<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LASERTECHNICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
LASERTECHNICS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Notice is hereby given that a Special Meeting of Stockholders of
Lasertechnics, Inc. (the "Company") will be held at The Guest Lodge, Cooper
Aerobic Center, Carter Room, located at 12230 Preston Road, Dallas, Texas on
Friday, February 20, 1998, at 9:30 a.m., local time, and at any adjournments
thereof, for the following purposes as set forth in the accompanying Proxy
Statement:
1. To consider and vote upon a proposal (the "Reverse Stock Split Proposal")
to amend the Company's Certificate of Incorporation to effect 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 of the Company, and to provide for certain corresponding changes in
the terms of the Series A, B, and C Convertible Preferred Stock;
2. To consider and vote upon a proposal (the "Authorized Shares Proposal") to
amend the Company's Certificate of Incorporation to reduce the number of
authorized shares of the Company's Common Stock from 56,750,000 to
6,250,000;
3. To consider and vote upon a proposal (the "Technology Acquisition Shares
Proposal") to authorize the issuance by the Company, from time to time, of
up to 1,000,000 shares of Common Stock (determined after giving effect to
the proposed one-for-twenty reverse stock split) to acquire certain
technology and related rights, pursuant to the Intellectual Property
Transfer Agreement dated as of January 7, 1998 (the "Technology
Acquisition Agreement"), between the Company and XL Vision, Inc.("XLV");
4. To consider and vote upon a proposal (the "Name Change Proposal") to amend
the Company's Certificate of Incorporation to change the Company's name to
"AXCESS Inc."; and
5. To transact such other business as may properly come before the meeting or
any adjournments thereof.
The Authorized Shares Proposal and the Technology Acquisition Shares
Proposal will not be presented to the stockholders of the Company at the
Special Meeting unless the Reverse Stock Split Proposal shall first have been
approved. It is a condition to the rights and obligations of the parties
under the Technology Acquisition Agreement that both the Reverse Stock Split
Proposal and the Technology Acquisition Shares Proposal be approved at the
Special Meeting.
The holders of a majority of the voting power of the issued and
outstanding stock of the Company entitled to vote at the Special Meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at the Special Meeting. If a quorum is not present or
represented by proxy at the Special Meeting, the stockholders entitled to vote
at the meeting,
<PAGE>
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be presented or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after the adjournment a new record date is set, a notice of adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Holders of record of the Company's Common Stock, Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred
Stock and Series G Preferred Stock at the close of business on Friday, January
30, 1998 (the "Record Date"), will be entitled to vote at the meeting with
respect to each of the above Proposals. Holders of record of the Company's
Non-voting Common Stock at the close of business on the Record Date will be
entitled to vote at the meeting with respect to the Authorized Shares Proposal.
Whether or not you plan to attend the meeting, please date and sign the
enclosed proxy and return it in the envelope provided. Any person giving a proxy
has the power to revoke it at any time prior to its exercise and, if present at
the meeting, may withdraw it and vote in person. The last proxy executed by a
shareholder revokes all previous proxies executed by that shareholder.
By Order of the Board of Directors
Harry S. Budow, Secretary
Dated: February 2, 1998
<PAGE>
Lasertechnics, Inc.
3208 Commander Drive
Carrollton, Texas 75006
----------------------------------
PROXY STATEMENT
----------------------------------
Table of Contents
INTRODUCTION -- THE SPECIAL MEETING..........................................1
ITEM I. REVERSE STOCK SPLIT PROPOSAL........................................6
General................................................................6
Reasons for the Reverse Stock Split Proposal...........................7
Effect of the Reverse Stock Split Proposal.............................8
Impact on Options, Warrants, and Convertible Securities...............11
Exchange of Stock Certificates and Payment for Fractional Shares......11
Federal Income Tax Consequences.......................................12
Other Nasdaq Requirements.............................................13
ITEM II. AUTHORIZED SHARES PROPOSAL........................................13
General...............................................................13
Reasons for the Authorized Shares Proposal............................14
Certain Possible Effects of Authorized but Unissued Shares............16
ITEM III. TECHNOLOGY ACQUISITION SHARES PROPOSAL...........................17
General...............................................................17
Acquisition of Technology.............................................17
Technology Enhancement Services.......................................17
Assignment of Spot/Mag Agreement......................................18
Lock-up Agreement.....................................................18
Registration Rights...................................................19
Board Representation..................................................19
Reasons for the Technology Acquisition Shares Proposal................19
The XLV Technology....................................................19
Applications to the Company's Businesses..............................20
XLV ................................................................20
Effect of the Technology Acquisition Shares Proposal..................21
Contingency with respect to the Reverse Stock Split Proposal..........22
ITEM IV. NAME CHANGE PROPOSAL..............................................23
i
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DESCRIPTION OF CAPITAL STOCK................................................24
Authorized Shares.....................................................24
Common Stock and Non-voting Common Stock..............................24
Preferred Stock.......................................................25
Series A Preferred Stock........................................26
Series B Preferred Stock........................................26
Series C Preferred Stock........................................27
Series F Preferred Stock........................................28
Series G Preferred Stock........................................31
COMPARISON OF STOCKHOLDER RIGHTS............................................32
Authorized Capital Stock..............................................33
Outstanding Capital Stock.............................................33
Stated Capital........................................................34
Par Value.............................................................34
RECENT DEVELOPMENTS.........................................................34
Nasdaq Listing Requirements...........................................34
Equity Investments by Major Stockholders..............................35
Extension of Bridge Loans.............................................35
Restructuring of Variable Price Convertible Securities................36
Increase in Aggregate Voting Power of the Amphion Group; Possible
Deemed Change of Control........................................37
Legal Proceedings.....................................................38
Deferral of Rights Offering...........................................38
Dispute regarding DataGlyphs License..................................39
COSTS OF SOLICITATION.......................................................39
APPRAISAL RIGHTS............................................................39
OTHER MATTERS...............................................................40
PRINCIPAL STOCKHOLDERS......................................................40
DEADLINE FOR STOCKHOLDER PROPOSALS..........................................44
ii
<PAGE>
Lasertechnics, Inc.
3208 Commander Drive
Carrollton, Texas 75006
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 20, 1998
-----------------------------------------
PROXY STATEMENT
-----------------------------------------
INTRODUCTION -- THE SPECIAL MEETING
This Proxy Statement is furnished in connection with the solicitation by
management of proxies to be voted at a Special Meeting of Stockholders of
Lasertechnics, Inc. (the "Company") to be held at The Guest Lodge, Cooper
Aerobic Center, Carter Room, located at 12230 Preston Road, Dallas, Texas on
Friday, February 20, 1998 at 9:30 a.m., local time, and at any adjournments
thereof. The purpose of the meeting is to consider and vote upon each of the
following proposals (each a "Proposal" and, collectively, the "Proposals"):
1. a proposal (the "Reverse Stock Split Proposal") to amend the
Company's Certificate of Incorporation to effect 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 of
the Company, and to provide for certain corresponding changes in the
terms of the Series A, B, and C Convertible Preferred Stock;
2. a proposal (the "Authorized Shares Proposal") to amend the Company's
Certificate of Incorporation to reduce the number of authorized
shares of the Company's Common Stock from 56,750,000 to 6,250,000;
3. a proposal (the "Technology Acquisition Shares Proposal") to
authorize the issuance by the Company, from time to time, of up to
1,000,000 shares of Common Stock (determined after giving effect to
the proposed one-for-twenty reverse stock split) to acquire certain
technology and related rights, pursuant to the Intellectual Property
Transfer Agreement dated as of January 7, 1998 (the "Technology
Acquisition Agreement") between the Company and XL Vision, Inc.
("XLV"); and
1
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4. a proposal (the "Name Change Proposal") to amend the Company's
Certificate of Incorporation to change the Company's name to "AXCESS
Inc."
The Authorized Shares Proposal and the Technology Acquisition Shares
Proposal will not be presented to the stockholders of the Company at the Special
Meeting unless the Reverse Stock Split Proposal shall first have been approved.
It is a condition to the rights of the Company under the Technology Acquisition
Agreement that the Reverse Stock Split Proposal be approved at the Special
Meeting.
Shares represented by proxies, received in the enclosed form and properly
filled out, will be voted in accordance with the specifications made thereon. In
the absence of specific instructions, proxies will be voted in favor of each of
the Proposals described in this Proxy Statement. Proxies may be revoked by
stockholders by written notice received by the Secretary of the Company at the
address set forth above, at any time prior to the exercise thereof. The last
proxy executed by a stockholder revokes all previous proxies executed by that
stockholder. A stockholder may also attend the Special Meeting in person and
vote by ballot, thereby canceling any proxy previously given. Except for the
Proposals described in this Proxy Statement, management expects no other matters
to be presented for action at the Special Meeting. If, however, any other
matters properly come before the Special Meeting, the persons named as proxies
in the enclosed form of proxy intend to vote in accordance with their judgment
on any such matters so presented, unless otherwise specified in the Proxy.
The holders of a majority of the voting power of the issued and
outstanding stock of the Company entitled to vote at the Special Meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at the Special Meeting. If a quorum is not present or
represented by proxy at the Special Meeting, the stockholders entitled to vote
at the meeting, present in person or represented by proxy, shall have the power
to adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented by proxy. At such
adjourned meeting at which a quorum shall be present or represented by proxy,
any business may be transacted which might have been transacted at the meeting
as originally called. If the adjournment is for more than thirty days, or, if
after the adjournment a new record date is set, a notice of adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Abstentions and broker non-votes with respect to particular proposals will not
affect the determination of a quorum. Stockholders of record at the close of
business on Friday, January 30, 1998 (the "Record Date") are entitled to notice
of and to vote at the Special Meeting or any adjournments thereof. As of the
Record Date, the Company's outstanding voting securities consisted of 46,834,783
shares of Common Stock, par value $.01 per share (the "Common Stock"); 1,153,846
shares of Series A Convertible Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"); 1,056,338 shares of Series B Convertible Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"); 708,530 shares
of Series C Convertible Preferred Stock par value $.01 per share (the "Series C
Preferred Stock"); and 750 shares of Series G Preferred Stock, par value $.01
per share (the "Series G Preferred Stock"). The Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock are sometimes referred to
collectively herein as the
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"Single Vote Preferred Stock, and the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series G Preferred Stock are
sometimes referred to collectively herein as the "Voting Preferred Stock." Each
share of Common Stock and each share of Single Vote Preferred Stock is entitled
to one vote on each of the Proposals described in this Proxy Statement, and each
share of Series G Preferred Stock is entitled to 20,000 votes on each of such
Proposals, representing one vote for each share of Common Stock into which a
single share of Series G Preferred Stock is convertible on the Record Date. The
Company also has authorized a class of Non-voting Common Stock, par value $.01
per share (the "Non-voting Common Stock"), of which 2,249,842 shares were
outstanding on the Record Date. Each share of Non-voting Common Stock is
entitled to one vote on the Authorized Shares Proposal, voting together with the
Common Stock as a single class.
The affirmative vote of a majority of the outstanding voting power of the
Common Stock and Voting Preferred Stock, voting together as a single class, is
required to adopt the Reverse Stock Split Proposal, the Technology Acquisition
Shares Proposal and the Name Change Proposal. The affirmative votes of the
majority of the outstanding voting power of the Common Stock, voting as a
separate class; Common Stock and Non-voting Common Stock, voting together as a
single class; and Common Stock and Voting Preferred Stock, voting together as a
single class, are required to adopt the Authorized Shares Proposal.
Abstentions will not be counted as affirmative votes. The following table
indicates the number of shares outstanding, their respective voting power, and
the number and percentage of shares held by members of the Board of Directors of
the Company as of January 8, 1998:
<TABLE>
<CAPTION>
Number Number of Shares Percent of Shares
of Shares Number of Held by Board of Held by Board of
Stock Class Outstanding Entitled Votes Directors Members Directors Members
<S> <C> <C> <C> <C>
Common Stock 46,834,783 46,834,783 See note (3) See note (3)
Non-voting 2,249,842 2,249,842 *** ***
Common Stock
Series A 1,153,846 1,153,846 See note (3) See note (3)
Preferred Stock
Series B 1,056,338 1,056,338 See note (3) See note (3)
Preferred Stock
Series C 708,530 708,530 See note (3) See note (3)
Preferred Stock
Series G 750 15,000,000 See note (3) See note (3)
Preferred Stock (1)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Number Number of Shares Percent of Shares
of Shares Number of Held by Board of Held by Board of
Stock Class Outstanding Entitled Votes Directors Members Directors Members
<S> <C> <C> <C> <C>
Voting Preferred 2,919,464 17,918,714 See note (3) See note (3)
Stock
Aggregate of 49,754,247 64,753,497 See note (3) See note (3)
Common Stock
and Voting
Preferred Stock
Aggregate of 49,084,625 49,084,625 See note (3) See note (3)
Common Stock
and Non-voting
Common Stock (2)
</TABLE>
- --------------------
(1) Each share of Series G Preferred Stock has an Original Series G Issue
Price of $10,000, and is convertible at a conversion price of $.50 per
share into 20,000 shares of Common Stock. The Series G Preferred Stock
votes with the Common Stock and other series of Voting Preferred Stock as
a single class, on an "as-converted" basis.
(2) The voting power of the Non-voting Common Stock is applicable only to the
separate class vote of the Voting Common Stock and Non-Voting Common
Stock, voting together as a single class, with respect to the Authorized
Shares Proposal.
(3) 100% of the outstanding shares of the Series A Preferred Stock and Series
B Preferred Stock, and 72% of the outstanding shares of Series C Preferred
Stock, are owned beneficially and of record by Amphion Ventures L.P., a
Delaware limited partnership ("Amphion Ventures"), and 100% of the
outstanding shares of the Series G Preferred Stock are currently owned in
the aggregate by Amphion Ventures and Antiope Partners L.L.C., a Delaware
limited liability company ("Antiope Partners"). Richard C. E. Morgan, the
chairman and chief executive officer of the Company and a member of the
Company's Board of Directors, is a managing member of Antiope Partners and
a managing member of Amphion Partners L.L.C. ("Amphion Partners"), a
Delaware limited liability company and the sole general partner of Amphion
Ventures. As such Mr. Morgan may be deemed to have beneficial ownership of
the securities of the Company owned by Amphion Ventures and Antiope
Partners, although Mr. Morgan disclaims such beneficial ownership. If such
deemed beneficial ownership is taken into account, Mr. Morgan would be
deemed to own 100% of the voting power of the Series A Preferred Stock,
Series B Preferred Stock and Series G Preferred Stock; 72% of the voting
power of the Series C Preferred Stock; and 99% of the combined voting
power of the Voting Preferred Stock. In addition, Amphion Ventures,
Amphion Partners and Antiope
4
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Partners (collectively, the "Amphion Group") own in the aggregate
8,160,303 shares of Common Stock, or 17.4% of the class outstanding. See,
"RECENT DEVELOPMENTS," "DESCRIPTION OF CAPITAL STOCK."
Mr. Morgan has direct beneficial ownership of 364,766 shares of Common
Stock as of January 8, 1998, or approximately 0.8% of the Common Stock and
0.5% of the total voting power of the Company outstanding (including
37,500 shares subject to options that are currently exercisable, at an
exercise price in excess of the current market price). Including the
shares held by the Amphion Group, Mr. Morgan may be deemed to have
beneficial ownership of securities representing approximately 42.8% of the
total outstanding voting power of the Company.
Not including the securities held by the Amphion Group, but including
those held by Mr. Morgan directly, the directors of the Company own in the
aggregate 971,602 shares of Common Stock as of January 8, 1998, or
approximately 2.1% of the Common Stock and 1.5% of the total voting power
of the Company outstanding (including 288,786 shares subject to options
that are currently exercisable, at an exercise price in excess of the
current market price). Including the securities held by the Amphion Group,
which may be deemed to be indirectly beneficially owned by Mr. Morgan, the
directors of the Company own in the aggregate voting securities
representing approximately 43.5% of the total voting power of the Company
outstanding. See, "PRINCIPAL STOCKHOLDERS."
