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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
to
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-11933
AXCESS INC.
(formerly LASERTECHNICS, INC.)
(Exact name of Small Business Issuer in Its charter)
DELAWARE 85-0294536
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3208 COMMANDER DRIVE, CARROLLTON, TEXAS 75006
(Address of principal executive offices) (Zip Code)
(972) 407-6080
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE 46,634,964
(Title of Class) (Number of Shares Outstanding
as of March 20, 1998)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended December 31, 1997 were
$11,118,339. There were 2,249,842 shares of non-voting Common Stock outstanding
as of March 20, 1998.
The aggregate market value of voting and non-voting Common Stock held
by nonaffiliates of the Issuer is approximately $9,367,409. This amount was
calculated by reducing the total number of shares of the Issuer's Common Stock
outstanding by the total number of shares of Common Stock held by officers,
directors and stockholders owning in excess of 5% of the Issuer's Common Stock,
and multiplying the remainder by the average of the bid and asked price for the
Issuer's Common Stock on March 20, 1998, as reported on the over-the-counter
Nasdaq SmallCap Market. The information provided shall in no way be construed
as an admission that any officer, director or more than 5% stockholder of the
Issuer may be deemed an affiliate of the Issuer or that such person is the
beneficial owner of shares reported as being held by such person, and any such
inference is hereby disclaimed.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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1997 ANNUAL REPORT ON FORM 10-KSB
Table of Contents
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PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART II
ITEM 5. MARKET FOR LASERTECHNICS COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 13. EXHIBITS AND REPORTS ON FORM 8K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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PART I
ITEM 1. BUSINESS.
THE COMPANY
AXCESS Inc., a Delaware corporation ("AXCESS" or the "Company"), was formed in
October 1981. In early 1995, the Company became a holding company with two
separate operating units, Sandia Imaging Systems Corporation ("Sandia") and
Lasertechnics Marking Corporation ("LMC"), both Delaware corporations. With the
application of its personalized color ID card printing and production
experience, Sandia is developing and marketing secure access control products
that will provide organizations with a low-cost method for controlling access to
facilities. See "Business -- Access Control Business." LMC designs,
manufactures and sells high speed date marking equipment used by manufacturers
on various food products and other date sensitive consumer goods and industrial
products to facilitate inventory control. See "Business -- Marking Business."
Each of Sandia and LMC is run by its own management team, produces different
products and serves different markets. References to AXCESS or the Company mean
the Company and its subsidiaries taken as a whole, unless the context requires
otherwise.
The Company's principal offices are located at 3208 Commander Drive,
Carrollton, Texas 75006, and its telephone number is (972) 407-6080.
PRODUCT LINES AND SERVICES
ACCESS CONTROL BUSINESS
Sandia, a 96% owned subsidiary of the Company, operates and manages its access
control business through two divisions: imaging and technology. The imaging
division is principally engaged in the businesses of distributing and reselling
high-end and mid-range dye-sublimation card printers and printer consumables,
as well as production of customized, high quality, fraud resistant,
personalized color ID cards. Sandia is leveraging this experience to design
corporate access control systems based on card-mounted biometric and other
verification for corporate security applications. See "Business -- Imaging
Division." The technology division is principally engaged in the development
and commercialization of imaging component products such as the new document
reader, digital camera and dithering technology (the "XLV Technology") the
Company is in the process of acquiring from XL Vision, Inc., a Safeguard
Scientifics partnership company ("XLV") for use in card readers and other
digital image-acquisition applications. In January 1998, the Company and XLV
entered into the Intellectual Property Transfer Agreement (the "Technology
Development Agreement") which provides the Company with options to acquire the
XLV Technology from XLV. See "Business -- Technology Division." The
acquisition of the XLV Technology is subject to certain conditions, including
(1) the approval of a reverse stock split proposal by the Company's
stockholders and (2) the receipt of any other stockholder approval required by
law or by the rules of Nasdaq. See "1998 Changes in Capital Stock."
Imaging Division
Sandia's imaging business accounted for approximately 39% of the Company's 1997
consolidated sales, down from 47% in 1996 and 23% in 1995. Sandia sells its
goods and services in several foreign countries to organizations
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such as national and local government agencies. Sandia's plastic card printers
accommodate any type of PVC-based card meeting the International Standards
Organization ("ISO") plastic card requirements, including plain,
magnetic-striped, "smart" (i.e., with on-card microprocessors) and optical
storage cards. These assorted plastic cards are used to issue, among other
things, drivers' licenses, border crossing cards, identification cards and
health care cards.
In December 1997, the Company launched its IDCard Services program. IDCard
Services provides an outsourcing option to companies, associations and
universities that do not want to make a capital investment in a printer. It is
a turnkey service providing color, personalized ID cards with edge-to-edge
thermal printing and encoding. IDCard Services employs the latest complex
security technologies such as hologram, optical card chip and magnetic stripe
encoding. In addition, IDCard Services is marketing its cards as keepsakes to
the retail marketplace.
Technology Division
The technology division is attempting to develop technology for use with access
control products marketed by the imaging division and to other imaging reader
integrators. To date, the Company has not recognized any sales revenue from
its operation of the technology division.
Dataglyphs(TM). Sandia is designing imaging component products which embed in
a card database symbology originally developed by Xerox Corporation ("Xerox").
This information based card system is being marketed by Sandia under the trade
name Dataglyphs(TM). In 1995, Xerox granted Sandia the sole worldwide right
to sell DataGlyphs(TM) for use in the secure access industry. A plastic card
utilizing DataGlyphs(TM) costs no more than a magnetic-striped card but offers
40 times more data storage (which is storage comparable to a computer chip
card). The Technology Division intends to develop a customized DataGlyphs(TM)
reader, to serve as the reading device for DataGlyphs(TM) applications. The
Company and Xerox recently resolved a dispute concerning the applicability of
the products and services provided under the Dataglyphs(TM) license and the
payments due Xerox under the license. See "Legal Proceedings."
The Dataglyph(TM) Verification System. Sandia is pairing Glyphit(TM) software
and glyph readers with third party biometric verification software systems, to
develop a total card security system for use in a variety of applications.
Sandia has begun marketing these systems directly to end-users and through
re-seller arrangements under the name The Dataglyphs(TM) verification system.
The combination of The Dataglyph(TM) verification system and Sandia's plastic
card printer family offers an integrated solution for the printing, encoding,
securing and verifying needs of numerous plastic card identification
applications.
The XLV Technology. Sandia recently entered into the Technology Development
Agreement with XLV for the development and commercialization of the XLV
Technology, which consists of both hardware and software technology. The
Company believes that its secure card industry experience and the XLV
Technology will enable it to develop and market a low cost fraud resistant
access control system. This system would combine the portable card embedded
database with nontransferable personal information, such as finger prints, to
permit access only by the authorized card holder.
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Under the terms of the Technology Development Agreement, XLV will continue to
devote personnel, services and project management for the enhancement and
commercialization of the XLV Technology. The Company will fund the enhancement
of the XLV Technology. In January 1998, the Company paid XLV $500,000 and will
make additional payments to XLV in the aggregate amount of $4.1 million for
further development expenses, payable in several installments over the
development period. Such funds will be used to fund technology enhancement
activities by XLV with respect to the XLV Technology, with the goal of making
such technology market-ready, as determined by mutual agreement of the Company
and XLV. Of the $4.1 million earmarked for development expenses, the Company
may, at its option, accelerate funding the development of the XLV Technology.
All payments made prior to the development of a working model, including the
costs of acquiring the options under the Technology Development Agreement, will
be expensed as research and development costs.
The Company does not currently have any binding commitment in place to finance
such development expenses, but intends to seek the necessary funding through
the issuance of additional debt or equity securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation --
Liquidity and Capital Resources." The Company has the option to cease funding
the development of the XLV Technology at any time without further liability in
its reasonable business judgment or for the failure of XLV to meet the
development schedule. If, however, the Company terminates such funding, the
License Option, the Exclusive License Option and the Assignment Option (each
described below), to the extent not previously exercised, will terminate
automatically. See "Acquisition of XLV Technology" below. All technology and
intellectual property rights developed pursuant to these joint efforts will
initially be the property of XLV, subject to the License Option, the Exclusive
License Option and the Assignment Option.
Acquisition of XLV Technology. Subject to the Company's receipt of stockholder
approval relating to the issuance by the Company of the maximum number of shares
of its common stock, $0.01 par value (the "Common Stock") to XLV under the terms
of the Technology Development Agreement, the Company will have the option (the
"License Option") for six months commencing 30 days after the Company's 1998
annual meeting of stockholders, to acquire a non-exclusive perpetual license to
the XLV Technology in exchange for 200,000 shares of Common Stock (as in effect
following the Reverse Stock Split Proposal). See "Proposed 1998 Changes in
Capital Stock." If the Company exercises the License Option, then, for 90 days
beginning on the date on which payment of all development funds contemplated by
the Technology Development Agreement has been made in full, the Company will
have the further option, in exchange for an additional 300,000 post-reverse
split shares of Common Stock, to acquire an exclusive perpetual license to the
XLV Technology (the "Exclusive License Option"). If the Company exercises the
Exclusive License Option, then, for 90 days beginning on the earlier of April 1,
1999, and the date on which payment of all development funds has been made in
full by the Company, the Company will have the further option to acquire
outright ownership of the XLV Technology in exchange for an additional 300,000
post-split shares of Common Stock (the "Assignment Option"). If the Company
exercises the License Option, XLV will indemnify the Company against any claims
of intellectual property infringement by a third party relating to the XLV
Technology. If the Company exercises the Assignment Option, it will grant to XLV
an exclusive license to the XLV Technology within a specified field of use.
Under the terms of the Technology Development Agreement, neither the Exclusive
License Option nor the Assignment Option may be exercised by the Company until
the Company has received stockholder approval
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of the issuance by the Company of the maximum number of shares of Common Stock
issuable under the Technology Development Agreement. Accordingly, the Company
will seek stockholder approval of the issuance by the Company of the maximum
number of shares of Common Stock issuable under the Technology Development
Agreement at its 1998 annual meeting of stockholders, which is currently
expected to be held in June 1998. To the extent that the Technology
Development Agreement may result in the issuance of shares of Common Stock
constituting in the aggregate more than 20% of the number of shares of Common
Stock outstanding prior to such issuance, the Technology Development Agreement
may require stockholder approval under the Nasdaq Listing Requirements that
went into effect on February 23, 1998 (the "New Nasdaq Listing Requirements").
Spot/Mag Provision. XLV and Spot/Mag, Inc., a corporation organized under the
laws of Taiwan ("Spot/Mag"), are currently engaged in discussions regarding the
possibility of entering into an agreement (the "Spot/Mag Agreement") under which
Spot/Mag would receive certain intellectual property rights relating to the XLV
Technology, for certain limited uses, in exchange for an obligation to pay
royalties and other remuneration to XLV. If the Spot/Mag Agreement is executed
within three years after the effective date of the Technology Development
Agreement, and if the Company exercises the Assignment Option, XLV will assign
its rights and obligations under the Spot/Mag Agreement to the Company,
including the right to receive all royalties and amounts payable under the
Spot/Mag Agreement. In consideration for the assignment of the Spot/Mag
Agreement, the Company has agreed to pay to XLV on a quarterly basis one share
of Common Stock for each ten dollars ($10.00) of royalty actually received by
the Company from Spot/Mag under the Spot Mag Agreement, up to a maximum of
200,000 shares of Common Stock (in each case, based on the Common Stock
outstanding after the Reverse Stock Split). See "1998 Changes in Capital
Stock." Thereafter, any additional royalties would inure solely to the benefit
of the Company.
MARKING BUSINESS
Laser Markers. LMC designs, manufactures and markets laser marking systems
which are used by manufacturers for the in- plant placement of lot numbers,
freshness dates and other information on consumer and industrial products and
packaging materials. LMC's marking business accounted for 61% of the Company's
1997 consolidated sales, up from 53% in 1996 and 77% in 1995. Since inception,
LMC has provided CO2 (carbon dioxide) gas laser markers that are easily
integrated into a wide range of sophisticated and demanding high-speed product
packaging facilities. To that end, LMC has created the Blazer 6000CE(TM), a
water-cooled, CO2 pulsed, gas laser system used in the on-line marking of
industrial and consumer products. In the last quarter of 1995, after more than
one year of development, LMC introduced a test version of its BlazerJet(TM)
dot-matrix coder at a major packaging industry show. See "Product Development"
below. As compared to the Blazer 6000CE(TM), the BlazerJet(TM) product offers a
higher degree of programmability to meet a greater number of packaging needs
and allows a larger number of codes to be stored and called up for use with a
few simple keystrokes. The BlazerJet(TM) system is transportable among
packaging lines, allows for maximum code flexibility and provides marking
quality and operating performance superior to inkjet markers of similar
capacity. LMC shipped fully functional BlazerJet(TM) systems to customers
throughout the second half of 1997.
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LMC's marking systems typically solve problems related to four main product
identification needs:
Perishables. Perishables such as beverage, food and dairy products
require a variety of date information to provide accurate product
freshness information. These products are manufactured in extremely
clean facilities and are characterized by extremes in temperature and
stringent wash-down requirements. LMC's products can tolerate a wide
range of temperature conditions. Further, they are enclosed in a
rugged stainless steel enclosure with smooth, easily-cleaned surfaces,
allowing them to handle the harshest demands of wash-down routines.
Date information is dependably marked using either the Blazer
6000CE(TM) or the BlazerJet(TM).
Traceability. Product traceability concerns, especially in the
medical and pharmaceutical industries, require variable batch
information to meet ever-increasing government regulations and enhance
a manufacturer's ability to limit and defend against liability in
consumer product liability claims. In such packaging environments,
reliability of the marker products is especially important. Product
identification marking in the form of batch numbers, serialized part
numbers, logos or corporate names are easily handled by LMC's
products. In addition, laser marks are permanent because they burn
the mark into a thin surface layer of the product or package.
High Throughput. High speed packaging lines cannot use the slower
contact methods for identifying products. LMC's Blazer 6000CE(TM) can
operate at speeds exceeding 1,800 marks per minute and easily provide
legible information on fragile and/or thin materials with irregular
surfaces or limited space. The Blazer 6000CE(TM) marks so fast (about
one-millionth of a second per mark) that it operates at speeds
required by high speed packaging equipment manufacturers with whom LMC
has integrated the Blazer system. High speed packaging lines are
accommodated by the computer-based controller of the Blazer 6000CE(TM)
that interfaces with packaging line control equipment. While current
models of the BlazerJet(TM) are better suited for more moderate speed
production lines, the new BlazerJet(TM) marker system is expected to
operate at speeds comparable to that needed in most Blazer 6000CE(TM)
applications.
Environmental Concerns. Packagers seeking a product identification
system that eliminates the problems inherent in the use of expensive
and hazardous inks and solvents are increasingly using lasers. The
solvents used in many industrial inkjet coders are potentially harmful
to the environment, as well as to the health of personnel who handle
them. In addition, many inks used in marking contain solvents which
are classified as hazardous substances by the Environmental Protection
Agency (the "EPA") and, as such, are becoming more and more expensive
to handle as government regulations become more stringent. LMC's
products do not use hazardous substances as they consume only
electricity, water and non-toxic C2 laser gas. Thus the Blazer
6000CE(TM) and BlazerJet(TM) offer a safe, environmentally clean and
highly reliable product marking alternative to inkjet marking.
Dependence on Sales to Major Customer. LMC's largest customer is
Anheuser-Busch. LMC recorded sales of system upgrades, spare parts and
training to Anheuser-Busch in the amount of $1,139,187, $3,153,000 and
$2,171,000 in 1997, 1996 and 1995, respectively. Sales to Anheuser-Busch
accounted for 17%, 34% and 21% of LMC's total sales in 1997, 1996 and 1995,
respectively. Although this arrangement may be terminated by either party at
any time, the Company believes it has a good relationship with Anheuser-Busch
and continues
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to enhance this relationship. The loss of this customer would have a material
adverse effect on the Company's results of operations.
Product Development. In November 1994, LMC introduced a prototype of its new
BlazerJet(TM) marking system utilizing technology which was previously licensed
from United Technology Optical Systems and is currently licensed, on a non-
exclusive basis, from DeMaria ElectroOptic Systems. The Company's new laser
marker emulates the action of an inkjet system by forming dot matrix characters
to mark a moving product, such as a consumer good moving along a production
line, and is the first single-laser system of this type to bring the laser tube
to the mark point. LMC shipped fully functional BlazerJet(TM) systems to
customers in the second half of 1997.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures by the Company were $2,572,848,
$2,848,767 and $3,040,830 for the years 1997, 1996 and 1995 respectively. The
research and development expenses were incurred primarily for the development
of new manufacturing systems, DataGlyphs(TM) software, hardware and software
upgrades to Sandia's high speed plastic card printers and additional
enhancements to LMC's Blazerjet(TM) dot-matrix coder. The access control and
laser marking industries are undergoing, and are expected to continue to
undergo, rapid and significant technological change. There can be no assurance
that the Company's research and development programs will enable it to compete
effectively in the future. The development by others of new or improved
processes or products may make the Company's research and its products
obsolete.
COMPETITION
Access Control Business. Sandia competes with a variety of manufacturers and
resellers of plastic card printers that incorporate a non-proprietary dye
sublimation process as well as with hardware and software companies that have
similar printer and software technologies. DataGlyphs(TM) products compete
with alternative data encryption technologies used with plastic cards, such as
bar codes, magnetic stripes, optical data and smart chips. Sandia competes in
the data encryption and plastic card printer market through the development of
relationships with corporations that are prime contractors and technology
providers in the plastic card printing and secure card markets.
Laser Marking. The Company's Marking business faces competition not only from
other laser marking companies, but from companies using other marking
technologies in widespread use such as inkjet (currently the dominant
technology in the packaging industry), embossing and hot stamping. LMC
competes in the product marking market by marketing directly to end users
through full service distributors and independent manufacturer representatives.
The access control and laser marking industries are highly competitive in all
aspects, including research and development and marketing, and competition is
expected to intensify in both industries as technological advances are made and
become more widely known.
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The Company believes that the major competitive advantages in both of its
businesses include customer service, price, technical support, speed and
reliability. Because of the increase in competition, no assurance can be given
that the Company will compete successfully with respect to the factors
discussed above. Also, the Company would be adversely affected if its
competitors were to offer their products and systems at significantly lower
prices. Many of the Company's competitors have considerably greater financial,
technical and marketing resources than the Company.
MANUFACTURING AND SUPPLIERS
Approximately one-third of LMC's employees are engaged in manufacturing
activities. Sandia out-sources its manufacturing and does not have any
manufacturing employees.
Both companies depend upon a number of outside suppliers for components for
their products. Sandia arranges for the manufacture of all its plastic card
printers by a single source, Polyprint S.A. Generally, these supply
arrangements may be terminated by either party at any time, but the Company has
entered into them with the expectation that these arrangements will lead to
long-term relationships or contracts with those suppliers. Although to date
the Company has generally been able to obtain adequate supplies of these
products, the inability of the Company in the future to obtain sufficient sole
or limited source products, or to develop alternative sources, could result in
delays in product introductions or shipments and could have material adverse
effects on the Company's results of operations.
MARKETING
Access Control Business. Marketing and sales and service functions of the
access control business are performed directly by Sandia as well as through the
use of Distributors, Value Added Resellers ("VARs") and systems integrators.
Sandia has created strategic product marketing alliances with several system
integrators and technology companies in the secure card market. Because
Sandia's high speed printer systems can support edge-to-edge color printing and
data encoding requirements of any card-mounted, digitized security technology,
the Company believes Sandia's products represent the most complete and
cost-effective alternative in the high volume plastic card printing market.
Laser Marking. LMC derives the major portion of its revenues from the sale of
laser marking systems and related spare parts. LMC currently markets and sells
its products in the United States, through independent sales representatives
who are paid on a commission basis. Sales in the rest of the Americas, Western
Europe and the Pacific Rim are made through full service distributors who have
OEM pricing arrangements. LMC uses demonstrations at trade shows and
conventions, direct mailings of sales brochures and advertisements in trade
journals to advertise its products.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company relies on a combination of patents, technology licenses, trade
secrets and other intellectual property rights, nondisclosure agreements and
other protective measures to preserve its rights pertaining to its products.
The Company is licensed under certain patents related to the lasers used in its
markers and owns
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three patents, which have a broad range of medical and industrial laser marking
applications. These patents expire at various dates through 2005. The Company
also owns and has the worldwide distribution rights to three French patents
covering the mechanical parts and assembly of Sandia's plastic card printer
family of dye sublimation, photographically- customized identification/security
card printers. The Company's rights under such patents do not preclude the
manufacture of competitive products by others. However, pursuant to its
license agreement with Xerox, the Company does have sole rights to the
DataGlyphs(TM) technology for use with security and identification media. See
"Legal Proceedings."
The Company has registered or is in the process of registering the following
trade and service marks: "AXCESS Inc. (logo) "(TM), "The Clean Ones"(TM),
"Inkless Inkjet"(TM), Blazer 6000CE(TM) and "BlazerJet"(TM).
Much of the Company's ability to compete in the laser marking and access
control industries depends on trade secrets, know-how and proprietary technical
knowledge that is unprotected by patents. Although the Company continues to
implement protective measures and intends to defend its proprietary rights
vigorously, there can be no assurance that these efforts will be successful.
Such protections may not preclude competitors from developing products similar
to the Company's. In addition, the laws of certain foreign countries do not
protect intellectual property rights to the same extent as do the laws of the
United States. There can also be no assurance that third parties will not
assert intellectual property infringement claims against the Company. Any such
infringement claim could result in protracted and costly litigation and could
have a material adverse effect on the Company's results of operations
regardless of its outcome.
EMPLOYEES
As of December 31, 1997, the Company employed 82 people. Of this total, Sandia
employed 37, Sandia-Europe employed 11, LMC employed 32 and the holding company
employed 2. Because of the specialized nature of its businesses, the Company is
dependent upon the efforts of its current officers, consultants, and engineers
and upon its ability to attract and retain technologically qualified personnel,
particularly engineers and software designers highly qualified in the areas of
access control and laser technology. There is intense competition for qualified
personnel in the access control and marking industries, including competition
from companies with substantially greater resources than AXCESS. Although the
Company has been successful to date in recruiting adequate numbers of qualified
personnel, there is no assurance that it will be successful in the future in
recruiting or retaining personnel of the requisite scientific caliber or in the
requisite numbers to enable the Company to compete effectively.
GOVERNMENT REGULATION
All laser manufacturers in the United States, including LMC are subject to the
Laser Radiation Safety Regulations of the Center for Devices and Radiological
Health ("CDRH") of the United States Food and Drug Administration.
As a company with international sales, AXCESS is subject to the federal Export
Administrative Regulations, which govern exports from the United States of
non-military goods, technology, software and technical services. The
regulations prohibit, or require prior approval for, exports of certain items
depending upon the characteristics of the item to be exported, the country of
destination, the ultimate end-use and ultimate end-user of the export. AXCESS'
products are not currently considered sensitive for export control purposes and
may be exported to almost all locations without prior government approval. It
should be noted, however, that the export controls applicable to a particular
item can be changed without prior notice, subject only to public notification in
the Federal Register. In recent years, AXCESS' products have been subjected to
several such changes.
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AXCESS is also subject to the regulations promulgated by the foreign
governments in the countries in which it sells products and provide services.
These foreign regulations vary from country to country and may be changed
without prior notice at any time.
These regulations have not had, nor are they expected to have, a material
effect on the Company's financial condition, results of operations or
competitive position.
ENVIRONMENTAL FACTORS
There has been, and it is anticipated that there will continue to be, no
material effect upon the capital expenditures, earnings, or competitive
position of Sandia or LMC due to compliance with existing provisions of
federal, state and local laws regulating the discharge of material into, or
otherwise relating to the protection of, the environment.
YEAR 2000 COMPLIANCE
The Company has assessed all of its major software applications and determined
that such applications are Year 2000 compliant in all material respects.
Although the Company may incur some expenses in connection with making certain
minor modifications to its software applications to make them Year 2000
compliant, in the opinion of management, any such expenses related to any Year
2000 issues are not expected to have a material adverse effect on the Company's
business, operations or financial condition.
1998 CHANGES IN CAPITAL STOCK
At a special meeting of the stockholders of AXCESS held on March 31, 1998,
which, with respect to item (b) below, was adjourned to April 8, 1998 (the
"Special Meeting"), the stockholders of the Company approved the following three
proposals to amend the Company's Certificate of Incorporation: (a) a proposal
to affect a one-for-twenty reverse stock split of the outstanding Common Stock,
Non- Voting Common Stock, and Series A, B and C Convertible Preferred Stock (the
"Reverse Stock Split Proposal"); (b) a proposal to reduce the number of
authorized shares of the Company's Common Stock; and (c) a proposal to change
the Company's name to AXCESS Inc.
The primary purpose of the Reverse Stock Split Proposal was to combine the
outstanding shares of Common Stock so that the Common Stock outstanding after
giving effect to the Reverse Stock Split Proposal would trade at a
significantly higher price per share than the Common Stock outstanding before
giving effect to the Reverse Stock Split Proposal. During 1997, the closing
bid price for the Common Stock on the SmallCap tier of The Nasdaq Stock Market,
Inc. (the "Nasdaq SmallCap Market") ranged from $1.34 to $0.22 per share. The
closing bid price for the Common Stock on March 20, 1998, was $0.22 per share.
The market price of the Common Stock was, prior to the approval of the Reverse
Stock Split Proposal, below the minimum bid price of $1.00 per share required
for continued inclusion of the Common Stock on the Nasdaq SmallCap Market
pursuant to the New Nasdaq Listing Requirements. See "Cautionary
Statements--Nasdaq Listing." After giving effect to the Reverse Stock Split
Proposal, the closing bid price for the Common Stock on April 20, 1998, was
$4.69 per share, which is in excess of the minimum bid price of $1.00 per share
established by the New Nasdaq Listing Requirements.
A secondary purpose of the Reverse Stock Split Proposal was to increase the
number of authorized but unissued shares of Common Stock. Prior to the
approval of the Reverse Stock Split Proposal, the Company did not have a
sufficient number of authorized but unissued shares of Common Stock to effect
the conversion, exercise or exchange of all outstanding securities of the
Company that by their terms are convertible into, or exercisable or
exchangeable for, shares of Common
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<PAGE> 12
Stock. The lack of available shares would have prevented the Company from
consummating any of the transactions contemplated by the Technology Development
Agreement. Unless otherwise indicated, all share and per share amounts are as
of December 31, 1997, and do not take into account the adoption of the Reverse
Stock Split Proposal.
The purpose of the authorized share proposal was to decrease the number of
authorized shares of Common Stock following effectiveness of the Reverse Stock
Split Proposal, so that the number of authorized would but unissued shares of
Common Stock following the Reverse Stock Split Proposal would bear a more
appropriate relation to the total number of shares of Common Stock then
authorized.
Finally, the purpose of the name change proposal was to change the corporate
name of the Company to better reflect the current primary business focus of the
Company.
CAUTIONARY STATEMENTS
Except for the historical information contained herein, this Report includes
"forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Although
the Company believes that the expectations reflected in such forward looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Certain important factors that could cause actual results
to differ materially from the Company's expectations ("Cautionary Statements")
are disclosed below and qualify the forward looking statements included in this
Report. All subsequent written and oral forward looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
ACCUMULATED LOSSES
From its incorporation in 1982 through December 31, 1997, the Company has an
accumulated loss of approximately $66,700,000 and has been profitable in only
one fiscal year during that time. There can be no assurance that the Company
will generate sufficient revenues to achieve profitability in the future.
AUDITORS' REPORT
The Company's auditors have included an explanatory paragraph in their audit
opinion with respect to the Company's consolidated financial statements related
to a significant uncertainty with respect to the Company's financial position
at December 31, 1997, which states that the Company's recurring losses from
operations and resulting continued dependence on access to external financing
raise substantial doubts about its ability to continue as a going concern. In
October 1995, March 1996, and December 1997, the Company arranged an aggregate
of $12,500,000 in additional financing. In addition, in July 1996, May 1997
and December 1997, the Company completed a private placement of convertible
preferred stock for $8,350,000, $500,000 and $7,000,000. respectively. As a
result, there can be no assurance that the Company's future financial
statements will not include a similar explanatory paragraph if the Company is
unable to raise sufficient funds either through financing or from operations to
cover the cost of its operations. The factors leading to and the
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<PAGE> 13
existence of the explanatory paragraph may adversely affect the Company's
relationship with customers and suppliers and have an adverse effect on its
ability to obtain financing.
The Company is currently in discussions with a number of existing and potential
corporate, strategic and institutional investors. The Company's actual funding
needs will depend upon numerous factors, however, including actual expenditures
and revenues generated from its operations compared to its business plans. The
Company's actual funding needs will also depend on the successful development
of the new products contemplated within the XLV Technology Acquisition and
other unanticipated expenditures, none of which can be predicted with
certainty. There can be no assurance, however, that the Company will acquire
the additional funding it needs to fully pursue its business objectives.
SMALL TRADING VOLUME AND VOLATILITY OF STOCK PRICE
The weekly trading volume of the Company's Common Stock in the over-the-counter
market has varied from several thousand shares to 3 and 4 million shares, which
may tend to increase the volatility of the price. Since January 1992, the
closing bid price of Common Stock in the over-the-counter market has varied
from a low of $.22 to a high of $4.07 per share. There can be no assurance
that the price volatility will not continue in the future.
NASDAQ LISTING
The Company's Common Stock is listed on the Nasdaq SmallCap Market, which
requires maintenance of certain quantitative and other standards for continual
listing thereon. In its quarterly report on Form 10-QSB for the fiscal quarter
ended September 30, 1997, the Company reported total stockholders' equity of
approximately $1.3 million, down from approximately $5.3 million at June 30,
1997, reflecting the Company's consolidated net loss applicable to common stock
for the three month period ending September 30, 1997 of approximately $4.7
million, partially offset by conversions into Common Stock of outstanding
convertible notes. On November 17, 1997, Nasdaq advised the Company that the
Company was not in compliance with the listing requirements of the Nasdaq
SmallCap Market, then in effect (the "Old Nasdaq Listing Requirements") which
required a minimum bid price of $1.00 per share or, as an alternative if the
bid price is less than $1.00, maintenance of capital and surplus of $2,000,000
and a public float of $1,000,000. The Nasdaq's letter stated that no delisting
action with respect to the bid price deficiency would be initiated at that time
and that the Company would be provided 90
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<PAGE> 14
calendar days in which to regain compliance with either the minimum bid price
or the alternative stockholders' equity/ public float requirement.
The Company believes that it is currently in compliance with the stockholders'
equity and public float provisions of the Old Nasdaq Listing Requirements.
However, on August 22, 1997, the Securities and Exchange Commission
("Commission") approved the New Nasdaq Listing Requirements for (defined below)
continued listing on the Nasdaq SmallCap Market. In particular, the New Nasdaq
Listing Requirements require that a Company currently included in Nasdaq meet
each of the following standards to maintain its continued listing: (i) either
(A) net tangible assets (defined as total assets, minus goodwill, minus total
liabilities) of $2 million, (B) total market capitalization of $35 million, or
(C) net income (in the latest fiscal year or in two of the last three fiscal
years) of $500,000; and (ii) public float of at least 500,000 shares, with a
market value of at least $1 million; and (iii) minimum bid price of $1; and (iv)
at least two market makers; and (v) at least 300 round lot beneficial
shareholders; and (vi) compliance with certain corporate governance requirements
(the "New Nasdaq Listing Requirements"). As of April 2, 1998, the first full
trading day after the Company gave notice to Nasdaq that the Reverse Stock Split
Proposal was approved by its stockholders, the closing bid price of the Common
Stock was $5.00 per share, which is in excess of the minimum bid price of $1.00
per share established by the New Nasdaq Listing Requirements. Further, by letter
dated April 15, 1998, Nasdaq advised the Company that it was in compliance with
the New Nasdaq Listing Requirements and approved the Company's continued listing
on Nasdaq. There can be no assurance, however, that the Company's continued
losses or other factors beyond the control of the Company will not cause the
Company to fail to meet such requirements. See "1998 Changes in Capital Stock."
