with reasonable costs and expenses of collection.
Borrower shall remain primarily liable on this Note and the Security
Agreement until full payment, unaffected by any agreement or transaction between
Lender and any subsequent borrowers as to payment of principal, interest or
other moneys, by any forbearance or extension of time, guaranty or assumption by
others, or by any other matter, as to all of which notice is hereby waived by
Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its
duly authorized officer as of the day and year first above written.
WITNESS: ACCESS SOLUTIONS INTERNATIONAL, INC.
By:
----------------------------------
Title:
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
January 9, 1998
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
January 9, 1998