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 L.P. ("Antiope Ventures"). As of August 19, 1997, Antiope
Ventures transferred all 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. 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. See, "PRINCIPAL STOCKHOLDERS."
The Amphion Group, and each of the directors of the Company, have
separately advised the Company that they intend to vote FOR approval of each of
the Proposals. In addition, Jackson Hole Investments Acquisition Inc. ("JHIA")
has advised the Company that it intends to vote FOR approval of each of the
Proposals. JHIA, an entity related indirectly to the Amphion Group, holds the
198,676 shares of Series C Preferred Stock of the Company not held by the
Amphion Group, representing 28.0% of the Series C Preferred Stock and 0.3% of
the total voting power of the Company outstanding.
Votes cast at the Special Meeting will be counted by the persons appointed
by the Company to act as inspectors of election for the Special Meeting. The
inspectors of election will treat Common Stock, Non-voting Common Stock, and
Voting Preferred Stock represented by a properly executed and returned proxy as
present at the Meeting for purpose of determining a quorum.
5
<PAGE>
ITEM I. REVERSE STOCK SPLIT PROPOSAL
General
At the Special Meeting, the stockholders of the Company will consider and
vote upon the Reverse Stock Split Proposal. The Reverse Stock Split Proposal
provides for the combination and reclassification of the presently issued and
outstanding shares (the "pre-split shares") of Common Stock, into a smaller
number of shares (the "post-split shares") of identical Common Stock, on the
basis of one post-split share of Common Stock for each twenty pre-split shares
of Common Stock previously issued and outstanding, and a corresponding
combination and reclassification of the presently issued and outstanding shares
of each of the Non-voting Common Stock, Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock (collectively, the "Reverse Stock
Split"). The Common Stock will not be modified or amended in any way by the
Reverse Stock Split, other than the combination and reclassification of
outstanding shares as described herein and the payment of cash for fractional
shares, as described below. Except as may result from the payment of cash for
fractional shares, each stockholder will hold the same percentage of common
stock outstanding immediately following the Reverse Stock Split as it did
immediately prior to the Reverse Stock Split. If approved by the stockholders of
the Company as provided herein, the Reverse Stock Split will be effected by an
amendment to the Company's Certificate of Incorporation in substantially the
form attached to this Proxy Statement as Appendix A (the "Reverse Stock Split
Amendment"), and will become effective upon the filing of the Reverse Stock
Split Amendment with the Secretary of State of Delaware (the "Effective Time").
The following discussion is qualified in its entirety by the full text of the
Reverse Stock Split Amendment, which is hereby incorporated by reference herein.
At the Effective Time, each share of Common Stock issued and outstanding
will automatically be reclassified and converted into one-twentieth of a share
of Common Stock, and each share of Non-voting Common Stock and Single Vote
Preferred Stock issued and outstanding will automatically be reclassified and
converted into one-twentieth of a share of Non-voting Common Stock or
one-twentieth of a share of the applicable series of Single Vote Preferred
Stock, as the case may be.
Fractional shares of Common Stock will not be issued as a result of the
Reverse Stock Split. Stockholders entitled to receive a fractional share of
Common Stock as a consequence of the Reverse Stock Split will, instead, receive
from the Company a cash payment in U.S. dollars equal to such fraction
multiplied by twenty times the average closing bid price per share of the Common
Stock on The Nasdaq Stock Market, Inc. ("Nasdaq") for the five trading days
immediately preceding the Effective Date.
The Company expects that, if the Reverse Stock Split Proposal is approved
by the stockholders at the Special Meeting, the Reverse Stock Split Amendment
will be filed immediately. However, notwithstanding approval of the Reverse
Stock Split Proposal by the stockholders of the Company, the Board of Directors
of the Company may elect not to file, or to delay the filing of, the
6
<PAGE>
Reverse Stock Split Amendment, if the Board of Directors determines that filing
the Reverse Stock Split Amendment would not be in the best interest of the
Company's stockholders at such time. Factors leading to such a determination
could include, without limitation, any possible effect on Nasdaq listing or
future securities offerings (see "Reasons for the Reverse Stock Split Proposal,"
below).
Reasons for the Reverse Stock Split Proposal
The purpose of the Reverse Stock Split is to combine the outstanding
shares of Common Stock so that the Common Stock outstanding after giving effect
to the Reverse Stock Split trades at a significantly higher price per share than
the Common Stock outstanding before giving effect to the Reverse Stock Split.
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 $0.25 per share. The closing bid price for the Common Stock on January
2, 1998, was $0.28 per share. The Company believes that such a low quoted market
price per share may discourage potential new investors, increase market price
volatility and decrease the liquidity of the Common Stock. Most importantly, the
Company's current market price is 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 new rules scheduled to go into effect on February 22, 1998
(the "New Nasdaq Listing Requirements"). The Company believes, but cannot
assure, that the reverse stock split will enable the Common Stock to trade above
the minimum bid price established by the New Nasdaq Listing Requirements.
The Company believes that maintaining the listing of the Common Stock on
Nasdaq is very important to the Company and its stockholders. Inclusion in
Nasdaq advantages stockholders by increasing liquidity and potentially
minimizing the spread between the "bid" and "asked" prices quoted by market
makers. Further, a Nasdaq listing may enhance the Company's access to capital
and increase the Company's flexibility in responding to anticipated capital
requirements. The Company believes that prospective investors will view an
investment in the Company more favorably if its shares qualify for listing on
Nasdaq.
Additionally, Rule 15c2-6 of the Securities and Exchange Commission (the
"Penny Stock Rule") requires broker-dealers to comply with certain supplemental
requirements when recommending and selling to certain customers certain
low-priced securities that are not listed on any national securities exchange or
included for trading on Nasdaq. The Company believes that the market for the
Common Stock will be improved by continued listing on the Nasdaq SmallCap
Market, thereby providing an exemption from the impact of the Rule.
The Company also believes that the current per share price level of the
Company's Common Stock has reduced the effective marketability of the shares
because of the reluctance of many leading brokerage firms to recommend low
priced stock to their clients. Certain investors view low-priced stock as
unattractive, although certain other investors may be attracted to low-priced
stock because
7
<PAGE>
of the greater trading volatility sometimes associated with such securities. In
addition, a variety of brokerage house policies and practices tend to discourage
individual brokers within those firms from dealing in low priced stock. Some of
those policies and practices pertain to the payment of brokers commissions and
to time consuming procedures that function to make the handling of low priced
stocks unattractive to brokers from an economic standpoint.
In addition, since brokerage commissions on low-priced stock generally
represent a higher percentage of the stock price than commissions on higher
priced stock, the current share price of the Common Stock can result in
individual stockholders paying transaction costs (commission, markups, or
markdowns) which are a higher percentage of their total share value than would
be the case if the share price were substantially higher. This factor also may
limit the willingness of institutions to purchase the Common Stock at its
current low share price.
For all the above reasons, the Company believes that the Reverse Stock
Split is in the best interests of the Company and its stockholders. However,
there can be no assurances that the Reverse Stock Split will have the desired
consequences. The Company anticipates that, following the consummation of the
Reverse Stock Split, the Common Stock will trade at a price per share that is
significantly higher than the current market price of the Common Stock. However,
there can be no assurance that, following the Reverse Stock Split, the Common
Stock will trade at twenty times the market price of the Common Stock prior to
the Reverse Stock Split.
Effect of the Reverse Stock Split Proposal
Subject to stockholder approval, the Reverse Stock Split will be effected
by the filing of an amendment to the Company's Certificate of Incorporation, and
will be effective immediately upon such filing. Although the Company expects to
file the Reverse Stock Split Amendment with the Delaware Secretary of State's
office immediately following approval of the Reverse Stock Split Proposal at the
Special Meeting, the actual timing of such filing will be determined by the
Company's management based upon their evaluation as to when such action will be
most advantageous to the Company and its stockholders. The Company reserves the
right to forego or postpone filing the Reverse Stock Split Amendment, if such
action is determined to be in the best interests of the Company and its
stockholders.
Each stockholder that owns fewer than twenty shares of Common Stock will
have his or her fractional share of Common Stock converted into the right to
receive cash as set forth below in "Exchange of Stock Certificates and Payment
for Fractional Shares." The interest of such stockholder in the Company will
thereby be terminated, and such stockholder will have no right to share in the
assets or future growth of the Company. Each stockholder that owns twenty or
more shares of Common Stock will continue to own shares of Common Stock and will
continue to share in the assets and future growth of the Company as a
stockholder. Such interest will be represented by one-twentieth as many shares
as such stockholder owned before the Reverse Stock Split, subject to the
adjustment for fractional shares described herein.
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Effectuation of the Reverse Stock Split as of September 30, 1997 would not
have had an effect on the Company's $8.4 million consolidated net loss for the
nine month period then ended. However, net loss per share of $.20 would have
been proportionately increased to approximately $4.00. No adjustment has been
made for the reduction in the number of shares of Common Stock resulting from
the payment of cash for fractional shares.
Adoption of the reverse stock split will reduce the presently issued and
outstanding shares of Common Stock, Non-voting Common Stock, and Single Vote
Preferred Stock as indicated in the following table. The Single Vote Preferred
Stock has been included in the Reverse Stock Split Proposal because by its terms
it converts on a one-for-one basis into shares of Common Stock. The Series F
Preferred Stock (to the extent any remains outstanding) and Series G Preferred
Stock have not been included in the Reverse Stock Split Proposal because their
respective conversion rates into Common Stock automatically adjust to reflect
the effects of the Reverse Stock Split. The post-split outstanding amounts have
been calculated without regard for the payment of cash for fractional shares,
and accordingly are approximate.
Stock Class Pre-split Post-split
Outstanding (1) Outstanding (1)
--------------- ----------------
Common Stock 46,834,783 2,341,739
Non-voting 2,249,842 112,494
Common Stock
Series A 1,153,846 57,692
Convertible
Preferred Stock
Series B 1,056,338 52,817
Convertible
Preferred Stock
Series C 708,530 35,427
Convertible
Preferred Stock
Total Common 52,003,339 2,600,167
Stock, Non-voting
Common Stock and
Single Vote
Preferred Stock
- --------------------
(1) Based on the number of shares of each such series issued and
outstanding as of January 8, 1998.
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EXCEPT FOR THE RECEIPT OF CASH IN LIEU OF FRACTIONAL INTERESTS, THE
REVERSE STOCK SPLIT WILL NOT AFFECT ANY STOCKHOLDER'S PROPORTIONATE EQUITY
INTEREST IN THE COMPANY.
As of January 2, 1998, the Company had approximately 1,500 record holders
of Common Stock and believes, based on information received from the transfer
agent and those brokerage firms that hold the Company's securities in custodial
or "street" name, that such shares were beneficially owned by an aggregate of
approximately 10,070 beneficial owners. All the issued and outstanding shares of
the Non-voting Common Stock are held beneficially and of record by J.P. Morgan
Investment Corporation ("JPMIC"). As indicated above, all the issued and
outstanding shares of the Series A Preferred Stock and Series B Preferred Stock
are owned beneficially and of record by Amphion Ventures; all the issued and
outstanding shares of the Series C Preferred Stock are in the aggregate owned
beneficially and of record by Amphion Ventures and JHIA; and all the issued and
outstanding shares of the Series G Preferred Stock are in the aggregate owned
beneficially and of record by Amphion Ventures and Antiope Partners. Based on
estimated stockholdings as of January 2, 1998, the Company estimates that, after
the reverse stock split, the Company will continue to have approximately the
same number of stockholders.
The Company currently is authorized under its Certificate of Incorporation
to issue 56,750,000 shares of the Common Stock. As of January 8, 1998, an
aggregate of 46,834,783 shares of the Common Stock were issued and outstanding.
The Reverse Stock Split will reduce the number of issued and outstanding shares
of the Common Stock to approximately 2,341,739; however, the number of
authorized shares will remain at 56,750,000. Following the Reverse Stock Split,
the Company would have a very large number of authorized but unissued shares of
Common Stock. Accordingly, if the Reverse Stock Split Proposal is adopted, the
Company will propose the Authorized Shares Proposal, which provides for the
decrease in the number of authorized shares of Common Stock from 56,750,000 to
6,250,000.
The par value of the Common Stock will remain at $.01 per share following
the Reverse Stock Split, and the number of shares of the Common Stock
outstanding will be reduced. As a consequence, the aggregate par value of the
outstanding Common Stock will be reduced, while the aggregate capital in excess
of par value attributable to the outstanding Common Stock for statutory and
accounting purposes will be correspondingly increased. The Reverse Stock Split
will not affect the Company's retained deficit, and stockholders' equity will
remain substantially unchanged.
If the Reverse Split is effected, the per share information and the
average number of shares outstanding as presented in previously issued
consolidated financial statements and other publicly available information of
the Company would be restated following the Effective Date to reflect the
Reverse Split.
The Common Stock, but neither the Non-voting Common Stock nor any series
of Voting Preferred Stock, is currently listed on the Nasdaq SmallCap Market,
under the trading symbol LASX. In connection with the Reverse Stock Split
Proposal and the Name Change Proposal described below, the Company intends to
request a new symbol, "AXSI" to represent the Common
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Stock following effectiveness of such Proposals, if available. See, "ITEM IV.
NAME CHANGE PROPOSAL."
Impact on Options, Warrants, and Convertible Securities
If the Reverse Stock Split is effected, the number of shares of Common
Stock that may be purchased upon the exercise of outstanding options, warrants,
and other securities convertible into, or exercisable or exchangeable for,
shares of Common Stock, including without limitation the Series F Preferred
Stock (to the extent any remain outstanding) and the Series G Preferred Stock
(collectively, "Convertible Securities"), and the per share exercise or
conversion prices thereunder, will be adjusted appropriately pursuant to the
terms of such Convertible Securities, effective as of the Effective Date, so
that the aggregate number of shares of Common Stock issuable in respect of
Convertible Securities immediately following the Effective Date will be
one-twentieth of the number issuable in respect thereof immediately prior to the
Effective Date, and the aggregate exercise or conversion prices thereunder shall
remain unchanged.
Exchange of Stock Certificates and Payment for Fractional Shares
The combination and reclassification of shares of Common Stock pursuant to
the Reverse Stock Split will occur automatically on the Effective Date without
any action on the part of stockholders of the Company and without regard to the
date certificates representing shares of Common Stock prior to the Reverse Stock
Split are physically surrendered for new certificates. If the number of shares
of Common Stock to which a holder is entitled as a result of the Reverse Stock
Split would otherwise include a fraction, the Company will pay to the
stockholder, in lieu of issuing fractional shares of the Company, cash in an
amount equal to the same fraction multiplied by twenty times the average closing
price of the Common Stock on the Nasdaq SmallCap Market for the five days
immediately preceding the Effective Date. A change in the closing price of the
Common Stock will affect the amount received by stockholders in lieu of
fractional shares.
As soon as practicable after the Effective Date, transmittal forms will be
mailed to each holder of record of certificates for shares of Common Stock to be
used in forwarding such certificates for surrender and exchange for certificates
representing the number of shares of Common Stock such stockholder is entitled
to receive as a consequence of the Reverse Stock Split. The transmittal forms
will be accompanied by instructions specifying other details of the exchange.
Upon receipt of such transmittal form, each stockholder should surrender the
certificates representing shares of Common Stock prior to the Reverse Stock
Split, in accordance with the applicable instructions. Each holder who
surrenders certificates will receive new certificates representing the whole
number of shares of Common Stock that he holds as a result of the Reverse Stock
Split and any cash payable in lieu of a fractional share. STOCKHOLDERS SHOULD
NOT SEND THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
After the Effective Date, each certificate representing shares of Common
Stock outstanding prior to the Effective Date (an "old certificate") will, until
surrendered and exchanged as described above, be deemed, for all corporate
purposes, to evidence ownership of the whole number of shares
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<PAGE>
of Common Stock, and the right to receive from the Company the amount of cash
for any fractional shares, into which the shares of Common Stock evidenced by
such certificate have been converted by the Reverse Stock Split, except that the
holder of such unexchanged certificates will not be entitled to receive any
dividends or other distributions payable by the Company after the Effective
Date, until the old certificates have been surrendered. Such dividends and
distributions, if any, will be accumulated, and at the time of surrender of the
old certificates, all such unpaid dividends or distributions will be paid
without interest.