Since December 31, 1997, Antiope Partners L.L.C. ("Antiope Partners") and
Amphion Ventures L.P. ("Amphion Ventures") purchased $1.9 million in shares of a
new series of Convertible Preferred Stock, Series G, $0.01 par value (the
"Series G Preferred Stock"). Additionally, Amphion Ventures committed to
purchase up to an additional $5,500,000 of Series G or another new series of
preferred stock to fund the Company's operations and provide for the continued
maintenance of the Company's net tangible assets above the New Nasdaq Listing
Requirements. As of February 28, 1998, the Company's net tangible assets were in
excess of the $2 million threshold established by the New Nasdaq Listing
Requirements. Although management believes that the Company will be able to
preserve the listing of the Common Stock on the Nasdaq SmallCap Market, there
can be no assurance that the Company will be able to do so.
If the Common Stock were delisted from the Nasdaq SmallCap Market, trading, if
any, would likely be conducted in the over-the-counter market on the National
Association of Securities Dealers' OTC Bulletin Board and/or on the pink sheets
of the National Quotation Bureau. As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the Common Stock. In addition, the Common Stock would be subject to rules
promulgated under the Exchange Act applicable to penny stocks. The Commission
has adopted regulations that generally define a "penny stock" to be an equity
security that has a market price (as determined pursuant to regulations adopted
by the Commission) or exercise price of less than $5.00 per share, subject to
certain exceptions. By virtue of being listed on the Nasdaq SmallCap Market,
the Common Stock will be exempt from the Definition of "penny stock." If,
however, the Common stock is removed from the Nasdaq SmallCap Market, the
Company's securities may become subject to the penny stock rules that impose
additional sales practice requirements on broker-dealers who sell penny stocks
to persons other than established customers and accredited investors.
Consequently, the penny stock rules may affect the ability of broker-dealers to
sell the Common Stock and may affect the ability of purchasers of Common Stock
to sell such securities in the secondary market.
SHARES ELIGIBLE FOR FUTURE SALE; CONVERTIBLE SECURITIES AND WARRANTS
Future sales of Common Stock in the public market by existing stockholders,
warrant holders and holders of convertible securities subsequent to the date
hereof could adversely affect the market price of the Company's Common Stock. At
December 31, 1997, an aggregate of approximately 32,722,691 shares of Common
Stock were outstanding and freely tradeable without restriction under the
Securities Act. In addition, up to 13,912,273 shares were eligible for resale
in accordance with the manner of sale and volume limitations of Rule 144
promulgated under the Securities Act.
AXCESS has reserved approximately 10,000,000 shares of Common Stock for
issuance upon the exercise of outstanding convertible securities and warrants.
As of December 31, 1997, there were 1,153,846, 1,056,338,
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<PAGE> 15
708,530 and 789.74 shares of Series A, B, C and G Convertible Preferred Stock
outstanding, respectively. Each share of Series A, B and C Convertible
Preferred Stock is convertible at any time, at the option of the holder, into
one share of Common Stock. The conversion price for the Series G Convertible
Preferred Stock is $0.50 per share, subject to the Series G Reset Right. See
"Recent Sale of Unregistered Securities" below.
There are also currently 6,008,189 warrants outstanding to acquire the same
number of shares of Common Stock, as well as $535,000 of indebtedness with a
two-year maturity, convertible into Common Stock at $0.25 per share.
AXCESS has also reserved approximately 1,093,066 shares of Common Stock for
issuance to key employees, officers, directors and consultants pursuant to the
Company's benefit plans. As of December 31, 1997, there were 553,965 options
outstanding.
ITEM 2. PROPERTIES.
ACCESS CONTROL BUSINESS
Sandia leases a 14,508 square foot facility in Carrollton, Texas used for
administrative, engineering and sales offices. This facility is rented under a
three year agreement that terminates in 2000. In addition, Sandia is the
lessor for two facilities in Paris, France comprising approximately 2,700
square feet in the aggregate, which are used to house the administrative,
engineering and sales functions of Sandia Europe. Both of these leases expire
in June 1998. The Asia/Pacific operations are handled by Sandia's consulting
partner, Technology Interests Pty. Ltd in Sydney, Australia, and the
Europe/Africa operations are handled by Sandia's Paris, France office.
MARKING BUSINESS
LMC manufactures laser markers in a 20,000 square foot facility in Albuquerque,
New Mexico, which it occupies under a long-term capital-lease agreement. For
further information with respect to commitments on the properties of the
Company, reference is made to Notes 5 and 6 of the Notes to the Consolidated
Financial Statements for the years ended December 31, 1997, 1996, and 1995.
ITEM 3. LEGAL PROCEEDINGS.
On February 28, 1996, an investor group filed suit against the Company in the
U.S. District Court for the Southern District of New York. This lawsuit arises
out of the Company's refusal to recognize the investor group's attempt to
exercise an option to purchase 1,400,000 shares of Common Stock at a price of
$.495 per share. The option had been granted to the Company's former President
and CEO, who attempted to transfer his option to the investor group on the last
day of the option term in September of 1995. On that same day, the investor
group attempted to exercise the option. The Company refused to recognize the
attempted transfer of the option to the investor group on the primary grounds
that the option was granted personally to the Company's former President and
CEO and was not transferable to third-parties. The lawsuit seeks issuance and
registration of the 1,400,000 shares upon payment of the exercise price, or in
the alternative, monetary damages which the investor group alleges to be not
less than $2,800,000. On May 1, 1996, the Company moved to dismiss the
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<PAGE> 16
complaint on the grounds that the court in New York lacked personal
jurisdiction over the Company. The court denied the motion to dismiss by order
dated June 10, 1997. Subsequently, the Company filed an answer, denying the
material allegations of the complaint and asserting various defenses. On
December 31, 1997, plaintiffs moved for partial summary judgment on the
question of liability, as to whether or not the option was assignable. The
Company filed papers opposing this motion on or about January 26, 1998. The
Company believes the claim is without merit and will vigorously oppose it.
However, there can be no assurances that the Company will prevail in the
pending litigation, and an adverse outcome could have a material adverse effect
upon the financial position and liquidity of the Company.
The Company has had discussions with Xerox regarding the scope of the Company's
license for DataGlyphs(TM), a 2-D symbology developed by Xerox. In 1995, the
Company was granted an exclusive license from Xerox, for an initial license fee
of $2.1 million, for the right to develop and sell products utilizing
DataGlyphs(TM) for the secured access industry. The royalty obligation was
evidenced by the Company's promissory note payable to Xerox, due in three equal
annual principal installments, plus interest, beginning December 1997. In
December 1997, the Company notified Xerox that it would not make the payment due
under the note, pending satisfactory resolution of the Company's concerns
regarding the technological applicability of the products and services provided
by Xerox to the Company pursuant to its license and the payment due in respect
thereof. Xerox later advised the Company in writing that it believed that
payment under the note was past due. To date, the Company has not recognized any
sales revenue related to the DataGlyphs(TM) Technology. The Company and Xerox
have entered into a settlement agreement pursuant to which the Company has
agreed to pay Xerox $1.47 million of the initial license fee and issue Xerox
120,000 (post reverse split) shares of the Company's Common Stock. Xerox has
agreed not to sell any of these shares until December 1999, at which time shares
may be sold subject to certain limitations. The Company will fund the payment to
Xerox from proceeds received from Amphion Ventures under the terms of a two-year
loan which bears interest at the rate of 10% per annum. In addition, Amphion
Ventures will receive, as a loan origination fee, (i) 15,120 shares of
restricted Common Stock with a fair value of approximately $68,040 as of the
date of issuance and (ii) 3-year warrants to purchase 14,700 shares of Common
Stock with an exercise price of $5.00 per share and with a fair market value of
approximately $25,379 as of the date of issuance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR LASERTECHNICS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq SmallCap Market tier of the
Nasdaq Stock Market under the symbol AXSI. The table below sets forth high and
low last sale prices for the Common Stock during each of the periods indicated,
as reported by the Nasdaq. Such price quotations represent inter-dealer prices
without retail markup, markdown or commission and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
1997 LAST SALE PRICES 1996 LAST SALE PRICES
--------------------- ---------------------
CALENDAR PERIOD LOW HIGH LOW HIGH
--------------- --- ---- --- ----
<S> <C> <C> <C> <C>
First Quarter $0.47 $1.47 $1.91 $2.06
Second Quarter 0.59 1.00 2.59 2.88
Third Quarter 0.50 0.97 1.31 1.38
Fourth Quarter 0.22 0.66 1.00 1.19
</TABLE>
As of December 31, 1997, the Company had approximately 1,500 holders of record
of voting Common Stock and one holder of record of non-voting Common Stock.
The Company estimates that there were approximately 9,000 beneficial owners of
its Common Stock as of the same date.
The Company has not paid dividends on its Common Stock and does not anticipate
the payment of cash dividends in the foreseeable future as it contemplates
retaining all earnings to finance the continued growth of the Company's
business. In addition, certain covenants contained in the Company's financing
arrangements restrict the payment of dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Notes 8 and 9 to Notes to Consolidated Financial
Statements for the years ended December 31, 1997, 1996 and 1995.
RECENT SALE OF UNREGISTERED SECURITIES
During the fourth quarter of 1997, the Company issued unregistered securities in
connection with each of the transactions described below. All references in
this section to numbers of shares and to the exercise or conversion prices of
convertible securities were determined without reference to the Reverse Stock
Split Proposal. See "1998 Changes in Capital Stock." The issuance of the
preferred stock, Common Stock, warrants and convertible debentures were exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) thereof as a transaction not involving a public offering and an appropriate
restrictive legend was affixed to the certificates and warrants.
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<PAGE> 18
Transactions Involving Convertible Securities
The Company's 10% Convertible Debentures due March 1, 1999 (the "1996
Debentures"), in the original principal amount of $5,500,000, the Company's 10%
Convertible Series B Debenture due March 1, 1999 (the "Series B Debenture"), in
the principal amount of $500,000 and the Company's Series D Convertible
Preferred Stock, $0.01 par value (the "Series D Preferred Stock"), in the
original stated amount of $8,350,000, and Series E Convertible Preferred Stock,
$0.01 par value (the "Series E Preferred Stock") in the original stated amount
of $500,000 became convertible in full into Common Stock at various times
during 1996 and 1997.
In May 1997, $600,000 principal amount of the 1996 Debentures was redeemed by
the Company with (i) the proceeds from the private placement to a single new
investor of the Company's Series B Convertible Debenture, due March 1999 in the
principal amount of $500,000 and (ii) $100,000 in proceeds from the private
placement of $500,000 of Series E Preferred Stock with a single new investor.
The Series E Preferred Stock was substantially identical to the terms of the
Series D Preferred Stock and the Series B Convertible Debenture had
substantially identical terms as the 1996 Debentures. In June 1997, $400,000
principal amount of Series D Preferred Stock was redeemed by the Company, upon
receipt of the holder's notice of conversion, with the remaining proceeds from
the sale of Series E Preferred Stock. See "Restructuring of Variable Price
Convertible Securities" below.
Equity Investment by Major Stockholder
In December 1997, the Company concluded an agreement with an institutional
investor with respect to the purchase of 700 shares of Series G Preferred Stock
for an aggregate purchase price of $7,000,000. The purchase price was payable
primarily through a combination of cash and the cancellation and exchange of
existing indebtedness of the Company to the institutional investor. In
addition, the purchaser had the right to offset a portion of the purchase price,
aggregating approximately $709,000, against the Company's obligation to pay
previously accrued and unpaid cash dividends on outstanding shares of Series A,
Series B and Series C Preferred Stock of the Company held by the institutional
investor on such date, and to pay a portion of such total purchase price, not to
exceed an aggregate of $1,500,000, by delivery of an unconditional promissory
note, payable on demand, in principal amount equal to the portion of the
purchase price so paid.
As additional consideration, the Company agreed that if, at any time on or
before December 31, 1999, the Company completes a financing with third parties
raising at least $3,000,000 in new equity, the initial holders of the Series G
Preferred will have the non-assignable right (the "Series G Reset Right"), but
not the obligation, to exchange all or a portion of their shares of Series G
Preferred Stock for shares of a new series of preferred stock with substantially
the same terms and conditions offered to such third parties; provided that no
such exchange will result in an increase in the conversion price above $.50 per
share (as determined without giving effect to the Reverse Stock Split Proposal).
See "1998 Changes in Capital Stock."
Extension of Bridge Loans
Also in December 1997, the Company concluded an agreement (the "Extension
Agreement") with Amphion Ventures, Antiope Partners and J. P. Morgan
Investment Corporation
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<PAGE> 19
("JPMIC"), with respect to the extension of the Company's obligations under the
June Note Purchase Agreement by and among the Company, Antiope Partners
(formerly, Wolfensohn Partners L.P.), Amphion Ventures (by assignment from
Antiope Partners) and JPMIC, and the several Senior Promissory Notes issued and
sold by the Company pursuant to the June Note Purchase Agreement. The Extension
Agreement extended the maturity date of such promissory notes for one year,
through December 31, 1998. In addition, the agreement provided for the base
interest rate on the promissory note payable to JPMIC to be increased from 6.64%
to 10% per annum, which is the same rate originally payable under the promissory
note payable to Antiope Partners. As provided for in the original June Note
Purchase Agreement, on December 31, 1997, the holders of such promissory notes
also became entitled to receive, as a late payment fee, (i) additional 3-year
warrants to purchase 600,000 shares of Common Stock with an exercise price of
$0.25 per share and with a fair market value of approximately $60,000 as of the
date of issuance and (ii) 112,942 additional shares of restricted Common Stock
with a fair market value of approximately $28,000 as of the date of issuance.
The total value of the warrants and Common Stock issued will be charged to
interest expense during 1998, producing a total effective interest rate of
thirteen percent (13%) for 1998 on the Extension Agreement.
Restructuring of Variable Price Convertible Securities
In December 1997, the Company entered into negotiations with the holders of
certain outstanding convertible securities of the Company, with respect to the
restructuring and/or refinancing of such securities.
The Company originally issued the 1996 Debentures, the Series B Debentures
(collectively, the "Convertible Debentures"), the Series D Preferred Stock, and
the Series E Preferred Stock in separate private placements to institutional
investors in 1996 and 1997. In July 1997, the Company issued shares of a new
series of Convertible Preferred Stock, Series F, $0.01 par value (the "Series F
Preferred Stock"), in exchange for, and/or to finance the repurchase of, all the
outstanding shares of Series D Preferred Stock and Series E Preferred Stock, as
described below. The terms of the Series F Preferred Stock are substantially
identical to the terms of the Series D and Series E Preferred Stock, except as
necessary to reflect the terms of the Standstill Agreement described below. The
Convertible Debentures, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock were all convertible into Common Stock at a conversion
price determined by formula, which was generally about 85% of the recent average
market price of the Common Stock at the time of conversion, subject to a fixed
maximum conversion price. The Convertible Debentures, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock collectively herein as the
Company's "Variable Price Convertible Securities".
In July 1997, the Company and certain holders of Variable Price Convertible
Securities negotiated a gated standstill arrangement (the "Standstill
Agreement"), in which such holders agreed to refrain from converting 75% of
their holdings for a period of at least three months, with the locked-up
portion released in five equal monthly installments thereafter. The provisions
of the Standstill Agreement (which also included a reduction in the maximum
conversion price to $1.14 in the case of the Series D and Series E Preferred
Stock and $1.00 in the case of the Convertible Debentures, and the issuance of
$.70 warrants to acquire 814,375 shares of Common Stock as an additional
inducement to the participating holders) were implemented by the execution
of allonges to the Convertible Debentures and by exchanging all of the
outstanding shares of Series D Preferred Stock and Series E Preferred Stock for
an equal number of shares of Series F Preferred Stock, which shares were
substantially identical to the shares exchanged, except as necessary to
implement the terms of the Standstill Agreement. Concurrently therewith, the
Company issued 48 shares of Series F Preferred Stock to a single existing
investor for $480,000 in cash, which was used by the Company to repurchase and
cancel an
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<PAGE> 20
equal number of shares of Series D Preferred Stock, the holder of which had
declined to participate in the Standstill Agreement. By December 14, 1997, 70%
of the face amount of the Variable Price Convertible Securities held by such
holders on the date of the Standstill Agreement were available for conversion,
with the remainder to become convertible in equal installments in January and
February 1998.
In December 1997, the Company re-initiated negotiations with the holders of the
Variable Price Convertible Securities, with the intention of restructuring or
refinancing such securities to remove the variable price conversion feature. In
December 1997 and January 1998, the Company converted, redeemed or restructured
all of the Variable Price Convertible Securities that had been outstanding on
December 1, 1997, comprising in the aggregate $1,250,000 principal amount of
Convertible Debentures and 237 shares ($2,370,000 face amount) of Series F
Preferred Stock (collectively, the "December 1997 Restructuring"). Based on the
closing bid prices of the Common Stock for the applicable trading periods prior
to December 24, 1997, such Variable Price Convertible Securities, together with
accrued interest and dividends, would have been convertible on that date into
an aggregate of approximately 17 million shares of Common Stock, with further
dilution possible in the event of further declines in the market price of the
Common Stock.
To implement the December 1997 Restructuring, including all related conversions,
the Company made cash payments totaling approximately $1.3 million and issued in
the aggregate approximately: $1.1 million in non-convertible short-term
indebtedness; $535,000 of indebtedness with a two-year maturity, convertible
into Common Stock at $.25 per share (the "1997 Debentures"); 1,407,000 shares of
Common Stock, most of which are subject to certain transfer restrictions; 90
shares of Series G Preferred Stock; and warrants to purchase an additional
1,440,000 shares of Common Stock at an average exercise price in excess of $.46
per share. The fair market value of the additional securities issued, at the
time of their issuance, represents the conversion inducement. The Convertible
Debentures inducement was valued at approximately $48,000 and charged to
interest expense. The inducement for Variable Price Convertible Securities other
than the Convertible Debentures was valued at approximately $306,000 and
recorded as a preferred dividend. The Company funded the cash and short-term
debt portion of the restructuring by issuing shares of Series G Preferred Stock
as described above.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
BUSINESS SEGMENTS
The Company operates in two business segments: imaging and marking. Imaging
operations involve the manufacture and sale of plastic card printing systems
and related consumable products to print and encode fraud-resistant
wallet-sized plastic cards for, among other things, drivers' licenses,
identification, border crossing, financial transactions and health care
services. Marking is involved in the manufacture and sale of laser systems
which mark consumer and commercial products with a "freshness date," serial
number, lot numbers, logos or bar code.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth for each of the years 1997,
1996 and 1995 has been derived from the audited consolidated financial
statements for the years ended December 31, 1997, 1996, and 1995 and the notes
thereto. General corporate assets and expenses are allocated to the respective
business segments. Assets used by the respective segments are located at the
operating units of the respective segments and there
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are no general corporate assets. General corporate expenses are allocated
based on the estimated usage of financial resources by the respective segments.
<TABLE>
<CAPTION>
IMAGING MARKING CONSOLIDATED
(Sandia) (LMC) (LASX)
-------- --------- ---------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Sales . . . . . . . . . . . . . $ 4,353,318 $ 6,765,021 $ 11,118,339
Loss from operations . . . . . (8,383,449) (1,808,445) (10,191,894)
Identifiable assets . . . . . . 8,934,768 5,750,644 14,685,412
Capital expenditures . . . . . 178,212 (109,953) 68,259
Depreciation . . . . . . . . . 417,489 92,359 509,848
YEAR ENDED DECEMBER 31, 1996
Sales . . . . . . . . . . . . . $ 8,197,639 $ 9,383,801 $ 17,581,440
Loss from operations . . . . . (8,642,620) (981,376) (9,623,996)
Identifiable assets . . . . . . 9,941,186 7,720,671 17,661,857
Capital expenditures . . . . . 654,832 128,962 783,794
Depreciation . . . . . . . . . 459,860 265,999 725,859
YEAR ENDED DECEMBER 31, 1995
Sales . . . . . . . . . . . . . $ 3,121,577 $10,308,154 $ 13,429,731
Loss from operations . . . . . (7,934,839) (195,374) (8,130,213)
Identifiable assets . . . . . . 5,844,770 8,797,832 14,642,602
Capital expenditures . . . . . 640,528 354,990 995,518
Depreciation . . . . . . . . . 133,991 218,466 352,457
</TABLE>
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995.
Consolidated Sales. Consolidated sales decreased to $11,118,339 in 1997 from
$17,581,440 in 1996. In 1995 sales totaled $13,429,731.
Imaging. The Company's imaging business is based largely on the sale
of high volume card printers. The price of a high volume card printer is such
that generally only governments and state agencies have ongoing card volume
production requirements sufficient to justify such a purchase. Historically,
new government customers have consisted primarily of developing nations,
resulting in highly unpredictable selling cycles and procurement demand. In the
third quarter of 1996, the Company was realizing revenue from its Australian
drivers' license project. In 1997, there was no equivalent project in process.
Additionally, revenues from the introduction of GlyphScan readers and
Glyphit(TM) software have not materialized to date, as a result, in part, of the
factors underlying the Company's dispute with Xerox regarding the DataGlyph
technology licensed by the Company. The Company's dispute with Xerox is more
fully described in Note 11 to Notes to Consolidated Financial Statements.
The Company has taken a number of actions to improve future sales. The Company
has restructured its imaging business by reorganizing it into two divisions:
imaging and technology, and expects to expand its market opportunities and
product offerings through the proposed acquisition of advanced imaging and
software technology (the "XLV Technology") from XL Vision, Inc., a Safeguard
Scientifics Partnership Company ("XLV"). Sandia recently entered into the
Intellectual Property Transfer Agreement (the "Technology Development
Agreement")
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<PAGE> 22
with XLV for the development and commercialization of the XLV Technology, which
consists of both hardware and software technology. The Company believes that
its secure card industry experience and the XLV Technology will enable it to
develop and market a low cost fraud resistant access control system. This
system would combine the portable card embedded database with nontransferable
personal information, such as finger prints, to permit access only by the
authorized card holder.
Under the terms of the Technology Development Agreement, XLV will continue to
devote personnel, services and project management for the enhancement and
commercialization of the XLV Technology. The Company will fund the enhancement
of the XLV Technology. In January 1998, the Company paid XLV $500,000 and will
make additional payments to XLV in the aggregate amount of $4.1 million for
further development expenses, payable in several installments over the
development period. Such funds will be used to fund technology enhancement
activities by XLV with respect to the XLV Technology, with the goal of making
such technology market-ready, as determined by mutual agreement of the Company
and XLV. Of the $4.1 million earmarked for development expenses, the Company
may, at its option, accelerate funding the development of the XLV Technology.
All payments made prior to the development of a working model, including the
costs of acquiring the options under the Technology Development Agreement, will
be expensed as research and development costs.
The imaging division will (i) continue to resell high volume printers, including
a launch of mid-volume printers for customers with card volume requirements
below that of the Company's historical customers, (ii) market overnight delivery
of fraud-resistant wallet size ID cards to corporate badge and loyalty account
customers through its newly-developed service bureau operation, and (iii) sell
turnkey security systems utilizing biometrics and portable databases on
Company-produced and other vendor cards. The new technology division proposes to
develop and commercialize the XLV Technology to be acquired from XLV, including
digital camera and optical butting technologies, for use in card readers and
other digital image-acquisition applications. This new generation of card
readers is expected to accommodate a wide range of card-mounted symbologies,
including DataGlyphs(TM), at commercially attractive speeds. The proposed
acquisition of the XLV Technology is subject to stockholder approval and certain
other conditions. The Company believes that the diversification provided by its
revised business strategy will help to make its revenue stream more predictable,
and that the corporate access control market, which is currently highly
fragmented, will provide a significantly greater market size for the Company's
expanded product offerings.
The Company's ability to improve future sales may be affected by the volatility
of market demand, timing of large governmental and state agency contracts,
competition and technological innovations. These factors could significantly
effect the Company's ability to compete effectively.
Marking. The Company's marking business was adversely affected by (i)
the delay in the re-introduction of the BlazerJet(TM) marking system, which
began shipment in the summer of 1997, and (ii) the Company's announcement in
the second quarter of 1997 that it had engaged an independent financial advisor
to advise on strategic alternatives for LMC, including the possibility of a
disposition or strategic partnership. The Company believes that this
announcement was a distraction to LMC's management and other potential new
employees, and resulted in a degree of confusion and uncertainty among certain
current and potential customers, thereby delaying LMC's ability to capitalize
on the launch of the BlazerJet(TM). Since the Company's termination of the
independent financial advisor, LMC's management has stabilized relationships
with current and potential customers and key employees, allowing them to
refocus on the marking business. Additionally, significant progress has been
made in the development of strategic relationships aimed at leveraging LMC's
distribution capabilities and creating access to the newest marking
technologies.
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<PAGE> 23
Sales to the marking business's largest customer, Anheuser-Busch, accounted
for 17%, 34% and 21% of LMC's total sales in 1997, 1996 and 1995, respectively.
The loss of this customer or the inability to obtain others would have a
material adverse effect on the Company's results of operations.
Consolidated Gross Profit. Consolidated gross profit as a percentage of sales
(gross margin) remained relatively the same for 1997 at 30% compared to 31% in
1996 and 32% in 1995. In the third quarter of 1997, certain limited shelf-life
imaging business inventories (ribbons and other consumables) were written off.
These inventories had been acquired in anticipation of certain large government
contracts and were purchased in advance of the contracts being awarded to
ensure availability and to take advantage of volume purchase discounts. The
related government contracts have not been awarded and the remaining shelf-life
of these inventories rendered them unusable for the Company's intended
customers, resulting in write-offs of approximately $500,000.
Consolidated Operating Expenses. Consolidated operating expenses were
$13,557,196, $15,047,325 and $12,400,551 in 1997, 1996 and 1995 respectively.
In the third quarter of 1997, Sandia recorded significant accounts receivable
provisions related to two separate contracts. In each case the Company was
acting as a sub-contractor. In connection with one such contract, a dispute
arose between the Company and the prime contractor for the project. Although
the Company had fulfilled all contractual obligations related to revenues
recognized, the Company and the prime contractor agreed to discontinue the
relationship. The Company established $400,000 in reserves on receivables
previously recorded under this contract, considering the degree of uncertainty
as to their ultimate collectability. In connection with the other contract, a
second prime contractor has experienced delays in the launch of their publicly
announced major Asian project, of which the printers purchased from the Company
are an integral part. The Company's contract was not conditioned on the timing
of the prime contractor's project, but the prime contractor additionally
experienced delays in the receipt of funding from external financing they had
expected to have available when the Company's printers were purchased. The
degree of uncertainty relating to the timing of the project launch combined
with the related uncertainty of the timing of the receipt of their external
funding, caused the Company to establish $200,000 in reserves for receivables
previously recorded under this contract.
In 1996 the Company recorded a loss on settlement of a contract as the result
of discontinuing a manufacturing agreement with its Singapore manufacturer.
Sandia recorded $1,000,000 in expenses as a cost of settling the dispute. In
addition, the imaging segment recorded a $287,000 charge in the third quarter
of 1996 to reduce on-going expenses in its international operations.
Other Income/(Expense). Other income/(expense) consisting primarily of interest
expense including the amortization of discounts and inducements in connection
with the issuance and extension of debt arrangements and securities as more
fully described in Notes 8 and 9 to Notes to Consolidated Financial Statements
was ($2,628,547) in 1997, ($1,774,999) in 1996, and ($2,016,251) in 1995.
Consolidated Net Loss. Consolidated net loss for 1997 was $12,820,441 compared
to the 1996 consolidated net loss of $11,398,995. The 1995 net loss was
$10,146,464.
The Company has restated its consolidated financial statements for the years
ended December 31, 1995 and 1996 to conform its accounting for beneficial
conversion features related to the issuance of convertible debentures in October
1995 and March 1996 and convertible preferred stock issued in July 1996 to
Emerging Issues Task Force Topic No. D-60 issued in March 1997 ("Topic D-60").
Topic No. D-60 requires that the intrinsic value of beneficial conversion
features of convertible debt securities should be recognized as interest expense
over the period from issuance to the first date that conversion can occur.
Previously, the Company was amortizing the estimated fair value of the
beneficial conversion feature to interest expense over the life of the
convertible debentures. Topic No. D-60 further states that the intrinsic value
of beneficial conversion features of convertible preferred stock should be
treated as a return to the preferred stockholder over the period from issuance
to the first date that conversion can occur. The Company had not previously
assigned a value to the beneficial conversion feature of its Series D
Convertible Stock. See Note 2 to Notes to Consolidated Financial Statements for
the years ended December 31, 1997, 1996 and 1995.
IMAGING BUSINESS RESULTS OF OPERATIONS
Imaging segment sales decreased in 1997 to $4,353,318, or approximately 53% of
1996 sales totaling $8,197,639. Imaging segment sales were $3,121,577 in 1995.
The decrease from 1996 was primarily due to the completion of the Australian
drivers' license project. Sandia did not acquire a similar size project in
1997.
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<PAGE> 24
The Imaging segment loss from operations in 1997 was $8,383,449 compared to
$8,642,620 in 1996 and $7,934,839 in 1995. 1996 results include the $1,000,000
loss on contract settlement and the $287,000 charge noted above.
The Imaging segment gross profit margin in 1997 improved to 29.4% compared to
17.3% and 16% in 1996 and 1995, respectively. Lower margins in 1996 were
primarily the result of Sandia's first significant drivers' license contract
(the Australian drivers' license contract) at margins that insured Sandia would
be awarded the contract. In 1995 the lower margins were the result of larger
than expected OEM sales of plastic card printers which carry a lower selling
price and lower margin than direct sales to end users, and because of the sale
of custom-designed plastic card printers which have a higher manufacturing cost
than standard models.
Imaging segment operating expenses decreased 4.0% in 1997 to $9,661,795.
Imaging segment operating expenses increased 19% in 1996 to $10,061,712 from
the $8,421,492 of operating expenses in 1995. The 1996 increase of $1,640,220
was primarily the result of approximately $360,000 increase in sales and
marketing costs for the continued expansion of Sandia worldwide operations and
the $1,000,000 and $287,000 charges noted above.
Research and development expense for 1997 was $1,634,671 compared to $2,053,111
for 1996 and $1,963,537 for 1995. The research and development costs incurred
in 1997, 1996 and 1995 were primarily for manufacturing development,
DataGlyphs(TM) software development and hardware and software upgrading of
Sandia's high speed plastic card printers. Research and development expenses
were lower in 1997 as a result of the completion of certain custom products in
1996.
Sales and marketing expenses increased approximately 22% in 1997 to $4,776,741
as a result of the accounts receivable provisions previously discussed, compared
to $3,737,867 in 1996 and $3,376,618 in 1995. General and administrative
expenses remained constant in 1997 at $3,250,383 compared to 1996 and 1995.
MARKING BUSINESS RESULTS OF OPERATIONS
The 1997 operating loss for the Marking segment was $1,808,445 compared to the
1996 operating loss of $981,376, and the 1995 operating loss of $195,374.
Marking segment sales decreased approximately 28.0% to $6,765,021 following a
decrease of 9%, from $10,308,154 in 1995 to $9,383,801 in 1996. The decrease
in 1997 was primarily due to the delay in the re-introduction of the
BlazerJet(TM) marking system and customer's reluctance to place orders while
the disposition of the Marking business was under consideration.
The 1997 gross profit percentage for the Marking segment was 31% compared to
44% in 1996 and 37% in 1995. The decline in margin in 1997 was primarily a
result of an inventory write-down of $441,000 for slow moving inventory. Higher
margin service sales were the major contributor to the 1996 and some extent
1995 overall margins.
Marking segment operating expenses for 1997 were $3,895,401 compared to
$4,985,613 and $3,979,059 in 1996 and 1995, respectively. The 1997 decrease was
primarily the result of a $700,000 decrease in general and administrative
expenses, a $500,000 decrease in marketing expenses, and an increase of
$140,000 in research and development expenses. The general and administrative
decrease resulted from reductions in bad
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<PAGE> 25
debt expense, legal and accounting fees, and salaries and benefits due to
personnel reductions. Marketing expenses decreased because of decreased travel.
Research and development expense increased due to continued enhancements on the
BlaserJet(TM). The 1996 increase of 25% over 1995, was primarily the result of
a $610,000 increase in general and administrative expenses, a $500,000 increase
in marketing expenses and a $281,000 reduction in research and development
expenses. The reduction in research and development is the result of narrowing
the scope of research and development activities to upgrading current marking
systems only.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has utilized the proceeds from a number of public
and private sales of its equity securities, the exercise of options and
warrants and more recently, convertible debt and short-term bridge loans from
shareholders to meet its working capital requirements.
The Company's foreign sales are generated by Sandia Europe (located in Paris,
France), Sandia and LMC. Sandia Europe sales and operating costs are primarily
denominated in French Francs. Sandia and LMC sales are in US dollars. Although
the Company funds some of its European operations out of the U.S., currency
exchange exposure is considered minimal because the majority of French franc
expenses are funded with French franc revenues.
The Company's operations continued to generate losses in 1997, primarily due to
lower than expected sales in both the imaging and marking businesses. The
Company's future working capital requirements will depend upon many factors,
including the extent and timing of the Company's product sales, the Company's
operating results and the status of competitive products. The Company
anticipates that its existing working capital resources and revenues from
operations, together with the additional financing in the aggregate amount of
$5,500,000 arranged in the first quarter of 1998. (See Note 18 to Notes to
Consolidated Financial Statements), will not be adequate to satisfy its funding
requirements in 1998. The Company is continuing discussions with a number of
existing and potential corporate, strategic and institutional investors. The
Company's actual funding needs will depend on numerous factors, including actual
expenditures and revenues generated from its operations compared to its business
plan. The Company's actual funding needs will also depend on the successful
development of the new products contemplated under the Technology Development
Agreement and other unanticipated expenditures, none of which can be predicted
with certainty. There can be no assurance, however, that the Company will
acquire the additional funding it needs to fully pursue its business objectives.
If the Company's losses continue, the Company may have to obtain sufficient
funds to meet its cash requirements through strategic or other financial
transactions with compatible entities having the resources to support its
programs, the sale of assets or securities or other financing arrangements, or
it will be required to curtail its programs or seek a merger partner. Any
additional funding may be on terms which are unfavorable to the Company or
disadvantageous to existing stockholders. In addition, no assurance may be
given that the Company will be successful in raising additional funds or
entering into business alliances.
In 1983, the City of Albuquerque, New Mexico issued 8% tax-exempt industrial
development revenue bonds in connection with a 25-year capital lease of LMC's
headquarters facility. The principal amount outstanding as of December 31,
1997 was $807,935. Pursuant to its agreement with the City of Albuquerque,
Lasertechnics is required to maintain a current ratio of at least 1 to 1. At
December 31, 1997, the Company's current ratio was less than 1 to 1 which is not
in compliance with the agreement. As a result, the full amount of the lease
was classified as a current liability on the Company's balance sheet at
December 31, 1997. Failure of the Company to obtain a waiver could result in
the relocation of LMC headquarters to other facilities and the associated
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<PAGE> 26
disruption of the business, as well as increased difficulty in obtaining
financing and credit, and could affect the Company's ability to continue as a
going concern. The Company intends to seek a waiver of non-compliance during
1998 relating to this covenant violation. See Note 6 to Notes to Consolidated
Financial Statements.
OTHER
Nasdaq Listing. On August 22, 1997, the Commission approved the New Nasdaq
Listing Requirements (as defined below) for continued listing on the Nasdaq
SmallCap Market. In particular, the New Nasdaq Listing Requirements require that
a Company currently included in Nasdaq meet each of the following standards to
maintain its continued listing: (i) either (A) net tangible assets (defined as
total assets, minus goodwill, minus total liabilities) of $2 million, (B) total
market capitalization of $35 million, or (C) net income (in the latest fiscal
year or in two of the last three fiscal years) of $500,000; and (ii) public
float of at least 500,000 shares, with a market value of at least $1 million;
and (iii) minimum bid price of $1; and (iv) at least two market makers; and (v)
at least 300 round lot beneficial shareholders; and (vi) compliance with certain
corporate governance requirements (the "New Nasdaq Listing Requirements"). As
of April 2, 1998, the first full trading day after the Company gave notice to
Nasdaq that the 1-for-20 reverse stock split was approved by its stockholders,
the closing bid price of the Common Stock was $5.00 per share, which is in
compliance with the New Nasdaq Listing Requirements. Further, by letter dated
April 15, 1998, Nasdaq advised the Company that it was in compliance with the
New Nasdaq Listing Requirements and approved the Company's continued listing on
Nasdaq. There can be no assurance, however, that the Company's continued losses
or other factors beyond the control of the Company will not cause the Company to
fail to meet such requirements. See Note 18 to Notes to Consolidated Financial
Statements.
Inflation. Inflation has not had and is not expected to have a material impact
on the operations and financial condition of the Company.
Recent Accounting Pronouncements.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129"). SFAS 129 is
applicable to all entities and requires that disclosure about any entity's
capital structure include a brief discussion of rights and privileges for
securities outstanding. SFAS 129 is effective for financial statements for
periods ending after December 15, 1997. The effective adoption of SFAS No. 129
is not expected to have a material impact on the Company's financial statements
and related disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 is effective for fiscal
years beginning after December 15, 1997. This statement establishes standards
for reporting and display of comprehensive income and its components. The
effective adoption of SFAS No. 130 is not expected to have a material impact on
the Company's financial statements and related disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 is effective for fiscal years beginning after December 15,
1997. This statement establishes standards for the way that public companies
report information about segments in annual and interim financial statements.
The effective adoption of SFAS No. 131 is not expected to have a material
impact on the Company's financial statements and related disclosures.
Caution Regarding Forward-Looking Statements. The Company occasionally makes
forward-looking statements concerning its plans, goals, product and service
offerings, and anticipated financial performance. These forward-looking
statements may generally be identified by introductions such as "outlook" for
an upcoming period of time, or words and phrases such as "should", "expect",
"hope", "plans", "projected", "believes", "forward-looking" (or variants of
those words and phrases) or similar language indicating the expression of an
opinion or view concerning the future.
These forward-looking statements are subject to risks and uncertainties based on
a number of factors and actual results or events may differ materially from
those anticipated by such forward-looking statements. These factors include,
but are not limited to: the ability to raise capital; the growth rate of the
Company's revenue and market share; the consummation of new, and the
non-termination of, existing relationships with customers and suppliers; the
Company's ability to effectively manage its business functions while growing the
Company's business in a rapidly changing environment; the ability of the Company
to adapt and expand its services in such an environment; the effective and
efficient development of new products; and the quality of the Company's plans
and strategies, and the ability of the Company to execute such plans and
strategies.
In addition, forward-looking statements concerning the Company's expected
revenue or earnings levels are subject to many additional uncertainties
applicable to competitors generally and to general economic conditions over
which the Company has no control. The Company does not plan to generally
publicly update prior forward-looking statements for unanticipated events or
otherwise and, accordingly, prior forward-looking statements should not be
considered to be "fresh" simply because the Company has not made additional
comments on those forward-looking statements. See "Cautionary Statements" in
the Company's Form 10-KSB for the period ended December 31,1997.
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ITEM 7. FINANCIAL STATEMENTS.
<TABLE>
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CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . F-6
</TABLE>
The following consolidated financial statement schedule of the Company
is filed as a part of this report:
FINANCIAL STATEMENT SCHEDULE
<TABLE>
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Schedule II -- Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
All other financial statement schedules have been omitted because they
are not applicable or the required information is shown in the consolidated
financial statements and notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The board of directors elects executive officers annually at its first
meeting following the annual meeting of stockholders. The following table sets
forth, as of March 1, 1998, the names of the directors and the executive
officers of the Company and its subsidiaries, their respective ages and their
respective positions with the Company and its subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard C.E. Morgan . . . . . . . . 53 Chairman of the Board of Directors and Chief Executive Officer --
Company; Director -- LMC; Chairman of the Board of Directors --
Sandia
Jean Pierre Arnaudo . . . . . . . . 53 Director -- Company; Director and Chief Executive Officer --
Sandia
Eugene A. Bourque . . . . . . . . . 53 Director -- Company; Director, Chairman of the Board, President
and Chief Executive Officer -- LMC
Harry S. Budow . . . . . . . . . . 36 Director and Secretary -- Company; Director, President and Chief
Operating Officer -- Sandia
Danny G. Hair* . . . . . . . . . . 48 Executive Vice President and Chief Financial Officer -- Company
C. Seth Cunningham . . . . . . . . 42 Director -- Company; Director -- Sandia and LMC
Richard M. Clarke . . . . . . . . . 66 Director -- Company; Director -- Sandia and LMC
Alfred E. Paulekas . . . . . . . . 66 Director -- Company; Director -- LMC
Paul J. Coleman, Jr. . . . . . . . 66 Director -- Company
</TABLE>
*Mr. Hair was appointed to his position by the Board on February 1, 1998.
- --------------------------------------------------------------------------------
RICHARD C.E. MORGAN is Chairman of the Board and Chief Executive Officer of
the Company. Mr. Morgan is also the Chairman of the Board of Directors of
Sandia and serves on the Board of Directors of LMC. He is a member of the
executive, compensation and stock option committees. Since 1986 Mr. Morgan has
been a managing member of Antiope Partners and Amphion Partners. Mr. Morgan
became a director and Chairman of the Board of the Company in 1985.
JEAN-PIERRE ARNAUDO is a director of the Company and a director and Chief
Executive Officer of Sandia. From 1993 until his appointment as Chief
Executive Officer of Sandia, Mr. Arnaudo served as the President and General
Manager of Sandia Imaging Systems Europe, S.A., a subsidiary of Sandia. Mr.
Arnaudo became a director of the Company in 1995.
EUGENE A. BOURQUE is a director of the Company and is a director, Chairman
of the Board, President and Chief Executive Officer of LMC. He is a member of
the executive committee. From 1993 to 1995, Mr. Bourque served as President of
the Company. From 1988 to 1993, Mr. Bourque served as Vice President and Chief
Financial Officer of the Company. Mr. Bourque became a director of the Company
in 1993.
HARRY S. BUDOW is a director and Secretary of the Company and President
and Chief Operating Officer of Sandia. He is a member of the executive
committee. Before joining the Company, Mr. Budow was Vice
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<PAGE> 29
President of Bell Packaging Corporation from January 1996 to February 1997 and
Senior Vice President with SpectraVision, Inc. from March 1990 to December
1995.
DANNY G. HAIR is Executive Vice President and Chief Financial Officer of
the Company and Sandia. Mr. Hair was chief financial officer of PC Service
Source, Inc. from January 1997 to January 1998, Bell Packaging Corporation from
January 1995 to November 1996, and SpectraVision, Inc., from April 1991 to
October 1995.
C. SETH CUNNINGHAM is a director of the Company, as well as Sandia and LMC.
He is a member of the audit committee. From 1979 to mid-1996, Mr. Cunningham
was employed by J.P. Morgan, and has served as a managing director since 1991.
From 1985 to mid-1996, Mr. Cunningham worked with and was a founding member of,
J.P. Morgan Capital Corporation, which makes worldwide private equity
investments for J.P. Morgan's own account. Currently, Mr. Cunningham is a
private equity investor. Mr. Cunningham became a director of the Company in
1994.
RICHARD M. CLARKE is a director of the Company, Sandia and LMC. He is a
member of the compensation and stock option committees. Since 1992, Mr. Clarke
has been the chairman of Yankelovich Partners, Inc., a market research firm.
From 1990 to 1993 Mr. Clarke was the chairman and chief executive officer of
Akzo America Inc., a diversified international chemical and health care
corporation. Mr. Clarke is the chairman of NESC and the vice chairman of
Farleigh Dickinson University. Mr. Clarke became a director of the Company in
1988.
ALFRED E. PAULEKAS is a director of the Company and a director of LMC. He
is a member of the compensation committee. Since 1992, Mr. Paulekas has been
President of A.T.C. Associates, a business consulting firm. Mr. Paulekas
became a director of the Company in 1994.
PAUL J. COLEMAN, JR. is a director of the Company. He is a member of the
audit and stock option committees. He is president, chief executive officer,
and a trustee of the Universities Space Research Association, a non-profit
space research, technology and education company, and a professor of space
physics at the University of California at Los Angeles ("UCLA"). He also
serves as a director of Quantrad Sensors, Inc., One Room Systems, Inc. and
Southeast Interactive Technology, LLC. From 1993 through 1996, Dr. Coleman was
the director of the National Institute for Global Environmental Change of the
U.S. Department of Energy, and from 1989 through 1993, he was the director of
the Institute of Geophysics and Planetary Physics at UCLA. Mr. Coleman became
a director of the Company in 1982.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Under Section 16(a) of the Exchange Act, directors, certain officers and
beneficial owners of ten percent or more of the Company's Common Stock are
required from time to time to file with the Commission reports on Forms 3, 4 or
5, relating principally to transactions in Company securities by such persons.
Based solely upon a review of Forms 3, 4 and 5 submitted to the Company during
and with respect to 1997, and written representations received by the Company
from certain reporting persons that no Forms 5 were required from such persons,
the Company believes that all of the directors and executive officers of the
Company have timely filed their respective Forms 3, 4 or 5 required by Section
16(a) of the Securities Exchange Act during 1997, except Harry Budow, a
director and officer of the Company, who did not file timely a Form 3 when he
joined the Company in June 1997. Mr. Budow does not own any Common Stock or
options to acquire Common Stock.
- 27 -
<PAGE> 30
ITEM 10. EXECUTIVE COMPENSATION.
The following table summarizes the compensation earned by the Company's
Chief Executive Officer and its three other most highly compensated executive
officers (whose compensation exceeded $100,000 in 1997) and two additional
individuals for whom disclosures would have been provided had the individuals
been serving as executive officers as of December 31, 1997, collectively, the
"Named Officers," for services rendered in all capacities to the Company during
the fiscal years ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying
Options/ All Other
Salary Bonus SARs Compensation
Name and Principal Positions Year ($) ($) (#) ($)
---------------------------- ---- --------- ------------- ------- -----
<S> <C> <C> <C> <C> <C>
Richard C.E. Morgan . . . . . . . . 1997 60,000 -- -- 40,000
Chief Executive Officer (A) 1996 100,000 -- 60,000(E) --
1995 -- -- 5,000(F) --
Jean-Pierre Arnaudo . . . . . . . . 1997 180,000 40,000 -- 37,956(J)
Chief Executive Officer - 1996 180,000 50,000 162,500(F) 49,700(J)
Sandia (B) 1995 150,000 25,000 75,000(G) 10,840(J)
Eugene A. Bourque . . . . . . . . . 1997 140,000 5,625 -- --
President and Chief Executive 1996 138,358 -- 80,000(H) --
Officer - LMC (B) 1995 125,029 -- -- --
Harry S. Budow . . . . . . . . . . 1997 87,500 22,498 50,000(F) --
President and Chief Operating 1996 -- -- -- --
Officer - Sandia (C) 1995 -- -- -- --
Milo Mattorano . . . . . . . . . . 1997 122,083 -- -- --
former Vice President and Chief 1996 93,747 10,000 111,000(I) --
Financial Officer of the Company 1995 65,000 10,000 5,000(F) --
and Sandia (D)
Stephen C. Nesbit . . . . . . . . . 1997 117,384 -- -- --
former Vice President and 1996 120,000 30,000 81,000(F) --
General Manager DataGlyphs 1995 30,000 22,500 20,000(F) --
Business - Sandia (D)
</TABLE>
- --------------------
(A) Mr. Morgan receives an annual salary of $100,000, $60,000 of which is
payable in cash and $40,000 of which is payable in Common Stock. The
cash and stock portions of Mr. Morgan's 1997 salary have been
accrued, but remain unpaid as of the date of this report.
(B) Mr. Arnaudo's compensation for January to May 1995 was for his
service as the President of the Company and the President and General
Manager of Sandia Europe, S.A., a subsidiary of Sandia.
(C) Mr. Budow joined the Company in June 1997.
- 28 -
<PAGE> 31
(D) Mr. Mattorano and Mr. Nesbit resigned in December 1997.
(E) Securities underlying options are 50,000 shares of Common Stock and
10,000 shares of LMC Common Stock.
(F) Securities underlying options are shares of Sandia Common Stock.
(G) Securities underlying options are 50,000 shares of Common Stock and
25,000 shares of Sandia Common Stock.
(H) Securities underlying options are shares of LMC Common Stock.
(I) Securities underlying options are 91,000 shares of Sandia Common
Stock and 20,000 shares of Common Stock.
(J) Represents the payment of transitional living expenses incurred from
January 1996 to December 1997, under Mr. Arnaudo's Employment
Agreement with the Company. Represents the payment of (i) moving
expenses incurred due to Mr. Arnaudo's relocation from Paris, France
to Dallas, Texas and (ii) transitional living expenses incurred from
September 1, 1995 to December 31, 1995, pursuant to Mr. Arnaudo's
Employment Agreement with the Company. See "Employment Contracts
with Executive Officers."
OPTION GRANTS
The Company did not grant any options to acquire the Company's Common
Stock to the Named Officers during the fiscal year ended December 31, 1997.
AGGREGATE OPTION EXERCISES IN 1997 BY THE COMPANY'S EXECUTIVE OFFICERS
The following table provides information as to options exercised, if any,
by each of the Named Officers in 1997 and the value of options held by those
officers at year-end measured in terms of the last reported sale price for the
shares of the Company's Common Stock on December 31, 1997 ($4.40 post reverse
split as reported on Nasdaq). All share amounts reported take into account the
adoption of the Reverse Stock Split Proposal.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of in-the-Money
Acquired Securities Underlying Options at
on Value Unexercised Options December 31, 1997
Exercise Realized at December 31, 1997(#) (A)($)
-------- -------- ---------------------------- -----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- --- --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. E. Morgan -- -- 1,875 625 -- --
10,000(B) 10,000(B) -- --
2,500(C) 7,500(C) -- --
Jean-Pierre Arnaudo -- -- 1,875 625 -- --
80,417(B) 287,500(B) -- --
Eugene A. Bourque -- -- 7,314 -- -- --
16,000(C) 64,000(C) -- --
Harry S. Budow -- -- 50,000(B) 150,000(B) -- --
Milo Mattorano (D) -- -- 5,000 15,000 -- --
2,188(B) 96,000(B) -- --
Stephen C. Nesbit (D) -- -- 20,000(B) 81,000(B) -- --
</TABLE>
- ------------------------------
- 29 -
<PAGE> 32
(A) Market value of shares covered by in-the-money options on December 31,
1997, less option exercise price. Options are in-the-money if the market
value of the shares covered thereby is greater than the option exercise
price.
(B) Securities underlying options are shares of Sandia Common Stock.
(C) Securities underlying options are shares of LMC Common Stock.
(D) In December 1997, Mr. Mattorano resigned as Vice President and Chief
Financial Officer of the Company and Sandia, and Mr. Nesbit resigned as
Vice President and General Manager of DataGlyphs Business. In connection
with their resignations, all options held by Messrs. Mattorano and Nesbit
have been cancelled.
COMPENSATION OF THE COMPANY'S DIRECTORS
The Company's current policy is that non-employee directors of the Company
are eligible to receive an annual fee of $10,000 for preparing for and
attending meetings of directors and committees. While directors do not receive
additional compensation for attending meetings, the Company will pay ordinary
and necessary out-of-pocket expenses for directors to attend board and
committee meetings. Directors who are officers or employees of the Company
receive no fees for service on the board or committees thereof. Directors who
serve on the board of directors of Sandia or LMC are not separately or
additionally compensated for such service. Each director attended 100% of (i)
the total number of meetings of the board held during the period in which he
was a director and (ii) the total number of meetings held by all committees on
which he served.
The board of directors has adopted the Director Compensation Plan, subject
to stockholder approval at the Company's 1998 annual meeting of stockholders
(the "Annual Meeting"), under which directors who are not employees of the
Company and who do not beneficially own more than 5% of the shares of Common
Stock outstanding would receive an initial one-time grant of 4,000 options to
acquire Common Stock at an exercise price of $10.00 per share (the "Initial
Grant") and an annual grant of 2,000 options to acquire Common Stock at an
exercise price equal to the fair market value per share of the Common Stock at
the time the option is granted (the "Annual Grant"). Assuming the Director
Compensation Plan is approved by the stockholders at the Annual Meeting, the
Initial Grant and Annual Grant will take place shortly after the Annual
Meeting. The Annual Grant will customarily occur on the date of the Company's
annual meeting. All new board members will receive 3,000 options to acquire
Common Stock at an exercise price equal to the fair market value per share of
the Common Stock on the date the board member is approved by the directors.
The Company has temporarily suspended paying any cash to eligible directors for
preparing and attending meetings of directors and committees until the Company
reports quarterly net earnings. Once the Company has reported net earnings for
a fiscal quarter, the Company will reconsider paying additional cash
consideration to eligible directors.
EMPLOYMENT CONTRACTS WITH EXECUTIVE OFFICERS
Sandia and Jean-Pierre Arnaudo are parties to an employment agreement,
which provides for the employment of Mr. Arnaudo through August 31, 2002 at a
minimum annual base salary of $160,000, subject to increase by the board of
directors of Sandia. The agreement also provides for the payment to Mr.
Arnaudo of up to one times his annual salary in the event he is terminated
after a change in control (as defined in the employment agreement) of Sandia or
if he is terminated without cause at the election of the board of directors of
Sandia. The employment agreement also contains confidentiality and
non-competition provisions.
- 30 -
<PAGE> 33
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth the number of shares of (i) Common Stock,
(ii) Non-Voting Common Stock, (iii) Series A Preferred Stock, (iv) Series B
Preferred Stock, (v) Series C Preferred Stock, (vi) Series G Preferred Stock,
(vii) common stock, par value $.01 per share, of Sandia Imaging Systems
Corporation ("Sandia Common Stock") and (viii) common stock, par value $.01
per share, of LMC ("LMC Common Stock") beneficially owned as of March 1, 1998,
after taking into account the approval of the Reverse Stock Split Proposal, by
(i) each director and director nominee who beneficially owns Common Stock and
certain of the executive officers of the Company and its subsidiaries, (ii) all
of the Company's directors and executive officers as a group and (iii) each
person known by the Company to be the beneficial owner of more than 5% of the
Company's Common Stock as of March 1, 1998. The business address of each
director and executive officer is c/o AXCESS Inc., 3208 Commander Drive,
Carrollton, Texas 75006.
The number of shares of the Company's Common Stock and Preferred Stock
beneficially owned by each individual set forth below under the heading
"Percentage of Class" is determined under the rules of the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which an individual has sole or shared
voting power or investment power and any shares that an individual presently,
or within 60 days, has the right to acquire through the exercise of any stock
option or warrant. However, such shares are not deemed to be outstanding for
the purpose of computing the percentage of outstanding shares beneficially
owned by any other person. Unless otherwise indicated, each individual has
sole voting and investment power (or shares such powers with their spouse) with
respect to the shares of the Company's Common Stock and Preferred Stock set
forth in the table below:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER
- ------------------------
DIRECTORS AND NOMINEES FOR DIRECTORS PERCENTAGE OF
(INCLUDING THOSE WHO ARE ALSO NUMBER OF SHARES PERCENTAGE COMPANY
EXECUTIVE OFFICERS): TITLE OF CLASS BENEFICIALLY OWNED OF CLASS VOTING POWER
-------------- ------------------ ---------- ------------
<S> <C> <C> <C> <C>
Richard C.E. Morgan . . . . . . . Common Stock 530,744(1) 21.5% 12.3%
Series A Preferred Stock 57,692(2) 100.0% 1.7%
Series B Preferred Stock 52,816(3) 100.0% 1.5%
Series C Preferred Stock 25,492(4) 72.0% 0.7%
Series G Preferred Stock 955(5) 96% 27.5%
Sandia Common Stock 10,000(6)(9) * n/a
Jean-Pierre Arnaudo . . . . . . . Common Stock 1,875(7) * *
Sandia Common Stock 287,500(8)(9) 3.29% n/a
Eugene A. Bourque . . . . . . . . Common Stock 7,814(10) * *
LMC Common Stock 10,000(9)(11) * n/a
Sandia Common Stock 32,000(12) * n/a
Harry S. Budow . . . . . . . . . . Sandia Common Stock 50,000(13) * n/a
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS AND NOMINEES FOR DIRECTORS PERCENTAGE OF
(INCLUDING THOSE WHO ARE ALSO NUMBER OF SHARES PERCENTAGE COMPANY
EXECUTIVE OFFICERS): TITLE OF CLASS BENEFICIALLY OWNED OF CLASS VOTING POWER
-------------- ------------------ -------- ------------
<S> <C> <C> <C> <C>
Richard M. Clarke . . . . . . . . Common Stock 13,250 * *
Sandia Common Stock 10,000(9)(14) * n/a
</TABLE>
- 31 -
<PAGE> 34
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER
- ------------------------
<S> <C> <C> <C> <C>
C. Seth Cunningham . . . . . . . . Common Stock 4,250(15) * *
Paul J. Coleman, Jr. . . . . . . . Common Stock 903(16) * *
Sandia Common Stock 7,500(9)(17) * n/a
Alfred E. Paulekas . . . . . . . . Common Stock 2,250(18) * *
EXECUTIVE OFFICERS:
Danny G. Hair . . . . . . . . . . Common Stock 2,000 * *
All Directors and Executive
Officers as a group Common Stock 559,032(19) 22.8% 19.2%
(8 individuals) . . . . . . . . . Sandia Common Stock 434,667(3)(20) 7.9% 4.9%
OTHER:
Amphion Group Common Stock 508,452(21) 20.8% 17.7%
590 Madison Avenue Series A Preferred Stock 57,692 100.0% 1.7%
New York, NY 10021 (24) . . . . . Series B Preferred Stock 52,816 100.0% 1.5%
Series C Preferred Stock 25,492(22) 72.0% 0.7%
Series G Preferred Stock 955 96% 27.5%
J.P. Morgan Investment Corporation
60 Wall Street Common Stock 289,422(23) 11.7% 11.4%
New York, NY 10060 . . . . . . . . Non-Voting Common Stock 112,492 100.0% n/a
</TABLE>
* Denotes percentage ownership of less than 1%.
(1) Includes 1,875 shares that Mr. Morgan has the right to acquire within 60
days pursuant to options, 411,906 shares held by entities within the
Amphion Group (defined in Note 24 below) and 92,703 shares that entities
within the Amphion Group have the right to acquire within 60 days
pursuant to warrants. Mr. Morgan is a Managing Member of Amphion
Partners L.L.C. ("Amphion Partners"), the sole general partner of
Amphion Ventures. Mr. Morgan disclaims beneficial ownership as to all
such shares beneficially owned by entities within the Amphion Group. See
Note 24.
(2) All 57,692 shares are held by Amphion Ventures. See Note 1 and Note 24.
(3) All 52,816 shares are held by Amphion Ventures. See Note 1 and Note 24.
(4) All 25,492 shares are held by Amphion Ventures. Does not include 9,933
shares held by Jackson Hole Investments Acquisitions, L.P., ("Jackson
Hole"). Jackson Hole is not affiliated with Amphion Ventures. See Note 1
and Note 24.
(5) Includes 905 shares held by Amphion Ventures and 50 shares held by
Antiope Partners. See Note 1 and Note 24.
(6) Includes 10,000 shares that Mr. Morgan has the right to acquire within
60 days pursuant to options.
(7) Includes 1,875 shares that Mr. Arnaudo has the right to acquire within
60 days pursuant to options.
(8) Includes 80,417 shares that Mr. Arnaudo has the right to acquire within
60 days pursuant to options.
(9) The authorized capital stock of Sandia consists of (i) 18,000,000 shares
of Sandia Common Stock, of which 4,830,000 shares are issued and
outstanding and held by the Company and 260,000 shares are issued and
outstanding and held by certain individuals employed or previously
employed by Sandia or the Company, (ii) 3,500,000 shares of Sandia
Voting Convertible Preferred Stock, of which 3,370,925 shares are issued
and outstanding and held by the Company.
(10) Includes 7,314 shares that Mr. Bourque has the right to acquire within
60 days pursuant to options.
(11) Includes 10,000 shares that Mr. Bourque has the right to acquire within
60 days pursuant to options.
- 32 -
<PAGE> 35
(12) Includes 32,000 shares of preferred stock convertible into common stock
that Mr. Bourque has the right to acquire within 60 days pursuant to
options.
(13) Includes 50,000 shares that Mr. Budow has the right to acquire within 60
days pursuant to options.
(14) Includes 10,000 shares that Mr. Clarke has the right to acquire within
60 days pursuant to options.
(15) Includes 1,500 shares that Mr. Cunningham has the right to acquire
within 60 days pursuant to options.
(16) Includes 813 shares that Mr. Coleman has the right to acquire within 60
days pursuant to options.
(17) Includes 7,500 shares that Mr. Coleman has the right to acquire within
60 days pursuant to options.
(18) Includes 1,500 shares that Mr. Paulekas may have the right to acquire
within 60 days pursuant to options.
(19) Includes the 14,877 shares that officers and directors have the right to
acquire within 60 days pursuant to options, as described in Notes 1,
7,10, 15, 16 and 18; the 92,703 shares that Amphion Ventures and Antiope
Partners have the right to acquire pursuant to warrants; and the 411,906
shares held by entities within the Amphion Group (as to which Mr. Morgan
disclaims beneficial ownership). Does not include shares of Voting
Preferred Stock held by entities within the Amphion Group (as to which
Mr. Morgan disclaims beneficial ownership). See Notes 5 and 24.
(20) Includes the 227,584 shares that officers, former officers and directors
have the right to acquire within 60 days pursuant to options, as
described in Notes 6, 8, 9, 11, 13, 14 and 17.
(21) Includes 52,203 and 40,500 shares that Amphion Ventures and Antiope
Partners, respectively, have the right to acquire within 60 days
pursuant to warrants. See Note 24.
(22) Does not include 9,934 shares held by Jackson Hole. See Note 24.
(23) Includes 22,252 shares that J. P. Morgan Investment Corporation
("JPMIC") has the right to acquire within 60 days pursuant to warrants.
As a result of an agreement between JPMIC and Antiope Ventures L.P.
("Antiope Ventures"), Antiope Ventures agreed to vote at JPMIC's request
for any one person designated by JPMIC to be a director of the Company.
To the extent that agreement is binding on any entity in the Amphion
Group, JPMIC could be deemed to have shared voting power with respect to
all the shares of voting stock held by entities within the Amphion
Group. If the shares held by entities within the Amphion Group were
deemed to be beneficially owned by JPMIC, JPMIC would beneficially own
in the aggregate voting securities representing approximately 52% of the
Company voting power. JPMIC disclaims beneficial ownership of the
voting stock held by entities within the Amphion Group.
(24) Includes shares beneficially owned by: (i) Amphion Ventures (formerly
known as Wolfensohn Associates II L.P.); (ii) Amphion Partners (formerly
known as Wolfensohn Partners II L.L.C.); and (iii) Antiope Partners
(formerly known as Wolfensohn Partners L.L.C.). Amphion Ventures,
Amphion Partners and Antiope Partners disclaim that they hold any
securities of the Company as a group, within the meaning of any
applicable securities law or regulation.
The security holdings of the Amphion Group in the Company are largely
the result of a restructuring of Wolfensohn Associates L.P., now known
as Antiope Ventures. As of August 19, 1997, Antiope Ventures transferred
all of its assets and liabilities to Amphion Ventures, in exchange for
limited partnership interests of Amphion Ventures. Amphion Partners is
the sole general partner of Amphion Ventures, and Antiope Partners is
the sole general partner of Antiope Ventures. Amphion Ventures, Amphion
Partners, Antiope Ventures and Antiope Partners are collectively
referred to herein as the "Amphion Group."