Federal Income Tax Consequences
The following discussion describes certain federal income tax consequences
of the Reverse Stock Split. This discussion is based upon the Internal Revenue
Code of 1986 (the "Code"), existing and proposed regulations thereunder, reports
of congressional committees, judicial decisions, and current administrative
rulings and practices, all as amended and in effect on the date hereof. Any of
these authorities could be repealed, overruled, or modified at any time. Any
such change could be retroactive and, accordingly, could cause the tax
consequences to vary substantially from the consequences described herein. No
ruling from the Internal Revenue Service (the "IRS") with respect to the matters
discussed herein has been requested, and there is no assurance that the IRS
would agree with the conclusions set forth in this discussion. All stockholders
should consult with their own tax advisors.
This discussion may not address certain federal income tax consequences
that may be relevant to particular stockholders in light of their personal
circumstances or to certain types of stockholders (such as dealers in
securities, insurance companies, foreign individuals and entities, financial
institutions, and tax-exempt entities) who may be subject to special treatment
under the federal income tax laws. This discussion also does not address any tax
consequences under state, local, or foreign laws.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR
TAX CONSEQUENCES TO THEM OF THE REVERSE SPLIT, INCLUDING THE APPLICABILITY OF
ANY STATE, LOCAL, OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX LAWS, AND ANY
PENDING OR PROPOSED LEGISLATION.
The Company should not recognize any gain or loss as a result of the
Reverse Stock Split. No gain or loss should be recognized by a stockholder who
receives only Common Stock upon the Reverse Stock Split. A stockholder who
receives cash in lieu of a fractional share of Common Stock that otherwise would
be held as a capital asset generally should recognize capital gain or loss on an
amount equal to the difference between the cash received and his basis in such
fractional share of Common Stock. For this purpose, a stockholder's basis in
such fractional share of Common Stock will be determined as if the stockholder
actually received such fractional share. Except as provided with respect to
fractional shares, the aggregate tax basis of the shares of Common Stock held by
a stockholder following the Reverse Stock Split will equal the stockholder's
aggregate basis in the Common Stock held immediately prior to the Reverse Stock
Split and generally will be allocated among the shares of Common Stock held
following the Reverse Stock Split on a pro-rata basis.
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<PAGE>
Stockholders who have used the specific identification method to identify their
basis in shares of Common Stock combined in the Reverse Stock Split should
consult their own tax advisors to determine their basis in the post-Reverse
Stock Split shares Common Stock received in exchange therefor.
Other Nasdaq Requirements
In addition to the minimum bid price per share requirement described
above, the Common Stock's continued listing on the Nasdaq SmallCap Market is
subject to the maintenance of other quantitative and non-quantitative
requirements, as set forth in the New Nasdaq Listing Requirements. 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 and 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. Although the Company believes that it will
meet such requirements at the time that the New Nasdaq Listing Requirements go
into effect, there can be no assurances that such will be the case, or that
continued losses or other factors beyond the control of the Company will not
cause the Company to fail to meet such requirements.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
REVERSE STOCK SPLIT PROPOSAL.
ITEM II. AUTHORIZED SHARES PROPOSAL
General
At the Special Meeting, assuming approval of the Reverse Stock Split
Proposal, the stockholders of the Company will consider and vote upon the
Authorized Shares Proposal. The Authorized Shares Proposal provides for the
amendment of the Certificate of Incorporation of the Company to reduce the
number of authorized shares of the Company's Common Stock from 56,750,000 to
6,250,000. The Authorized Shares Proposal will not be presented to the
stockholders for consideration at the Special Meeting unless the Reverse Stock
Split Proposal is approved. It is important to note that although the Authorized
Shares Proposal will result in a numeric decrease in the number of shares of
Common Stock authorized, the combination of the Reverse Stock Proposal and the
Authorized Shares Proposal will result in an increase in the number of
authorized but unissued shares as a percentage of shares authorized. The
following table shows the change in the number of shares of Common Stock
authorized, issued and outstanding, and authorized but unissued, and the change
in the number of authorized but unissued shares as a percentage of authorized
shares, as a result of the Authorized Shares Proposal and the Reverse Stock
Split Proposal:
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COMMON Prior to Giving Effect to After Giving Effect to
STOCK Proposals Proposals
------------------------- ----------------------
Total 56,750,000 6,250,000
Authorized
Issued and 46,834,783 2,341,739
Outstanding(1)
Authorized but 9,915,217 3,908,261
Unissued
Percentage 17.5% 62.5%
Authorized but
Unissued
- --------------------
(1) Based on shares outstanding at January 8, 1998. Post-Reverse Stock
Split outstanding amounts have been calculated without regard for
the payment of cash for fractional shares, and accordingly are
approximate.
Subject to stockholder approval, the Authorized Shares Proposal will be
effected by the filing of an amendment to the Certificate of Incorporation of
the Company, substantially in the form of Appendix B. The change in the
number of authorized shares of Common Stock as provided for in the Authorized
Shares Proposal will be effective immediately upon the filing of such
Certificate of Amendment with the office of the Delaware Secretary of State.
Reasons for the Authorized Shares Proposal
The purpose of the Authorized Shares Proposal is to decrease the number of
authorized shares of Common Stock following effectiveness of the Reverse Stock
Split, so that the number of authorized but unissued shares of Common Stock
following the Reverse Stock Split bears a more appropriate relation to the total
number of shares of Common Stock then authorized. As the Reverse Stock Split
Proposal will reduce the number of issued and outstanding shares of Common Stock
by 95%, but will not affect the number of shares of Common Stock authorized, the
Reverse Stock Split will greatly increase the percentage that the number of
authorized shares of Common Stock bears to the number of shares of Common Stock
issued and outstanding. The Authorized Shares Proposal will reduce the number of
shares of Common Stock authorized, but will not reduce the number of such
authorized shares to the same degree that the Reverse Stock Split will reduce
the number of shares of Common Stock outstanding. Accordingly, the number of
authorized but unissued shares, as a percentage of the number of shares
authorized, will be increased by the combination of the Authorized Shares
Proposal and the Reverse Stock Split Proposal. The Authorized Shares Proposal
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<PAGE>
will not be presented to the stockholders of the Company at the Special Meeting
unless the Reverse Stock Split Proposal has been approved.
The following table shows the number of shares of Common Stock authorized,
issued and outstanding, reserved for issuance, and available for future
purposes, after giving effect to the Authorized Shares Proposal and the Reverse
Stock Split:
Number of Shares
Assuming Approval of Reverse
Stock Split Proposal and
Authorized Shares Proposal
--------------------------
Authorized 6,250,000
Issued and Outstanding(1) 2,341,739
Reserved for Issuance upon the Conversion of 979,245
Outstanding Convertible Preferred Stock(2)
Reserved for Issuance upon the Exercise of 347,842
Outstanding Common Stock Warrants(3)
Reserved for Issuance pursuant to Outstanding Stock 30,778
Options(4)
Reserved for Issuance pursuant to the Technology 1,000,000
Acquisition Proposal(5)
Available for Other Corporate Purposes 1,550,396
- --------------------
(1) Based on the number of shares of Common Stock issued and outstanding on
January 8, 1998.
(2) Based on Single Vote Preferred Stock and Series G Preferred Stock
outstanding on January 8, 1998, plus the number of shares of Common Stock into
which the Series F Preferred Stock outstanding on January 8, 1998 could have
been converted, using the ten-day average closing bid price per share of the
Common Stock as at December 24, 1997.
(3) Includes shares issuable upon exercise of all outstanding common stock
warrants as of January 8, 1998, whether or not then exercisable and whether or
not the exercise price thereof is greater or less than the current market price
per share of Common Stock.
(4) Includes shares issuable upon exercise of all outstanding options as of
January 8, 1998, whether or not then exercisable and whether or not the exercise
price thereof is greater or less than the current market price per share of
Common Stock.
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<PAGE>
(5) See, "ITEM III. TECHNOLOGY ACQUISITION PROPOSAL," below.
Authorized shares of Common Stock in excess of the number of shares of
Common Stock issued and outstanding, reserved for issuance upon the conversion,
exercise or exchange of outstanding Convertible Securities or otherwise reserved
for issuance may be used for any proper corporate purposes that may in the
future from time to time be identified by the Board of Directors, such as
financing transactions, possible future acquisitions, employee benefits, and
other corporate purposes. The Board of Directors believes that the availability
of such additional shares gives the Company the flexibility necessary to take
advantage of opportunities that may arise, without the delay and expense of a
stockholders' meeting.
The Company currently intends to seek additional financing through the
possible public or private sale of its securities. The availability of
authorized but unissued shares of Common Stock would permit the Company to issue
Common Stock or Convertible Securities in connection with any such financing, if
the Board of Directors determines that such issuance is in the best interests of
the Company and its stockholders. The Company has not determined how many of its
authorized but unissued shares it intends to issue for any of the above
purposes, if any, or when, if ever, it intends to issue such shares. The Board
of Directors does not intend to solicit stockholder authorization for the
issuance of any additional shares of Common Stock, unless required by applicable
law or the requirements of Nasdaq.
Certain Possible Effects of Authorized but Unissued Shares
The Company's existing stockholders do not have any preemptive rights
under the Certificate of Incorporation of the Company or otherwise to purchase
any shares of Common Stock that may from time to time be issued by the Company.
It is possible that shares of Common Stock may be issued at a time and under
circumstances that may dilute the voting power of existing stockholders,
increase or decrease earnings per share and/or increase or decrease the book
value per share of the shares then outstanding. The Authorized Shares Proposal
would significantly reduce the number of shares of Common Stock authorized
following effectiveness of the Reverse Stock Split, but the combination of the
Reverse Stock Split and the Authorized Shares Proposal would nevertheless result
in an increase in the number of authorized but unissued shares of Common Stock,
as a percentage of the total number of shares of Common Stock authorized.
The ability of the Board of Directors to issue additional shares of Common
Stock without further stockholder approval could have the effect of discouraging
any possible unsolicited efforts to acquire control of the Company. However,
neither the Authorized Shares Proposal nor the Reverse Stock Split Proposal is
intended as an anti-takeover device, and no specific anti-takeover measures are
currently being contemplated by the Board of Directors. Management is not aware
of any third party that may currently intend to accumulate the Company's Common
Stock or to obtain control of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
THE AUTHORIZED SHARES PROPOSAL.
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ITEM III. TECHNOLOGY ACQUISITION SHARES PROPOSAL
General
At the Special Meeting, the stockholders of the Company will also consider
and vote upon the Technology Acquisition Shares Proposal. If approved, the
Technology Acquisition Shares Proposal will authorize the issuance by the
Company, from time to time, of up to 1,000,000 shares of Common Stock (as in
effect following the proposed Reverse Stock Split) to acquire certain technology
and related rights, pursuant to the Technology Acquisition Agreement. The
Technology Acquisition Shares Proposal will not be presented to the stockholders
of the Company at the Special Meeting unless the Reverse Stock Split Proposal
shall first have been approved. It is a condition to the rights and obligations
of the parties under the Technology Acquisition Agreement that the Reverse Stock
Split Proposal be approved at the Special Meeting.
Acquisition of Technology
The Company and XLV entered into the Technology Acquisition Agreement,
substantially in the form of the draft attached to this Proxy
Statement as Appendix C, on or about January 7, 1998. The Technology Acquisition
Agreement provides that, beginning on April 1, 1998, and extending for a period
of six months, the Company will have the option (the "License Option") to
acquire a non-exclusive perpetual license to XLV's document reader and digital
camera technology and its dithering technology (the "XLV Technology") in
exchange for 200,000 shares of Common Stock (as in effect following the Reverse
Stock Split). If the Company exercises the License Option, then, for 90 days
beginning on the earlier of January 1, 1999, and the Final Funding Date, the
Company will have the further option, in exchange for an additional 300,000
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 Final Funding Date, the Company will have the further option to
acquire outright ownership of the XLV Technology in exchange for an additional
300,000 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. XLV
makes customary representations and warranties regarding the XLV Technology in
the Technology Acquisition Agreement, including the ownership of the technology.
Technology Enhancement Services
Pursuant to the Technology Agreement, XLV will continue to provide
personnel, services and project management for the enhancement and
commercialization of the XLV Technology. The Company will fund the enhancement
of the XLV Technology pursuant to this arrangement, as provided in the
Technology Acquisition Agreement. The Company paid to XLV $500,000 at the
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<PAGE>
execution of the Technology Acquisition Agreement, and will pay an additional
$1,000,000 within 30 days after the affirmative vote of the stockholders of
the Company approving the Technology Shares Proposal. 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. The Technology
Acquisition Agreement provides for the Company to make additional payments to
XLV in the aggregate amount of $3.1 million for further development expenses,
payable in several installments over the development period. The Company may,
at its option, accelerate funding the development of the XLV Technology. The
date on which payment of all development funds contemplated by the Technology
Acquisition Agreement has been made in full is referred to herein as the
"Final Funding Date." Payments made prior to the development of a working
model, including the costs of acquiring the options under the 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 and/or equity securities. 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; however, if the Company terminates such funding without
cause, the License Option, the Exclusive License Option and the Assignment
Option, to the extent not previously exercised, will terminate automatically.
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, and will
constitute XLV Technology for all purposes thereof.
Assignment of Spot/Mag Agreement
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 Acquisition 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).
Thereafter, any additional royalties would inure solely to the benefit of the
Company.
Lock-up Agreement
XLV has agreed that it will not sell, offer to sell, solicit an offer to
buy, contract to sell, grant any option to purchase, or otherwise transfer or
dispose of any shares of Common Stock issued
18
<PAGE>
pursuant to the License Option, the Exclusive License Option, or the Assignment
Option for a period of one year after the exercise of the applicable option,
without the prior written consent of the Company; provided, however, that XLV
may pledge such shares of Common Stock as long as the beneficiary of such pledge
agrees in writing to be bound by the terms of this lock-up provision.
Registration Rights
The Company has granted XLV the right, exercisable on any two occasions
between the second and fourth anniversary of the effective date under the
Technology Acquisition Agreement, to require the Company to file a registration
statement (a "Demand Registration") with the Securities and Exchange Commission
to permit the offer and sale by XLV of the shares of Common Stock issued
pursuant to the Technology Acquisition Agreement. The Company will file a
registration statement with the Securities and Exchange Commission within 60
days after receipt of a request for a Demand Registration, and will use
reasonable efforts to have such registration statement declared effective as
promptly as reasonably practicable and to keep such registration statement
effective for a period of at least 90 days. The Company has agreed to indemnify
XLV against certain liabilities relating to the filing of such registration
statement.
Board Representation
The Company has agreed that, as long as XLV owns at least 400,000 shares
of Common Stock delivered pursuant to the Technology Acquisition Agreement (as
in effect after the Reverse Stock Split), the Company will use its reasonable
best efforts to cause two persons designated by XLV to be nominated to serve as
members of the Board of Directors of the Company.
Reasons for the Technology Acquisition Shares Proposal
The purpose of the Technology Acquisition Shares Proposal is to authorize
the issuance by the Company of up to 1,000,000 shares of Common Stock
(determined after giving effect to the Reverse Stock Split) pursuant to the
Technology Acquisition Agreement. Such authorization will enable the Company to
exercise the License Option, the Exclusive License Option and the Assignment
Option and to acquire the exclusive or non-exclusive right to use, and/or
ownership of, the XLV Technology, and other rights, as provided in the
Technology Acquisition Agreement. The Company believes that approval of the
Technology Acquisition Shares Proposal will enable the Company to secure access
to the XLV Technology on favorable terms to the Company and is in the best
interests of the Company and its stockholders.
The XLV Technology
The XLV Technology consists of both hardware and software technology. The
hardware technology includes designs for a digital still camera. The software
technology includes a series of temporal and spatial optical butting techniques.
The term "optical butting" refers to a series of techniques whereby the
resolution of an imaging system can exceed the resolution of a single
two-dimensional imaging chip (typically, 640 by 480 pixels). This is
accomplished spatially by optically
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<PAGE>
combining multiple chips to create a seamless image mosaic, or, temporally, by
successive micro-motion of a single chip, also known as "dithering". The result
is an image with integrated multiples of a single chip's resolution.