Richard C. E. Morgan, a director and the Chairman and Chief Executive
Officer of the Company, is a managing member of both Amphion Partners
and Antiope Partners.
Jackson Hole Management Co. ("JHMC") provides management services to
Amphion Partners, Antiope Partners and the general partner of Jackson
Hole. Richard Morgan is an employee of JHMC. Mr. Morgan disclaims
beneficial ownership of the securities of the Company owned beneficially
by Amphion Partners, Amphion Ventures, Antiope Partners and Antiope
Ventures, and disclaims beneficial ownership of the securities of the
Company owned beneficially by Jackson Hole.
The holdings of the Amphion Group in the Company as of March 1, 1998,
are as follows:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES G COMMON COMMON
COMMON PREFERRED PREFERRED PREFERRED PREFERRED STOCK STOCK
STOCK STOCK STOCK STOCK STOCK WARRANTS OPTIONS
----- ----- ----- ----- ----- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Antiope Partners . . . . 37,492 -- -- -- 50 40,500 --
Amphion Ventures . . . . 346,289 57,692 52,816 25,492 905 52,203 3,843
Amphion Partners . . . . 28,125 -- -- -- -- -- --
Total . . . . 411,906 57,692 52,816 25,492 955 92,703 3,843
</TABLE>
- 33 -
<PAGE> 36
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1996 the Company received consulting services from director nominee
Alfred E. Paulekas relating to the Company's manufacturing and production
operations. In 1996, Mr. Paulekas was Chairman of the LMC Board of Directors
and was paid a total of $15,000 per quarter (an aggregate of $10,000 per year
for his services as a director of the Company and an aggregate of $50,000 per
year for his services as the Chairman of the LMC Board of Directors) for his
services to the Company. Mr. Paulekas received the same compensation during
1997 for his services to the Company. The Company has complete discretion over
whether or not to use the consulting services of Mr. Paulekas.
Notes Payable to Stockholders
During the first quarter of 1997, the Company obtained a commitment for a
working capital bridge loan of up to $1,000,000 from Antiope Partners. The
Company made draws of $1,000,000 under this agreement during the first and
second quarters of 1997. Borrowings bore interest at 12% and were due on
demand. The borrowings were ultimately convertible into the Company's voting
common stock. In June 1997, borrowings under this agreement were converted
into an advance under the terms of the new bridge loan financing provided to
the Company by Antiope Partners and JPMIC pursuant to a note purchase agreement
dated June 25, 1997 (the "Note Purchase Agreement"). The Note Purchase
Agreement provided the Company with additional bridge financing up to a total
of $3,000,000 to be funded 60% by Antiope Partners and 40% by JPMIC. Under the
Note Purchase Agreement, the Company received additional fundings of $2,000,000
by September 1997. The Note Purchase Agreement provided for an interest rate
of 10% per annum for advances by Antiope Partners and 6.64% per annum for
advances by JPMIC, with a final maturity of December 31, 1997. In connection
with the advances, the Company issued to Antiope Partners and JPMIC an
aggregate of 308,571 (15,428 post reverse split) restricted shares of the
Company's common stock and warrants to purchase 600,000 (30,000 post reverse
split) shares of the Company's common stock with a strike price of $0.70
($14.00 post reverse split). Further, advances under the Note Purchase
Agreement were convertible into convertible debentures with terms similar to
the currently outstanding convertible debentures, which were ultimately
convertible into common stock at a discount. See "Restructuring of Variable
Price Convertible Securities" below. Advances under the Note Purchase
Agreement are secured by a pledge of all the capital stock of the Company's LMC
subsidiary held by the Company.
In December 1997, JPMIC, Antiope Partners and Amphion Ventures, extended the
maturity of the Note Purchase agreement to December 31, 1998, in exchange for
112,942 (5,647 post reverse split) restricted shares of the Company's common
stock and warrants to purchase 600,000 (30,000 post reverse split) shares of
common stock at an exercise price of $0.25 ($5.00 post reverse split).
The Company borrowed additional funds of $4,138,575 from Amphion Ventures
during late September 1997 through early December 1997 under an informal
borrowing agreement. The advances accrued interest at a rate of ten percent
per annum. In connection with these advances, the Company issued 425,681
(21,284 post reverse split) restricted shares of the Company's common stock and
warrants to purchase 827,715 (41,385 post reverse split) shares of the
Company's common stock at an exercise price of $.70 ($14.00 post reverse
split). In December 1997, the Company entered into an agreement whereby it
converted the advances under this informal borrowing agreement into shares of
Series G Preferred Stock. See "Equity Investments by Major Stockholders"
below.
- 34 -
<PAGE> 37
During June and July 1996, the Company obtained a 12% working capital bridge
loan totaling $1.7 million from Amphion Ventures. The loan principal and
related interest were paid in full in August 1996 with proceeds from the sale
of Series D Convertible Preferred Stock, par value $.01 per share ("Series D
Preferred Stock"). See "Restructuring of Variable Price Convertible
Securities" below. In connection with these borrowings, a five year warrant to
purchase a total of 56,341 (2,817 post reverse split) shares of Common Stock
was issued to Amphion Ventures.
Series F Preferred Stock
In July 1997, the Company completed a private placement of $480,000 face amount
of Series F Preferred Stock with Antiope Partners , the proceeds of which were
used to redeem $480,000 of existing Series D Convertible Preferred Stock from a
stockholder. The Series F Preferred stock had substantially identical terms as
the Company's Series D Preferred Stock, except as necessary to reflect the
terms of the Standstill Agreement described below.
Equity Investments by Major Stockholders
On December 29, 1997, the Company concluded an agreement with Amphion Ventures
and Antiope Partners with respect to the purchase by Amphion Ventures and
Antiope Partners as of such date of 700 and 50 shares, respectively, of the
Company's Series G Preferred Stock for an aggregate purchase price of
$7,500,000. The purchase price was payable primarily through a combination of
cash and the cancellation and exchange of existing indebtedness of the Company
to Amphion Ventures. In addition, Amphion Ventures had the right to offset a
portion of the purchase price, aggregating approximately $709,000, against the
Company's obligation to pay previously accrued and unpaid cash dividends on
outstanding shares of Series A, Series B or Series C Preferred Stock of the
Company held by Amphion Ventures on such date, and to pay a portion of such
total purchase price, not to exceed an aggregate of $1,500,000, by delivery of
Amphion Ventures' unconditional promissory note, payable on demand, in
principal amount equal to the portion of the purchase price so paid.
As additional consideration to Amphion Ventures and Antiope Partners, the
Company agreed that if, at any time on or before December 31, 1999, the Company
completes a financing with third parties raising at least $3,000,000 in new
equity, the initial holders of the Series G Preferred will have the
non-assignable right, but not the obligation, to exchange all or a portion of
their shares of Series G Preferred Stock for shares of a new series of
preferred stock with substantially the same terms and conditions offered to
such third parties; provided that no such exchange will result in an increase
in the conversion price above $10.00 per share.
Restructuring of Variable Price Convertible Securities
In December 1997, the Company entered into negotiations with the holders of
certain outstanding convertible securities of the Company, with respect to the
restructuring and/or refinancing of such securities.
The Company originally issued the Convertible Debentures, the Series D
Preferred Stock, and the Series E Preferred Stock in separate private
placements to institutional investors in 1996 and 1997. In July 1997, the
Company issued shares of the Series F Preferred Stock, in exchange for, and/or
to finance the repurchase of, all the outstanding shares of Series D Preferred
Stock and Series E Preferred Stock, as
- 35 -
<PAGE> 38
described below. The Convertible Debentures, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock were all convertible into Common
Stock at a conversion price determined by formula, which was generally about
85% of the recent average market price of the Common Stock at the time of
conversion, subject to a fixed maximum conversion price. The Convertible
Debentures, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock are sometimes referred to collectively herein as the Company's
"Variable Price Convertible Securities".
In July 1997, the Company and certain holders of Variable Price Convertible
Securities negotiated a Standstill Agreement, in which such holders agreed to
refrain from converting seventy-five percent of their holdings for a period of
at least three months, with the locked-up portion released in five equal
monthly installments thereafter. The provisions of the Standstill Agreement
(which also included a reduction in the maximum conversion price to $1.14
($22.80 post reverse split) in the case of the Series D and Series E Preferred
Stock and $1.00 ($20.00 post reverse split) in the case of the Convertible
Debentures, and the issuance of $.70 ($14.00 post reverse split) warrants to
acquire 814,375 (271,875 post reverse split) shares of Common Stock as an
additional inducement to the participating holders) were implemented by the
execution of allonges to the Convertible Debentures and by exchanging all of
the outstanding shares of Series D Preferred Stock and Series E Preferred Stock
for an equal number of shares of Series F Preferred Stock, which shares were
substantially identical to the shares exchanged, except as necessary to
implement the terms of the Standstill Agreement. Concurrently therewith, the
Company issued 48 shares of Series F Preferred Stock to a single existing
investor for $480,000 in cash, which was used by the Company to repurchase and
cancel an equal number of shares of Series D Preferred Stock, the holder of
which had declined to participate in the Standstill Agreement. By December 14,
1997, 70% of the face amount of the Variable Price Convertible Securities held
by such holders on the date of the Standstill Agreement were available for
conversion, with the remainder to become convertible in equal installments in
January and February 1998.
In December 1997, the Company re-initiated negotiations with the holders of the
Variable Price Convertible Securities, with the intention of restructuring or
refinancing such securities to remove the variable price conversion feature. In
December 1997 and January 1998, the Company converted, redeemed or restructured
all of the Variable Price Convertible Securities that had been outstanding on
December 1, 1997, comprising in the aggregate $1,250,000 principal amount of
Convertible Debentures and 237 shares ($2,370,000 face amount) of Series F
Preferred Stock (collectively, the "December 1997 Restructuring"). Based on the
closing bid prices of the Common Stock for the applicable trading periods prior
to December 24, 1997, such Variable Price Convertible Securities, together with
accrued interest and dividends, would have been convertible on that date into
an aggregate of approximately 17 million shares of Common Stock (pre reverse
split), with further dilution possible in the event of further declines in the
market price of the Common Stock.
To implement the December 1997 Restructuring, including all related
conversions, the Company made cash payments totaling approximately $1.3 million
and issued in the aggregate approximately: $1.1 million in non-convertible
short-term indebtedness; $535,000 of indebtedness with a two-year maturity,
convertible into Common Stock at $.25 ($5.00 post reverse split) per share (the
"1997 Debentures"); 1,407,000 (70,350 post reverse split) shares of Common
Stock, most of which are subject to certain transfer restrictions; 90 shares of
Series G Preferred Stock; and warrants to purchase an additional 72,000 shares
of Common Stock at an average exercise price in excess of $9.20 per share post
reverse split). The fair market value of the additional securities issued, at
the time of their issuance, represents the conversion inducement. The Company
funded the cash and short-term debt portion of the restructuring by issuing
shares of Series G Preferred Stock as described above. In connection with the
December 1997 Restructuring, Antiope Partners received 50 shares of Series G
Preferred Stock and 24,889 shares of Common Stock in exchange for its $480,000
face amount of Series F Preferred Stock plus $17,780 of accrued but unpaid
dividends.
- 36 -
<PAGE> 39
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
3.1 --Certificate of Incorporation of the Company.
Incorporated herein by reference to Exhibit 3.1 to
the Company's Registration Statement on Form S-1
(Registration No. 2-80946).
3.2 --By-laws of AXCESS. Incorporated herein by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 2-80946).
3.3 --First Amendment to Certificate of Incorporation of
AXCESS dated June 6, 1986. Incorporated herein by
reference to Exhibit 3.3 to the Company's Annual
Report on Form 10-KSB for the year ended December 31,
1987.
3.4 --Second Amendment to Certificate of Incorporation of
AXCESS, dated May 27, 1987. Incorporated herein by
reference to Exhibit 3.4 to the Company's Annual
Report on Form 10-KSB for the year ended December 31,
1987.
3.5 --Third Amendment to Certificate of Incorporation of
AXCESS, dated November 11, 1994. Incorporated herein
by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-3 (Registration No.
333-10665).
3.6 --Fourth Amendment to Certificate of Incorporation of
AXCESS, dated July 28, 1995. Incorporated herein by
reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-3 (Registration No. 333-10665).
3.7 --Fifth Amendment to Certificate of Incorporation of
AXCESS, dated June 17, 1996. Incorporated herein by
reference to Exhibit 4.6 to the Company's Registration
Statement on Form S-3 (Registration No. 333-10665).
3.8 --Sixth Amendment to Certificate of Incorporation of
AXCESS dated March 31, 1998. Incorporated herein by
reference to Exhibit 99.1 to the Company's Report on
Form 8-K dated April 13, 1998.
3.9 --Seventh Amendment to Certificate of Incorporation
of AXCESS dated March 31, 1998. Incorporated herein
by reference to Exhibit 99.2 to the Company's Report
on Form 8-K dated April 13, 1998.
3.10 --Eighth Amendment to Certificate of Incorporation of
AXCESS dated April 9, 1998. Incorporated herein by
reference to Exhibit 99.3 to the Company's Report on
Form 8-K dated April 13, 1998.
4.1 --Certificate of Designation of the Company's Series
A, B and C Preferred Stock, dated December 27, 1995.
Incorporated herein by reference to Exhibit 4.7 to
the Company's Registration Statement on Form S-3
(Registration No. 333-10665).
4.2 --Certificate of Designation of the Company's Series
D Preferred Stock. Incorporated herein by reference
to Exhibit 4.1 to the Company's Quarterly Report on
Form 10-QSB for the period ended June 30, 1996.
- 37 -
<PAGE> 40
4.3 --Certificate of Designation of the Company's Series E
Preferred Stock. Incorporated by reference to Exhibit
4.3 to the Company's Quarterly Report on Form 10-QSB
for the period ended September 30, 1997.
4.4 --Certificate of Designation of the Company's Series F
Preferred Stock and Certificate of Correction.
Incorporated by reference to Exhibit 4.4 to the
Company's Quarterly Report on Form 10-QSB for the
period ended September 30, 1997.
4.5 --Certificate of Designation of the Company's Series
G Preferred Stock. Incorporated herein by reference to
Exhibit 4.5 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997.
10.1 --License agreement, dated June 30, 1988, between
the Company and Patlex Corporation. Incorporated
herein by reference to Exhibit 10.17 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1988.
10.2 --Employment agreement dated August 31, 1989, between
Louis F. Bieck, Jr. and AXCESS Inc. as amended.
Incorporated herein by reference to Exhibit 10.17 the
Company's Form 10-KSB for the year ended December 31,
1990.
10.3 --1991 Incentive Stock Option Plan, dated August 14,
1991. Incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1991.
10.4 --Purchase Agreement between Sandia Europe and
Jean-Luc Poutchnine, Alain Quilleau and Philippe
Bonnevie, dated March 4, 1994. Incorporated herein by
reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-KSB for the year ended December 31,
1994.
10.5 --Letter confirming sale of shares of AXCESS Common
Stock to Singapore Precision Industries PTE LTD, dated
May 12, 1994. Incorporated herein by reference to
Exhibit 10.16 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994.
10.6 --Advisory and investment banking services agreement
between AXCESS and Wolfensohn International, Inc.,
dated May 19, 1993. Incorporated herein by reference
to Exhibit 10.18 to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1994.
10.7 --Purchase of Common Stock and Convertible Note
Agreement between the Company and J.P. Morgan
Investment Corporation, dated July 8, 1994.
- 38 -
<PAGE> 41
Incorporated herein by reference to Exhibit 10.19 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.8 --OEM License Agreement between Sandia and Xerox
Corporation, dated January 6, 1995. Incorporated
herein by reference to Exhibit 10.20 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.9 --Demand Promissory Note issued to J.P. Morgan
Investment Corporation, dated December 19, 1994.
Incorporated herein by reference to Exhibit 10.21 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.10 --Demand Promissory Note issued to J.P. Morgan
Investment Corporation, dated December 31, 1994.
Incorporated herein by reference to Exhibit 10.22 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.11 --Amendment to the OEM License Agreement between
Sandia and Xerox Corporation, dated December 27,
1996. Incorporated by reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996.
10.12 --Demand Promissory Note issued to Wolfensohn
Associates L.P., dated March 27, 1997. Incorporated
by reference to Exhibit 10.13 to the Company's
Quarterly Report on Form 10-QSB for the period ended
September 30, 1997.
10.13 --Warrant to purchase shares of the Company's Common
Stock issued to Wolfensohn Associates L.P., dated
March 27, 1997. Incorporated by reference to Exhibit
10.14 to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
10.14 --Note Purchase Agreement dated June 25, 1997, by and
among AXCESS, J.P. Morgan Investment Corporation and
Wolfensohn Associates L.P. Incorporated by reference
to Exhibit 10.15 to the Company's Quarterly Report on
Form 10-QSB for the period ended September 30, 1997.
10.15 --Intellectual Property Transfer Agreement dated
January 8, 1998, by and between XL Vision, Inc. and
Sandia Imaging Systems Corporation. Incorporated
herein by reference to Exhibit 10.15 to the Company's
Annual Report on Form 10-KSB for the year ended
December 31, 1997.
10.16 --Amendment to Notes and Note Purchase Agreement
dated December 31, 1997, by and among the Company,
Antiope Partners L.L.C. and J.P. Morgan Investment
Corporation.*
10.17 --Series G Preferred Stock Purchase Agreement dated
December 29, 1997, by and among the Company and
Amphion Ventures L.P.*
10.18 --Pledge Agreement dated August 18, 1997, by and
among the Company, Antiope Partners L.L.C. and J.P.
Morgan Investment Corporation.*
10.19 --Preferred Stock Exchange Agreement dated January
8, 1998, by and among the Company, Antiope Partners
L.L.C. and H.T. Ardinger.*
10.20 --Form of Warrant to purchase shares of the Company's
Common Stock issued to Antiope Partners L.L.C. and
Amphion Ventures L.P.*
10.21 --Settlement Agreement dated as of April 20, 1998, by
and between the Company and Xerox Corporation.*
21 --Subsidiaries of the Company. Incorporated herein by
reference to Exhibit 21 to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1997.
23 --Consent and Report Schedule of KPMG Peat Marwick
LLP.*
- 39 -
<PAGE> 42
27 -- Financial Data Schedule. Incorporated herein by
reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-KSB for the year ended December
31, 1997.
------------------
*Filed herewith.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of fiscal 1997.
- 40 -
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: April 22, 1998 AXCESS INC.
By: /s/ Richard C.E. Morgan
-------------------------------------
Richard C.E. Morgan, Chairman of
the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on April 22, 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Richard C.E. Morgan Chairman of the Board and Chief Executive
- ------------------------------------------- Officer
Richard C.E. Morgan
/s/ Paul J. Coleman, Jr. Director
- -------------------------------------------
Paul J. Coleman, Jr.
/s/ Danny G. Hair Executive Vice President and Chief Financial Officer
- ------------------------------------------- (Principal Financial and Accounting Officer)
Danny G. Hair
Director
- -------------------------------------------
C. Seth Cunningham
/s/ Jean-Pierre Arnaudo Director
- -------------------------------------------
Jean-Pierre Arnaudo
/s/ Harry S. Budow Director and Secretary, and President and
- ------------------------------------------- Chief Operating Officer of
Harry S. Budow Sandia Imaging Systems Corporation
/s/ E.A. Bourque Director
- -------------------------------------------
E. A. Bourque
/s/ Alfred E. Paulekas Director
- -------------------------------------------
Alfred E. Paulekas
/s/ Richard M. Clarke Director
- -------------------------------------------
Richard M. Clarke
</TABLE>
- 41 -
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Lasertechnics, Inc.
We have audited the accompanying consolidated balance sheets of
Lasertechnics, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Lasertechnics, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
3 to the consolidated financial statements, the Company's recurring losses from
operations and resulting continued dependence upon access to additional external
financing 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 3. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Dallas, Texas
February 20, 1998
F-1
<PAGE> 45
LASERTECHNICS, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(NOTE 2)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,687,178 $ 1,598,744
Note receivable from stockholder.......................... 1,158,684 --
Accounts receivable -- trade, less allowance for doubtful
accounts of $380,911 in 1997 and $357,136 in 1996....... 1,864,270 3,196,943
Inventory (note 14):
Raw materials............................................. 3,824,932 4,293,978
Work-in-process........................................... 483,500 551,340
Finished goods............................................ 935,684 1,754,689
------------ ------------
5,244,116 6,600,007
Prepaid expenses............................................ 130,137 230,839
Other....................................................... 50,081 67,606
------------ ------------
Total current assets............................... 10,134,466 11,694,139
------------ ------------
Property, plant and equipment, net (note 5)................. 2,974,725 3,334,277
Goodwill.................................................... 90,473 172,510
Deferred license fee (note 11).............................. 1,400,000 2,100,000
Other assets................................................ 85,748 360,931
------------ ------------
$ 14,685,412 $ 17,661,857
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to stockholder (note 8)..................... $ 2,931,821 $ --
Notes payable (note 11)................................... 3,942,495 775,292
Accounts payable.......................................... 1,789,321 1,369,818
Accrued liabilities (note 7).............................. 2,089,793 2,957,525
Current portion of capital lease obligations (note 6)..... 807,935 225,676
------------ ------------
Total current liabilities.......................... 11,561,365 5,328,311
------------
Convertible debentures (note 9)............................. -- 2,250,749
Capital lease obligations (note 6).......................... 114,845 927,411
Notes payable, long-term (note 11).......................... 535,205 1,400,000
Other....................................................... 4,694 149,387
------------ ------------
Total liabilities.................................. 12,216,109 10,055,858
------------ ------------
Stockholders' equity (notes 2, 9, 10, 11 and 12):
Convertible preferred stock, $.01 par; 7,000,000 shares
authorized in 1997 and 1996:
Series A: $1.30 stated value; 1,153,846 shares issued
and outstanding in 1997 and 1996....................... 1,500,000 1,500,000
Series B: $1.42 stated value; 1,056,338 shares issued
and outstanding in 1997 and 1996....................... 1,500,000 1,500,000
Series C: $1.51 stated value; 708,530 shares issued and
outstanding in 1997 and 1996........................... 1,069,880 1,069,880
Series D: $10,000 stated value; exchanged for Series F
in 1997 and 585 in 1996................................ -- 6,049,314
Series G: $10,000 stated value; 789.735 shares
outstanding in 1997 and none in 1996................... 7,897,353 --
Common stock, $.01 par value; authorized 56,750,000 in 1997
and 1996; 47,369,216 and 37,133,514 shares issued and
outstanding in 1997 and 1996.............................. 473,692 371,335
Nonvoting convertible common stock; $.01 par value
Authorized 2,250,000 shares in 1997 and 1996; 2,249,842
shares issued and outstanding in 1997 and 1996.
Convertible into common stock on a share-for-share
basis..................................................... 22,499 22,499
Paid-in capital............................................. 56,696,968 49,891,230
Accumulated deficit......................................... (66,691,089) (52,798,259)
------------ ------------
Total stockholders' equity......................... 2,469,303 7,605,999
------------ ------------
$ 14,685,412 $ 17,661,857
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 46
LASERTECHNICS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(NOTE 2) (NOTE 2)
<S> <C> <C> <C>
Sales (notes 4 and 16)............................ $ 11,118,339 $ 17,581,440 $ 13,429,731
Cost of sales..................................... 7,753,037 12,158,111 9,159,393
------------ ------------ ------------
Gross profit............................ 3,365,302 5,423,329 4,270,338
Expenses:
Research and development.......................... 2,572,848 2,848,767 3,040,830
General and administrative........................ 4,921,359 5,151,502 4,460,724
Selling and marketing............................. 6,062,989 5,760,056 4,898,997
Loss on contract settlement and other (Note 14)... -- 1,287,000 --
------------ ------------ ------------
Operating expenses...................... 13,557,196 15,047,325 12,400,551
------------ ------------ ------------
Loss from operations.................... (10,191,894) (9,623,996) (8,130,213)
Other income (expense):
Interest income................................... 24,646 110,007 32,182
Interest expense.................................. (2,254,887) (1,910,919) (2,020,751)
Other............................................. (398,306) 25,913 (27,682)
------------ ------------ ------------
Net other income (expense).............. (2,628,547) (1,774,999) (2,016,251)
Loss before income taxes.......................... (12,820,441) (11,398,995) (10,146,464)
Income taxes (note 15)............................ -- -- --
------------ ------------ ------------
Net loss................................ (12,820,441) (11,398,995) (10,146,464)
Preferred stock dividend requirements (Note 10)... (1,072,389) (1,865,115) (73,234)
------------ ------------ ------------
Net loss applicable to common stock..... $(13,892,830) $(13,264,110) $(10,219,698)
============ ============ ============
Net loss per common share......................... $ (0.31) $ (0.39) $ (0.37)
============ ============ ============
Weighted average shares of common stock
outstanding during the year..................... 44,684,785 34,339,313 27,511,489
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 47
LASERTECHNICS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NONVOTING
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON STOCK
----------------------- --------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- ---------- -------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994....... -- $ -- 25,078,779 $250,788 377,684 $3,777 $30,302,473
Exercise of common stock options
(note 12)........................ -- -- 625,712 6,257 -- -- 450,593
Detachable warrants issued in
conjunction with convertible debt
(note 9)......................... -- -- -- -- -- -- 207,000
Stock issued for debt, net of
unamortized discount and expenses
(note 8)......................... 2,521,363 3,469,880 1,383,632 13,836 1,872,158 18,722 2,804,215
Increasing rate preferred stock
discount......................... -- (126,446) -- -- -- -- 126,446
Discount accretion................. -- 73,234 -- -- -- -- --
Conversion feature of debentures
issued (note 9).................. -- -- -- -- -- -- 1,235,294
Debentures converted, net of
unamortized discount and expenses
(note 9)......................... -- -- 658,570 6,586 -- -- 968,959
Issuance of convertible preferred
stock (note 10).................. 397,351 600,000 -- -- -- -- --
Exercise of detachable warrants.... -- -- 534,105 5,341 -- -- 684,659
Foreign currency translation
adjustment....................... -- -- -- -- -- -- (109,248)
Net loss........................... -- -- -- -- -- -- --
--------- ----------- ---------- -------- --------- ------- -----------
Balance at December 31, 1995....... 2,918,714 4,016,668 28,280,798 282,808 2,249,842 22,499 36,670,391
Exercise of common stock options
(note 12)........................ -- -- 89,222 893 -- -- 109,898
Increasing rate preferred stock
discount (note 10)............... -- 53,212 -- -- -- -- --
Conversion feature of debentures
and detachable warrants issued
(note 9)......................... -- -- -- -- -- -- 1,555,981
Conversion feature of Series D
Preferred Stock (note 10)........ -- (1,198,055) -- -- -- -- 1,198,055
Debentures converted, net of
expenses (note 9)................ -- -- 6,682,561 66,825 -- -- 8,796,242
Warrant discount net of related
debenture conversions (note 9)... -- -- -- -- -- -- 53,792
Issuance of convertible preferred
stock, net of expenses (note
10).............................. 835 8,350,000 -- -- -- -- (762,964)
Preferred stock accretion and
dividends (note 10).............. -- 1,455,721 -- -- -- -- --
Preferred stock converted,
including related accretion (note
10).............................. (250) (2,558,352) 2,280,933 22,809 -- -- 2,535,543
Retirement of treasury stock....... -- -- (200,000) (2,000) -- -- (248,000)
Foreign currency translation
adjustment....................... -- -- -- -- -- -- (17,708)
Net loss........................... -- -- -- -- -- -- --
--------- ----------- ---------- -------- --------- ------- -----------
Balance at December 31, 1996....... 2,919,299 10,119,194 37,133,514 371,335 2,249,842 22,499 49,891,230
Exercise of common stock options... -- -- 757,240 7,572 -- -- 33,111
Issuance of common stock for
extension of stockholder notes
payable (note 8)................. -- -- 112,942 1,129 -- -- 27,107
Conversion feature of stockholder
notes payable (note 8)........... -- -- -- -- -- -- 687,833
Conversion feature of debentures
issued (note 9).................. -- -- -- -- -- -- 88,235
Issuance of common stock in
connection with stockholder notes
payable (note 8)................. -- -- 734,252 7,343 -- -- 383,699
Debentures converted, net of
expenses (note 9)................ -- -- 1,980,901 19,809 -- -- 1,013,637
Issuance of Series G preferred
stock, net of expenses and
conversion of Series F Preferred
Stock, including common stock
issued (note 10)................. 801,735 7,980,842 -- -- -- -- --
Issuance of common stock for the
conversion of Series F to Series
G Preferred Stock................ -- -- 897,353 8,974 -- -- 227,851
Preferred stock accretion and
dividends (note 10).............. -- 231,911 -- -- -- -- --
Preferred stock converted,
including related accretion (note
10).............................. (359) (3,829,218) 5,753,014 57,530 -- -- 3,771,688
Preferred stock redeemed (note
10).............................. (133) (1,350,000) -- -- -- -- --
Preferred stock converted to debt
(note 10)........................ (106) (1,185,496) -- -- -- -- --
Issuance of warrants in connection
with the stockholder notes
payable, standstill agreement and
December 1997 restructuring
(notes 8, 9, and 10)............. -- -- -- -- -- -- 567,593
Foreign currency translation
adjustment....................... -- -- -- -- -- -- 4,984
Net loss........................... -- -- -- -- -- -- --
--------- ----------- ---------- -------- --------- ------- -----------
Balance at December 31, 1997....... 2,919,504 $11,967,233 47,369,216 $473,692 2,249,842 $22,499 $56,696,968
========= =========== ========== ======== ========= ======= ===========
<CAPTION>
ACCUMULATED TREASURY
DEFICIT STOCK TOTAL
------------ --------- ------------
<S> <C> <C> <C>
Balance at December 31, 1994....... $(29,314,451) $(250,000) $ 992,587
Exercise of common stock options
(note 12)........................ -- -- 456,850
Detachable warrants issued in
conjunction with convertible debt
(note 9)......................... -- -- 207,000
Stock issued for debt, net of
unamortized discount and expenses
(note 8)......................... -- -- 6,306,653
Increasing rate preferred stock
discount......................... -- -- --
Discount accretion................. (73,234) -- --
Conversion feature of debentures
issued (note 9).................. -- -- 1,235,294
Debentures converted, net of
unamortized discount and expenses
(note 9)......................... -- -- 975,545
Issuance of convertible preferred
stock (note 10).................. -- -- 600,000
Exercise of detachable warrants.... -- -- 690,000
Foreign currency translation
adjustment....................... -- -- (109,248)
Net loss........................... (10,146,464) -- (10,146,464)
------------ --------- ------------
Balance at December 31, 1995....... (39,534,149) (250,000) 1,208,217
Exercise of common stock options
(note 12)........................ -- -- 110,791
Increasing rate preferred stock
discount (note 10)............... -- -- 53,212
Conversion feature of debentures
and detachable warrants issued
(note 9)......................... -- -- 1,555,981
Conversion feature of Series D
Preferred Stock (note 10)........ -- -- --
Debentures converted, net of
expenses (note 9)................ -- -- 8,863,067
Warrant discount net of related
debenture conversions (note 9)... -- -- 53,792
Issuance of convertible preferred
stock, net of expenses (note
10).............................. -- -- 7,587,036
Preferred stock accretion and
dividends (note 10).............. (1,865,115) -- (409,394)
Preferred stock converted,
including related accretion (note
10).............................. -- -- --
Retirement of treasury stock....... -- 250,000 --
Foreign currency translation
adjustment....................... -- -- (17,708)
Net loss........................... (11,398,995) -- (11,398,995)
------------ --------- ------------
Balance at December 31, 1996....... (52,798,259) -- 7,605,999
Exercise of common stock options... -- -- 40,683
Issuance of common stock for
extension of stockholder notes
payable (note 8)................. -- -- 28,236
Conversion feature of stockholder
notes payable (note 8)........... -- -- 687,833
Conversion feature of debentures
issued (note 9).................. -- -- 88,235
Issuance of common stock in
connection with stockholder notes
payable (note 8)................. -- -- 391,042
Debentures converted, net of
expenses (note 9)................ -- -- 1,033,446
Issuance of Series G preferred
stock, net of expenses and
conversion of Series F Preferred
Stock, including common stock
issued (note 10)................. -- -- 7,980,842
Issuance of common stock for the
conversion of Series F to Series
G Preferred Stock................ -- -- 236,825
Preferred stock accretion and
dividends (note 10).............. (1,072,389) -- (840,478)
Preferred stock converted,
including related accretion (note
10).............................. -- -- --
Preferred stock redeemed (note
10).............................. -- -- (1,350,000)
Preferred stock converted to debt
(note 10)........................ -- -- (1,185,496)
Issuance of warrants in connection
with the stockholder notes
payable, standstill agreement and
December 1997 restructuring
(notes 8, 9, and 10)............. -- -- 567,593
Foreign currency translation
adjustment....................... -- -- 4,984
Net loss........................... (12,820,441) -- (12,820,441)
------------ --------- ------------
Balance at December 31, 1997....... $(66,691,089) $ -- $ 2,469,303
============ ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 48
LASERTECHNICS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(NOTE 2) (NOTE 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(12,820,441) $(11,398,995) $(10,146,464)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization............................ 1,126,870 725,859 514,988
Provision for losses on accounts receivable............ 1,058,572 248,489 115,375
Provision for product warranty reserve................. 382,795 639,606 338,250
Amortization of discount and issuance costs and other
non-cash interest and dividends...................... 1,553,934 1,259,621 1,726,193
Accrued interest not paid.............................. -- 514,163 --
(Increase) decrease in:
Accounts receivable, trade............................. 274,101 628,243 (1,165,875)
Inventory.............................................. 1,577,165 (2,187,157) (1,616,559)
Prepaid expenses....................................... 100,702 (775,350) 104,779
Other current assets................................... 17,525 (1,280,821) 163,769
Accounts payable....................................... 419,503 (2,087,326) (42,450)
Accrued expenses....................................... (842,060) (598,871) (890,512)
Other.................................................. 205,571 608,912 --
Net cash used by operating activities (6,945,763) (13,703,627) (10,898,506)
Cash flows from investing activities -- Capital
expenditures............................................. (206,555) (783,794) (995,518)
Cash flows from financing activities:
Borrowings under financing agreements.................. 7,158,808 3,800,000 7,329,906
Principal payments on financing agreements............. -- (2,200,000) (2,969,452)
Proceeds from issuance of convertible debentures....... 500,000 5,500,000 7,000,000
Convertible debenture issuance costs................... -- (385,000) (520,000)
Principal payments on capital lease obligations........ (230,307) (219,018) (164,860)
Net proceeds from issuance of preferred and common
stock................................................ 1,952,525 7,697,826 1,683,729
Redemption of preferred stock.......................... (1,350,000) -- --
Redemption of convertible debentures................... (650,000) -- --
Other.................................................. (140,274) -- --
------------ ------------ ------------
Net cash provided by financing activities......... 7,240,752 14,193,808 12,359,323
Net increase (decrease) in cash and cash
equivalents..................................... 88,434 (293,613) 465,299
Cash and cash equivalents at beginning of year............. $ 1,598,744 $ 1,892,357 $ 1,427,058
------------ ------------ ------------
Cash and cash equivalents at end of year................... $ 1,687,178 $ 1,598,744 $ 1,892,357
============ ============ ============
Supplemental information:
Cash paid during the year for interest................... 2,031 151,354 173,619
============ ============ ============
Conversions to common stock (notes 8, 9 and 10):
Debentures........................................ 1,000,000 9,225,000 1,025,000
Notes payable, net of expenses.................... -- -- 5,953,773
Accrued interest.................................. 33,446 483,435 373,222
Preferred stock................................... 3,829,218 -- --
Convertible preferred stock accretion (note 10).......... 231,911 257,666 --
============ ============ ============
Detachable warrants issued in conjunction with
convertible debt and preferred stock
(notes 8, 9 and 10).................................... 567,593 462,000 207,000
============ ============ ============
Conversion feature of debentures and stockholder notes
payable issued (notes 8 and 9)......................... 776,068 1,555,981 1,235,294
============ ============ ============
Common stock issued in connection with stockholder notes
payable and preferred stock (notes 8 and 10)........... 656,103 -- --
============ ============ ============
Preferred stock converted to notes payable (note 10)..... 1,185,496 -- --
============ ============ ============
Debentures and accrued interest converted to short- and
long-term note payable (note 9)........................ 1,035,205 -- --
============ ============ ============
Borrowings under capital lease obligations............... -- 194,064 --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 49
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Company Organization and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Lasertechnics, Inc. and its wholly owned subsidiaries Lasertechnics Marking
Corp. (LMC), its 96 percent owned subsidiary Sandia Imaging Systems Corporation
(Sandia), and Sandia's wholly owned French subsidiary Sandia Imaging Systems SA
(Sandia Europe) (collectively, the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation.
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.
(b) Statements of Cash Flows
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. The Company had cash
equivalents of $1,683,011 and $1,587,878 at December 31, 1997 and 1996,
respectively.
(c) Inventory
Inventory is valued at the lower of cost or market using the first-in,
first-out method.
(d) Depreciation and Amortization
Depreciation on property and equipment is calculated using the
straight-line method over the estimated useful lives of the respective assets.
Assets acquired under capital leases are amortized over the lesser of the term
of the lease or the estimated useful life of the asset using the straight-line
method.
(e) Fair Value of Financial Instruments
The carrying amount of cash equivalents, accounts receivable, accounts
payable, notes payable, customer advances, commissions payable and accrued
liabilities approximate fair value because of the short-term maturity of these
instruments.
The outstanding borrowings under the Company's note payable to Xerox
Corporation (note 11) and the long-term note payable (note 9) bear interest at
current market rates, and therefore, the carrying amount of debt approximates
estimated fair value at December 31, 1997 and 1996.
At December 31, 1996, the net carrying value of the March 1996 convertible
debentures (note 9) approximates fair value as such debentures are recorded
based on the current effective interest rate.
(f) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
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 expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount more likely than not to
F-6
<PAGE> 50
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be realized. Income tax expense is the total of tax payable for the period and
the change during the period in deferred tax assets and liabilities.
(g) Foreign Currency Translation
The functional currency for the Company's foreign subsidiary is the
applicable local currency. Assets and liabilities of the foreign subsidiary are
translated to U.S. dollars at year-end exchange rates. Income and expense items
are translated at the average rates of exchange prevailing during the year. The
adjustments resulting from translating the financial statements of the foreign
subsidiary are reflected in stockholders' equity.
(h) Net Loss Per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). SFAS No. 128 revised the previous calculation methods and presentations
of earnings per share and requires that all prior-period earnings (loss) per
share data be restated to conform to SFAS No. 128. The Company adopted SFAS No.
128 in the fourth quarter of 1997 as required by this Statement. In accordance
with SFAS No. 128, the Company has presented basic loss per share, computed on
the basis of the weighted average number of common shares outstanding during the
year. Diluted earnings per share which includes the dilutive effect of options
and warrants has not been presented since, due to the net losses recorded by the
Company for all periods presented, their inclusion would be antidilutive.
Net loss applicable to common stock is derived by adding to the
consolidated net loss the accretion of the discount recorded for the Company's
increasing rate preferred stock Series A, B and C, the annual accretion of
Series D, E and F Preferred Stock, the value of warrants issued to induce
conversions from Series F to Series G Preferred Stock during 1997 and in
connection with a 1997 standstill agreement and the intrinsic value of the
beneficial conversion feature of the Series D Preferred Stock (note 10).
(i) Revenue Recognition
The Company recognizes revenue on sales of its products either when the
products are shipped from the Company or received by the customer, depending on
shipping terms. Revenue related to product sales that require installation or
customer acceptance is recognized upon fulfillment of such requirements.
(j) Warranty Costs
The Company warrants its products against defects in material and
workmanship for periods ranging from 30 days to two years from the date of
installation. The Company provides for future warranty obligations in the period
product sales are recorded. The warranty reserve is reviewed quarterly and
adjusted based upon the Company's actual historical warranty costs and its
estimate of future costs.
(k) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
F-7
<PAGE> 51
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Adoption of this Statement did not have a material impact on the Company's
financial position or results of operations.
(l) Stock Compensation Plans
On January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123. Under APB
Opinion No. 25, compensation expense would be recorded on the date of grant only
if the current market price of the underlying stock exceeded the exercise price.
(m) Reclassifications
Certain reclassifications have been made to prior year consolidated
financial statements to conform to the current year presentation.
(2) RESTATEMENT
The Company has restated its consolidated financial statements for the
years ended December 31, 1995 and 1996 to conform its accounting for beneficial
conversion features related to the issuance of convertible debentures in October
1995 and March 1996 and convertible preferred stock issued in July 1996 to the
Financial Accounting Standards Board's Emerging Issues Task Force Topic No. D-60
issued in March 1997 ("Topic No. D-60"). Topic No. D-60 requires that the
intrinsic value of beneficial conversion features of convertible debt securities
should be recognized as interest expense over the period from issuance to the
first date that conversion can occur. Previously, the Company was amortizing the
estimated fair value of the beneficial conversion feature to interest expense
over the life of the convertible debentures. Topic No. D-60 further states that
the intrinsic value of beneficial conversion features of convertible preferred
stock should be treated as a return to the preferred stockholder over the period
from issuance to the first date that conversion can occur. The Company had not
previously assigned a value to the beneficial conversion feature of its Series D
Convertible Preferred Stock.
As a result of the aforementioned restatement, amounts were adjusted as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Interest expense, as previously reported................ $ 1,541,001 $ 968,790
Adjustment.............................................. 369,918 1,051,961
------------ ------------
Restated interest expense............................... 1,910,919 2,020,751
============ ============
Restated net loss....................................... (11,398,995) (10,146,464)
Dividends, as previously reported....................... (667,060) (73,234)
Adjustment.............................................. (1,198,055) --
------------ ------------
Restated net loss attributable to common stockholders... (13,264,110) (10,219,698)
============ ============
Basic and diluted loss per share, as previously
reported.............................................. (0.34) (0.33)
Restated basic and diluted loss per share............... (0.39) (0.37)
</TABLE>
F-8
<PAGE> 52
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited quarterly financial data has also been restated from amounts
previously reported for the fiscal 1997 and 1996 quarterly results. See note 17.
(3) OPERATIONS, LIQUIDITY AND GOING CONCERN
The Company's operations in 1997 continued to generate losses. The loss in
1997 significantly exceeded losses in either 1996 or 1995. Although, during
1997, the Company raised gross proceeds of approximately $11 million through
equity and debt transactions, the Company's operations, capital expenditures and
debt service requirements have utilized a significant portion of such proceeds
through February 1998. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
The Company's business plan for 1998 is predicated principally upon the
commencement of a new service center for outsourced card printing, significant
increases in sales for existing Sandia products, the successful introduction of
new products in both of its business segments, significant improvements in gross
margins and reductions in research and development expenditures. Because of the
anticipated timing of new product introductions and manufacturing cost
reductions, together with the necessity to prepay all or a portion of the
balance of its lease obligation financing, the Company may require additional
external financing to meet its 1998 requirements. However, there can be no
assurance that sufficient additional external financing could be obtained to
fund any increases in financing requirements resulting from delays in or
inability to significantly increase sales of existing Sandia products,
successfully introduce planned new products, or achieve gross margin
improvements. If the Company is unable to obtain such additional funds, it may
be necessary to either reduce or stop certain product development programs,
reduce its sales and marketing efforts, dispose of assets or undertake other
actions as may be appropriate.
(4) SIGNIFICANT CUSTOMERS
One customer accounted for 10, 18 and 16 percent of consolidated revenues
in 1997, 1996 and 1995, respectively. Another customer accounted for 29 percent
of 1996 consolidated revenues. At December 31, 1997 and 1996, two customers
accounted for 29% and 27% of consolidated net accounts receivable, respectively.
F-9
<PAGE> 53
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
AMORTIZATION/
DEPRECIATION
PERIOD 1997 1996
-------------- ----------- -----------
<S> <C> <C> <C>
Property, plant and equipment under capital lease:
Land (note 6)................................... $ 336,396 $ 336,396
Building........................................ Lease term 923,550 923,550
Machinery and equipment......................... Lease term 127,411 127,411
Research equipment.............................. Lease term 21,339 21,339
Furniture and fixtures.......................... Lease term 530,913 530,913
----------- -----------
1,939,609 1,939,609
Accumulated amortization.......................... (695,084) (648,131)
----------- -----------
Property, plant and equipment under capital
leases, net.................................. 1,244,525 1,291,478
----------- -----------
Other property, plant and equipment:
Building........................................ 14 to 45 years 311,955 311,955
Leasehold improvements.......................... Lease term 158,311 165,679
Machinery and equipment......................... 5 to 8 years 1,543,854 1,285,025
Demonstration equipment......................... 2 to 3 years 830,258 933,363
Research equipment.............................. 3 years 179,796 136,005
Furniture and fixtures.......................... 5 years 657,963 781,851
----------- -----------
3,682,137 3,613,878
----------- -----------
Accumulated depreciation and amortization......... (1,951,937) (1,571,079)
----------- -----------
Other property, plant and equipment, net.......... 1,730,200 2,042,799
----------- -----------
Total property, plant and equipment, net..... $ 2,974,725 $ 3,334,277
=========== ===========
</TABLE>
(6) LEASE OBLIGATIONS
In 1983, the Company entered into a long-term capital lease agreement with
the City of Albuquerque, New Mexico for office, manufacturing and warehouse
facilities and equipment. In connection with the transaction, the City of
Albuquerque issued industrial development revenue bonds. The leased assets will
revert to the Company upon retirement of the lease obligations and payment of a
nominal amount.
Pursuant to the original agreement, the bondholder has the right to call
the bonds starting in November 1993 and in each November thereafter. On October
1, 1993, the Company and bondholder entered into an agreement whereby the
Company increased the monthly lease payment by $8,000. This additional
prepayment amount started in April 1994 and was to be made for a 24 month
period. In exchange for the Company's agreement to make these prepayments, the
bondholder agreed to waive its right to call the bonds during this 24 month
period provided that the Company made its monthly payments on a timely basis and
remained in compliance with the agreement's debt covenants, which required the
Company to maintain a current ratio of not less than 1 to 1 and a debt to equity
ratio of not more than 3 to 1. During the fourth quarter of 1996, the bondholder
agreed to permanently waive the debt to equity ratio requirement and its right
to call the bond for redemption provided the lessee remains in compliance with
all other covenants. At December 31, 1997, the Company's current ratio was 0.9
to 1, which was in violation with the lease covenants, and accordingly, the
Company has classified the outstanding note payable pursuant to this agreement
as a current liability in the accompanying consolidated financial statements.
The Company intends to seek a waiver of non-compliance during 1998 relating to
this covenant violation. In addition to the covenants mentioned previously, the
agreement includes a provision whereby the debt can be called anytime the
bondholder reasonably believes itself to be insecure. No such call has occurred
as of February 1998 and management believes the likelihood that such
acceleration provisions will be exercised in 1998 is remote.
F-10
<PAGE> 54
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capital lease obligations are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
City of Albuquerque, New Mexico, due monthly (approximately
$17,589 to maturity) including interest at 75% of the
prime rate of Chase Manhattan Bank (6.38% at December 31,
1997) but not less than 8% nor more than 14%, maturing
September 2001............................................ $807,935 $ 955,852
Other capital leases, due $6,601 monthly, with maturity
dates through June 2002, including interest ranging from
15.15% to 19.4%........................................... 114,845 197,235
-------- ----------
Total capital lease obligations............................. 922,780 1,153,087
Less:
Current portion of capital leases......................... 807,935 225,676
-------- ----------
$114,845 $ 927,411
======== ==========
</TABLE>
The annual aggregate lease payments under capital leases, assuming no
acceleration of lease payments due to the covenant violations discussed above,
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
- -----------------------
<S> <C> <C>
1998.................................................................. $ 287,215
1999.................................................................. 257,879
2000.................................................................. 238,853
2001.................................................................. 229,829
2002.................................................................. 73,270
----------
1,087,046
Less amount representing interest..................................... (164,266)
----------
$ 922,780
==========
</TABLE>
(7) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Customer advances........................................... $ 6,489 $ 436,249
Commissions payable......................................... 33,970 65,249
Product warranty reserve.................................... 645,055 516,783
Accrued payroll and payroll taxes........................... 167,415 265,928
Accrued vacation............................................ 108,617 163,935
Preferred stock dividends................................... 60,916 356,182
Other....................................................... 812,139 1,153,199
Interest payable............................................ 255,192 --
---------- ----------
$2,089,793 $2,957,525
========== ==========
</TABLE>
(8) NOTES PAYABLE TO STOCKHOLDERS
During the first quarter of 1997, the Company obtained a commitment for a
working capital bridge loan of up to $1,000,000 from Antiope Partners L.L.C.
(formerly Wolfensohn Partners L.P.) ("Antiope Partners"). The Company made draws
of $1,000,000 under this agreement during the first and second quarters of 1997.
Borrowings bore interest at 12% and were due on demand. The borrowings were
ultimately convertible into the Company's voting common stock. In June 1997,
borrowings under this agreement were
F-11
<PAGE> 55
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
converted into an advance under the terms of a new bridge loan financing
provided to the Company by Antiope Partners and J.P. Morgan Investment
Corporation ("JPMIC") pursuant to a note purchase agreement dated June 25, 1997
(the "Note Purchase Agreement"). The Note Purchase Agreement provided the
Company with additional bridge financing up to a total of $3,000,000, to be
funded 60% by Antiope Partners and 40% by JPMIC. Under the Note Purchase
Agreement, the Company received additional fundings of $2,000,000 by September
1997. The Note Purchase Agreement provided for an interest rate of 10% per annum
for advances by Antiope Partners and 6.64% per annum for advances by JPMIC, with
a final maturity of December 31, 1997. In connection with the advances, the
Company issued to Antiope Partners and JPMIC an aggregate of 308,571 restricted
shares of the Company's common stock and warrants to purchase 600,000 shares of
the Company's common stock with a strike price of $0.70. In connection with the
restricted shares and warrants, the Company recorded a discount to equity of
approximately $287,000 ($91,000 for the warrants and $196,000 for the common
stock). Further, advances under the Note Purchase Agreement were convertible
into convertible debentures with terms similar to the currently outstanding
convertible debentures (see note 9), which were ultimately convertible into
common stock at a discount. The Company recorded a discount to equity of
approximately $688,000 for the intrinsic value of the beneficial conversion
feature. The discount attributable to the restricted shares, warrants and
conversion feature was fully accreted to interest expense during 1997. Advances
under the Note Purchase Agreement are secured by a pledge of all the capital
stock of the Company's LMC subsidiary held by the Company.
In December 1997, JPMIC, Antiope Partners and Amphion Ventures L.P.
("Amphion"), an affiliate of Antiope Partners, extended the maturity of the Note
Purchase Agreement to December 31, 1998 in exchange for 112,942 restricted
shares of the Company's common stock and warrants to purchase 600,000 shares of
common stock at an exercise price of $0.25. The Company recorded a debt discount
of approximately $88,000 ($60,000 for warrants and $28,000 for the common stock)
representing the estimated fair value of the warrants and restricted stock
provided under this arrangement. The debt discount will be accreted to interest
expense through the extended maturity date of December 31, 1998.
The Company borrowed additional funds of $4,138,575 from Amphion during
late September 1997 through early December 1997 under an informal borrowing
agreement. The advances accrued interest at a rate of 10% per annum. In
connection with these advances, the Company issued 425,681 restricted shares of
the Company's common stock and warrants to purchase 827,715 shares of the
Company's common stock at an exercise price of $.70. The Company recorded a debt
discount of approximately $316,000 ($121,000 for the warrants and $195,000 for
the common stock) representing the estimated fair value of the warrants and
restricted stock, which was fully accreted to interest expense as of December
31, 1997. In December 1997, the Company entered into an agreement whereby it
converted the advances under this informal borrowing agreement into Series G
Preferred Stock (see note 10).
The effective interest rate associated with the borrowings from Antiope
Partners, Amphion and JPMIC was 71% including the beneficial conversion feature,
and 39% excluding the same.
During June and July 1996, the Company obtained a 12% working capital
bridge loan totaling $1.7 million from Amphion. The loan principal and related
interest were paid in full in August 1996 with proceeds from the sale of Series
D Convertible Preferred Stock (note 9). In connection with these borrowings, a
five year warrant to purchase a total of 56,341 shares of Common Stock was
issued to Amphion.
In 1994 and 1995, the Company borrowed $8,900,000 from JPMIC and Amphion
under notes payable which bore interest at 12% and were due on demand, or if no
demand was made, principal and interest became due at various dates in 1996. Of
the total amount borrowed, $6,210,000 plus accrued interest was converted into a
combination of common, nonvoting common and preferred stock. In conjunction with
these borrowings, Wolfensohn received detachable warrants to purchase 534,105
shares of Common Stock. The warrants were fully exercised in 1995 at an
aggregate price of $690,000, and an exercise price ranging from $1.01 to $1.76
per share. The value allocated to the warrants, $207,000, was reflected as a
discount on the convertible promissory
F-12
<PAGE> 56
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
notes and was being amortized ratably over the one year stated term of the
notes. Amphion converted its debt during 1995, and the unamortized portion of
the discount was netted against additional paid-in capital as of the date of
conversion.
The Company paid Amphion $2,000,000 of the amount borrowed with proceeds
from the October 1995 convertible debenture private placement (note 9). The
balance of borrowings outstanding were repaid when Amphion exercised all 534,105
warrants to purchase common stock of the Company.
(9) CONVERTIBLE DEBENTURES
In October 1995, the Company completed a $7,000,000 private placement of 10
percent convertible debentures maturing in October 1998 (the "1995 Debentures").
The 1995 Debentures plus accrued interest were convertible by the holder into
unregistered Common Stock as follows: (a) between October 11, 1995 and November
25, 1995 at an exercise price of $2.34375, (b) between November 26, 1995 and
December 25, 1995, one-half of the 1995 Debentures could be converted at the
lesser of $2.34375 or 85 percent of the average five day closing bid price of
the Common Stock prior to conversion, and (c) after December 25, 1995, and
during the term of the 1995 Debentures, all 1995 Debentures could be converted
by the holder under the same terms described in (b). The Company had the right
to convert the 1995 Debentures at its own election subject to the terms of the
1995 Debenture agreement. The Common Stock issued upon conversion has
registration rights under certain circumstances. The Company recorded a debt
discount of approximately $1,235,000 for the intrinsic value of the beneficial
conversion feature of the 1995 Debentures. The consolidated financial statements
have been restated to reflect the accretion of the beneficial conversion feature
from issuance in October 1995 to the date of first available conversion of all
of the debentures, December 25, 1995 (see note 2). In 1995, $1,025,000 face
amount of 1995 Debentures plus $20,342 of accrued interest were converted into
658,570 shares of Common Stock. During 1996, all remaining 1995 Debentures,
having a face value of $5,975,000, plus $355,823 of accrued interest were
converted into 4,290,500 shares of Common Stock.
In connection with the 1995 Debentures, a five year warrant to purchase
221,867 shares of Common Stock, priced at 20 percent above the $2.34375 closing
price, or $2.81 per share, was issued to the placement agent for the offering as
part of the placement fee.
In March 1996, the Company completed a $5,500,000 private placement of 10
percent convertible subordinated debentures maturing March 1, 1999 (the "1996
Debentures"). The 1996 Debentures, plus accrued interest, were convertible into
the Company's unregistered common stock at the option of the holder as follows:
(a) between March 13, 1996 and May 11, 1996 at the fixed exercise price of $2.00
per share and (b) at the lesser of $2.00 per share or 85 percent of the average
five day closing bid price of the Common Stock prior to conversion for up to
one-fourth of the 1996 Debentures purchased beginning on each of these dates in
1996: May 12, June 11, July 11, and August 10. The Company had the right to
convert the 1996 Debentures at its own election at any time after March 1, 1997
utilizing the formula described above. The Company also has the right to redeem
the 1996 Debentures for cash upon notice of conversion by a holder or at any
time after March 1, 1997. The Common Stock issued upon conversion has
registration rights under certain circumstances. In connection with the 1996
Debentures, five year warrants to purchase 192,500 shares of Common Stock at
$2.20 per share were issued to the placement agent for the offering as part of
the placement fee. In addition, five year warrants to purchase 550,000 shares of
Common Stock at $2.00 per share were issued with the 1996 Debentures. The
Company recorded a debt discount of approximately $950,000 representing the
intrinsic value of the beneficial conversion feature of the 1996 Debentures and
approximately $606,000 for the estimated fair value of the 550,000 related
detachable warrants to purchase Common Stock. The consolidated financial
statements have been restated to reflect the accretion of the beneficial
conversion feature from issuance in March 1996 to the date of first available
conversion of all of the debentures (see note 2). The discount related to the
detachable warrants was being amortized ratably as an interest rate
F-13
<PAGE> 57
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjustment over the life of the 1996 Debentures or until conversion. All
outstanding 1996 Debentures were to be automatically converted into Common Stock
prior to maturity. During 1996, $3,250,000 face amount of the 1996 Debentures
plus $127,612 of accrued interest were converted into 2,392,061 shares of Common
Stock.
During 1997, $1,000,000 face amount of the 1996 Debentures plus $181,239
accrued interest were converted into 1,980,901 shares of the Company's common
stock. Additionally, in May 1997, the Company redeemed $600,000 principal of its
March 1996 Debentures with the proceeds from the private placement of $500,000
principal amount of the Series B 10% Convertible Debenture due March 1999 (the
"Series B Debenture") with substantially identical terms as the 1996 Debentures
and $100,000 in proceeds from the private placement of $500,000 of Series E
convertible preferred stock (see note 10). The Company recorded a debt discount
of approximately $88,000 representing the intrinsic value of the beneficial
conversion feature of the Series B Debenture. The discount was fully accreted to
interest expense during 1997. The Company redeemed an additional $50,000 face
amount of the 1996 Debentures during 1997.
In July 1997, the holders of the 1996 Debentures, Series B Debenture,
Series D Preferred Stock and Series E Preferred Stock (the "Suspended
Securities") agreed to a ninety day suspension of conversion rights on 75% of
their holdings beginning July 14, 1997. From October 14, 1997 and thereafter,
the holders of the Suspended Securities can exercise the suspended portion at a
cumulative rate of 20% per month. In exchange for the standstill agreement, the
holders of the 1996 Debentures and the Series B Debenture received warrants to
purchase 271,875 shares of the Company's common stock at an exercise price of
$0.70. In connection with the issuance of these warrants, the Company recorded a
charge to interest expense of approximately $60,000, which represents the
estimated fair value of the warrants provided as an inducement to the holders of
the Suspended Securities.
At December 31, 1997, as part of a series of transactions to convert
debentures and preferred stock into notes payable (the "December 1997
Restructuring"), the remaining $600,000 face amount of the 1996 Debentures were
converted into a 12% short-term note payable with $300,000 principal due in
January 1998 and three installments of $100,000 plus current interest due in
March, April and May 1998. Additionally, the Company converted the $500,000
principal amount of the Series B Debenture into an 8% long-term promissory note
due January 15, 2000. In connection with these conversions, the Company issued
to the holders warrants to purchase 600,000 shares of the Company's common stock
at an average exercise price of $0.42. In connection with the warrants issued,
the Company recorded a charge to interest expense of approximately $47,000,
which represents the estimated fair value of the warrants provided as a
conversion inducement.
(10) PREFERRED STOCK
Series D Preferred Stock
In July 1996, the Company completed an $8,350,000 private placement of 835
shares of a new class of preferred stock, Series D Convertible Preferred Stock,
par value $.01 per share ("Series D Preferred Stock"). Shares of Series D
Preferred Stock was convertible into Common Stock in increments of up to 1/3 of
Series D Preferred Stock purchased at the lesser of (i) $2.1406 per share or
(ii) (a) the average closing bid price of the Common Stock for the ten trading
days immediately prior to the conversion date multiplied by (b) a percentage
which is 90 percent from October 1, 1996 through November 29, 1996, 87.5 percent
from November 30, 1996 through January 28, 1997, and 85 percent thereafter. The
Company assigned a value of approximately $1,198,000 to the beneficial
conversion feature of the Series D Preferred Stock, which has been included as a
preferred stock dividend for purposes of calculating loss applicable to common
stockholders for the year ended December 31, 1996 in the accompanying
consolidated financial statements. See note 2. The Series D Preferred Stock did
not accrue dividends; however, each share possessed an 8 percent per annum
accretion rate prior to conversion which was payable in Common Stock upon
conversion or redemption at the conversion price then in effect. Any shares of
Series D Preferred Stock outstanding on August 2, 1999 were to
F-14
<PAGE> 58
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be subject to automatic conversion at the conversion rate then in effect. The
Company effected a Registration Statement on Form S-3 (Registration No.
333-10665), which registers up to 6,000,000 shares of Common Stock to be offered
by the holders of Series D Preferred Stock upon such holders' conversion of such
Series D Preferred Stock into Common Stock.
In connection with the Series D Preferred Stock, a five year warrant to
purchase 195,039 shares of Common Stock at $2.1406 per share was issued to the
placement agent for the offering as part of the placement fee.
During 1996, 250 shares of Series D Preferred Stock, having an aggregate
face value of $2,500,000, and an aggregate accretion value of $58,352, were
converted into 2,280,933 shares of Common Stock.
Series E and F Preferred Stock
In June 1997, the Company completed the private placement of $500,000
Series E Convertible Preferred Stock ("Series E Preferred Stock"). The Series E
Preferred Stock had substantially identical terms as the Series D Preferred
Stock. The proceeds of this placement were used to redeem $400,000 of Series D
Preferred Stock and a portion of the $600,000 principal amount of 1996
Debentures redeemed (see note 9). As discussed in note 10, in July 1997, the
holders of the 1996 Debentures, Series B Debenture, Series D Preferred Stock and
Series E Preferred Stock (the "Suspended Securities") agreed to a ninety day
suspension of conversion rights on 75% of their holdings beginning July 14,
1997. In exchange for the standstill agreement, the holders of the Series D and
Series E preferred stock received warrants to purchase 542,500 shares of the
Company's common stock at an exercise price of $0.70. The Company recorded a
discount of approximately $119,000 representing the estimated fair value of the
warrants provided for under this arrangement. These warrants provided as an
inducement to the holders of the Suspended Securities have been accounted for as
stock dividends to the Series D and E Preferred Stockholders. In connection with
the standstill agreement, the Company converted the outstanding shares of Series
D and Series E Preferred Stock into Series F Convertible Preferred Stock
("Series F Preferred Stock"). The Series F Preferred Stock had substantially
identical terms as the Series D and Series E Preferred Stock. Additionally, the
Company completed a private placement of $480,000 face amount of Series F
Preferred Stock in July 1997 with Antiope, the proceeds of which were used to
redeem $480,000 of existing Series D Preferred Stock from a stockholder.
During 1997, the Company converted a total of $3,590,000 face amount plus
$239,218 in accreted dividends of Series D, E and F Preferred Stock into
5,753,014 shares of common stock and redeemed for cash a total $1,350,000 face
amount.
Series G Preferred Stock and December 1997 Restructuring
In December 1997, in connection with the December 1997 Restructuring, the
Company completed a $7,897,353 private placement of Series G Preferred Stock
with stockholders of the Company. Proceeds from the private placement were as
follows: cash of $931,000; a short-term note receivable of $1,158,684 (which was
repaid in full in January and February 1998); forgiveness of accrued dividends
payable of $708,620 on Series A, B and C Series Preferred Stock; conversion of
$4,138,575 principal and $63,121 accrued interest from the informal borrowing
agreement (see note 9); and conversion of $860,000 face amount plus $37,353 of
accreted dividends in Series F Preferred Stock. In connection with the Series F
to Series G Preferred Stock conversion, the Company issued 897,353 shares of
common stock to the Series F Preferred Stockholders with a fair value of
approximately $236,000 as a conversion inducement. This conversion inducement
has been accounted for as a stock dividend to the Series F Preferred
Stockholders.