The Company believes that, in particular, dithering offers significant
market opportunities in the area of card reading for access control or other
secure uses. Secure ID cards must be read with resolutions that exceed those
available from single two-dimensional chips. Historically, therefore, card
readers have been large, linear CCD-based scanning systems. Such systems are
relatively expensive, slow and unreliable, as a result of the need for
mechanical moving parts. The Company believes that the dithering technology
provided for under the Technology Acquisition Agreement will allow both the
performance and cost of a card reader to be improved simultaneously.
The Company also believes that the digital still camera technology
provided for under the Technology Acquisition Agreement is complementary to
XLV's optical butting technology and will further enhance the Company's
prospects of developing a high performance, low cost card reader for the secure
card, portable database and access control markets.
Applications to the Company's Businesses
Sandia Imaging Systems Corporation ("Sandia"), a 96%-owned subsidiary of
the Company, is principally engaged in the businesses of (a) distributing and
reselling high and mid-range performance dye-sublimation card printers and
printer consumables, (b) turnkey service bureau production of customized, high
quality, fraud resistant, personalized color ID cards, and (c) designing and
marketing corporate access control systems based on card-mounted biometric and
other verification for point-of-entry security applications. The Company
believes that access to the XLV Technology, and the development of a high
performance, low cost card reader, may enhance Sandia's opportunities in each of
its primary business areas.
XLV
XLV is a privately-held corporation with its principal executive offices
in Sebastian, Florida. XLV specializes in the development of front-end
applications for the electronic imaging industry. In addition to the digital
still camera and optical butting technology that is the subject of the
Technology Acquisition Agreement, XLV's products include infra-red imagers for
transportation, maritime and industrial applications and fingerprint
identification systems. XLV's stated intention is to spin-out business units
based on its technologies as separate companies, as such technologies become
commercially feasible.
XLV is a "partnership company" of Safeguard Scientifics, Inc.
("Safeguard"), a NYSE-listed company with principal executive offices in Wayne,
Pennsylvania. Safeguard makes strategic investments in, and provides development
opportunities and services to, technology-driven companies, with an emphasis on
the information systems markets. Safeguard currently owns approximately 26% of
the outstanding voting power, and 57% of the fully-diluted equity, of XLV.
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<PAGE>
Richard Morgan, the chairman and chief executive officer of the Company
and a member of its Board of Directors, also serves as an outside director of
ChromaVision Medical Systems, Inc. ("ChromaVision"). ChromaVision is also a
Safeguard "partnership company," and Safeguard retains approximately 20% of the
common stock of ChromaVision. Mr. Morgan and the Amphion Group do not have any
ownership interest in XLV and hold, in the aggregate, less than 0.1% of the
common stock of Safeguard and ChromaVision, respectively. There are no
agreements between ChromaVision and any other person with respect to Mr.
Morgan's service as a director of ChromaVision. The Technology Acquisition
Agreement was negotiated by the Company and XLV on an arms'-length basis and
unanimously approved by the Board of Directors of the Company.
CERTAIN INFORMATION IN THIS PROXY STATEMENT REGARDING SAFEGUARD, XLV AND
CHROMAVISION WAS PROVIDED BY SAFEGUARD, XLV AND CHROMAVISION THROUGH
PUBLICLY-AVAILABLE SOURCES. ALTHOUGH SUCH INFORMATION IS BELIEVED BY THE COMPANY
TO BE ACCURATE, THE COMPANY MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT
THERETO.
Effect of the Technology Acquisition Shares Proposal
If the Technology Acquisition Shares Proposal is adopted, the Company will
be able to issue the shares of Common Stock contemplated by the Technology
Acquisition Agreement to be issued upon exercise of the License Option, the
Exclusive License Option and the Assignment Option, without further approval by
the stockholders of the Company.
The New Nasdaq Listing Requirements require companies listed on the Nasdaq
SmallCap to obtain stockholder approval of any plan or arrangement which would
result in the issuance of common stock of such company at a price less than the
greater of book or market value, if the maximum number of shares of common stock
which could be issued pursuant to such plan of arrangement would exceed 20% of
the voting power, or 20% of the outstanding common equity of the company, on the
date of such plan or arrangement.
If the Company exercises the License Option, the Exclusive License Option
and the Assignment Option, the maximum number of shares issuable pursuant to the
Technology Acquisition Agreement would be 1,000,000 shares of Common Stock
(after giving effect to the Reverse Stock Split) (collectively, the "Maximum
Technology Shares"). The Maximum Technology Shares represent approximately 23.6%
of the voting power, 28.9% of the outstanding common equity and 21.3% of the
full-diluted equity of the Company as of January 8, 1998.
Although the Technology Acquisition Agreement values the shares of Common
Stock issuable thereunder at $10.00 per share of Common Stock (after giving
effect to the Reverse Stock Split), and although the Company believes that the
value of the XLV Technology and related rights that the Company has the option
to acquire thereunder is in excess of the aggregate current market value of the
Maximum Technology Shares, based on the closing bid price per share of Common
Stock on the Nasdaq SmallCap Market as of the date of this Proxy Statement,
there can be no assurance that the aggregate value of any technology and related
rights acquired by the Company
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<PAGE>
under the Technology Acquisition Agreement will equal or exceed the aggregate
market price of the of the Maximum Technology Shares on the date of issuance.
The Company has not obtained an independent appraisal or valuation of the XLV
Technology and does not intend to do so. Moreover, if the market value of the
Common Stock increases over the period that the options under the Technology
Acquisition Agreement are exercisable, such options may be exercised at a time
when the market value per share of Common Stock exceeds the deemed value per
share of Common Stock under the Technology Acquisition Agreement. The Company
does not make any representation or warranty whatsoever herein as to the value
of the Common Stock or the anticipated trading range of the Common Stock,
whether before or after the Reverse Stock Split.
Accordingly, the issuance of shares of Common Stock to XLV pursuant to the
Technology Acquisition Agreement may result in dilution to the stockholders of
the Company at the date of such issuance.
Contingency with respect to the Reverse Stock Split Proposal
The Technology Acquisition Agreement provides that the rights and
obligations of the parties are contingent upon the approval by the
stockholders of the Corporation of the Reverse Stock Split Proposal. If the
Reverse Stock Split Proposal is not approved, XLV and the Company will each
have the right to terminate the Technology Acquisition Agreement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
TECHNOLOGY ACQUISITION PROPOSAL.
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<PAGE>
ITEM IV. NAME CHANGE PROPOSAL
At the Special Meeting, the stockholders of the Company will also consider
and vote upon the Name Change Proposal. The Name Change Proposal provides for
the Company to change its corporate name from "Lasertechnics, Inc." to "AXCESS
Inc." If approved by the stockholders, such change in corporate name will be
effected by an amendment to the Company's Certificate of Incorporation in the
form of Appendix D to this Proxy Statement, and will become effective upon the
filing of such amendment with the Secretary of State of Delaware. The Company
will also seek to change its Nasdaq trading symbol from "LASX" to "AXSI",
subject to availability, effective upon the approval of the Name Change
Proposal.
The purpose of the Name Change Proposal is to change the corporate name of
the Company to better reflect the current primary business focus of the Company
and its subsidiary Sandia Imaging Systems Corporation ("Sandia"). Sandia is
currently principally engaged in the businesses of (a) distributing and
reselling card printers and printer consumables, (b) service bureau production
of wallet-sized ID cards for business customers, and (c) designing and marketing
corporate access control systems based on card-mounted biometric and other
verification.
The name Lasertechnics is primarily associated with the Company's other
subsidiary, Lasertechnics Marking Corporation ("Lasertechnics Marking"), which
designs and manufactures laser marking systems for coding products and packages
to facilitate inventory control, liability containment and/or freshness dating.
Lasertechnics Marking will continue to use and promote the Lasertechnics name as
part of its corporate name and identity.
The Company anticipates that the cost of implementing and publicizing its
change of name will not be significant.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF THE NAME CHANGE PROPOSAL.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized Shares
The authorized capital stock of the Company consists of (a) 56,750,000
shares of Common Stock, (b) 2,250,000 shares of Non-voting Common Stock, and (c)
7,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), issuable in series. To date, seven series of Preferred Stock have been
authorized, of which five are currently outstanding: (i) a series of 1,500,000
shares of Preferred Stock designated the Series A Convertible Preferred Stock;
(ii) a series of 1,500,000 shares of Preferred Stock designated the Series B
Convertible Preferred Stock; (iii) a series of 1,500,000 shares of Preferred
Stock designated the Series C Convertible Preferred Stock; (iv) a series of 850
shares of Preferred Stock designated the Series D Convertible Preferred Stock;
(v) a series of 50 shares of Preferred Stock designated the Series E Convertible
Preferred Stock; (vi) a series of 900 shares of Preferred Stock designated the
Series F Convertible Preferred Stock; and (vi) as series of 2,500 shares of
Preferred Stock designated the Series G Convertible Preferred Stock. See,
"--Preferred Stock," below.
As of January 8, 1998, a total of 46,834,783 shares of Common Stock and
2,249,842 shares of Non-voting Common Stock were issued and outstanding. As of
January 8, 1998, a total of 2,919,502 shares of Preferred Stock were issued and
outstanding as follows: (i) 1,153,846 shares of Series A Preferred Stock; (ii)
1,056,338 shares of Series B Preferred Stock; (iii) 708,530 shares of Series C
Preferred Stock; (iv) 45.5 shares of Series F Preferred Stock (of which 7.5
share are subject to a lock-up agreement, pending an agreed future
redemption) and (v) 750 shares of Series G Preferred Stock. No shares of
Series D Preferred Stock or Series E Preferred Stock are issued or
outstanding. All outstanding shares of the Company's Common Stock, Non-voting
Common Stock and Preferred Stock are fully paid and nonassessable. None of
the shares of Common Stock, Nonvoting Common Stock or Preferred Stock has
preemptive rights.
Common Stock and Non-voting Common Stock
Each share of Common Stock entitles its holder to one vote on all matters
submitted to a vote of stockholders. Holders of Non-voting Common Stock do not
have voting rights, except as otherwise provided in the Company's Certificate of
Incorporation, or as required by applicable law. Holders of Non-voting Common
Stock are entitled to vote as a separate class on any amendment to the
Certificate of Incorporation that adversely affects the powers, preferences or
special rights of holders of Non-voting Common Stock, and vote together with the
holders of the Common Stock, as a single class, with respect to any proposal to
increase or decrease the number of authorized shares of Common Stock or
Non-voting Common Stock, and on certain other specified matters. Holders of
Non-voting Common Stock are entitled to one vote per share for matters on which
such holders are entitled to vote. The Common Stock and Non-voting Common Stock
are otherwise identical in all respects.
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<PAGE>
Regulated Stockholders (as defined in the Certificate of Incorporation)
are entitled to convert shares of Common Stock into shares of Non-voting Common
Stock. Subject to certain conditions, all stockholders are entitled to convert
shares of Non-voting Common Stock into shares of Common Stock. Upon conversion
of shares of the Common Stock or Non-voting Common Stock, the shares of Common
Stock or Non-voting Common Stock so converted will not be eligible for
reissuance except for reissuance in connection with the conversion of shares of
Common Stock held by Regulated Stockholders into shares of Non-voting Stock or
the conversion of shares of Non-voting Common Stock into shares of Common Stock.
Subject to certain conditions, the Company may not convert or directly or
indirectly redeem, purchase or otherwise acquire any shares of Common Stock or
take any other action affecting the voting rights of such shares, if such action
would increase the percentage of outstanding voting securities owned or
controlled by any Regulated Stockholder.
The holders of Common Stock and Non-voting Common Stock are entitled to
receive ratably such dividends, if any, as are declared by the Company's Board
of Directors out of funds legally available for that purpose, subject to the
rights of holders of Preferred Stock. In the event of the Company's liquidation,
dissolution or winding up, the holders of Common Stock and Non-voting Common
Stock would be entitled to share ratably in all assets of the Company available
for distribution to holders of the Common Stock and Non-voting Common Stock,
subject to the preferential rights of holders, if any, of shares of Preferred
Stock. See "--Preferred Stock" below.
The Company's Certificate of Incorporation provides that if the Company in
any manner subdivides (by stock split, stock dividend or otherwise) or combines
(by reverse stock split or otherwise) the outstanding shares of the Common Stock
or the Non-voting Common Stock, the outstanding shares of the other such class
shall be proportionately subdivided or combined, as the case may be. For
purposes of the foregoing, if a dividend of shares of Common Stock were paid on
the outstanding shares of Common Stock, a corresponding dividend of shares of
Non-voting Common Stock would be required to be paid on the shares of Non-voting
Common Stock.
Preferred Stock
The Certificate of Incorporation authorizes the Company's Board of
Directors to issue shares of Preferred Stock in one or more series and to fix
and state the designations, powers, preferences, qualifications, limitations,
restrictions and relative rights of the shares of each such series. The Board of
Directors may determine, without any vote or action by the holders of either
Common Stock or Non-voting Common Stock, among other things, the payment and
rates of dividends, if any, whether dividends are to be cumulative or
noncumulative, whether the Preferred Stock is to be subject to redemption and,
if so, the manner of redemption and the redemption price, the preference of any
series of Preferred Stock over any other series of Preferred Stock or Common
Stock or Nonvoting Common Stock on liquidation, dissolution, distribution of
assets or winding up of the Company, any sinking fund or other retirement
provisions for the Preferred Stock and any conversion or exchange rights or
other privilege of the holders to acquire shares of any other series of
Preferred Stock or Common Stock or Non-voting Common Stock. The Board of
Directors may also determine the number of shares in each series of Preferred
Stock, the voting rights of each such
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<PAGE>
series (subject to any requirements of applicable law) and any stated value
applicable to the shares of any series of Preferred Stock.
SERIES A PREFERRED STOCK. The Board of Directors has designated a maximum
of 1,500,000 shares of the Preferred Stock as Series A Preferred Stock, $1.30
stated value per share. Each share of Series A Preferred Stock is convertible at
any time, at the option of the holder, into one share of Common Stock, subject
to anti-dilution adjustments. All shares of Series A Preferred Stock are
entitled to vote on matters brought before the Company's stockholders as if such
shares of Series A Preferred Stock had been converted into shares of Common
Stock, in addition to any class voting rights provided by law.
Subject to the prior preferences and other rights of any class or series
of the Company's capital stock ranking prior to the Series A Preferred Stock,
the holders of shares of Series A Preferred Stock are entitled to receive and,
subject to any prohibition or restriction contained in any instrument evidencing
indebtedness of the Company, the Company will be obligated to pay, preferential
cumulative cash dividends on such shares out of funds legally available
therefor. Dividends are payable quarterly and accrue cumulatively, whether or
not such dividends are declared or funds are legally or contractually available
for payment of dividends, at a rate per annum as follows: (i) 5% from January 1,
1996 to March 31, 1996; (ii) 7 1/2% from April 1, 1996 through June 30, 1996;
and (iii) 10% from July 1, 1996 and thereafter. Dividends are payable in cash or
in additional shares of Series A Preferred Stock, but since July 1, 1996, only
the holders of the Series A Preferred Stock, rather than the Company, may make
such election. Any dividends paid in kind on the Series A Preferred Stock are to
be valued on the basis of the stated value of the Series A Preferred Stock.
Upon dissolution, liquidation or winding up of the Company, holders of the
Series A Preferred Stock will be entitled, after payment of preferential amounts
on any securities ranking senior to the Series A Preferred Stock, to receive
from the assets of the Company available for distribution to stockholders an
amount in cash, per share, equal to the stated value of such share and all
accrued dividends attributable to such share at the time of such dissolution,
liquidation or winding up of the Company. The Series A Preferred Stock ranks
senior to the Common Stock and Nonvoting Common Stock as to any such
distributions and pari passu with the Series B Preferred Stock, the Series C
Preferred Stock, the Series F Preferred Stock and the Series G Preferred Stock.