Additionally, in connection with the December 1997 Restructuring, $980,000
face amount of Series F Preferred Stock plus $112,768 in accrued dividends were
converted into a short-term note payable due in two installments in January and
September 1998. The remaining $75,000 face amount of Series F Preferred Stock
F-15
<PAGE> 59
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was converted into a 12% short-term note payable, with accrued interest at
December 31, 1997 of $17,759. In connection with these conversions, the Company
issued to the holders warrants to purchase 840,000 shares of the Company's
common stock at an exercise price of $0.50. The Company recorded a debt discount
of approximately $70,000 representing the estimated fair value of the warrants
provided for under this arrangement. This conversion inducement has been
accounted for as a stock dividend to the Series F Preferred Stockholders.
Series A, B and C Preferred Stock
The Company has three additional classes of convertible preferred stock,
Series A, B and C Convertible Preferred Stock, stated value $1.30, $1.42, and
$1.51, respectively. Each share of Series A, B, and C Convertible Preferred
Stock is convertible at the option of the holder into voting Common Stock on a
share for share basis and is entitled to vote as if converted into voting Common
Stock. The Company may redeem the preferred stock at anytime at stated value
plus accrued dividends.
The Series A and B Preferred Stock accrue dividends at the following rates
per annum: 0 percent through December 31, 1995; 5 percent January 1, 1996
through March 31, 1996; 7.5 percent April 1, 1996 through June 30, 1996 and 10
percent thereafter. Series C Preferred Stock accrues dividends at 0 percent per
annum through December 31, 1995 and 10 percent per annum thereafter. Dividends
are payable within 15 days following each calendar quarter in cash or in
additional shares of preferred stock at the option of the Company through June
30, 1996 (September 30, 1996 for Series C Preferred Stock). After June 30, 1996
(September 30, 1996 for Series C Preferred Stock), dividends are payable in cash
or additional shares of preferred stock at the option of the stockholders. There
were no dividends in arrears at December 31, 1997 and 1996.
A discount on the Series A, B, and C Convertible Preferred Stock was
recorded equal to the present value of the difference between the actual
dividends that would be paid and the 10 percent perpetual dividend amount,
calculated over the increasing dividend rate period. The discount was amortized
to provide a constant effective dividend rate. The 1996 and 1995 aggregate
discount amortization for all three series of preferred stock was $53,212, and
$73,234, respectively. The discount was fully amortized during 1996.
All series of preferred stock rank senior in right of payment to the
Company's Common Stock as to dividends or upon a liquidation or dissolution of
the Company.
(11) NOTES PAYABLE
On December 27, 1996, Sandia signed a $2,100,000 note payable to Xerox
Corporation ("Xerox") in connection with a license agreement for certain
technology. Initially, one-third of the note principal plus accrued interest was
due on December 15 of 1997, 1998 and 1999. The Company and Xerox have held
settlement discussions during the first quarter of 1998 in an effort to amicably
resolve their dispute. However, there can be no assurances that the Company will
prevail in any action or proceeding arising in connection with its dispute with
Xerox, or that an amicable resolution of such dispute would be possible. (See
note 18). Accordingly, the outstanding balance of $2,100,000 has been classified
as a current liability in the accompanying consolidated balance sheet.
The license fee of $2,100,000 has been recorded as a deferred license fee
and is being amortized over the three year term of the license agreement.
Accordingly, the Company has reflected the unamortized balance of $1,400,000 as
a noncurrent asset. In years following 1999, upon license renewal the Company
will pay a minimum royalty. The royalty on annual sales in excess of $10,000,000
is to be calculated using a declining percentage ranging from 4.5% to 3%.
F-16
<PAGE> 60
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The remaining balance in notes payable at December 31, 1997 includes short
term notes payable totaling $1,767,767 and long-term notes payable of $535,205
related to the December 1997 Restructuring transactions discussed at notes 9 and
10 and other, as follows:
<TABLE>
<S> <C>
Note payable issued to 1996 Debenture holder................ $ 600,000
Notes payable issued to Series F Preferred stockholders..... 1,167,767
Xerox note payable.......................................... 2,100,000
Other notes payable......................................... 74,728
----------
Total short-term notes payable.................... $3,942,495
==========
Long-term note payable issued to Series B debenture
holder.................................................... $ 535,205
==========
</TABLE>
(12) STOCK COMPENSATION PLANS
At December 31, 1997, the Company has four stock-based compensation plans
that are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized related to stock option grants since the intrinsic value of
stock options awarded is zero at the date of grant. Had compensation cost for
the Company's four stock-based compensation plans been determined based on the
grant date fair value method in accordance with SFAS No. 123, the Company's net
loss and net loss per share would have increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net loss applicable to common stock
As reported (as restated -- see note
2).................................. $(13,892,830) $(13,264,110) $(10,219,698)
Pro forma.............................. (14,140,970) (13,359,439) (10,268,031)
Basic and diluted net loss per common
share
As reported (as restated -- see note
2).................................. $ (0.31) $ (0.39) $ (0.37)
Pro forma.............................. (0.32) (0.34) (0.33)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: (i) expected
volatility of 90 and 92 percent, except that expected volatility is assumed to
be zero in the computation of fair value of the non-public subsidiary options
since such stock does not trade, (ii) risk-free interest of 6.5%, and (iii)
expected lives of 5 years for director options and 10 years for employee
options.
The Company had a key employee stock option plan (the 1981 Plan) that
terminated on November 29, 1991. Under the 1981 Plan, 93,066 shares of Common
Stock have been reserved for the outstanding options, all of which are
exercisable at a price of $.66 per share through December 21, 2000, when they
expire.
Under the Company's 1991 Employee Stock Option Plan, the Company may grant
up to 1,000,000 shares of Common Stock to its employees. The exercise price of
each option equals the market price of the Company's stock on the date of grant
and an option's maximum term is ten years. Options granted vest over a four year
period. In addition to employees, the Company has issued stock options to
various members of the Board of Directors and officers of the Company. The
exercise price of each option equals the average market price of the Company's
stock during the thirty trading days immediately prior to the date of grant and
the option term is five years. Options are generally granted each year and have
various vesting requirements.
F-17
<PAGE> 61
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has separate Employee Stock Option Plans for each of its
subsidiary companies. The Sandia unit, under its 1994 Employee Stock Option
Plan, may grant up to 2,000,000 shares of its common stock to employees of
Sandia. The LMC unit, under its 1995 Employee Stock Option Plan, may grant
450,000 shares of its common stock to LMC employees. Under both plans, the
exercise price of each option equals or exceeds the estimated fair value of the
subsidiary's stock on the date of grant and an option's maximum term is 10
years. Options are generally granted each year and vest over a four year period.
In addition to employees, each subsidiary has issued stock to its Board of
Directors and officers. The exercise price of each option equals or exceeds the
estimated fair value of each subsidiary's stock on the date of grant and the
option's maximum term is five years.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
LASERTECHNICS, INC. SHARES EXERCISE PRICE
------------------- ---------- ----------------
<S> <C> <C>
Balance outstanding at December 31, 1994................ 2,624,743 $0.69
Granted............................................... 127,587 1.42
Exercised............................................. (627,212) 0.73
Forfeited............................................. (1,417,956) 0.50
---------- -----
Balance outstanding at December 31, 1995................ 707,162 1.19
Granted............................................... 70,000 1.80
Exercised............................................. (69,228) 1.06
Forfeited............................................. (92,374) 1.07
---------- -----
Balance outstanding at December 31, 1996................ 615,560 1.29
Granted............................................... -- --
Exercised............................................. -- --
Forfeited............................................. (61,595) 1.36
---------- -----
Balance outstanding at December 31, 1997................ 553,965 $1.29
========== =====
</TABLE>
At December 31, 1997, 1996, and 1995, there were 518,965, 528,060 and
647,245 Lasertechnics, Inc. options exercisable, respectively. Weighted-average
fair values of Lasertechnics, Inc. options granted during the year ended
December 31, 1996 and 1995 were $1.60 and $1.20 per share, respectively.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SUBSIDIARIES SHARES EXERCISE PRICE
------------ --------- ----------------
<S> <C> <C>
Balance outstanding at December 31, 1994................. 227,500 $0.09
Granted................................................ 40,000 0.50
Exercised.............................................. (45,000) 0.01
Forfeited.............................................. (45,000) 0.06
--------- -----
Balance outstanding at December 31, 1995................. 177,500 0.20
Granted................................................ 1,260,675 0.97
Exercised.............................................. (10,000) 0.01
Forfeited.............................................. (153,000) 0.93
--------- -----
Balance outstanding at December 31, 1996................. 1,275,175 0.88
Granted................................................ 515,000 1.00
Exercised.............................................. (10,000) 0.01
Forfeited.............................................. (455,100) 0.96
--------- -----
Balance outstanding at December 31, 1997................. 1,325,075 $0.90
========= =====
</TABLE>
F-18
<PAGE> 62
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31,1997, 1996 and 1995, there were 394,087, 249,747, and 95,208
subsidiary options exercisable, respectively. Weighted-average fair values of
subsidiary options granted during the years ended December 31, 1997, 1996 and
1995 were $0.35, $0.53 and $0.28 per share, respectively.
The following table summarizes information about the stock options
outstanding at December 31,1997. Certain ranges of exercise prices overlap
because of the significant difference in contracted lives.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WT. AVE.
NUMBER REMAINING WT. AVE. NUMBER WT. AVE.
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE OUTSTANDING EXERCISE
EXERCISE PRICES AT 12/31/97 LIFE/YEARS PRICE AT 12/31/97 PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Lasertechnics, Inc.
$0.66 to $0.66.......................... 93,066 3.0 $0.66 93,066 $0.66
$1.00 to $1.29.......................... 67,375 5.8 1.04 67,375 1.04
$1.22 to $1.81.......................... 322,624 1.3 1.44 310,124 1.42
$1.58 to $1.79.......................... 70,900 7.8 1.64 48,400 1.63
--------- -------
$0.66 to $1.81.......................... 553,965 3.0 1.29 518,965 1.25
========= =======
Subsidiaries
$0.01 to $0.01.......................... 75,000 0.9 $0.01 75,000 $0.01
$1.50 to $1.00.......................... 1,250,075 8.9 0.95 319,087 0.89
--------- -------
$0.01 to $1.00.......................... 1,325,075 8.4 0.90 394,087 0.72
========= =======
Consolidated
$0.01 to $1.81.......................... 1,879,040 6.8 $1.01 913,052 $1.02
========= =======
</TABLE>
(13) COMMITMENTS AND CONTINGENCIES
The Company has entered into license agreements that provide for royalty
payments based on various percentages of certain product sales. Royalty expense
under these agreements for the years ended December 31, 1997, 1996 and 1995 was
approximately $275,000, $126,000 and $151,000, respectively.
On February 28, 1996, an investor group filed suit against the Company.
This lawsuit arises out of the Company's refusal to recognize the investor
group's attempt to exercise an option to purchase 1,400,000 shares of Common
Stock at $.495 per share. The option had been granted to the Company's former
President and CEO who attempted to transfer his option to the investor group on
the last day of the option term in September 1995. On that same day the investor
group attempted to exercise the option. The Company refused to recognize the
attempted transfer of the option to the investor group on the primary grounds
that the option was granted personally to the Company's former President and CEO
and was not transferable to third parties. The lawsuit seeks issuance and
registration of the 1,400,000 shares upon payment of the exercise price, or in
the alternative, monetary damages which the investor group alleges to be not
less than $2,800,000. The Company believes the claim is without merit and will
vigorously oppose it. At December 31, 1997, management estimates that the
ultimate outcome of this claim will not have a material adverse effect upon the
Company's financial position or results of operations. Management's estimates
could change depending upon the progress of the lawsuit.
On March 15, 1996, LMC was notified about a potential future patent
infringement claim by a competitor relating to LMC's electronic code changing
device. LMC does not believe that its product infringes on the identified
patent, but it is in the process of investigating the merits of the asserted
claim. Management currently estimates that the ultimate outcome of this claim
will not have a material adverse effect upon the Company's financial position or
results of operations. Management's evaluation may change depending upon the
results of its investigation.
F-19
<PAGE> 63
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is also involved in various other claims and lawsuits which are
generally incidental to its business. The Company is vigorously contesting all
such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
(14) TERMINATION OF MANUFACTURING AGREEMENT
In 1993, the Company engaged Wolfensohn International, Inc., a subsidiary
of James D. Wolfensohn, Inc., which is an affiliate of a significant
stockholder, Wolfensohn Associates, L.P. (Wolfensohn), to provide advisory and
investment banking services with respect to a possible strategic alliance with a
third party to develop and manufacture the Company's products. On May 13, 1994,
Sandia and Singapore Precision Industries (SPI), a unit of Singapore Technology
Industrial Corporation, the technology manufacturing arm of the Singapore
government, entered into a contract manufacturing agreement and a distribution
agreement whereby SPI became a licensed distributor of Sandia products.
Concurrently, SPI purchased 826,447 shares of Common Stock for $1,000,000.
Pursuant to the agreement with Wolfensohn the Company paid Wolfensohn $50,000
during 1994 based upon the $1,000,000 SPI stock purchase transaction. The
Company does not anticipate that any additional fees will be paid to Wolfensohn
International, Inc. pursuant to this agreement.
In the third quarter of 1995 the Company instructed SPI to discontinue
production, and subsequently began negotiations with SPI to terminate the
manufacturing agreement pursuant to the cancellation provisions of the contract.
The negotiations were not completed until the second quarter of 1996. In
settlement of all outstanding claims under this agreement, which included
payment for units already produced and parts inventory, the Company agreed to
pay $1,525,000 to SPI. As part of the settlement, the Company received plastic
card printers and parts having an estimated net realizable value of $525,000. As
a result, the Company recorded an expense of $1 million in the second quarter of
1996 as a cost of settling the dispute.
The Company had previously paid SPI $465,000 for amounts due for units
produced. The remaining amount was paid in 1996 after completion of the
negotiations.
(15) INCOME TAXES
Due to the Company's losses, no income tax expense was recorded for the
years ended December 31, 1997, 1996 and 1995. At December 31, 1997, the Company
had a net operating loss carryforward of approximately $46,000,000 for U.S.
federal income tax purposes, which will begin expiring in 1998. Of this federal
net operating loss carryforward approximately $9,125,000 is available for state
income tax purposes. The tax benefit (approximately $15,700,000) of the net
operating loss carryforward has been fully offset by a valuation allowance,
since the Company cannot currently conclude that it is more likely than not that
the benefit will be realized. The valuation allowance increased by approximately
$2,440,000 during 1997. Because of conversions of existing convertible debt, a
change in ownership, as defined for purposes of the Internal Revenue Code,
occurred in 1996 that limits the annual utilization of the U.S. federal net
operating loss carryforward under applicable Internal Revenue Service
regulations. The annual limitation, as defined under Internal Revenue Code (IRC)
Section 382, is computed pursuant to such IRC section and considers the fair
market value of the corporation on the ownership change dates and the federal
long-term tax exempt interest rate. Additionally, the Company had approximately
$400,000 of research and development carryforward. The carryforwards expire from
1998 to 2006. The credit carryforwards will also be restricted in their usage as
a result of the ownership change.
F-20
<PAGE> 64
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) SEGMENT INFORMATION
Export sales totaled approximately $4,431,054, $9,409,624 and $5,333,443 in
1997, 1996 and 1995, respectively. Such export sales were to the following
geographic regions:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Europe......................................... $ 870,328 $1,692,523 $1,980,847
Asia-Pacific................................... 3,045,781 7,437,154 3,256,877
Other.......................................... 514,945 279,947 95,719
---------- ---------- ----------
$4,431,054 $9,409,624 $5,333,443
========== ========== ==========
</TABLE>
Business Segments
The Company operates with its product groups organized into two business
segments: imaging and marking. Imaging operations involve the sale of plastic
card printers. Operations in marking involve the production and sale of laser
systems which mark products with a serial number, logo or bar code.
Operating results and other financial data are presented in the information
which follows for the principal business segments of the Company for the years
ended December 31, 1997, 1996 and 1995. General corporate assets and expenses
are allocated to the respective business segments. Assets used by the respective
segments are located at the operating units of the respective segments and there
are no general corporate assets. General corporate expenses are allocated based
on the estimated usage of financial resources by the respective segments.
<TABLE>
<CAPTION>
IMAGING MARKING CONSOLIDATED
(SANDIA) (LMC) COMPANY
----------- ----------- ------------
<S> <C> <C> <C>
1997:
Sales................................ $ 4,353,318(a) $ 6,765,021(b) $ 11,118,339
Loss from operations................. (8,383,449) (1,808,445) (10,191,894)
Identifiable assets(c)............... 8,934,768 5,750,644 14,685,412
Capital expenditures................. 178,212 (109,953) 68,259
Depreciation......................... 417,489 92,359 509,848
1996:
Sales................................ $ 8,197,639(a) $ 9,383,801(b) $ 17,581,440
Loss from operations................. (8,642,620) (981,376) (9,623,996)
Identifiable assets(c)............... 9,941,186 7,720,671 17,661,857
Capital expenditures................. 654,832 128,962 783,794
Depreciation......................... 459,860 265,999 725,859
1995:
Sales................................ $ 3,121,577 $10,308,154 $ 13,429,731
Loss from operations................. (7,934,839) (195,374) (8,130,213)
Identifiable assets(c)............... 5,844,770 8,797,832 14,642,602
Capital expenditures................. 640,528 354,990 995,518
Depreciation......................... 133,991 218,466 352,457
</TABLE>
- ---------------
(a) Sales of imaging products to two customers were $688,198 and $722,000 in
1997, which represents 16% and 17% of imaging sales for that year. Sales to
the same two customers were $5,122,000 and $1,107,000 in 1996, which
represents 63% and 14% of imaging sales for that year. Additionally, sales
to another customer were $506,000, which represents 12% of imaging sales in
1997.
(b) Sales of marking products to a single customer were $1,139,000, $3,153,000
and $2,171,000 in 1997, 1996 and 1995, which represents 17%, 34%, and 21%
of marking sales, respectively.
F-21
<PAGE> 65
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Identifiable assets by business segment are those assets used in the
Company's operations in each segment.
GEOGRAPHIC SEGMENTS
The Company operates primarily in the United States and France.
Operating results and other financial data are presented in the information
which follows for the principal geographic segments of the Company.
<TABLE>
<CAPTION>
UNITED INTERCOMPANY
STATES(G) FRANCE ACTIVITY(F) CONSOLIDATED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
1997:
Sales........................ $10,953,416 $ 1,720,205 $(1,555,282) $11,118,339
Loss from operations......... (8,291,174) (1,674,849) (225,871)
Identifiable assets(e)....... 15,103,387 1,486,049 (1,904,024) 14,685,412
1996:
Sales........................ $18,320,335(a) $ 7,143,779(b) $(7,882,674) $17,581,440
Loss from operations......... (6,989,549) (1,927,536) (706,911) (9,623,996)
Identifiable assets(e)....... 17,470,744 2,535,828 (2,344,715) 17,661,857
1995:
Sales........................ $11,730,377(a) $ 2,549,943 (850,589) 13,429,731
Loss from operations......... (6,565,747) (1,557,388) (7,078) (8,130,213)
Identifiable assets(e)....... 12,356,388 2,520,500 (234,286) 14,642,602
</TABLE>
Sales between geographic regions are recorded at amounts above cost in
accordance with the rules and regulations of the governing tax authorities.
(e) Identifiable assets by geographic segment are those assets used in the
Company's operations in each segment.
(f) Intercompany activity is eliminated in consolidation.
(g) All corporate activity and assets are included in the United States
geographic segment.
F-22
<PAGE> 66
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(17) QUARTERLY FINANCIAL DATA (UNAUDITED -- AS RESTATED (NOTE 2))
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
1997:
Net revenues................... $ 4,589,787 $ 2,591,537 $ 1,982,489 $ 1,954,526
Operating income (loss)........ $(1,297,126) $(2,202,775) $(3,925,433) (2,766,560)
Net loss applicable to common
stock....................... $(1,630,226) $(3,094,533) $(4,459,747) $(4,708,324)
Basic and diluted net loss per
share....................... $ (0.04) $ (0.07) $ (0.10) $ (0.10)
1996:
Net revenues................... $ 4,111,701 $ 3,454,222 $ 7,252,217 $ 2,763,300
Operating income (loss)........ $(1,750,246) $(3,230,530) $(2,100,109) $(2,543,111)
Net loss applicable to common
stock....................... $(2,144,870) $(4,406,255) $(3,234,236) $(3,478,749)
Basic and diluted net loss per
share....................... $ (0.07) $ (0.13) $ (0.09) $ (0.10)
1995:
Net revenues................... $ 3,266,475 $ 3,496,314 $ 3,181,409 $ 3,485,533
Operating income (loss)........ $(1,652,719) $(2,311,655) $(1,613,883) $(2,551,956)
Net loss applicable to common
stock....................... $(1,775,527) $(2,575,240) $(1,866,174) $(4,002,757)
Basic and diluted net loss per
share....................... $ (0.07) $ (0.10) $ (0.07) $ (0.15)
</TABLE>
(18) SUBSEQUENT EVENTS (UNAUDITED)
(a) Nasdaq Listing.
In August 1997, the Securities and Exchange Commission approved
certain changes to the continued listing requirements of the Nasdaq
SmallCap Market. Two such rule changes, which became effective February 22,
1998, require an issuer to maintain a minimum bid price of $1 per share for
its listed securities and to maintain a minimum of $2 million in net
tangible assets. A special stockholders' meeting was held on March 31,
1998, at which time the stockholders approved, among other things, a
1-for-20 reverse split. As of April 2, 1998, the first full trading day
after the Company gave notice to Nasdaq that the reverse stock split was
approved by its stockholders, the closing bid price of the Common Stock was
$5.00 per share, which is in excess of the minimum bid price of $1.00 per
share established by the new Nasdaq listing requirements. Further, by
letter dated April 15, 1998, Nasdaq advised the Company that it was in
compliance with the new Nasdaq listing requirements and approved the
Company's continued listing on Nasdaq. Subsequent to December 31, 1997,
Antiope and Amphion purchased $1.9 million in Series G Preferred Stock.
Additionally, Amphion committed to purchase up to an additional $5.5
million of Series G or certain other new preferred stock to fund the
Company's operations and provide for the continued maintenance of the
Company's net tangible assets above the Nasdaq minimum requirement. As of
February 28, 1998, the Company's net tangible assets were in excess of the
$2 million Nasdaq requirement. While management believes that the Company
will be able to preserve the listing of the Common Stock on the Nasdaq
SmallCap Market, there can be no assurance that the Company will be able to
do so.
F-23
<PAGE> 67
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Name Change.
At a special meeting of stockholders held on March 31, 1998, the
stockholders approved a proposal to amend the Company's Certificate of
Incorporation to change the Company's name to AXCESS Inc. Further, in
connection with the name change, the Company changed its trading symbol on
the Nasdaq SmallCap Market to "AXSI."
(c) Xerox Settlement.
The Company and Xerox have entered into a settlement agreement
pursuant to which the Company has agreed to pay Xerox $1.47 million of a
license fee for certain technology and issue Xerox 120,000 (post reverse
split) shares of Common Stock. Xerox has agreed not to sell any of these
shares until December 1999, at which time shares may be subject to certain
limitations. The Company will fund the payment to Xerox from proceeds
received from Amphion Ventures under the terms of a two-year loan which
bears interest at the rate of 10% per annum. In addition, Amphion Ventures
will receive, as a loan origination fee, (i) 15,120 shares of restricted
Common Stock and (ii) 3-year warrants to purchase 14,700 shares of Common
Stock with an exercise price of $5.00 per share.
F-24
<PAGE> 68
SCHEDULE II
LASERTECHNICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Reserves and allowance deducted from asset
accounts-allowance for doubtful
accounts................................. $357,136 $1,058,572 $(1,034,797)(a) $380,911
======== ========== =========== ========
Product Warranty Reserve.................... $516,783 $ 382,795 $ (254,523)(b) $645,055
======== ========== =========== ========
For the year ended December 31, 1996:
Reserves and allowance deducted from asset
accounts-allowance for doubtful
accounts................................. $278,263 $ 248,489 $ (169,616)(a) $357,136
======== ========== =========== ========
Product Warranty Reserve.................... $256,003 $ 639,606 $ (378,826)(b) $516,783
======== ========== =========== ========
For the year ended December 31, 1995:
Reserves and allowance deducted from asset
accounts-allowance for doubtful
accounts................................. $170,010 $ 115,375 $ (7,122)(a) $278,263
======== ========== =========== ========
Product Warranty Reserve.................... $261,138 $ 338,250 $ (343,858)(b) $256,003
======== ========== =========== ========
</TABLE>
- ---------------
(a) Charge-Offs
(b) Actual costs incurred
S-1
<PAGE> 69
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
---------- -----------
3.1 --Certificate of Incorporation of the Company.
Incorporated herein by reference to Exhibit 3.1 to
the Company's Registration Statement on Form S-1
(Registration No. 2-80946).
3.2 --By-laws of AXCESS. Incorporated herein by
reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 2-80946).
3.3 --First Amendment to Certificate of Incorporation of
AXCESS dated June 6, 1986. Incorporated herein by
reference to Exhibit 3.3 to the Company's Annual
Report on Form 10-KSB for the year ended December 31,
1987.
3.4 --Second Amendment to Certificate of Incorporation of
AXCESS, dated May 27, 1987. Incorporated herein by
reference to Exhibit 3.4 to the Company's Annual
Report on Form 10-KSB for the year ended December 31,
1987.
3.5 --Third Amendment to Certificate of Incorporation of
AXCESS, dated November 11, 1994. Incorporated herein
by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-3 (Registration No.
333-10665).
3.6 --Fourth Amendment to Certificate of Incorporation of
AXCESS, dated July 28, 1995. Incorporated herein by
reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-3 (Registration No. 333-10665).
3.7 --Fifth Amendment to Certificate of Incorporation of
AXCESS, dated June 17, 1996. Incorporated herein by
reference to Exhibit 4.6 to the Company's Registration
Statement on Form S-3 (Registration No. 333-10665).
3.8 --Sixth Amendment to Certificate of Incorporation of
AXCESS dated March 31, 1998. Incorporated herein by
reference to Exhibit 99.1 to the Company's Report on
Form 8-K dated April 13, 1998.
3.9 --Seventh Amendment to Certificate of Incorporation
of AXCESS dated March 31, 1998. Incorporated herein
by reference to Exhibit 99.2 to the Company's Report
on Form 8-K dated April 13, 1998.
3.10 --Eighth Amendment to Certificate of Incorporation of
AXCESS dated April 9, 1998. Incorporated herein by
reference to Exhibit 99.3 to the Company's Report on
Form 8-K dated April 13, 1998.
4.1 --Certificate of Designation of the Company's Series
A, B and C Preferred Stock, dated December 27, 1995.
Incorporated herein by reference to Exhibit 4.7 to
the Company's Registration Statement on Form S-3
(Registration No. 333-10665).
4.2 --Certificate of Designation of the Company's Series
D Preferred Stock. Incorporated herein by reference
to Exhibit 4.1 to the Company's Quarterly Report on
Form 10-QSB for the period ended June 30, 1996.
<PAGE> 70
4.3 --Certificate of Designation of the Company's Series E
Preferred Stock. Incorporated by reference to Exhibit
4.3 to the Company's Quarterly Report on Form 10-QSB
for the period ended September 30, 1997.
4.4 --Certificate of Designation of the Company's Series F
Preferred Stock and Certificate of Correction.
Incorporated by reference to Exhibit 4.4 to the
Company's Quarterly Report on Form 10-QSB for the
period ended September 30, 1997.
4.5 --Certificate of Designation of the Company's Series
G Preferred Stock. Incorporated herein by reference to
Exhibit 4.5 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997.
10.1 --License agreement, dated June 30, 1988, between
the Company and Patlex Corporation. Incorporated
herein by reference to Exhibit 10.17 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1988.
10.2 --Employment agreement dated August 31, 1989, between
Louis F. Bieck, Jr. and AXCESS Inc. as amended.
Incorporated herein by reference to Exhibit 10.17 the
Company's Form 10-KSB for the year ended December 31,
1990.
10.3 --1991 Incentive Stock Option Plan, dated August 14,
1991. Incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1991.
10.4 --Purchase Agreement between Sandia Europe and
Jean-Luc Poutchnine, Alain Quilleau and Philippe
Bonnevie, dated March 4, 1994. Incorporated herein by
reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-KSB for the year ended December 31,
1994.
10.5 --Letter confirming sale of shares of AXCESS Common
Stock to Singapore Precision Industries PTE LTD, dated
May 12, 1994. Incorporated herein by reference to
Exhibit 10.16 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994.
10.6 --Advisory and investment banking services agreement
between AXCESS and Wolfensohn International, Inc.,
dated May 19, 1993. Incorporated herein by reference
to Exhibit 10.18 to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1994.
10.7 --Purchase of Common Stock and Convertible Note
Agreement between the Company and J.P. Morgan
Investment Corporation, dated July 8, 1994.
<PAGE> 71
Incorporated herein by reference to Exhibit 10.19 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.8 --OEM License Agreement between Sandia and Xerox
Corporation, dated January 6, 1995. Incorporated
herein by reference to Exhibit 10.20 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.9 --Demand Promissory Note issued to J.P. Morgan
Investment Corporation, dated December 19, 1994.
Incorporated herein by reference to Exhibit 10.21 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.10 --Demand Promissory Note issued to J.P. Morgan
Investment Corporation, dated December 31, 1994.
Incorporated herein by reference to Exhibit 10.22 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994.
10.11 --Amendment to the OEM License Agreement between
Sandia and Xerox Corporation, dated December 27,
1996. Incorporated by reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996.
10.12 --Demand Promissory Note issued to Wolfensohn
Associates L.P., dated March 27, 1997. Incorporated
by reference to Exhibit 10.13 to the Company's
Quarterly Report on Form 10-QSB for the period ended
September 30, 1997.
10.13 --Warrant to purchase shares of the Company's Common
Stock issued to Wolfensohn Associates L.P., dated
March 27, 1997. Incorporated by reference to Exhibit
10.14 to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
10.14 --Note Purchase Agreement dated June 25, 1997, by and
among AXCESS, J.P. Morgan Investment Corporation and
Wolfensohn Associates L.P. Incorporated by reference
to Exhibit 10.15 to the Company's Quarterly Report on
Form 10-QSB for the period ended September 30, 1997.
10.15 --Intellectual Property Transfer Agreement dated
January 8, 1998, by and between XL Vision, Inc. and
Sandia Imaging Systems Corporation. Incorporated
herein by reference to Exhibit 10.15 to the Company's
Annual Report on Form 10-KSB for the year ended
December 31, 1997.
10.16 --Amendment to Notes and Note Purchase Agreement
dated December 31, 1997, by and among the Company,
Antiope Partners L.L.C. and J.P. Morgan Investment
Corporation.*
10.17 --Series G Preferred Stock Purchase Agreement dated
December 29, 1997, by and among the Company and
Amphion Ventures L.P.*
10.18 --Pledge Agreement dated August 18, 1997, by and
among the Company, Antiope Partners L.L.C. and J.P.
Morgan Investment Corporation.*
10.19 --Preferred Stock Exchange Agreement dated January
8, 1998, by and among the Company, Antiope Partners
L.L.C. and H.T. Ardinger.*
10.20 --Form of Warrant to purchase shares of the Company's
Common Stock issued to Antiope Partners L.L.C. and
Amphion Ventures L.P.*
10.21 --Settlement Agreement dated as of April 20, 1998, by
and between the Company and Xerox Corporation.*
21 --Subsidiaries of the Company. Incorporated herein by
reference to Exhibit 21 to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1997.
23 --Consent and Report Schedule of KPMG Peat Marwick
LLP.*
<PAGE> 72
27 -- Financial Data Schedule. Incorporated herein by
reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-KSB for the year ended December
31, 1997.
------------------
*Filed herewith.
<PAGE> 1
Exhibit 10.16
LASERTECHNICS, INC.
3208 COMMANDER DRIVE
CARROLLTON, TEXAS 75006
December 29, 1997
Amphion Ventures L.P. ("Ventures II")
Antiope Partners L.L.C. ("Partners")
c/o Jackson Hole Management Company
590 Madison Avenue, 32nd Floor
New York, New York 10022
J.P. Morgan Investment Corporation ("JPMIC")
60 Wall Street
New York, New York 10260
AMENDMENT TO NOTES AND NOTE PURCHASE AGREEMENT
Dear Sirs:
This letter sets forth certain amendments to (i) the Note
Purchase Agreement dated as of June 25, 1997 (the "Original Note Purchase
Agreement"), among Lasertechnics, Inc., a Delaware corporation (the "Company"),
Antiope Partners L.L.C. (formerly, Wolfensohn Partners, L.P.) ("Partners") and
J.P. Morgan Investment Corporation ("JPMIC"), which Note Purchase Agreement was
assigned by Partners to Amphion Ventures L.P. (formerly Wolfensohn Associates II
L.P.) ("Ventures II") by Assignment Agreement dated as of August 19, 1997 and
(ii) the several Senior Promissory Notes issued and sold by the Company pursuant
to the Original Note Purchase Agreement. Capitalized terms used herein and not
otherwise defined are used as defined in the Original Note Purchase Agreement,
as modified and amended herein.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be bound hereby, hereby agree to amend the Original Note Purchase Agreement, the
Senior Promissory Notes and the Pledge Agreement, as follows:
1. EXTENSION OF FINAL MATURITY DATE. The Final Maturity Date
under the Note Purchase Agreement and each of the Senior Promissory Notes is
hereby extended to December 31, 1998, for all purposes of the Note Purchase
Agreement, the Senior Promissory Notes and the Pledge Agreement, except as
expressly provided in paragraph 2 of this Amendment to Note Purchase Agreement.
<PAGE> 2
Lasertechnics, Inc.
Amendment to Note Purchase Agreement
Page 2 of 10
2. ADDITIONAL CONSIDERATION. Notwithstanding the extension of
the Final Maturity Date as provided herein, on December 31, 1997, the Company
shall pay and deliver to each registered holder of the Senior Promissory Notes
the additional consideration provided for in paragraph 7 of the Original Note
Purchase Agreement, with respect to any and all Senior Promissory Notes
outstanding on such date.
3. RIGHT TO EXCHANGE NOTES. The exchange right set forth in
paragraph 9 of the Original Note Purchase Agreement is hereby terminated, and
the Original Note Purchase Agreement is hereby amended to delete such paragraph
9 in its entirety.
4. INTEREST RATE. The Senior Promissory Note issued to JPMIC
is hereby amended to increase the Base Interest Rate thereunder from 6.64% per
annum to 10.00% per annum, effective January 1, 1998. The Base Interest Rate
payable under the Senior Promissory Note(s) issued to Partners and/or Ventures
II will remain at 10.00% per annum.
5. MISCELLANEOUS. (a) Except to the extent modified and
amended herein, the terms and provisions of the Original Note Purchase
Agreement, Senior Promissory Notes and Pledge Agreement shall remain in full
force and effect as originally executed. All references in the Senior Promissory
Notes, the Pledge Agreement or any other instrument or agreement to the Note
Purchase Agreement shall be deemed for all purposes to refer to the Note
Purchase Agreement as amended hereby.
(b) This Amendment and the amendments and modifications
provided for herein shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
(c) This Amendment may be executed in any number of
counterparts and on separate counterparts, each of which shall be an original
instrument, but all of which together shall constitute a single agreement. One
or more signature pages from any counterpart of this Amendment may be attached
to any other counterpart of this Amendment without in any way changing the
effect thereof.
<PAGE> 3
If the foregoing correctly sets forth your understanding of
our agreement, please so indicate by signing and returning to the Company the
enclosed counterpart of this Amendment.
Very truly yours,
LASERTECHNICS, INC.
By: /s/
---------------------------------
Name:
Title:
Each of the undersigned agrees with and
accepts the foregoing terms and provisions
as of the date first above written.
AMPHION VENTURES L.P.
By: Amphion Partners L.L.C., its general partner
By: /s/
-----------------------------------------
Managing Member
ANTIOPE PARTNERS L.L.C.
By: /s/
-----------------------------------------
Managing Member
J.P. MORGAN INVESTMENT CORPORATION
By: /s/
-----------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.17
LASERTECHNICS, INC.
3208 Commander Drive
Carrollton, Texas 75006
December 29, 1997
Amphion Ventures L.P.
c/o Jackson Hole Management Co.
590 Madison Avenue
32nd Floor
New York, New York 10022
Series G Preferred Stock Purchase Agreement
Dear Sirs:
This letter sets forth the terms and conditions on which
Lasertechnics, Inc., a Delaware corporation (the "Company"), is issuing and
selling to Amphion Ventures L.P., a Delaware limited partnership (the
"Purchaser"), on and as of the date hereof, 700 shares of Series G Preferred
Stock of the Company, par value $.01 per share ("Series G Preferred Stock"),
for an aggregate purchase price equal to SEVEN MILLION DOLLARS ($7,000,000),
payable as provided herein.
1. Purchase of Shares; Purchase Price; Effectiveness;
Delivery. The Purchaser hereby subscribes for and purchases from the Company,
and the Company hereby issues and sells to the Purchaser, 700 shares (the
"Shares") of Series G Preferred Stock. The purchase price for each Share shall
be $10,000, payable in cash or, at the option of the Purchaser, by cancellation
of indebtedness of the Company to the Purchaser in an aggregate amount
(including principal and accrued interest) equal to such purchase price, or any
combination of the foregoing. In addition, the Purchaser shall have the right
to offset a portion of the purchase price for the Shares, aggregating
approximately $709,000, against the Company's obligation to pay previously
accrued and unpaid cash dividends on outstanding shares of Series A, Series B,
and/or Series C Preferred Stock of the Company held the Purchaser on December
31, 1997 (the "Effective Date"), and to pay a portion of such total purchase
price, not to exceed an aggregate of $1,500,000, by delivery of the Purchaser's
unconditional promissory note, payable on demand, in principal amount equal to
the portion of the purchase price so paid. The Purchaser has elected to pay
the purchase price for the Shares in the manner set forth on Schedule I
attached hereto, including the cancellation of indebtedness under one or more
bridge loans heretofore made to the Company by the Purchaser in the aggregate
principal amount set forth on Schedule I, together with accrued unpaid interest
on such bridge loan(s) in the aggregate amount set forth thereon (collectively,
"Canceled Indebtedness"). The purchase and sale of Shares hereunder shall be
<PAGE> 2
Lasertechnics, Inc.
Series G Preferred Stock Purchase Agreement
December 29, 1997
Page 2 of 8
effective as of the Effective Date (subject to the filing of the Certificate of
Designation of the Series G Preferred Stock in the office of the Secretary of
State of the State of Delaware (the "Series G Certificate of Designation"),
which filing may occur subsequently to the Effective Date without effecting the
rights and obligations of the parties hereto). On and as of the Effective
Date, the Canceled Indebtedness shall automatically be canceled, satisfied and
discharged in full, and the Purchaser shall be the due and valid holder of
record of the Shares. On and as of the Effective Date, the Company shall
execute and deliver to the Purchaser a stock certificate in proper form
representing the Shares, and the Purchaser shall deliver to the Company any and
all promissory notes (including master notes) evidencing the Canceled
Indebtedness, duly endorsed for cancellation.
2. Right to Exchange Shares. If the Company consummates
an equity financing with any third party at any time on or before December 31,
1999, which equity financing raises at least $3,000,000 in cash (a "Qualified
Equity Financing"), the Purchaser will have the non-assignable right,
exercisable by written notice to the Company given at any time within 30 days
after the date of the closing of such equity financing, to exchange the Shares
in whole or in part, for shares ("Exchange Shares") of a new series of
preferred stock of the Company (the "Exchange Preferred"), on the following
basis:
(a) If the securities issued in such Qualified Equity
Financing (the "New Securities") are convertible into Common Stock,
the Exchange Preferred will be convertible into Common Stock at a
conversion price equal to the lesser of (x) the conversion price then
applicable under the Series G Preferred Stock and (y) the conversion
price then applicable under the New Securities.
(b) All other terms of the Exchange Preferred will be
economically equivalent to the terms of the New Securities, determined
as if the New Securities had been issued on the date hereof. The
Exchange Preferred will be on parity with the New Securities for all
purposes, and will vote together with the New Securities for all
purposes, except as otherwise required by law.
(c) If the Purchaser exchanges any Shares pursuant to
this paragraph 2, it shall be entitled to any additional rights and/or
consideration with respect to the Exchange Shares (including, without
limitation, rights of first refusal, warrant coverage or payment of
attorneys' fees) as the purchasers of New Securities shall be entitled
to under the Quality Equity Financing.
<PAGE> 3
Lasertechnics, Inc.
Series G Preferred Stock Purchase Agreement
December 29, 1997
Page 3 of 8
(d) The number of Exchange Shares issuable to the
Purchaser pursuant to any exchange of Shares hereunder will be the
number of shares of Exchange Preferred that the Purchaser could have
purchased on the date hereof for a purchase price equal to the
aggregate purchase price hereunder of the Shares to be exchanged
therefor, payable in cash (determined on a basis so that the cash
purchase price of the Exchange Shares and the cash purchase price of
the New Securities are economically equivalent).
(e) If the Purchaser exchanges any Shares pursuant to
this paragraph 2, such exchange will not result in an increase in the
conversion price above $.50 per share.
3. Securities Act Legend; Registration Rights. (a) The
Shares (and any Exchange Shares) will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"). Certificates representing the
Shares (and any Exchange Shares) shall bear a restrictive legend substantially
to the effect of the following:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, OR APPLICABLE STATE
SECURITIES LAWS, NOR THE SECURITIES LAWS OF ANY OTHER
JURISDICTION. THEY MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THOSE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION THEREFROM."
(b) The Purchaser shall have the same registration rights
with regard to any shares of Common Stock issuable upon conversion of the
Shares (or, subject to any limitations applicable to the New Securities in the
Qualified Equity Financing, any Exchange Shares) as Wolfensohn Associates L.P.
("WALP") was entitled to pursuant to the Stock Purchase Agreement dated as of
January 20, 1994 (the "Prior Agreement"), between the Company and WALP. The
Company shall have the same expense, indemnification and other obligations to
the Purchaser with respect to such registration rights as the Company owed to
WALP under the Prior Agreement. The Company and the Purchaser shall enter into
a registration rights agreement in customary form to confirm the registration
rights provided for in this paragraph, as soon as practicable after the date
hereof.
4. Representations and Warranties by the Company. The
Company hereby represents and warrants to the Purchaser as follows:
<PAGE> 4
Lasertechnics, Inc.
Series G Preferred Stock Purchase Agreement
December 29, 1997
Page 4 of 8
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
and has the corporate power and authority to execute and deliver this
Agreement, to issue the Shares (and, if applicable, the Exchange
Shares) on the basis described herein and otherwise to perform its
obligations under this Agreement.
(b) The execution and delivery by the Company of this
Agreement, the issuance of the Shares, and the performance by the
Company of its obligations hereunder, have been duly authorized by all
requisite corporate action on the part of the Company (other than (x)
the filing of the Series G Certificate of Designation and (y) any
corporate action that may be required in connection with any issuance
of Exchange Shares) and will not (i) violate any provision of law,
statute, rule or regulation or any order of any court or other agency
of government, (ii) conflict with or violate the Certificate of
Incorporation or By-Laws of the Company, in each case as amended, or
(iii) violate, conflict with or constitute (with due notice or lapse
of time or both) a default under any indenture, mortgage, lease,
license, agreement or other contract or instrument or result in the
creation or imposition of any lien, charge or encumbrance of any
nature upon the properties or assets of the Company or any of its
subsidiaries, in each case if such violation, conflict, default, lien,
charge or encumbrance would have a material adverse effect on the
Company.
(c) This Agreement has been duly executed and delivered
by the Company and constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its terms,
except to the extent the enforceability hereof may be limited by
applicable bankruptcy, moratorium or similar laws affecting the rights
of creditors generally.
(d) Based in part upon the representations and warranties
of the Purchaser contained in this Agreement, no registration or
filing with, or consent or approval of, or other action by, any
federal, state or other governmental department, commission, board,
bureau, agency or instrumentality or any third party is or will be
necessary for the execution and delivery of this Agreement by the
Company and the issuance of the Shares hereunder, other than (x) the
filing of the Series G Certificate of Designation and (y) the filing
of a notice of sale on Form D with the Securities and Exchange
Commission in accordance with the rules and regulations thereof under
the Securities Act.
<PAGE> 5
Lasertechnics, Inc.
Series G Preferred Stock Purchase Agreement
December 29, 1997
Page 5 of 8
(e) Subject only to the filing of the Series G
Certificate of Designation, the Shares are duly authorized, validly
issued, fully paid and non-assessable shares of Series G Preferred
Stock, and are not subject to any pre-emptive rights.
(f) Attached hereto as Exhibit A is a true copy of the
Series G Certificate of Designation. On the Effective Date, the Board
of Directors of the Company approved and adopted resolutions, in the
form of the resolutions set forth in Exhibit A, creating the Series G
Preferred Stock and directing the proper officers of the Company to
file the same with the office of the Secretary of State of the State
of Delaware, in accordance with the applicable provisions of the
Delaware General Corporation Law. The Company hereby covenants and
agrees, for the benefit of the Purchaser, that the Company will cause
the Series G Certificate of Designation to be filed with the office of
the Secretary of State of the State of Delaware, in accordance with
the applicable provisions of the Delaware General Corporation Law,
within 10 days after the date hereof.
5. Representations and Warranties of the Purchaser. The
Purchaser hereby represents and warrants to the Company as follows:
(a) The Purchaser is acquiring the Shares (and in the
event of any exchange pursuant to paragraph 2 hereof, will be
acquiring the Exchange Shares) for its own account, for investment and
not with a view to the distribution thereof within the meaning of the
Securities Act.
(b) The Purchaser understands that the Shares have not
been (and the Exchange Shares will not be) registered under the Act,
by reason of their issuance by the Company in transactions exempt from
the registration requirements of the Act, and that the Shares (and any
Exchange Shares) must be held by the Purchaser indefinitely unless a
subsequent disposition thereof is registered under the Act or is
exempt from such registration.
(c) The Purchaser further understands that the exemption
from registration afforded by Rule 144 (the provisions of which are
known to it) promulgated under the Act depends on the satisfaction of
various conditions, and that, if applicable, Rule 144 may afford the
basis for sales only in limited amounts, after compliance with the
holding periods and other provisions thereof.
(d) The Purchaser understands that its investment
hereunder involves substantial risks and represent and warrant that it
has made such independent
<PAGE> 6
Lasertechnics, Inc.
Series G Preferred Stock Purchase Agreement
December 29, 1997
Page 6 of 8
examinations and investigations of the Company as it has deemed
necessary in making its investment decision, and the Purchaser further
represents and warrants that it has had sufficient access to the
officers, directors, books and records of the Company as it has deemed
necessary to conduct such examination and investigation and make such
investment decision.
(e) The Purchaser is able to bear the economic risk of
the investment contemplated by this Agreement and has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment contemplated by this
Agreement.
6. Miscellaneous. (a) This Agreement constitutes our
entire agreement with respect to the subject matter hereof. This Agreement
may not be modified or amended or any provision hereof waived except by an
instrument in writing signed by the Company and the Purchaser.
(b) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. The rights of the Purchaser hereunder shall be assignable to any
holder of the Shares, provided that the right of the Purchaser under paragraph
2 above to exchange Shares for Exchange Shares shall not be assignable to any
person, other than an affiliate of the Purchaser, without the prior written
consent of the Company. Except as provided in the immediately preceding
sentence, this Agreement and the rights of the Purchaser hereunder shall not be
assignable and any purported assignment thereof shall be void.
(c) This Agreement may be executed in any number of
counterparts and on separate counterparts, each of which shall be an original
instrument, but all of which together shall constitute a single agreement. One
or more signature pages from any counterpart of this Agreement may be attached
to any other counterpart of this Agreement without in any way changing the
effect thereof. This Agreement shall be effective when executed and delivered
by the Company and the Purchaser.
(d) All notices, requests, demands, consents, waivers, or
other communications made hereunder to any party or holder of Shares shall be
in writing and shall be deemed to have been duly given if delivered personally
or sent by nationally-recognized overnight courier or first class registered or
certified mail, return receipt requested, postage prepaid, addressed to such
party at the address set forth below:
<PAGE> 7
Lasertechnics, Inc.
Series G Preferred Stock Purchase Agreement
December 29, 1997
Page 7 of 8
if to the Company, to:
Lasertechnics, Inc.
3208 Commander Drive
Carrollton, TX 75006
Attention: Chief Financial Officer
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Marc A. Leaf, Esq.; and
if to the Purchaser, to the Purchaser at its address
first set forth above,
or to such other address as the party to whom such communication is to be given
may have furnished to the other party in writing in accordance herewith. All
such notices, requests, demands, consents, waivers or other communications
shall be deemed to have been delivered (i) in the case of personal delivery, on
the date of delivery, (ii) if sent by overnight courier, on the next business
day following the date sent and (iii) in the case of mailing, on the third
business day following such mailing.
(e) All representations, warranties and agreements
contained herein shall survive the execution and delivery of this Agreement and
the sale of the Shares hereunder.
(f) THIS AGREEMENT, AND ALL RIGHTS, OBLIGATIONS AND
LIABILITIES HEREUNDER, SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN. Any
judicial proceeding brought against the Company to enforce, or otherwise in
connection with, this Agreement may be brought in any court of competent
jurisdiction in the City of New York, and, by execution and delivery of this
Agreement, the Company (i) accepts, generally and unconditionally, the
nonexclusive jurisdiction of such courts and any related appellate court and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with this Agreement and (ii) irrevocably waives any objection it may
now or hereafter have as to the venue of any such proceeding brought in such a
court or that such a court is an inconvenient forum.
<PAGE> 8
Lasertechnics, Inc.
Series G Preferred Stock Purchase Agreement
December 29, 1997
Page 8 of 8
If the foregoing correctly sets forth your understanding of
our agreement, please so indicate by signing and returning to the Company the
enclosed counterpart of this Agreement.
Very truly yours,
LASERTECHNICS, INC.
By: /s/
-------------------------------------
Name:
Title:
The undersigned agrees with and
accepts the foregoing terms and provisions
as of the date first above written.
AMPHION VENTURES L.P.
By Amphion Partners L.L.C., its general partner
By: /s/
---------------------------
A Managing Member
<PAGE> 1
Exhibit 10.18
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of the 18th day of August, 1997 (the
"Agreement") by and among Lasertechnics, Inc., a Delaware corporation (the
"Pledgor"), Wolfensohn Partners L.P., a Delaware limited partnership (the
"Partnership"), J.P. Morgan Investment Corporation, a Delaware corporation
("JPMIC"), and JPMIC as agent for the Partnership and JPMIC.
WHEREAS, in order to induce the Partnership and JPMIC to, among other
things, make the loans contemplated by that certain Note Purchase Agreement,
dated as of June 25, 1997 (the "Note Purchase Agreement"), by and among the
Pledgor, the Partnership and JMIC, Pledgor has agreed to grant a pledge and
security interest to Agent (as such term is hereinafter defined) for the
ratable benefit of the Partnership and JPMIC (collectively, the "Lenders") in
the shares of Lasertechnics Marking Corporation, a Delaware corporation and
wholly-owned subsidiary of Pledgor ("Marking"), now owned and hereafter
acquired by Pledgor (the "Shares") on the terms and conditions contained
herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties hereto agree as follows:
1. Creation of Security Interest. (a) As collateral security for
the payment in full of all of the Secured Obligations (as such term is
hereinafter defined), the Pledgor hereby pledges, hypothecates, assigns,
transfers, sets over and delivers unto the Agent, and hereby grants to the
Agent for the ratable benefit of the Partnership and JPMIC a first lien and
security interest in, all of the Shares, the proceeds thereof, and all cash,
securities or other property at any time and from time to time receivable or
otherwise distributed in respect of or in exchange for any of the Shares (all
the Shares, proceeds thereof, cash, securities and other property being
hereinafter collectively referred to as the "Collateral"). Concurrently with
the execution of this Agreement, the Pledgor is delivering to the Agent (i) the
stock certificates listed on Schedule A hereto (the "Delivered Stock"), and
(ii) duly endorsed irrevocable stock powers in blank for the Delivered Stock.
(b) This Agreement secures, and the Collateral is
collateral security for, the prompt payment and performance in full when due,
whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise (including the payment of amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. Section 362 (a)), of all obligations and liabilities of every
nature of Pledgor now or hereafter existing under or arising out of or in
connection with the Note Purchase Agreement and the Senior Promissory Notes
issued thereunder (the "Senior Promissory Notes"), and all extensions or
renewals thereof, whether for principal, interest (including interest that, but
for the filing of a petition in bankruptcy with respect to Pledgor, would
accrue on such obligations), fees, expenses, indemnities or otherwise, whether
voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and
whether or not
<PAGE> 2
from time to time decreased or extinguished and later increased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from Agent or either Lender as a preference, fraudulent
transfer or otherwise, and all obligations of every nature of Pledgor now or
hereafter existing under this Agreement (all such obligations of Pledgor being
the "Secured Obligations").
2. Stock Dividends and Adjustments; Voting Rights.
(a) In the event that during the term of this Agreement
any stock dividend, reclassification, stock split, readjustment, warrant,
option or right to acquire additional securities is issued with respect to the
Collateral or any party thereof, or any other changes are made in the capital
structure of Marking, the Pledgor shall deliver promptly to the Agent all the
new, substituted or additional shares or securities (collectively, the
"Additional Securities") it has received together with appropriate instruments
of transfer duly endorsed in blank. From and after the time the Pledgor has
received any Additional Securities they shall be deemed to be part of the
Collateral pledged hereunder.
(b) So long as a Default, as defined below, shall not
have occurred and be continuing, the Pledgor shall be the sole owner of the
securities that are part of the Collateral and shall have and be entitled to
exercise all rights which a holder of such securities would be entitled to
exercise, including the right (i) to vote all securities that are part of the
Collateral and (ii) to dispose of the securities that are part of the
Collateral in a transaction which results in the discharge of Pledgor's
obligations under the Senior Promissory Notes. Upon the occurrence and during
the continuance of a Default, the Agent shall have exclusive voting rights for
such securities.
3. Representations, Warranties and Covenants. The Pledgor hereby
represents, warrants and covenants that:
(i) the Pledgor is the sole legal and beneficial
owner of the Collateral, free and clear of any adverse claims, and the Pledgor
has the unrestricted right to transfer, pledge and deliver the Collateral to
the Company hereunder;
(ii) the Delivered Stock constitutes all of the
issued and outstanding capital stock of Marking as of the date hereof (in this
regard Pledgor represents and the other parties hereto acknowledge that options
to purchase 482,500 shares of the Common Stock, par value $.01 per share
("Common Stock"), have been issued to directors and employees of Marking
pursuant to the 1995 Stock Option Plan of Marking (the "Plan") and 17,500
additional shares of Common Stock may be issued pursuant to the Plan);
(iii) the Pledgor will preserve and defend all
right, title and interest of the Agent in and to the Collateral against all
claims made by third parties thereon; and
- 2 -
<PAGE> 3
(iv) the pledge of the Delivered Stock made hereby
and the delivery of the Delivered Stock in accordance herewith are effective to
vest in the Agent a valid and perfected first priority security interest in the
Delivered Stock as set forth herein.
4. Default, Remedies. (a) A "Default" shall occur hereunder if:
(i) the Pledgor shall fail to pay the principal
of, or interest on, any Senior Promissory Note on the date when due, whether at
maturity, by acceleration or otherwise; or
(ii) an Insolvency Event (such as term is
hereinafter defined) occurs with respect to the Pledgor or Marking; or
(iii) this Agreement shall for any reason
whatsoever cease to be a valid, binding and enforceable agreement against
Pledgor; or
(iv) the Pledgor sells, assigns, transfers or
otherwise disposes of, or grants a lien on or security interest in or option or
right with respect to, or otherwise encumbers the Collateral or any part
thereof or any interest therein, provided that either of the following shall
not be deemed to be a Default: (A) any issuance of Common Stock upon the
exercise of options granted pursuant to the Plan or (B) a disposition of
securities that are part of the Collateral contemplated by Section 2(b); or
(v) any of the Collateral shall be attached or
levied upon or seized in any legal proceedings, or held by virtue of any levy
or distraint, which attachment, levy or distraint shall not be vacated within
60 days; or
(vi) the Pledgor otherwise defaults in the
observance or performance of any material representation or other material
covenant or agreement contained herein, the Senior Promissory Notes or in the
Note Purchase Agreement, and such default continues for a period of 20 days
after notice thereof.
(b) Upon the occurrence and during the continuance of a
default hereunder, the Agent shall have the right, at the request of the
Required Lenders (as such term is hereinafter defined), in addition to any
other rights granted under the Note Purchase Agreement or the Senior Promissory
Notes, to pursue all of the rights and remedies with respect to the Collateral
of a secured party under the Uniform Commercial Code as adopted and amended in
the State of New York as in effect from time to time or any other applicable
law, all of which rights and remedies, to the full extent permitted by law,
shall be cumulative and not alternative. In addition, from and after the
occurrence of a Default, each Lender may independently exercise any rights or
remedies in respect of the Senior Promissory Notes not provided for herein, and
the Agent acknowledges the authority of the Lenders to exercise such rights and
remedies.
- 3 -
<PAGE> 4
(c) The Pledgor agrees that ten business days shall
constitute reasonable notice of a sale or other disposition of the Collateral.
The proceeds from any such sale or other disposition, after deducting therefrom
all expenses incurred in connection therewith (including reasonable legal fees
and expenses) and after payment in full of the Secured Obligations, shall be
paid over to the Pledgor. The Agent agrees that a private sale of the
Collateral shall be held on commercially reasonable terms; provided, however,
that the Agent is authorized in its absolute discretion to restrict the
prospective purchasers to such persons who represent and agree to the
satisfaction of the Agent and its counsel that such person is purchasing the
Collateral for his own account, for investment, and not with a view to or for
sale in connection with a distribution in violation of the Securities Act of
1933 or any other applicable law or regulation.
(d) As used in this Agreement, an "Insolvency Event" with
respect to any Person (as such term is hereinafter defined) shall mean, the
making by such Person of a general assignment made by such Person for the
benefit of creditors; or an order, judgment or decree is entered adjudicating
such Person bankrupt or insolvent; or any order for relief with respect to such
Person is entered under the Bankruptcy Code; or such Person petitions or
applies to any tribunal for the appointment of a custodian, trustee, receiver
or liquidator of such Person or of any substantial part of the assets of such
Person, or commences any proceeding relating to such Person under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any such petition or
application is filed, or any such proceeding is commenced, against such person
and either (A) such Person by any act indicated is approval thereof, consent
thereto or acquiescence therein or (B) such petition, application or proceeding
is not dismissed within 30 days.
(e) As used in this Agreement, the term "Person" shall
mean and include an individual, a partnership, a limited liability company, a
joint venture, a corporation, a trust, an unincorporated organization and a
governmental entity or any department or agency thereof.
5. Waiver of Rights or Remedies. (a) The Agent, by act,
delay, omission, acceptance of partial payment or otherwise, shall not be
deemed to have waived any rights or remedies hereunder, unless such waiver is
in writing and signed by the Agent, and then only to the extent therein set
forth. A waiver by the Agent of any right or remedy on any one occasion, shall
not be construed as a bar to or waiver of any such right or remedy, or both,
which the Agent otherwise would have had on any future occasion.
(b) To the full extent that the Pledgor may lawfully so
agree, the Pledgor shall not at any time plead, claim or take the benefit of
any moratorium or redemption law now or hereafter enforced, in order to prevent
or delay the enforcement of this Agreement or the application of any portion or
all of the Collateral as provided by this Agreement, and the Pledgor, for
itself and all who may claim under the Pledgor, to the extent legally
permitted, hereby waive the benefit of all such laws. Nothing herein
constitutes a waiver of the Pledgor's rights arising under the provisions of
the Uniform Commercial Code as in effect in the State of New York from time to
time.
- 4 -
<PAGE> 5
6. Further Assurances. The Pledgor agrees that it shall at
the request of the Agent execute and deliver all such further assignments,
endorsements and other documents and take all such further action as the Agent
may reasonably request in order to effect the purposes and provisions of this
Agreement and to perfect, continue, better assure or confirm the rights of the
Agent in the Collateral provided for hereunder.
7. Termination. The security interest and assignment created and
granted hereunder shall terminate only when the Pledgor has fully satisfied all
of the obligations under the Senior Promissory Notes and no Default, or event
which with notice or lapse of time or both would constitute a Default, has
occurred and is continuing, and upon such termination all Collateral in the
possession of the Agent shall be returned to the Pledgor, accompanied by
appropriate stock powers, without recourse to the Agent.
8. Notices. Notices or other communications to any of the
parties hereto shall be in writing and shall be given, in the case of the
Pledgor and the Lenders, as provided in the Note Purchase Agreement and, in the
case of the Agent, to J.P. Morgan Investment Corporation, 60 Wall Street, New
York, New York 10260, attention: Mr. Robert Kiss and Mr. James P. Marriott.
Pledgor agrees that any notices or other communications sent by it to either
Lender shall also be sent to the Agent.
9. Appointment of Agent.
(a) By the execution and delivery of this Agreement, each
of the Lenders appoints, and by its execution hereof the Pledgor hereby
acknowledges, JPMIC, as collateral agent for itself and the Partnership under
this Agreement and for the purposes herein stated and any and all incidental
and related rights, powers, remedies, actions, steps and matters (in such
capacity herein referred to as the "Agent," which term shall include successors
and assigns), to take any and every action allowed pursuant to this Agreement,
and to protect all rights of each Lender as herein provided or as otherwise
agreed, from time to time, by those Lenders holding at least 90% of the
aggregate total of the Secured Obligations owed to all Lenders (the "Required
Lenders"); provided, however, if a Default shall have occurred, either Lender,
acting individually, may instruct the Agent to the same extent as the Required
Lenders, but without approval of, or consent by, the Pledgor or any other
Person, including with respect to all rights as provided in the Uniform
Commercial Code of the State of New York as now in effect or hereafter amended
or any other applicable law, as now in effect or hereafter amended to increase
said rights of the Agent or the Lenders; provided, however, that with respect
to any determination to be made at such time as only one Lender shall hold any
Secured Obligations, the Agent shall act solely at the request of such Lender.
It is acknowledged and agreed that the relationship of the Agent and Lenders
shall be that of principals and agent and not, in any event, that of partners
or joint venturers. Neither this Agreement nor any document executed in
connection herewith shall be deemed to create or establish a partnership or
joint venture among any of the parties hereto or thereto. Agent shall not
have, by reason of this Agreement or otherwise, a fiduciary relationship in
respect of any Lender.
- 5 -
<PAGE> 6
(b) The security interest granted to the respective
Lenders shall each be of equal priority and any and all amounts realized as a
result of any disposition or collection of Collateral shall be shared on a pro
rata basis based upon the ratio of the amount of Secured Obligations owed to
each respective Lender to the aggregate total of the Secured Obligations owed
to all Lenders, such ratio to be calculated on the basis of the Secured
Obligations outstanding on the date of determination (such ratio is hereinafter
referred to as such Lender's "Pro Rata Share").