The Series A Preferred Stock is subject to optional redemption at any time
by the Company, in whole or in part, at a redemption price per share equal to
the stated value of the shares of Series A Preferred Stock so redeemed and all
accrued unpaid dividends thereon. The Company's optional right of redemption is
subject to each Series A Preferred stockholder's right to convert such Series A
Preferred Stock into Common Stock within the 10 business days immediately
following the Company's notice of such redemption.
SERIES B PREFERRED STOCK. The Board of Directors has designated a maximum
of 1,500,000 shares of the Preferred Stock as Series B Preferred Stock, $1.30
stated value per share. Each share of Series B Preferred Stock is convertible at
any time, at the option of the holder, into one share of
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<PAGE>
Common Stock, subject to anti-dilution adjustments. All shares of Series B
Preferred Stock are entitled to vote on matters brought before the Company's
stockholders as if such shares of Series B Preferred Stock had been converted
into shares of Common Stock, in addition to any class voting rights provided by
law.
Subject to the prior preferences and other rights of any class or series
of the Company's capital stock ranking prior to the Series B Preferred Stock,
the holders of shares of Series B Preferred Stock are entitled to receive and,
subject to any prohibition or restriction contained in any instrument evidencing
indebtedness of the Company, the Company will be obligated to pay, preferential
cumulative cash dividends on such shares out of funds legally available
therefor. Dividends are payable quarterly and accrue cumulatively, whether or
not such dividends are declared or funds are legally or contractually available
for payment of dividends, at a variable rate per annum as follows: (i) 5% from
January 1, 1996 to March 31, 1996; (ii) 7 1/2% from April 1, 1996 through June
30, 1996; and (iii) 10% from July 1, 1996 and thereafter. Dividends are payable
in cash or in additional shares of Series B Preferred Stock, but since July 1,
1996, only holders of Series B Preferred Stock, rather than the Company, may
make such election. Any dividends paid in kind on the Series B Preferred Stock
are to be valued on the basis of the stated value of the Series B Preferred
Stock.
Upon dissolution, liquidation or winding up of the Company, holders of the
Series B Preferred Stock will be entitled, after payment of preferential amounts
on any securities ranking senior to the Series B Preferred Stock, to receive
from the assets of the Company available for distribution to stockholders an
amount in cash, per share, equal to the stated value of such share and all
accrued dividends attributable to such share at the time of such dissolution,
liquidation or winding up of the Company. The Series B Preferred Stock ranks
senior to the Common Stock and Nonvoting Common Stock as to any such
distributions and pari passu with the Series A Preferred Stock, the Series C
Preferred Stock, the Series F Preferred Stock and the Series G Preferred Stock.
The Series B Preferred Stock is subject to optional redemption at any time
by the Company, in whole or in part, at a redemption price per share equal to
the stated value of the shares of Series B Preferred Stock so redeemed and all
accrued dividends thereon. The Company's optional right of redemption is subject
to each Series B Preferred stockholder's right to convert such Series B
Preferred Stock into Common Stock within the 10 business days immediately
following the Company's notice of such redemption.
SERIES C PREFERRED STOCK. The Board of Directors has designated a maximum
of 1,500,000 shares of the Preferred Stock as Series C Preferred Stock, $1.51
stated value per share. Each share of Series C Preferred Stock is convertible at
any time, at the option of the holder, into one share of Common Stock, subject
to anti-dilution adjustments. All shares of Series C Preferred Stock are
entitled to vote on matters brought before the Company's stockholders as if such
shares of Series C Preferred Stock had been converted into shares of Common
Stock, in addition to any class voting rights provided by law.
Subject to the prior preferences and other rights of any class or series
of the Company's capital stock ranking prior to the Series C Preferred Stock,
the holders of shares of Series C Preferred
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<PAGE>
Stock are entitled to receive and, subject to any prohibition or restriction
contained in any instrument evidencing indebtedness of the Company, the Company
will be obligated to pay, preferential cumulative cash dividends on such shares
out of funds legally available therefor. Dividends are payable quarterly and
accrue cumulatively, whether or not such dividends are declared or funds are
legally or contractually available for payment of dividends, at a rate of 10%
per annum commencing January 1, 1996. Dividends are payable in cash or in
additional shares of Series C Preferred Stock, but since October 1, 1996, only
holders of Series C Preferred Stock, rather than the Company, may make such
election. Any dividends paid in kind on the Series C Preferred Stock are to be
valued on the basis of the stated value of the Series C Preferred Stock.
Upon dissolution, liquidation or winding up of the Company, holders of the
Series C Preferred Stock will be entitled, after payment of preferential amounts
on any securities ranking senior to the Series C Preferred Stock, to receive
from the assets of the Company available for distribution to stockholders an
amount in cash, per share, equal to the stated value of such share and all
accrued dividends attributable to such share at the time of such dissolution,
liquidation or winding up of the Company. The Series C Preferred Stock ranks
senior to the Common Stock and Nonvoting Common Stock as to any such
distributions and pari passu with the Series A Preferred Stock, the Series B
Preferred Stock, the Series F Preferred Stock and the Series G Preferred Stock.
The Series C Preferred Stock is subject to optional redemption at any time
by the Company, in whole or in part, at a redemption price per share equal to
the stated value of the shares of Series C Preferred Stock so redeemed and all
accrued dividends thereon. The Company's optional right of redemption is subject
to each Series C Preferred stockholder's right to convert such Series C
Preferred Stock into Common Stock within the 10 business days immediately
following the Company's notice of such redemption.
SERIES F PREFERRED STOCK. The Board of Directors has designated a
maximum of 900 shares of the Preferred Stock as Series F Preferred Stock. An
aggregate of 283 shares of Series F Preferred Stock were originally issued,
of which 50 shares were converted or redeemed prior to December 1997 and 195
shares converted, redeemed or restructured pursuant to the December 1997
Restructuring. See "RECENT DEVELOPMENTS--Restructuring of Variable Price
Convertible Securities." Shares of Series F Preferred Stock heretofore
converted or redeemed have been cancelled and have reverted to the status of
authorized but unissued shares of Preferred Stock of no particular
designation. Each share of Series F Preferred Stock is convertible at the
option of the holder (subject to the conditions described in the next
paragraph) into Common Stock at the Preferred Conversion Rate, subject to
anti-dilution provisions. All shares of Series F Preferred Stock outstanding
on July 30, 1999 are subject to automatic conversion at the Preferred
Conversion Rate then in effect. Upon the election of a holder of shares of
Series F Preferred Stock to convert such shares into Common Stock, the
Company, subject to certain conditions, shall have the right to redeem,
rather than convert, such shares. If the Company exercises its right to
redeem shares of Series F Preferred Stock as described in the preceding
sentence, but fails to pay timely the holders thereof the redemption price
therefor, the Company will be required to issue shares of Common Stock to
such holders.
During the period from and including July 14, 1997, to and including
February 13, 1998 (the "Standstill Period"), no holder of Series F Preferred
Stock is entitled to convert any shares of Series F Preferred Stock held by such
holder, except to the extent that the aggregate number of shares of Series F
Preferred Stock converted by such holder (or redeemed by the Company in lieu of
conversion) during the Standstill Period does not, during the period indicated
below, exceed the
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applicable aggregate percentage set forth below of the number of shares of
Series F Preferred Stock held by such holder on the first day of the Standstill
Period:
<TABLE>
<CAPTION>
Portion of Standstill Period Aggregate Percentage
<S> <C>
From and including July 14, 1997, to and
including October 13, 1997 25%
From and including October 14, 1997, to
and including November 13, 1997 40%
From and including November 14, 1997,
to and including December 13, 1997 55%
From and including December 14, 1997,
to and including January 13, 1998 70%
From and including January 14, 1998, to
and including February 13, 1998 85%
From and after February 14, 1998 100%
</TABLE>
Any holder (a "Transferee") that acquires Series F Preferred Stock during
the Standstill Period from another holder (the "Transferor") in any single
transaction (the "Transfer") shall be deemed (i) to have held at the beginning
of the Standstill Period a number of shares of Series F Preferred Stock equal to
the product of (x) the number of shares of Series F Preferred Stock held by the
Transferor at the beginning of the Standstill Period times (y) the Acquired
Percentage; and (ii) to have converted (or have had redeemed by the Company in
lieu of conversion) during the period from the beginning of the Standstill
Period through the date of such Transfer a number of shares of Series F
Preferred Stock equal to the product of (x) the number of shares of Series F
Preferred Stock converted by such Transferor (or redeemed by the Company in lieu
of conversion) from the beginning of the Standstill Period through the date of
such Transfer times (y) the Acquired Percentage. As used in this paragraph, the
term "Acquired Percentage" means the percentage that the number of shares of
Series F Preferred Stock acquired by the Transferee from the Transferor in such
Transfer bears to the total number of shares of Series F Preferred Stock held by
the Transferor immediately before giving effect to such Transfer. Upon any
Transfer, the Transferor shall be deemed (i) to have held at the beginning of
the Standstill Period a number of shares of Series F Preferred Stock equal to
the product of (x) the number of shares of Series F Preferred Stock held by the
Transferor at the beginning of the Standstill Period times (y) the difference
between 100% and the Acquired Percentage; and (ii) to have converted (or have
had redeemed by the Company in lieu of conversion) during the period from the
beginning of the Standstill Period through the date of such Transfer a number of
shares of Series F Preferred Stock equal to the product of (x) the number of
shares of Series F Preferred Stock converted by such Transferor (or redeemed by
the Company in
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lieu of conversion) from the beginning of the Standstill Period through the date
of such Transfer times (y) the difference between 100% and the Acquired
Percentage.
Holders of Series F Preferred Stock have no voting power whatsoever,
except as otherwise provided by the Delaware General Corporation Law, and no
holder of Series F Preferred Stock (i) may vote or otherwise participate in any
proceeding in which actions are to be taken by the Company or the Company's
stockholders or (ii) is entitled to notification as to any meeting of the
Company's stockholders, except for meetings regarding any major corporate events
affecting the Company. However, as long as shares of Series F Preferred Stock
remain outstanding, the Company is not permitted, without first obtaining
approval of at least 75% of the then outstanding shares of Series F Preferred
Stock and at least 75% of the outstanding holders of the Series F Preferred
Stock, to do any of the following: (i) alter or change the rights, preferences
or privileges of the Series F Preferred Stock or any securities ranking senior
to the Series F Preferred Stock to adversely affect the Series F Preferred
Stock; (ii) create any new class or series of capital stock having a preference
over the Series F Preferred Stock with respect to distributions pursuant to the
liquidation, dissolution or winding up of the Company or increase the size of
the authorized number of shares of Series F Preferred Stock; or (iii) do any act
or thing not authorized or contemplated by the Series F Preferred Stock
Certificate of Designation which would result in taxation of the holders of
shares of Series F Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended.
The holders of Series F Preferred Stock are not entitled to receive any
dividends. However, prior to conversion, the Series F Preferred Stock accrues
the Series F Premium, which is payable in Common Stock upon conversion or
redemption at the Preferred Conversion Rate or redemption price then in effect.
Upon dissolution, liquidation or winding up of the Company or, in certain
circumstances, upon a Change in Control (as such term is defined in the
Certificate of Designations relating to the Series F Preferred Stock), each
holder of Series F Preferred Stock will be entitled, after payment of
preferential amounts on any securities ranking senior to the Series F Preferred
Stock, to receive from the assets of the Company available for distribution to
stockholders an amount in cash, per share, equal to the sum of (i) $10,000 per
share of Series F Preferred Stock so held and (ii) the Series F Premium that has
accrued since the Initial Funding Date (as such term is defined in the
Certificate of Designations relating to the Series F Preferred Stock)
(collectively, the "Series F Stated Value"). The Series F Preferred Stock ranks
senior to the Common Stock and Non-voting Common Stock as to any such
distributions and pari passu with the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Series G Preferred Stock.
The Series F Preferred Stock is subject to optional redemption by the
Company at any time after July 30, 1998, in whole or in part, subject to a
minimum redemption of such Series F Preferred Stock having an aggregate Series F
Stated Value of at least $1,000,000. If the Company redeems any Series F
Preferred Stock it must do so at a redemption price per share equal to a
percentage ranging from 130% to 115% of the Series F Stated Value of the shares
of Series F Preferred Stock so redeemed, depending on the date of such
redemption. The Company's optional right of redemption is subject to each Series
F Preferred Stock stockholder's right to convert such Series F
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<PAGE>
Preferred Stock into Common Stock within the 30 business days immediately
following the Company's notice of such redemption.
Any shares of Series F Preferred Stock that are converted or redeemed
shall be canceled and shall return to the status of authorized but unissued
shares of Preferred Stock of no designated series, and shall not be issuable by
the Company as Series F Preferred Stock.
SERIES G PREFERRED STOCK. The Board of Directors has designated 2,500
shares of the Preferred Stock as Series G Preferred Stock, par value $.01 per
share. Each share of Series G Preferred Stock has a stated value of $10,000 (the
"Original Series G Issue Price") and is convertible into Common Stock at any
time, at the option of the holder, at a conversion rate equal to the Original
Series G Issue Price divided by the Conversion Price of the Series G Preferred
Stock, as in effect from time to time. Such Conversion Price shall initially be
$.50 per share of Common Stock, subject to anti-dilution adjustments (the
"Conversion Price"). If the Reverse Stock Split Proposal is approved by the
stockholders of the Company and the Reverse Stock Split is effected, the
Conversion Price will automatically be adjusted to $10.00 per share (i.e.,
twenty times the Conversion Price as previously in effect). Holders of shares of
Series G Preferred Stock are entitled to vote on all matters brought before the
Company's stockholders as if such shares of Series G Preferred Stock had been
converted into shares of Common Stock, in addition to any class voting rights
provided by law.
Subject to the prior preferences and other rights of any class or series
of the Company's capital stock ranking prior to the Series G Preferred Stock,
and in preference to the holders of shares of capital stock ranking junior to
the Series G Preferred Stock as to dividends, the holders of Series G Preferred
Stock are entitled to receive dividends on each share of Series G Preferred
Stock held of record at the annual rate of 8% of the Original Series G Issue
Price, payable semi-annually, to the extent of funds legally available therefor.
Such dividends shall be cumulative, shall accrue on each share on a daily basis
(calculated on the basis of a 360-day year, whether or not earned or declared,
from the date of original issue of such shares) and shall be payable in arrears,
when, as and if declared by the Board, in cash or additional shares of Series G
Preferred Stock, or any combination thereof, as determined from time to time by
the Company in its sole discretion. If at any time that any shares of Series G
Preferred Stock are outstanding, the closing bid price per share of the Common
Stock on The Nasdaq Stock Market (or, if the Common Stock is not then included
in Nasdaq, but is listed on any national securities exchange, on the principal
national securities exchange on which the Common Stock is then listed) remains
above $1.00 per share (on a pre-Reverse Stock Split basis) for 20 consecutive
trading days, then, commencing on such 20th trading day, the cumulative dividend
will not be payable; provided, however, that if the closing bid price per share
of the Common Stock remains below $1.00 for 20 consecutive trading days, then
the dividend will resume as of such 20th day.
Upon dissolution, liquidation or winding up of the Company, holders of the
Series G Preferred Stock will be entitled, after payment of preferential amounts
on any securities ranking senior to the Series G Preferred Stock, to receive
from the assets of the Company available for distribution to stockholders an
amount in cash, per share, equal to the Original Series G Issue Price,
31
<PAGE>
plus any and all accrued unpaid dividends attributable to such share at the time
of such dissolution, liquidation or winding up of the Company. The Series G
Preferred Stock ranks senior to the Common Stock and Non-voting Common Stock as
to any such distributions and pari passu with the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series F
Preferred Stock.
The Series G Preferred Stock is not subject to optional redemption at
any time by the Company, in whole or in part, at a redemption price per share
equal to the Original Series G Issue Price plus any accrued unpaid dividends
thereon. The Company's optional right of redemption is subject to each Series G
Preferred Stock holder's right to convert such Series G Preferred Stock into
Common Stock within 10 business days after the Company's notice of redemption.