(c) Neither the Agent nor any of its officers, directors,
employees or agents shall be liable to Lenders for any action taken or omitted
by Agent under or in connection with this Agreement except to the extent caused
by Agent's gross negligence or willful misconduct. The Agent shall be entitled
to refrain from any act or the taking of any action (including the failure to
take an action) in connection with this Agreement or from the exercise of any
power, discretion or authority vested in it hereunder unless and until Agent
shall have received instructions in respect thereof from the Required Lenders
and, upon receipt of such instructions from the Required Lenders, Agent shall
be entitled to act or (where so instructed) refrain from acting, or to exercise
such power, discretion or authority, in accordance with such instructions.
Without prejudice to the generality of the foregoing, (i) Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
communication, instrument or document believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and shall be
entitled to rely and shall be protected in relying on opinions and judgments of
attorneys (who may be attorneys for Pledgor and its subsidiaries or for any
Lender), accountants, experts and other professional advisors selected by it;
and (ii) no Lender shall have any right of action whatsoever against Agent as a
result of Agent acting or (where so instructed) refraining from acting under
this Agreement or any of the other Loan Documents in accordance with the
instructions of Required Lenders.
(d) Each Lender, in proportion to its Pro Rata Share,
severally agrees to indemnify Agent, to the extent that Agent shall not have
been reimbursed by Pledgor, for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including counsel fees and disbursements) or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against Agent in exercising its powers, rights and remedies or performing its
duties hereunder or otherwise in its capacity as Agent in any way relating to
or arising out of this Agreement; provided that no Lender shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
Agent's gross negligence or willful misconduct. If any indemnity furnished to
Agent for any purposes shall, in the opinion of Agent, be insufficient or
become impaired, Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished.
(e) Agent may resign at any time by giving 30 days' prior
written notice thereof to Lenders and Pledgor, and Agent may be removed at any
time with or without cause by an instrument or concurrent instruments in
writing delivered to Pledgor and Agent and signed by the Required Lenders.
Upon any such notice of resignation or any such removal, the Required Lenders
shall have the right, upon five business days' notice to Pledgor, to appoint a
successor Agent. Upon
- 6 -
<PAGE> 7
the acceptance of any appointment as Agent hereunder by a successor Agent, that
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring or removed Agent and the
retiring or removed Agent shall be discharged from its duties and obligations
under this Agreement. After any retiring or removed Agent's resignation or
removal hereunder as Agent, the provisions of this Section 9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement. Notwithstanding anything in this Agreement to the
contrary, JPMIC may resign as Agent hereunder at any time and substitute the
Partnership as the successor Agent, and upon notice of such substitution, the
Partnership shall become the Agent hereunder.
10. Miscellaneous.
(a) This Agreement shall be governed by the laws of the
State of New York without regard to the principles of conflicts of law thereof.
In the event that any term or provision of this Agreement shall, for any
reason, be held to be illegal, invalid or unenforceable under the laws of any
governmental authority to which this Agreement is subject, that term or
provision shall be deemed severed from this Agreement, and the remaining terms
and provisions shall be enforceable, to the fullest extent permitted by law.
(b) This Agreement shall inure to the benefit of and
shall be binding upon the respective successors, assigns and legal
representatives of the parties and any holder of Senior Promissory Notes,
except that the Pledgor shall not be permitted to assign this Agreement or any
interest herein or in the Collateral, or any part thereof, or otherwise pledge,
encumber or grant any option with respect to the Collateral, or any part
thereof, or any cash or property held by the Agent as Collateral under this
Agreement. The Agent may assign this Agreement, any interest herein or in the
Collateral or any part thereof, to an affiliated entity of the Agent.
(c) Captions used herein are inserted for reference only
and shall not affect the interpretation or meaning of this Agreement.
(d) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
(e) This Agreement may not be changed, modified or
amended except by a written instrument signed by the party to be charged
therewith; provided, however, that Section 9 hereof may be changed, modified or
amended by a written instrument signed by the Lenders, a copy of which shall be
provided to the Pledgor.
(f) All judicial proceedings brought against Pledgor
arising out of or relating to this Agreement, or any obligations hereunder, may
be brought in any state or federal court of competent jurisdiction in the
state, county and city of New York. By executing and delivering this
Agreement, Pledgor, for itself and in connection with its properties,
irrevocably
- 7 -
<PAGE> 8
(i) accepts generally and unconditionally the
nonexclusive jurisdiction and venue of such courts;
(ii) waives any defense of forum non conveniens;
(iii) agrees that service of all process in any
such proceeding in any such court may be made by registered or certified mail,
return receipt requested, to Pledgor at its address provided in the Note
Purchase Agreement;
(iv) agrees that service as provided in clause
(iii) above is sufficient to confer personal jurisdiction over Pledgor in any
such proceeding in any such court, and otherwise constitutes effective and
binding service in every respect;
(v) agrees that the Agent and the Lenders retain
the right to serve process in any other manner permitted by law or to bring
proceedings against Pledgor in the courts of any other jurisdiction; and
(vi) agrees that the provisions of this Section 10
(f) relating to jurisdiction and venue shall be binding and enforceable to the
fullest extend permissible under New York General Obligations Law Section
5-1402 or otherwise.
IN WITNESS WHEREOF, the Pledgor has executed this Agreement on
the date first above written.
PLEDGOR
-------
LASERTECHNICS, INC.
/s/
-------------------------------
Name:
Title:
AGREED TO AND ACCEPTED:
WOLFENSOHN PARTNERS L.P.,
By: /s/
----------------------------------------
its general partner
- 8 -
<PAGE> 9
By: /s/
---------------------------------
Name:
Title:
J.P. MORGAN INVESTMENT CORPORATION
(Individually and as Agent)
By: /s/
---------------------------------
Name:
Title:
- 9 -
<PAGE> 1
Exhibit 10.19
LASERTECHNICS, INC.
3208 COMMANDER DRIVE
CARROLLTON, TEXAS 75006
January 8, 1998
To the Holders
listed on Schedule I
attached hereto:
PREFERRED STOCK EXCHANGE AGREEMENT
Dear Sirs:
This Agreement sets forth the terms and conditions on which
Lasertechnics, Inc., a Delaware corporation (the "Company"), and each of the
undersigned holders of record ("Holders") of shares (the "Series F Shares") of
Series F Preferred Stock, $.01 par value per share, of the Company (the "Series
F Preferred Stock") have agreed to the exchange of all the Series F Shares held
by such Holder for a combination of (i) shares (the "Series G Shares") of the
Series G Preferred Stock, $.01 par value per share, of the Company (the "Series
G Preferred Stock") and (ii) shares (the "Common Shares") of the Common Stock,
$.01 par value per share, of the Company. A copy of the Certificate of
Designation for the Series G Preferred Stock, as filed with the office of the
Delaware Secretary of State, is attached hereto as Exhibit A. The terms
"Series F Original Issue Price" and "Series G Original Issue Price" have the
meanings ascribed to such terms in the certificate of designations for the
Series F Preferred Stock and Series G Preferred, respectively.
1. Exchange of Preferred Stock. (a) Effective
immediately, each Holder hereby irrevocably agrees to exchange all the Series F
Shares held by such Holder for:
(i) the number of Series G Shares having an aggregate
Series G Original Issue Price equal to the sum of the
aggregate Series F Original Issue Price of the Series F Shares
so exchanged, plus the aggregate amount of all accrued unpaid
dividends on such Series F Shares (such sum, the "Aggregate
Face Amount Exchanged"); plus
(ii) a number of Common Shares equal to the Aggregate
Face Amount Exchanged divided by $1.00.
(b) The table attached to this Agreement as Schedule I sets
forth the number of Series F Shares held of record and beneficially by each
Holder, the aggregate accrued unpaid dividends thereon, and the number of
Series G Shares and Common Shares to be issued by the Company to the Holder in
exchange therefor. The Company and each Holder acknowledge and agree that
Schedule I is correct and shall be binding against the Company and each Holder
absent manifest error.
(c) Certificates representing the Series F Shares held by
each Holder on the date hereof are hereby canceled, and, upon presentation of
the canceled certificate(s) to the Corporation,
<PAGE> 2
Preferred Stock Exchange Agreement
January 8, 1998
Page 2 of 3
each Holder shall be entitled to receive new certificates, representing in the
aggregate the Series G Shares and Common Shares issued to such Holder pursuant
to this Agreement. From and after the execution and delivery of this
Agreement, certificates formerly representing Series F Shares shall represent
only the right to receive such new certificates as provided in this Agreement.
(d) The Series G Shares and Common Shares issued to the
Holders in exchange for Series F Shares pursuant to this Agreement will not be
registered under the Securities Act of 1933, as amended, in accordance with one
or more exemptions from registration available under such act and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Certificates representing the Series G Shares and the Common Shares will bear a
restrictive legend substantially to the following effect:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, OR APPLICABLE STATE
SECURITIES LAWS, NOR THE SECURITIES LAWS OF ANY OTHER
JURISDICTION. THEY MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THOSE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION THEREFROM."
(e) The Company hereby represents and warrants to each Holder
that the Series G Shares and Common Shares issued to such Holder hereunder are
duly authorized, validly issued, fully paid and non-assessable. Each of the
parties to this Agreement hereby represents and warrants to each other party
that this Agreement has been duly authorized, executed and delivered by such
party and constitutes the legal, valid and binding agreement of such party,
enforceable in accordance with its terms.
2. Miscellaneous. This Agreement, including Schedule I
and Exhibit A attached hereto, constitutes our entire agreement with respect to
the subject matter hereof, and may not be modified or amended or any provision
hereof waived except by an instrument in writing signed by the Company and each
Holder. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. This Agreement may
be executed in any number of counterparts and on separate counterparts, each of
which shall be an original instrument, but all of which together shall
constitute a single agreement. One or more signature pages from any
counterpart of this Agreement may be attached to any other counterpart of this
Agreement without in any way changing the effect thereof. This Agreement shall
be construed according to the laws of the State of Delaware.
<PAGE> 3
Preferred Stock Exchange Agreement
January 8, 1998
Page 3 of 3
If the foregoing correctly sets forth your understanding of
our agreement, please so indicate by signing and returning to the Company the
enclosed counterpart of this Agreement.
Very truly yours,
LASERTECHNICS, INC.
By: /s/
------------------------------------
Name:
Title:
AGREED and ACKNOWLEDGED
as of the date first written above:
ANTIOPE PARTNERS L.L.C.
By: /s/
------------------------------
A Managing Member
H.T. ARDINGER
By: /s/
------------------------------
Name:
Title:
<PAGE> 4
PREFERRED STOCK EXCHANGE AGREEMENT
JANUARY 8, 1998
SCHEDULE I
<TABLE>
<CAPTION>
Aggregate
Number of Accrued Face Amount Number of Number of
Holders Series F Shares Dividends Exchanged Series G Shares Common Shares
------- --------------- --------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Antiope Partners L.L.C. 48 $17,780.00 $497,780.00 50 497,780
H.T. Ardinger 38 $19,573.00 $399,573.00 40 399,573
-- ---------- ----------- -- -------
Total: 86 $37,353.00 $897,353.00 90 897,353
</TABLE>
<PAGE> 1
Exhibit 10.20
NEITHER THIS WARRANT NOR ANY SHARES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY STATE
SECURITIES LAWS. NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM SUCH REGISTRATION.
WARRANT NO. FOR THE PURCHASE OF SHARES
---- ------
AXCESS INC.
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _______________________
("_____________"), or its successors in interest, assigns or transferees
(collectively, the "Warrant Holder"), is entitled to purchase from AXCESS Inc.,
a Delaware corporation (the "Company"), __________ shares of the Company's
Common Stock (as defined in paragraph 9(a) hereof) (the "Warrant Shares") at
the exercise price of _______________________ ($______) per share ("Exercise
Price"). The number of Warrant Shares and the Exercise Price shall be adjusted
and readjusted or changed from time to time in accordance with paragraph 4
hereof.
This Warrant may be exercised at any time and from time to time on or
prior to the third anniversary of the date of issuance set forth on the
signature page of this Warrant.
1. Exercise of Warrant.
The rights represented by this Warrant may be exercised by the Warrant
Holder, in whole or in part, by (a) delivering to the Company a duly executed
notice of exercise in the form of Annex A hereto and (b) at the Warrant
Holder's option, either (i) delivering a check payable to (or wire transfer to
the account of) the Company in an amount equal to the product of (x) the
Exercise Price times (y) the number of Warrant Shares as to which this Warrant
is being exercised (such product, the "Total Exercise Price") or (ii)
delivering to the company a letter (the "Conversion Letter") requesting
conversion or exchange of a portion of any
Page 1 of 9
<PAGE> 2
indebtedness owed by the Company to the Warrant Holder in an amount equal to
the Total Exercise Price or (iii) surrendering to the Company a portion of this
Warrant with a "Value" (as defined below) equal to the Total Exercise Price.
For the purpose of clause (b)(iii) above, "Value" shall mean the product of (I)
the amount by which the average closing price per share of the Company's Common
Stock over the ten trading days preceding the date of exercise, as reported in
the Wall Street Journal, exceeds the Exercise Price and (II) the number of
Warrant Shares as to which this Warrant is surrendered for the purpose of
effecting payment for Warrant Shares. This Warrant shall be deemed to have
been exercised immediately prior to the close of business on the date of
delivery of a duly executed notice of exercise, together with the amount (in
cash or by delivering the Conversion Letter or by surrender of a portion of
this Warrant) payable upon exercise of this Warrant and, as of such moment, (i)
the rights of the Warrant Holder, as such, with respect to the number of
Warrant Shares as to which this Warrant is being exercised (and, if applicable,
surrendered as payment of the Total Exercise Price) shall cease, and (ii) such
Warrant Holder shall be deemed to be the record holder of the shares of Common
Stock issuable upon such exercise. As soon as practicable after the exercise,
in whole or in part, of this Warrant, and in any event within 5 business days
thereafter, the Company at its expense (including the payment by it of any
applicable issuance or stamp taxes) will cause to be issued in the name of and
delivered to the Warrant Holder, or as the Warrant Holder (upon payment by the
Warrant Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock to which the Warrant Holder shall be entitled upon such exercise. In the
event of partial exercise of this Warrant and, if applicable, partial surrender
of this Warrant pursuant to clause (b)(iii) of this paragraph, the Warrant need
not be delivered to the Company provided that the Warrant Holder agrees to make
a notation of such partial exercise and, if applicable, surrender on the
Warrant. If this Warrant is delivered to the Company, the Company shall issue
and deliver to the Warrant Holder a new Warrant evidencing the rights to
purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical to this Warrant.
2. Investment Representation.
The Warrant Holder by accepting this Warrant represents that the
Warrant Holder is acquiring this Warrant for its own account or the account of
an affiliate for investment purposes and not with the view to any offering or
distribution and that the Warrant Holder will not sell or otherwise dispose of
this Warrant or the underlying Warrant Shares in violation of applicable
securities laws. The Warrant
Page 2 of 9
<PAGE> 3
Holder acknowledges that the certificates representing any Warrant Shares will
bear a legend indicating that they have not been registered under the Act, and
may not be sold by the Warrant Holder except pursuant to an effective
registration or pursuant to an exemption from registration. The Warrant Holder
shall be entitled to include the Warrant Shares in any demand or piggyback
registration to which Warrant Holder is otherwise entitled in respect of Common
Stock held by it, in accordance with (and subject to) the terms and conditions
of any agreement between the Company and the Warrant Holder with respect to
such registration rights.
3. Validity of Warrant and Issue of Shares.
The Company represents and warrants that this Warrant has been duly
authorized and validly issued and covenants and agrees that all shares of
Common Stock that may be issued upon the exercise of the rights represented by
this Warrant will, when issued upon such exercise, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
4. Antidilution Provisions.
The terms of this Warrant shall be subject to adjustment as follows:
(a) If the Company shall (i) pay a stock dividend or make a
distribution to holders of Common Stock in shares of its Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, or (iv) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Company, (A) the Exercise Price shall be increased or decreased, as the
case may be, to an amount which shall bear the same relation to the Exercise
Price in effect immediately prior to such action as the total number of shares
outstanding immediately prior to such action shall bear to the total number of
shares outstanding immediately after such action and (B) this Warrant
automatically shall be adjusted so that it shall thereafter evidence the right
to purchase the kind and number of Warrant Shares or other securities which the
Warrant Holder would have owned and would have been entitled to receive after
such action if this Warrant had been exercised
Page 3 of 9
<PAGE> 4
immediately prior to such action or any record date with respect thereto. An
adjustment made pursuant to this subparagraph (a) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution of Common Stock and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(b) If the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of (i) assets (other than cash dividends or cash
distributions payable out of consolidated net income or retained earnings or
dividends payable in Common Stock), (ii) evidences of indebtedness or other
debt or equity securities of the Company, or of any corporation other than the
Company (except for the Common Stock of the Company) or (iii) subscription
rights, options or warrants to purchase any of the foregoing assets or
securities, whether or not such rights, options or warrants are immediately
exercisable (hereinafter collectively called "Distributions on Common Stock"),
the Company shall make provisions for the Warrant Holder to receive upon
exercise of this Warrant, a proportional amount (depending upon the extent to
which this Warrant is exercised) of such assets, evidences of indebtedness,
securities or such other rights, as if such Warrant Holder had exercised this
Warrant on or before such record date.
(c) In the case of any consolidation or merger of the Company with
or into another corporation or the sale of all or substantially all the assets
of the Company to another person or entity, this Warrant thereafter shall be
exercisable for the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Company deliverable upon exercise of this Warrant would have been entitled upon
such consolidation, merger or sale; and, in such case, appropriate adjustment
shall be made in the application of the provisions in this paragraph 4, to the
end that the provisions set forth in this paragraph 4 (including provisions
with respect to changes in and adjustments of the exercise price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other securities or property thereafter deliverable upon the
exercise of this Warrant.
(d) Upon the occurrence of each adjustment or readjustment of the
exercise price or any change in the number of Warrant Shares or in the shares
of stock or other securities or property deliverable upon exercise of this
Warrant pursuant to this paragraph 4, the Company at its expense shall promptly
compute such adjustment or readjustment and change in accordance with the terms
hereof
Page 4 of 9
<PAGE> 5
and furnish to each holder hereof a certificate signed by the chief financial
officer of the Company, setting forth such adjustment or readjustment and
change and showing in detail the facts upon which such adjustment or
readjustment and change is based. The Company shall, upon the written request
at any time of the Warrant Holder, furnish or cause to be furnished to such
Holder, a similar certificate setting forth (i) such adjustment or readjustment
and change, (ii) the Exercise Price then in effect, and (iii) the number of
Warrant Shares and the amount. if any, of other shares of stock and other
securities and property which would be received upon the exercise of the
Warrant.
(e) The Company shall not be required upon the exercise of this
Warrant to issue any fraction of shares, but shall make any adjustment therefor
by rounding the number of shares obtainable upon exercise to the next highest
whole number of shares.
5. Transfer of Rights.
This Warrant is transferable in whole or in part, at the option of the
Warrant Holder upon delivery of the Warrant Assignment Form annexed as Annex B
hereto, duly executed. The Company shall execute and deliver a new Warrant or
Warrants in the form of this Warrant with appropriate changes to reflect the
issuance of subsequent Warrants, in the name of the assignee or assignees named
in such instrument of assignment and, if the Warrant Holder's entire interest
is not being transferred or assigned, in the name of the Warrant Holder, and
this Warrant shall promptly be canceled. Any transfer or exchange of this
Warrant shall be without charge to the Warrant Holder and any new Warrant or
Warrants issued shall be dated the date hereof. The term "Warrant" as used
herein includes any Warrants into which this Warrant may be divided or for
which it may be exchanged. The Warrant Holder (and not the Company) will be
responsible for any stamp, transfer or other taxes payable on any such
transfer.
6. Lost, Mutilated or Missing Warrant.
Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and upon surrender and
cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like denomination and date.
Page 5 of 9
<PAGE> 6
7. Rights of Warrant Holder.
The Warrant Holder shall not, by virtue hereof, be entitled to any
voting or other rights of a shareholder of the Company, either at law or
equity, and the rights of the Warrant Holder are limited to those expressed in
this Warrant.
8. Successors.
All the provisions of this Warrant by or for the benefit of the
Company or the Warrant Holder shall bind and inure to the benefit of their
respective successors and assigns.
9. Miscellaneous.
(a) As used herein, the term "Common Stock" shall mean and include
the Company's currently authorized common stock, $.01 par value per share, and
stock of any other class or other consideration into which such currently
authorized Common Stock may hereafter have been changed.
(b) This Warrant shall be construed in accordance with and
governed by the laws of the State of Delaware.
(c) The caption headings used in this Warrant are for convenience
of reference only and shall not be construed in any way to affect the
interpretation of any provisions of this Warrant.
10. Notices.
Any notice pursuant to this Warrant shall be effective if sent by
first class mail, postage prepaid, or delivered by facsimile transmission,
addressed as follows:
If to the Company, then to it at:
AXCESS Inc.
3208 Commander Drive
Carrollton, Texas 75006
Attention: Chief Financial Officer
Facsimile No.: (972) 407-9085
(or to such other address as the Company may have furnished in writing
to the Warrant Holder for this purpose); and
Page 6 of 9
<PAGE> 7
If to the Warrant Holder, then to it at such address as such Warrant
Holder may have furnished in writing to the Company for this purpose.
IN WITNESS WHEREOF, the Company, intending to be legally bound hereby, has
caused this Warrant to be signed by its Vice President, and attested by its
Secretary or Assistant Secretary as of the date set forth below.
AXCESS INC.
By:
-------------------------------
Name:
-----------------------------
Title:
-----------------------------
Attest:
Name:
Title:
ISSUANCE DATE:
-------------------
Page 7 of 9
<PAGE> 8
ANNEX A
COMMON STOCK PURCHASE WARRANT
NOTICE OF EXERCISE
19
----------- --
To: AXCESS INC.
The undersigned, pursuant to the provisions set forth in Warrant No. ________,
hereby irrevocably elects and agrees to purchase ________ shares of the
Company's Common Stock covered by such Warrant, and makes payment herewith in
full therefor of the Total Exercise Price of $__________.
The undersigned hereby represents that the undersigned is exercising such
Warrant for its own account or the account of an affiliate and will not sell or
otherwise dispose of the underlying Warrant Shares in violation of applicable
securities laws. If said number of shares is less than all of the shares
purchasable hereunder the undersigned requests that a new Warrant evidencing
the rights to purchase the remaining Warrant Shares (which new Warrant shall in
all other respects be identical to the Warrant exercised hereby) be registered
in the name of ____________________________________ whose address is:
Signature:
---------------------------------
Printed Name:
------------------------------
Address:
------------------------------
Page 8 of 9
<PAGE> 9
ANNEX B
ASSIGNMENT
FOR VALUE RECEIVED ______________________ hereby sells, assigns and
transfers all of its rights as set forth in Warrant No. ________ with respect
to the shares of the Company's Common Stock covered thereby as set forth below
unto:
NAME OF ASSIGNEE(S) ADDRESS(ES) NO. OF SHARES
All notices to be given by the Company to the Warrant Holder pursuant
to paragraph 10 of Warrant No. ________ shall be sent to the Assignee(s) at the
above stated address(es), and, if the number of shares being hereby assigned is
less than all of the shares covered by Warrant No. ________, than also to the
undersigned.
The undersigned requests that the Company execute and deliver, if
necessary to comply with the provisions of paragraph 5 of Warrant No. ________,
a new Warrant or, if the number of shares being hereby assigned is less than
all of the shares covered by Warrant No. ________, new Warrants in the name of
the undersigned, the assignee and/or the assignees, as is appropriate.
Dated:
----------------------
Signature:
-------------------------------
Printed Name:
----------------------------
Address:
----------------------------
Page 9 of 9
<PAGE> 1
Exhibit 10.21
THIS SETTLEMENT AGREEMENT is made 20th day of April, 1998, by and between
Lasertechnics Inc., a Delaware Corporation with offices at 3208 Commander Drive,
Carrollton, Texas (LASX) and Xerox Corporation, a New York Corporation with
offices at 3400 Hillview Road, Palo Alto, California (Xerox) to resolve a
dispute regarding that certain agreement between Sandia and Xerox dated
January 12, 1995, as the same has been previously amended by Agreement dated
December 27, 1996 (hereinafter, collectively, the "Prior Agreement") and that
certain Promissory Note made by LASX in the favor of Xerox, in the principal sum
of $2,100,000 and dated December 26, 1996 (hereinafter the "Note").
WHEREAS the parties have mutually agreed to resolve certain outstanding
business issues between them related to the Prior Agreement and the Note upon
the terms and conditions set forth in this Settlement Agreement; and
WHEREAS the parties have agreed as set forth in this Settlement Agreement;
NOW, THEREFORE, it is agreed by and between the parties as follows:
1. PRIOR AGREEMENT: Except as modified by this Settlement Agreement, all
of the terms and conditions of the Prior Agreement (and all amendments thereto
entered into prior to the date of this Settlement Agreement) shall remain in
full force and effect, and the parties hereby ratify such Prior Agreement and
their obligations thereunder.
2. Immediately upon execution of this Settlement Agreement, Xerox shall
discharge the Note referenced above (including all interest previously accrued
thereupon) and the payment obligation of paragraph 3.1 of the December 27, 1996
amendment to the Agreement , and such Note and payment obligation shall be
without further force or effect.
3. LASX shall, upon execution of this Agreement by the parties,
immediately pay to Xerox the sum of One Million Four Hundred Seventy Thousand
Dollars ($1,470,000) in the form of cash, a cashier's check or other payment
method acceptable to Xerox.
4. LASX shall issue to Xerox One Million Eight Hundred Thousand Shares of
its common stock on a pre-split basis upon execution of this Settlement
Agreement. The parties acknowledge that all reference herein to shares of LASX
refer to voting common stock of par value of $0.01 per share of LASX before
giving effect to the proposed reverse stock split. such shares shall be in
addition to those certain Six Hundred Thousand (600,000) shares of such LASX
commons stock currently held by Xerox in escrow under the Prior Agreement
<PAGE> 2
and Note. Such escrowed shares shall be reissued by LASX in the name of Xerox
Corporation and share certificates for the total of Two Million Four Hundred
Thousand shares of the pre-split common stock of LASX shall be delivered to
Xerox or its nominee as soon as practicable. All share certificates evidencing
the shares set forth in this paragraph shall contain the following restrictions
and legend: (a) Xerox shall not be entitled to sell any of such shares to any
third party until December 1, 1999 or such time as LASX (or its subsidiary,
Sandia) shall first deliver a product for sale, rental or license (other than
a demonstration unit) to any customer containing or embodying in any manner the
glyph technology of Xerox (whether provided under the Prior Agreement or by
subsequent agreement between LASX and the Intran or any other business unit of
Xerox), whichever shall first occur, (b) in no event shall Xerox dispose of
more than 240,000 shares (pre-split) in any calendar month, and (c) LASX shall
at all times have the right, upon notice to Xerox, to repurchase any shares
then still held by Xerox at the agreed purchase price of $0.325 per share.
5. In addition to the foregoing, LASX shall pay to Xerox the sum of Four
Hundred Thousand Dollars ($400,000) upon the following event, should such event
occur at any time: the delivery of a product for sale, rental or license
(other than a demonstration unit) by LASX or Sandia which contains, is derived
from or embodies in any manner the glyph technology of Xerox (whether provided
under the Prior Agreement or by subsequent agreement between LASX/Sandia and
the Intran or any other business unit of Xerox). Such payment shall be in
addition to, and not in derogation of or substitution for, any royalties that
would otherwise be payable to Xerox under the terms of the Prior Agreement
subject to Section 7 and 8 of this Settlement Agreement.
6. Notwithstanding anything in the Prior Agreement to the contrary, Xerox
shall be released from the obligation to provide Sandia and LASX the 30% of one
dedicated person resource full time for the support of the glyph technology
previously provided to Sandia under the Prior Agreement. LASX and Sandia may
contract, under a separate agreement to be negotiated by the parties for such
additional or other support for glyph technology or new or other glyph
technology as the parties shall deem appropriate. Xerox will lend its
reasonable support, without cost to Sandia, to enable Sandia or LASX to meet
with the Intran business unit for the purpose of Intran engaging Sandia or LASX
as a customer, but shall have no other obligation other than attempting to
arrange such a meeting. In the event Sandia enters into an agreement with the
Intran business unit, the Intran business unit shall assume all responsibility
for the business relationship with Sandia/LASX. In the event Sandia/LASX does
not enter into an agreement with Intran, the relationship will remain between
the existing parties. The parties to this Settlement Agreement acknowledge
that the sums set forth above do not constitute nor entitle Sandia or LASX to
services
<PAGE> 3
provided by Intran or any other business unit of Xerox, which shall be the
subject of a separate agreement between those organizations. LASX and Sandia
acknowledge and agree that nothing set forth in this Settlement Agreement
entitles it to any other or additional glyph technology from Xerox unless it
contracts with the Intran or any other business unit of Xerox for same, except
as expressly set forth in Section 7 of this Settlement Agreement.
7. Notwithstanding paragraph 6 above, Sandia shall be given, without
additional payment to Xerox other than those set forth in this Settlement
Agreement, the Intran Data Glyphs Software Developers Toolkit for one of the
supported platforms upon execution of the Intran standard developer evaluation
agreement, which agreement will allow Sandia the full access to and use of all
Intran data glyph technology provided by such toolkit for internal evaluative
purposes only, until such time as Sandia/LASX delivers a LASX/Sandia product
which contains, is derived from or embodies such glyph technology (other than
a demonstration unit) by means of sale, rental or license, at which time the
provisions of sections 5 and 8 of this Settlement Agreement shall apply. Any
work required by LASX/Sandia from Intran other than as set forth in this
paragraph and in the standard Intran developer evaluation agreement, such as
modification, porting or support of the Data Glyphs Software Developers
Toolkit, will be negotiated by the parties in accordance with paragraph 6 of
this Settlement Agreement.
8. LASX/Sandia shall pay to Xerox the royalties set forth in the Prior
Agreement in the event, at any time, delivers for sale, rental or license a
product (other than a demonstration unit) containing, derived from or embodying
in any manner the glyph technology which is the subject of the Prior Agreement.
The parties agree, however, that if such product of LASX or Sandia contains, is
derived from or embodies in any manner, any glyph technology obtained from the
Intran or any other business unit of Xerox under a separate agreement between
those parties, no royalties shall be payable to Xerox under Exhibit A of the
Prior Agreement, and the only royalties for which LASX and Sandia shall be
liable beyond those payments described in this Agreement shall be those set
forth in such separate agreement between LASX/Sandia and Intran or any other
business unit.
9. Except as expressly set forth in this Settlement Agreement, all other
terms and conditions of the Prior Agreement shall remain in full force and
effect.
10. This Settlement Agreement sets forth the full and complete
understanding of the parties with respect to the subject matter hereof, and all
prior discussions, documents and representations of either party shall be
merged herein (except as set forth in otherwise unmodified provisions of the
Prior Agreement).
<PAGE> 4
11. This Settlement Agreement shall be interpreted and construed in
accordance with the law of the State of California, without regard to its
conflict of laws rules.
IN WITNESS WHEREOF, the parties have executed this Settlement Agreement on the
date first above set forth.
XEROX CORPORATION LASERTECHNICS, INC.
By: /s/ By: /s/
----------------------------- -------------------------------
Title: Title:
-------------------------- ----------------------------
<PAGE> 1
Exhibit 23
CONSENT AND REPORT ON SCHEDULE OF
INDEPENDENT AUDITORS
The Board of Directors
Lasertechnics, Inc.:
The audits referred to in our report dated February 20, 1998, included the
related financial statement schedule as of December 31, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997, included in
the Form 10-KSB. The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to incorporation by reference in the registration statements Nos.
33-42214 and 33-98160 on Form S-8 and No. 333-10665 on Form S-3 of
Lasertechnics, Inc. of our reports dated February 20, 1998, relating to the
consolidated balance sheets of Lasertechnics, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997, and related schedule, which reports
appear in the December 31, 1997, annual report on Form 10-KSB, as amended.
KPMG Peat Marwick LLP
Dallas, Texas
April 22, 1998