In addition to the rights and privileges of the Series G Preferred Stock,
as set forth in the Certificate of Designations with respect thereto, the
Company has agreed with the initial holders of the Series G Preferred Stock,
that if, at any time prior to December 31, 1999, the Company completes a
financing with third parties raising at least $3,000,000 in new equity, such
initial holders 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 $.50 per share (determined
on a pre-Reverse Stock Split basis).
COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of certain provisions affecting, and
differences between, the rights of Company stockholders before and after
adoption of the Proposals. The Reverse Stock Split Proposal and the Authorized
Shares Proposal, separately or together, will alter stockholder rights. Neither
the Technology Acquisition Shares Proposal nor the Name Change Proposal will
have any effect on the terms and provisions of the capital stock.
The effects of the Reverse Stock Split Proposal and the Authorized Shares
Proposal on the terms of the Common Stock, Non-voting Common Stock and Single
Vote Preferred Stock, and related stockholder rights, giving effect both to the
Reverse Stock Split alone and to the Reverse Stock Split and the Authorized
Shares Proposal together, are detailed in the following chart:
<TABLE>
<CAPTION>
Giving Effect to
Current the Reverse Stock Giving Effect to
Authorized Shares Terms Split Proposal Only Both Proposals
<S> <C> <C> <C>
Common Stock 56,750,000 56,750,000 6,250,000
Non-voting Common Stock 2,250,000 2,250,000 2,250,000
Series A Preferred Stock 1,500,000 1,500,000 1,500,000
Series B Preferred Stock 1,500,000 1,500,000 1,500,000
Series C Preferred Stock 1,500,000 1,500,000 1,500,000
Outstanding Shares
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C> <C>
Common Stock (1) 46,834,783 2,341,739 2,341,739
Non-voting Common Stock 2,249,842 112,492.1 112,492.1
Series A Preferred Stock 1,153,846 57,692.3 57,692.3
Series B Preferred Stock 1,056,338 52,816.9 52,816.9
Series C Preferred Stock 708,530 35,426.5 35,426.5
Stated Value
Series A Preferred Stock $1.30 $26.00 $26.00
Series B Preferred Stock $1.30 $26.00 $26.00
Series C Preferred Stock $1.51 $30.20 $30.20
Par Value
Common Stock $.01 $.01 $.01
Non-voting Common Stock $.01 $.01 $.01
</TABLE>
The Series F Preferred Stock and the Series G Preferred Stock are not
directly modified by either of the Reverse Stock Split Proposal or by the
Authorized Shares Proposal. However, both the conversion rate of the Series F
Preferred Stock, and the conversion price of the Series G Preferred Stock, will
be adjusted automatically in proportion to the changes in the Common Stock
effected by the Reverse Stock Split Proposal and the Authorized Shares Proposal.
Authorized Capital Stock
The Reverse Stock Split Proposal will not have any effect on the Company's
authorized capital stock. If adopted by the stockholders at the Special Meeting,
the Authorized Shares Proposal will result in a reduction in the number of
shares of Common Stock authorized from 56,750,000 to 6,250,000. See, "ITEM II.
AUTHORIZED SHARES PROPOSAL--Effect of Authorized Shares Proposal." The
Authorized Shares Proposal will not effect the number of authorized shares of
any class or series of the Company's capital stock, other than the Common Stock.
Outstanding Capital Stock
If adopted by the stockholders at the Special Meeting, the Reverse Stock
Split Proposal will result in (i) a reduction in the number of shares of Common
Stock outstanding from 46,834,783 to approximately 2,341,739 (determined without
taking into account the effects of paying cash for fractional shares), (ii) a
reduction in the number of shares of Non-voting Common Stock outstanding from
2,249,842 to 112,492.1, (iii) a reduction in the number of shares of Series A
Preferred Stock outstanding from 1,153,846 to 57,692.3, (iv) a reduction in the
number of shares of Series B
33
<PAGE>
Preferred Stock outstanding from 1,056,338 to 52,816.9, and (v) a reduction in
the number of shares of Series C Preferred Stock outstanding from 708,530 to
35,426.5. The Authorized Shares Proposal will not have any effect on the number
of shares of capital stock of the Company outstanding.
Stated Capital
Each series of Single Vote Preferred Stock has a "stated value" per share.
This amount represents the base liquidation value and redemption price per share
of such series of preferred stock, as well as the base upon which cumulative
dividends are calculated on a percentage basis. The Reverse Stock Split Proposal
provides for the stated value per share of each series of Single Vote Preferred
Stock to be increased by multiplying the original stated value in each case by
twenty, so that the aggregate stated value of all shares of Single Vote
Preferred Stock outstanding immediately after the effectiveness of the Reverse
Stock Split equals the aggregate stated value of all shares of Single Vote
Preferred Stock outstanding immediately before the effectiveness of the Reverse
Stock Split. Accordingly, the Reverse Stock Split Proposal provides for an
increase in the stated value of the Series A Preferred Stock from $1.30 per
share to $26.00 per share; of the Series B Preferred Stock from $1.30 per share
to $26.00 per share; and of the Series C Preferred Stock from $1.51 per share to
$30.20 per share. The Authorized Shares Proposal will not have any effect on the
stated capital of any shares of capital stock of the Company.
Par Value
Neither the Reverse Stock Split Proposal nor the Authorized Shares
Proposal has any effect on the par value per share of any class or series of
capital stock of the Company. However, because the Reverse Stock Split Proposal
reduces the number of shares of Common Stock, Non-Voting Common Stock and Single
Vote Preferred Stock outstanding by 95%, without affecting the par value per
share of each such class or series, the aggregate par value of each such class
or series shall be effectively reduced by 95%, with a corresponding increase in
the amount of "paid in capital in excess of par value" for each such class or
series.
RECENT DEVELOPMENTS
Nasdaq Listing Requirements
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 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, as currently in effect (the
"Old Nasdaq Listing Requirements") which require 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
34
<PAGE>
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
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, and that it will remain in compliance with such standards until
the New Nasdaq Listing Requirements go into effect on February 22, 1998. The
Company also believes, but cannot assure, that, if the Reverse Stock Split
Proposal is adopted at the Special Meeting, the Company will be able to meet the
New Nasdaq Listing Requirements at the time such requirements go into effect.
(See, "--Equity Investments by Major Stockholder").
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 shares of the Company's 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 Amphion Ventures. In
addition, the purchasers had the right to offset a portion of the purchase
price, aggregating approximately $707,000, 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 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, the Company agreed that
if, at any time prior to 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). See, "DESCRIPTION OF CAPITAL STOCK--Series G Preferred
Stock".
Extension of Bridge Loans
Also on December 29, 1997, the Company concluded an agreement (the
"Extension Agreement") with Amphion Ventures, Antiope Partners and JPMIC, with
respect to the extension of the Company's obligations under a Note Purchase
Agreement dated as of June 25, 1997 (the "June Note Purchase Agreement"), 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
35
<PAGE>
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 Amphion
Ventures. 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 5-year warrants to purchase
Common Stock with an aggregate strike price, (based on current market value
per share) equal to 5% of the unpaid principal balance of the notes and (ii)
additional shares of restricted Common Stock having an aggregate market value
on the date of issuance equal to 1% of such unpaid principal amount.
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 its Convertible Debentures due March 1, 1999
(the "March 1996 Debentures"), Convertible Debentures due March 1, 1999, Series
B (the "Series B Debentures" and, together with the March 1996 Debentures, the
"Convertible Debentures"), Series D Convertible Preferred Stock, par value $.01
per share ("Series D Preferred Stock"), and Series E Convertible Preferred
Stock, par value $.01 per share ("Series E Preferred Stock"), in separate
private placements to institutional investors in 1996 and 1997. The Series F
Preferred Stock was issued by the Company in July 1997 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 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 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 as additional compensation 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 Antiope
Partners, 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
36
<PAGE>
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 $750,000 principal amount of Convertible Debentures
and 199 shares ($1,990,000 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, were convertible on that date into an
aggregate of approximately 13 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 of approximately $1.3 million and
issued approximately $1.1 million in non-convertible short-term
indebtedness, 510,000 shares of Common Stock and warrants to purchase an
additional 1,340,000 shares of Common Stock at an average exercise price in
excess of $.48 per share. The Company funded the cash and short-term debt
portion of the restructuring by issuing shares of Series G Preferred Stock to
Amphion Ventures, as described above. See, "--Equity Investments by Major
Stockholders." Such securities have a fixed conversion price of $.50 per
share, subject to the Series G Reset Right. See "DESCRIPTION OF CAPITAL
STOCK--Series G Preferred Stock." In addition, Antiope Partners exchanged its
Series F Preferred Stock and accrued dividends for an equivalent face amount
of Series G Preferred Stock, plus one share of common stock for each $1.00
face amount of Series F Preferred Stock exchanged, which common shares are
subject to certain transfer restrictions.
The Company is currently in negotiations with respect to the remainder of
the Variable Price Convertible Securities outstanding, which have an aggregate
face amount (including accrued interest or dividends, as applicable) of
approximately $930,000, and are convertible, based on price data as of December
24, 1997, into approximately 3.94 million shares of Common Stock, subject to
adjustment and the remaining term of the gated standstill arrangement. The
Company believes, but cannot assure, that it will agree and implement the
restructuring and/or refinancing of such remaining Variable Price Convertible
Securities in the first quarter of 1998. The Company has agreed that if the
holders of such Variable Price Convertible Securities receive terms more
favorable than those provided to Antiope Partners with respect to the
restructuring and/or refinancing thereof, Antiope Partners will be provided
with additional consideration to compensate for such differential.
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.
Increase in Aggregate Voting Power of the Amphion Group; Possible Deemed Change
of Control
The issuance of shares of Common Stock and Series G Preferred Stock to
Amphion Ventures and Antiope Partners in connection with the transactions
described above (see, "--Equity Investments by Major Stockholders," and
"--Restructuring of Variable Price Convertible Securities"), together with open
market purchases of Common Stock, have resulted in an increase in the collective
aggregate voting power in the Company of the Amphion Group and Richard Morgan
from approximately 23.08% at September 30, 1997, to over 42% at January 8, 1998.
Such ownership of
37
<PAGE>
voting securities, together with Mr. Morgan's position as chairman and chief
executive officer of the Company and the service on its Board of Directors of
two representatives of the Amphion Group, Mr. Morgan and C. Seth Cunningham, may
be deemed for some purposes to confer control of the Company. However, Amphion
Ventures, Antiope Partners and Amphion Partners, individually and in the
aggregate, disclaim control of the Company or any intent or purpose to acquire
such control; and each of Mr. Morgan and Mr. Cunningham disclaims the possession
or exercise of any right or power to control the Company, except to the extent
that, as directors, Mr. Morgan and Mr. Cunningham participate in the direction
of the management and control of the Company, in accordance with Delaware law.
Legal Proceedings
As previously reported, 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 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. By letter
dated December 19, 1997, the Company withdrew its defense that the court lacked
personal jurisdiction over it. 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 expects to file papers opposing this motion
on or about January 26, 1998. The Company believes the claim is without merit
and will vigorously oppose it.
Deferral of Rights Offering
On November 10, 1997, the Company announced a proposed restructuring plan,
consisting of (i) the proposed acquisition of the XLV Technology, (ii) a plan to
seek up to $10 million in additional financing, including a commitment for up to
$4 million from Amphion Ventures and Antiope Partners, and (iii) the
reorganization of Sandia into two divisions, the Systems Division and the
Technology Division. The Proposals described in this Proxy Statement, and the
transactions described above under the headings "--Equity Investments by Major
Stockholders," "--Extension of Bridge Loans," and "--Restructuring of Variable
Price Convertible Securities" are consistent with, and a part of, such
previously announced restructuring plan. As part of such earlier announcement,
the Company had also announced that it was planning a rights offering to its
stockholders as part of its financing plan. The Company does not believe that a
rights offering is in the best interests of the
38
<PAGE>
Company and its stockholders at this time, and on December 29, 1997, the Board
of Directors voted to defer further consideration of a rights offering until
such time as management determined that such an offering would be in the
interests of the Company and its stockholders.
Dispute regarding DataGlyphs License
The Company is currently in discussions with Xerox Corporation ("Xerox")
regarding the possible restructuring of the Company's license for DataGlyphs
\tm\, a portable database symbology developed by Xerox. In 1996, the Company was
granted an exclusive three-year license from Xerox, for an initial license fee
of $2.1 million, for the development and sale of products utilizing DataGlyphs
\tm\ for security and identification media. 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 certain issues identified by the
Company relating to the license. Xerox has advised the Company in writing that
it believes that such payment is now past due. The Company has scheduled a
meeting with Xerox to discuss this matter in January 1998.
COSTS OF SOLICITATION
The cost of soliciting proxies, which also includes the preparation,
printing, and mailing of this Proxy Statement, will be borne by the Company.
Solicitation will be made by the Company primarily through the mail, but certain
employees of the Company, who will receive no compensation for their services
other than their regular remuneration, may also solicit proxies by telephone,
telegram, telex, telecopy, or personal interview. The Company will request
brokers and nominees to obtain voting instructions of beneficial owners of stock
registered in the names of such brokers and nominees and other "street names"
and will reimburse them for any expenses incurred in connection therewith. The
Company's transfer agent, American Stock Transfer Company, will assist the
Company in the solicitation of proxies from brokers and nominees. The fees for
the services of the transfer agent are included in the monthly fees paid by the
Company; however, the Company will reimburse the transfer agent for its
reasonable out-of-pocket expenses incurred in connection with providing
solicitation services.
APPRAISAL RIGHTS
Under Delaware law and the Company's Certificate of Incorporation, no
appraisal rights are available to dissenting stockholders in regard to the
Reverse Stock Split Proposal, the Authorized Shares Proposal, the Technology
Acquisition Shares Proposal, or the Name Change Proposal.
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<PAGE>
OTHER MATTERS
The Company knows of no items of business that are expected to be
presented for consideration at the Special Meeting and that are not enumerated
herein. However, if other matters properly come before the Meeting, it is
intended that the persons named in the accompanying proxy will vote thereon in
accordance with their best judgment.
PRINCIPAL STOCKHOLDERS
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 F Preferred Stock,
(vii) Series G Preferred Stock (viii) common stock, par value $.01 per share
("Sandia Common Stock"), of Sandia, and (ix) common stock, par value $.01 per
share ("LMC Common Stock"), of Lasertechnics Marking, beneficially owned as of
December 31, 1997 for (a) each person known by the Company to be the beneficial
owner of more than 5% of any class of voting securities of the Company, (b) each
current director of the Company, (c) each of the five most highly compensated
executive officers of the Company, (d) two former executive officers of the
Company and (e) all directors and named executive officers (including named
former officers) as a group. Except as otherwise indicated, the persons or
entities set forth in the table below have sole investment and voting power with
respect to all shares shown as beneficially owned, subject to community property
laws, where applicable. The business address of each director and current
executive officer is c/o Lasertechnics, Inc., 3208 Commander Drive, Carrollton,
Texas 75006.
<TABLE>
<CAPTION>
Percentage
of
Company
Name and Address of Number Percentage Voting
Beneficial Owner Title of Class of Shares of Class Power
- ------------------- -------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Jean-Pierre Arnaudo Common Stock 37,500(1) * *
Sandia Common Stock 287,500(2)(3) 3.29% n/a
Eugene A. Bourque Common Stock 156,286(4) * *
Sandia Common Stock 10,000(5)(3) * n/a
LMC Common Stock 32,000(6) n/a
Harry Budow Sandia Common Stock 50,000(7) * n/a
Richard M. Clarke Common Stock 265,000 * *
Sandia Common Stock 10,000(8)(3) * n/a
C. Seth Cunningham Common Stock 83,750(9) * *
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Percentage
of
Company
Name and Address of Number Percentage Voting
Beneficial Owner Title of Class of Shares of Class Power
- ------------------- -------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Paul J. Coleman, Jr. Common Stock 2,000 (10) * *
Sandia Common Stock 7,500 (11)(3) * n/a
E.A. Milo Mattorano Common Stock 30,000 (12) * *
7213 Ridgemoor Lane Sandia Common Stock 39,667 (13)(3) * n/a
Plano, Texas 75025
Richard C.E. Morgan Common Stock 10,015,980 (14) 19.5% 15.1%
Series A Preferred Stock 1,153,846 (15) 100.0% 1.8%
Series B Preferred Stock 1,056,338 (16) 100.0% 1.6%
Series C Preferred Stock 708,530 (17) 100.0% 1.1%
Series G Preferred Stock 750 (18) 100.0% 23.2%
Sandia Common Stock 10,000 (19)(3) * n/a
Stephen C. Nesbit Sandia Common Stock 20,000 (20)(3) * n/a
4627 Travis Street #603
Dallas, Texas 75205
Alfred E. Paulekas Common Stock 45,000 (21) * *
J.P. Morgan Investment Common Stock 5,598,335 (22) 11.2% 8.6%
Corporation Non-voting Common 2,249,842 100.0% 4.8%
60 Wall Street Stock
New York, NY 10260
Amphion Ventures, L.P. Common Stock 9,978,480 (23) 19.5% 15.1%
590 Madison Avenue Series A Preferred Stock 1,153,846 100.0% 1.8%
New York, NY Series B Preferred Stock 1,056,338 100.0% 1.6%
10021(26) Series C Preferred Stock 708,530 (24) 100.0% 1.1%
Series G Preferred Stock 750 100.0% 23.2%
All directors and named Common Stock 10,623,016 (25) 20.6% 15.6%
executive officers as a Sandia Common Stock 434,667 (26)(3) 7.9% 4.9%
group (10 individuals)
</TABLE>
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<PAGE>
- ----------
* Denotes percentage ownership of less than 1%.
(1) Includes 37,500 shares that Mr. Arnaudo has the right to acquire
within 60 days pursuant to options.
(2) Includes 80,417 shares that Mr. Arnaudo has the right to acquire
within 60 days pursuant to options
(3) The authorized voting 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
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.
(4) Includes 146,286 shares that Mr. Bourque has the right to acquire
within 60 days pursuant to options.
(5) Includes 10,000 shares that Mr. Bourque has the right to acquire
within 60 days pursuant to options.
(6) 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.
(7) Includes 50,000 shares that Mr. Budow has the right to acquire
within 60 days pursuant to options.
(8) Includes 10,000 shares that Mr. Clarke has the right to acquire
within 60 days pursuant to options.
(9) Includes 28,750 shares that Mr. Cunningham has the right to acquire
within 60 days pursuant to options.
(10) Includes 16,250 shares that Mr. Coleman has the right to acquire
within 60 days pursuant to options.
(11) Includes 7,500 shares that Mr. Coleman has the right to acquire
within 60 days pursuant to options.
(12) Includes 10,000 shares that Mr. Mattorano has the right to acquire
within 60 days pursuant to options. Mr. Mattorano is not currently
employed by, or an officer of, the Company. His options will
terminate in the first quarter of 1998 if not theretofore exercised.
(13) Includes 39,667 shares that Mr. Mattorano has the right to acquire
within 60 days pursuant to options. See Note 12.
(14) Includes 37,500 shares that Mr. Morgan has the right to acquire
within 60 days pursuant to options, 8,160,303 shares held by
entities within the Amphion Group, 1,414,056 shares that entities
within the Amphion Group have the right to acquire within 60 days
pursuant to warrants and 76,855 shares that entities within the
Amphion Group have the right to acquire within 60 days pursuant to
options. Mr. Morgan is a Managing Member of Amphion Partners L.L.C.,
the sole general partner of Amphion Ventures, L.P. Mr. Morgan
disclaims beneficial ownership as to all such shares beneficially
owned by entities within the Amphion Group. See Note 27.
(15) Includes 1,153,846 shares held by Amphion Ventures. See Note 14 and
Note 27.
(16) Includes 1,056,338 shares held by Amphion Ventures. See Note 14 and
Note 27.
42
<PAGE>
(17) Includes 509,854 shares held by Amphion Ventures and 198,676 shares
held by Jackson Hole Investments Acquisitions, L.P., ("Jackson
Hole"). Jackson Hole is not affiliated with Amphion Ventures. See
Note 14 and Note 27.
(18) Includes 700 shares held by Amphion Ventures and 50 shares held by
Amphion Partners. See Note 14 and Note 27.
(19) Includes 10,000 shares that Mr. Morgan has the right to acquire
within 60 days pursuant to options.
(20) Includes 20,000 shares that Mr. Nesbit has the right to acquire
within 60 days pursuant to options. Mr. Nesbit is not currently
employed by, or an officer of, the Company. His options will
terminate in the first quarter of 1998 if not theretofore exercised.
(21) Includes 30,000 shares that Mr. Paulekas may have the right to
acquire within 60 days pursuant to options.
(22) Includes 285,049 shares that JPMIC has the right to acquire within
60 days pursuant to warrants. As a result of an agreement between
JPMIC and Antiope Ventures (formerly known as Wolfensohn
Associates L.P.), Antiope 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 51.4% of the Company voting power. JPMIC
disclaims beneficial ownership of the voting stock held by
entities within the Amphion Group.
(23) Includes 56,341 shares that Amphion has the right to acquire within
60 days pursuant to warrants and 107,624 shares that Amphion has the
right to acquire within 60 days pursuant to options. See Note 27.
(24) Includes 198,676 shares held by Jackson Hole. See Note 27.
(25) Includes the 290,036 shares that officers, former officers and
directors have the right to acquire within 60 days pursuant to
options, as described in Notes 1, 4, 9, 12, 14, and 21; the
1,414,056 shares that Amphion Ventures and Antiope Partners have the
right to acquire pursuant to warrants, and the 76,855 shares that
Ventures as the right to acquire pursuant to options (as to which
Mr. Morgan disclaims beneficial ownership); and the 9,978,480 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 18 and
27.
(26) Includes the 692,203 shares that officers, former officers and
directors have the right to acquire within 60 days pursuant to
options, as described in Notes 2, 3, 5, 7, 8, 11, 13, 19, and 20.
(27) 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.P. 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 Amphion in the Company are largely the
result of a restructuring of Wolfensohn Associates L.P., now known
as Antiope Ventures L.P. ("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.
43
<PAGE>
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. C. Seth
Cunningham, a director of the Company, is also an employee of
JHMC. Each of Mr. Cunningham and 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 Amphion in the Company as of January 8, 1998, are as
follows:
<TABLE>
<CAPTION>
Common Series A Series B Series C Series G Common Common
Stock Preferred Preferred Preferred Preferred Stock Stock
Stock Stock Stock Stock Warrants Options
<S> <C> <C> <C> <C> <C> <C> <C>
Antiope 682,080 -- -- -- 50 450,000 --
Partners
Amphion 6,910,723 1,153,846 1,056,338 509,855 700 964,056 76,855
Ventures
Amphion 567,500 -- -- -- -- -- --
Partners
Total 8,160,303 1,153,846 1,056,338 509,855 750 1,414,056 76,855
</TABLE>
DEADLINE FOR STOCKHOLDER PROPOSALS
As stated in the proxy statement distributed in connection with Company's
1997 annual meeting, proposals of stockholders intended to be presented at the
Company's 1998 annual meeting, and otherwise eligible, were required to be
received by the Company no later than January 14, 1998, to be included in the
Company's proxy material and form of proxy relating to that Meeting. The mailing
address of the Company for submission of any such proposal is given on the first
page of this Proxy Statement.
44
<PAGE>
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED AS IT WILL SAVE THE
EXPENSE OF FURTHER MAILINGS.
Dated: Carrollton, Texas
February 2, 1998
By Order of the Board of Directors
Harry S. Budow, Secretary
45
<PAGE>
INDEX TO FINANCIAL INFORMATION
<TABLE>
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of Operations,
Years ended December 31, 1996, 1995, and 1994...................................... F-2
Management's Discussion and Analysis of
Financial Condition and Results of Operations,
Nine-month periods ended September 30, 1997 and 1996............................... F-11
Audited Financial Statements:
Independent Auditors' Report....................................................... F-18
Consolidated Balance Sheets at
December 31, 1996 and 1995....................................................... F-19
Consolidated Statements of Operations,
Years ended December 31, 1996, 1995 and 1994..................................... F-22
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1996, 1995 and 1994..................................... F-23
Consolidated Statements of Cash Flows,
Years ended December 31, 1996, 1995 and 1994..................................... F-26
Notes to Consolidated Financial Statements,
December 31, 1996, 1995 and 1994................................................. F-29
Unaudited Financial Statements:
Consolidated Balance Sheets,
September 30, 1997 and December 31, 1996......................................... F-55
Consolidated Statements of Operations,
Nine-months ended September 30, 1997 and 1996.................................... F-57
Consolidated Statements of Cash Flows,
Nine-months ended September 30, 1997 and 1996.................................... F-58
Notes to Condensed Consolidated Financial Statements (Unaudited)................... F-59
</TABLE>
F-1
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
Overview
Previously the Company announced that it would try to be in a position to
arrange for the initial public offering of its Imaging business segment. While
it is still the Company's intention to separate the two businesses, the form and
timing of such separation will be dictated by many factors, some of which are
stock market conditions and the operating and financial performance of the two
units. It is expected that in 1997 the Company will define a timetable for
implementing this goal. The summarized financial data for the two businesses
appears below.
Business Segments
The Company operates with its product groups organized into two business
segments: Marking and Imaging. 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, logo or bar code.
Selected Consolidated Financial Data
The selected consolidated financial data set forth for each of the years
1996, 1995 and 1994 has been derived from the audited consolidated financial
statements, including the consolidated statements of operations for the years
ended December 31, 1996, 1995, and 1994 and the notes thereto appearing
elsewhere herein. General corporate assets and expenses are allocated to the
respective business segments.
F-2
<PAGE>
<TABLE>
<CAPTION>
IMAGING MARKING CONSOLIDATED
(SANDIA) (LMC) (LASX)
------------ ------------- -------------
<S> <C> <C> <C>
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......................................................... 377,824 265,999 643,823
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
Year Ended December 31, 1994
Sales................................................................ $ 3,892,810 $ 11,963,399 $ 15,856,209
Loss from operations................................................. (6,776,649) (416,160) (7,192,809)
Identifiable assets.................................................. 4,212,664 6,497,792 10,710,456
Capital expenditures................................................. 372,417 417,992 790,409
Depreciation......................................................... 139,860 174,116 313,976
</TABLE>
Results of Operations
Consolidated Results of Operations
Consolidated sales increased to $17,581,440 in 1996 from $13,429,731 in
1995. In 1994 sales totaled $15,856,209. The increase in 1996 compared to 1995
was primarily the result of increased sales in the Imaging segment. The decrease
in consolidated sales in 1995 compared to
F-3
<PAGE>
1994 was the result of the completion of a large contract in the Marking
business and the sale of a product line in the Imaging business.
The consolidated net loss for 1996 was $11,029,077, a 21% increase over the
1995 consolidated net loss of $9,094,503. A one-time charge of $1,000,000 in the
Imaging business and higher non-cash interest expense associated with financing
in 1995 and 1996 accounted for the majority of the increase. The 1995 net loss
was an increase of $1,807,547, or 25%, compared to the 1994 net loss of
$7,286,956. This increase was primarily due to the greater costs of operating
the Imaging business with a complete staff of sales, marketing, engineering and
administrative personnel, rather than with a partial staff as in 1994.
Gross profit as a percentage of sales (gross margin) remained relatively the
same for 1996 at 31% compared to 32% in 1995 and 33% in 1994. Low margins in
1996 were primarily the result of the Imaging business booking its first
significant drivers' license contract (the Australian drivers' license contract)
at margins that insured Sandia would be awarded the contract (market-entry
margins). In 1995 and 1994 the low margins were the result of significant OEM
sales in the Imaging business, which have typically been less profitable than
direct sales to end-user customers. Sales that comprise backlog at December 31,
1996 generally have margins of 40 to 45 percent for both business segments.
During the second quarter of 1996 the Company recorded a loss on
settlement of a contract as the result of discontinuing a manufacturing
agreement with its Singapore manufacturer, SPI. As part of the settlement,
Sandia received plastic card printers and parts having an estimated net
realizable value of $525,000 and recorded $1,000,000 of expense as a cost of
settling the dispute. In addition, the Imaging segment recorded a $287,000
one-time charge in the third quarter of 1996 to reduce on-going expenses in
its international operations. At the end of 1994, the Imaging segment
evaluated the long term revenue and profit potential of each of its product
lines. As a result, the Company recorded a charge totaling $1,148,275 to
reflect value adjustments primarily to the DIR and SnapShot product lines. In
addition, capitalized software development costs for the SnapShot product
line of approximately $553,000 were charged to research and development
expense. In 1995, the DIR product line was sold and the SnapShot product line
was discontinued. See "Business--Product Lines and Services--Imaging
Business."
At December 31, 1996 the Company's backlog was $3,595,000 compared to
$3,442,000 for year end 1995. The Imaging business backlog was $2,622,000 and
$1,668,000 at December 31, 1996 and 1995, respectively, an increase of 57%. The
Marking business backlog was $973,000 and $1,775,000 at December 31, 1996 and
1995, respectively, a decrease of 45%.
Imaging Business Results of Operations
Imaging segment sales increased in 1996 to $8,197,639, or approximately 165%
from 1995 sales totaling $3,121,577 in 1995. This was a result of an increase in
worldwide demand for the Company's systems which encode fraud-resistant security
and identification media such as
F-4
<PAGE>
drivers' licenses, border crossing documents, financial transaction cards and
health care services cards. Sales in 1994 were $3,892,810, or 20% higher than
1995 because of a decrease in DIR and SnapShot sales in 1995 of approximately
$750,000.
The Imaging segment loss from operations in 1996 increased to $8,642,620, or
9%, from $7,934,839 in 1995, as compared to the 17% increase in 1995 from the
operating loss in 1994 of $6,776,649. The increase in loss from operations for
1996 results from the $1,000,000 loss on contract settlement and the $287,000
charge noted above plus increases in other operating costs and expenses
partially offset by an improvement in gross profit. The increase in 1995 of
approximately $1,158,000, or 17%, is primarily due to the greater costs of
operating the Imaging business with a complete staff of sales, marketing,
engineering, and administrative personnel rather than with a start-up staff, as
in 1994.
The Imaging segment gross profit margin in 1996 improved slightly to 17%
compared to 16% in 1995. Low margins in 1996 were primarily the result of
booking 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 low 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. Although the Imaging segment's 27% gross profit margin in 1994
was higher than for 1996 and 1995, the margin was lower than expected. The low
margin in 1994 was the result of highly competitive pricing on DIR sales and a
high percentage of OEM plastic card printer sales, which carry a lower selling
price and lower margin than direct sales to end users.
Imaging segment operating expenses increased 16% in 1996 to $10,061,712 from
the $8,421,492 of operating expenses in 1995. This 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 a
$1,000,000 one time charge for a loss on a contract settlement with Sandia's
Singapore manufacturer, SPI. Operating expenses in 1995 increased $1,731,035, or
26%, from the $6,690,461 in 1994. There was an increase of approximately
$440,000 in sales and marketing expenses as a result of opening several sales
offices, and an increase of approximately $530,000 in expenses due to the
establishment of a customer service department. In addition, general and
administrative expenses increased $875,000 to support the overall expanded
operations of the Imaging business, including an increase of approximately
$268,000 in the allocation of overhead and other holding company costs.
Research and development expense for 1996 was $2,053,111, or
approximately the same level as 1995, of $1,963,537 and 1994 of $2,078,537.
The research and development costs incurred in 1996 were primarily for
manufacturing development, DataGlyphs-TM- software development and hardware
and software upgrading of Sandia's high speed plastic card printers. The
research and development costs incurred in 1995 were due to the same factors.
In 1994, in addition to the development costs associated with Sandia's
plastic card printers, approximately $890,000 in
F-5
<PAGE>
research and development costs were incurred by the Imaging business in the
development of the DIR and SnapShot product lines. Development related to
both of these product lines were discontinued at the end of 1994.
Sales and marketing expenses increased approximately 10% to $3,737,867 in
1996 from $3,376,618 in 1995 and general and administrative expenses increased
approximately 6%, to $3,270,734 compared to 1995. Both of these increases were
the result of further expansion of Sandia's worldwide presence in 1996. In 1994
sales and marketing expenses were $2,957,505, or 12% lower than 1995 and general
and administrative expenses were $1,457,750, or less than half of the 1995
general and administrative expenses. Sales and marketing expenses increased
because of the establishment of sales offices in Singapore, the United Kingdom
and the U.S. and the addition of personnel related to the new sales offices.
General and administrative expenses more than doubled in 1995 because of the
increased staff and operations required to support the increases in research and
development and sales and marketing activities in 1995.
Marking Business Results of Operations
The 1996 operating loss for the Marking segment was $981,376, an increase of
$786,000 over the 1995 operating loss of $195,375. The 1995 operating loss was
an improvement of over $220,000 compared to the 1994 operating loss of $416,016.
Marking segment sales decreased approximately 10%, from $10,308,154 in 1995
to $9,383,801 in 1996. This was primarily due to a $2,300,000 decrease in
domestic sales of marking systems and a $380,000 decrease in foreign sales in
the Pacific Rim market and offset by a $1,755,000 increase in after-market
sales. Marking segment sales in 1995 declined 14% or $1,655,245 from 1994 sales.
This reduction resulted primarily from a decrease in the domestic systems sales
due to the completion of a $7,500,000 order from Anheuser-Busch.
The 1996 gross profit percentage for the Marking segment was 44% compared to
the 1995 gross profit percentage of 37%. Higher margin service sales were the
major contributor to this increase. In 1995 the Marking segment gross profit
dollars decreased from the 1994 level by 8% while the gross profit percentage
increased from 34% in 1994 to 37% in 1995. These changes resulted primarily from
the completion of a significant lower margin system order begun in 1994 and an
increase in higher margin service sales in 1995.
Marking segment operating expenses for 1996 were $4,985,613 compared to
$3,979,056 in 1995. The increase of 25% is 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. General and administrative and marketing expenses have increased
primarily due to the training, trade show expense, and personnel required to
support the Marking segment's increased marketing efforts.
F-6
<PAGE>
Marking segment operating expenses for 1995 were $561,000 lower than the
1994 expenses of $4,540,085, a decrease of 12%. This decrease resulted from a
$225,000 reduction in research and development expenses because of completion of
the major portion of the research and development efforts on the new
BlazerJet-TM- system in 1994.
Other Income and Expense
Other income/(expense) was ($1,405,081) in 1996, ($964,290) in 1995, and
($94,147) in 1994. Other expense in 1994 was comprised of interest expense
and a nominal amount of interest income. The majority of other expense in
1995 was related to interest and amortization on the sale of the October 1995
debentures and short term debt. Other expenses increased again in 1996 due to
interest and amortization on both the October 1995 debentures and the
debentures sold in March 1996.
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. Cash and cash equivalents
decreased $293,613 from December 31, 1995 to $1,598,744 at December 31, 1996.
Net proceeds from financing activities in 1996 totaled $14,193,808 including
$5,115,000 of net proceeds from the sale of convertible debentures and
$7,697,826 net proceeds from the issuance of preferred and common stock.
Operating activities used net cash of $13,703,627 primarily to support the
$11,029,077 loss, the $2,187,157 increase in inventory, and the $2,087,326
decrease in accounts payable. The increases in prepaid expenses and other assets
of $775,350 and $1,280,821, respectively primarily reflect a prepaid royalty
related to a $2,100,000 note payable recorded during 1996. Investing activities
used net cash of $783,794 for capital expenditures in 1996 as compared to
$995,518 in 1995. Capital expenditures for 1997 are expected to remain at the
same level as 1996.
Although sales increased from 1995 to 1996, the accounts receivable balance
decreased. Sales during the first three quarters of 1996 accounted for 84% of
the sales for the year. Aggressive collection procedures combined with lower
sales in the fourth quarter of 1996 resulted in the reduced accounts receivable
balance at the end of 1996. In addition, the 1995 balance of accounts receivable
was relatively high due to a large number of shipments made during the last two
weeks of 1995.
Inventory increased $2,187,157 from 1995 to 1996. Of this amount, $1,250,065
was due to a buildup of inventory by LMC for anticipated sales of BlazerJet-TM-
product. Sandia's inventory increased $937,092 due to a buildup for future sales
and due to recording $525,000 of the plastic card printers and parts received in
the contract settlement with SPI. See "Business -Manufacturing and Suppliers."
F-7
<PAGE>
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 U.S.
dollars, except for a subcontract that was signed in April 1996 of approximately
$5,000,000 which is being settled in Australian dollars. All but approximately
$750,000 has been received on this contract without incurring an exchange loss.
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 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 $13,850,000 arranged in March and July 1996, will be adequate to
satisfy its working capital requirements through 1997. The Company's actual
working capital needs will depend upon numerous factors, however, including
actual expenditures and revenues generated from its operations as compared to
its business plan, none of which can be predicted with certainty, and there
can be no assurance that the Company will not require additional funding
prior to 1998. 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. Currently, there are no
existing commitments for any additional external short-term or long-term
financing.
As discussed above, management raised $5,115,000, net of issuance costs,
from the sale of 10% convertible debentures (the "March 1996 Debentures"). The
March 1996 Debentures are convertible into Common Stock at $2.00 per share, or
at 85% of the average five day closing bid price for the five trading days
immediately prior to the conversion date. The March 1996 Debentures were placed
in denominations of at least $50,000 and integral multiples of at least $50,000
in excess thereof. The March 1996 Debenture coupons accrue at a rate of 10% per
annum and are payable in Common Stock upon conversion. The March 1996 Debentures
can be converted into Common Stock in increments of up to 1/4 of the original
investment beginning the 60th, 90th, 120th and 150th day after the final
closing. At the end of three years from the closing date, all March 1996
Debentures will automatically be converted into Common Stock. The March 1996
Debenture holders received warrants in amounts ranging from 10% to 20% of each
holder's position held in shares of Common Stock. The warrants have a strike
price of $2.00 per share of Common Stock with a five year term.
The Company may elect to redeem any or all of the March 1996 Debentures at a
price that would give each investor the same return as it would have received
had it converted such
F-8
<PAGE>
Debentures on the date of redemption. The Company may call any or all of the
March 1996 Debentures in increments of no less than $1,500,000 at the
following prices and times:
PRICE TIME
- ---------------------------- -------------------------------------------------
130% of stated value 12 months + 1 day to 18 months
125% of stated value 18 months + 1 day to 24 months
120% of stated value 24 months + 1 day to 30 months
115% of stated value 30 months + 1 day to 36 months
The shares of Common Stock issuable upon conversion of the March 1996
Debentures have not been registered under the Securities Act and may not be
offered or sold in the United States during the restricted period. As of
December 31, 1996 approximately 59% of the March 1996 Debentures had been
converted into Common Stock.
In July 1996, management raised $7,698,000, net of issuance costs, from the
sale of Series D Convertible Preferred Stock, par value $.01 per share, (the
"Series D Preferred Stock") at a price of $10,000 per share. Shares of Series D
Preferred Stock are convertible into Common Stock in increments of up to 1/3 at
the lower of $2.1406 per share, or at a variable percentage of the average
closing bid price for the ten trading days immediately prior to the conversion
date at the option of the stockholder as follows: 90%, 87.5%, and 85% beginning
the 60th, 120th, and 180th day after the final closing, respectively. Holders of
Series D Preferred Stock do not receive dividends; however, each share possesses
an 8% per annum accretion rate prior to conversion which is payable in Common
Stock upon conversion or redemption at the conversion price then in effect. At
the end of three years from the closing date, all Series D Convertible Preferred
Stock will automatically be converted into Common Stock.
The Company may redeem any or all of the Series D Preferred Stock in
increments of at least $1,000,000 according to the same schedule of prices and
times noted above for the March 1996 Debentures. For the twelve month period
immediately following the closing date, the Company may redeem the Series D
Preferred Stock upon receipt of a notice of conversion from a holder of Series D
Preferred Stock if the conversion price of the Common Stock is less than the
fixed conversion price for the Series D Preferred Stock. The redemption price
for the Series D Preferred Stock is based on a ratio of the closing bid price of
the Common Stock on the date of conversion to the conversion price calculated
using the average closing bid price of the Common Stock for the ten trading days
immediately preceding the conversion date. Resales of shares of Common Stock
issuable upon conversion of the Series D Preferred Stock have been registered
under the Securities Act.
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
F-9
<PAGE>
facility. The principal amount outstanding as of December 31, 1996 was
$955,852. 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, 1996, the Company's current ratio was 2.3 to 1 which is in
compliance with the agreement. Previously, the Company was also required to
maintain a debt to equity ratio of not more than 3 to 1. Although the
Company's current ratio was in compliance at December 31, 1995 at 1.5 to 1,
its debt to equity ratio was 4 to 1 which was in violation of 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, 1995. During the
fourth quarter of 1996, the bondholder agreed to waive the debt to equity
ratio requirement. In addition, the bondholder agreed to permanently waive
its right to call the bond for redemption provided the Company remains in
compliance with all other covenants and continues to prepay the lease by an
additional $8,000 per month. Failure of the Company to stay in compliance
could result in the relocation of LMC headquarters to other facilities and
the associated 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. See Note 5 to the Consolidated Financial
Statements.
Lasertechnics' Common Stock is listed on the Nasdaq SmallCap Market, which
requires a minimum $1,000,000 net capital and surplus for continued listing.
Because Lasertechnics' net capital and surplus fell below this limit at
September 30, 1995, Nasdaq temporarily put the Company on a "conditional"
listing until a new minimum of $2,450,000 in equity was met on December 31,
1995. The increase in equity was accomplished by debenture owners converting
$1,045,342 of debt, including accrued interest, into Common Stock and by the
sale of Series C Convertible Preferred Stock, par value $.01 per share. On
January 2, 1996, Nasdaq removed the conditional listing of Lasertechnics' Common
Stock and lowered the equity requirement back to $1,000,000. The Company's net
capital and surplus did not fall below the minimum amount in 1996. Management
forecasts that net capital and surplus will remain in excess of $1,000,000 for
1997.
Other
Inflation has not had and is not expected to have a material impact on the
operations and financial condition of the Company.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Transfers of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The provisions of SFAS No. 125 are
generally effective for transactions occurring after December 31, 1996, however,
the effective adoption of SFAS No. 125 is not expected to have a material impact
on the Company's consolidated financial statements.
F-10
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1996
Separate Business Units. The summarized financial data of LMC and Sandia
as of and for the nine-month period ended September 30, 1997, as presented
herein, do not necessarily reflect the financial position or results of
operations of LMC and Sandia if the two entities had no ownership or
management relationships.
<TABLE>
<CAPTION>
CONSOLIDATED
---------------------------------------------
MARKING
(LMC) IMAGING (SANDIA) (LASX)
CONSOLIDATED (UNAUDITED) (UNAUDITED) (UNAUDITED)
- ------------------------------------------------------------------- ------------- ---------------- ------------
<S> <C> <C> <C>
Sales.............................................................. $ 5,227,648 3,936,165 9,163,813
Cost of sales...................................................... 3,135,789 2,896,543 6,032,332
------------- ---------------- ------------
Gross profit....................................................... 2,091,859 1,039,622 3,131,481
Gross margin %..................................................... 40% 26% 34%
Expenses:
Research and development........................................... $ 747,377 1,227,141 1,974,518
General and administrative......................................... 1,372,282 2,540,338 3,912,620
Selling and marketing.............................................. 967,552 3,702,125 4,669,677
------------- ---------------- ------------
Operating expenses................................................. 3,087,211 7,469,604 10,556,815
------------- ---------------- ------------
Loss from operations............................................... (995,352) (6,429,982) (7,425,334)
Other expense, net................................................. (224,333) (773,049) (997,382)
------------- ---------------- ------------
Net loss before preferred dividends................................ $ (1,219,685) (7,203,031) (8,422,716)
------------- ---------------- ------------
------------- ---------------- ------------
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED
---------------------------------------------
<S> <C> <C> <C>
Current assets..................................................... $ 4,295,753 5,233,400 9,529,153
Non-current assets................................................. 2,155,872 2,602,973 4,758,845
------------- ---------------- ------------
$ 6,451,625 7,836,373 14,287,998
------------- ---------------- ------------
------------- ---------------- ------------
Current liabilities................................................ $ 1,286,381 8,334,532 9,620,913
Inter-co.(receivable) payable...................................... 1,229,937 (1,229,937) --
Long-term liabilities.............................................. 762,576 2,561,918 3,324,494
Stockholders' equity............................................... 3,172,731 (1,830,140) 1,342,591
------------- ---------------- ------------
$ 6,451,625 7,836,373 14,287,998
------------- ---------------- ------------
------------- ---------------- ------------
</TABLE>
Sales. Consolidated sales for the nine months ended September 30, 1997 were
$9,163,813 compared to $14,818,140 for the same period in 1996, a decrease of
$5,654,327 or 38%. Imaging segment sales decreased $3,051,614, or 44%, over the
same period last year primarily due to the completion of the Australian driver's
license project in 1996 and the Company's inability to secure similar contracts
in 1997. Marking segment sales decreased $2,602,714, or 33%, due to a decrease
in foreign sales and after-market sales. In 1996, Marking segment recorded
significant upgrade sales to Anheuser-Busch, which did not occur in 1997. In
addition, Marking segment sales continue to be adversely effected by the
continued delay in the re-introduction of the BlazerJet/TM/ marking system. The
Company's net accounts receivable decreased $317,557 or 10%, at September 30,
1997 compared to December 31, 1996. This decrease is the result of the lower
sales and a $600,000 increase in the allowance for doubtful accounts partially
offset by the delay in the collection of a significant outstanding customer
balance at the Imaging unit. The collection delay is the result of the prime
contractor requiring more time to complete the installation of the card printing
systems. However, the Company has fulfilled substantially all of its obligations
under this contract. The increased allowance for doubtful accounts results from
the recording of a $200,000 reserve related to the collection delay and a
$400,000 reserve relating to a second subcontract at the Imaging unit, which was
terminated by the prime contractor. The Company is disputing the prime
contractor's basis for terminating the subcontract and management estimates that
the outcome of this dispute will not have any additional materially adverse
effect upon its financial position or results of operations.
Cost of Sales. Consolidated cost of sales for the nine months ended
September 30, 1997 was $6,032,332 compared to $10,490,228 for the same period in
1996, a decrease of $4,457,896, or 42%. The decrease results primarily from the
decrease in sales and is partially offset by write-offs of approximately
$500,000 relating to inventory obsolescence at the Imaging segment. Gross margin
was approximately 34% for the nine months ended September 30, 1997 and 29% for
the same period in 1996. The lower margins in the nine months ended September
30, 1996 were primarily due to
F-12
<PAGE>
competitive pricing and increased product costs of custom applications for
plastic card printers in the Imaging business.
Inventory. The Company's inventory decreased $1,082,145 or 16%, from
$6,600,007 at December 31, 1996 to $5,517,862 at September 30, 1997. Marking
segment inventory decreased approximately $254,257 as a result of delivery of
systems on order at December 31, 1996. Imaging segment inventory decreased
$827,888 since December 31, 1996, resulting from delivery of card printer
systems in the first quarter which were in inventory at December 31, 1996 and
the write-off of approximately $500,000 relating to inventory obsolescence.
Research and Development. Consolidated research and development expenses
were $1,974,518 for the nine months ended September 30, 1997 compared to
$2,301,910 for the same period in 1996, a decrease of $327,392 or 14%. Increases
in the Marking segment of $114,684 relating primarily to costs associated with
obtaining CE certification for the BlazerJet were offset by lower costs in the
Imaging segment, which recorded greater development costs in 1996 related to
specific custom products that have since been completed.
General and Administrative. Consolidated general and administrative
expenses were $3,912,620 for the nine months ended September 30, 1997 compared
to $4,032,894 for the same period in 1996, a net decrease of $120,274 or 3%.
This decrease was primarily due to reductions in personnel costs in the Marking
segment.
Selling and Marketing. Consolidated selling and marketing expenses were
$4,669,677 for the nine months ended September 30, 1997 compared to $4,073,993
for the same period in 1996, an increase of 595,684 or 15%. Imaging segment's
net increase was approximately $988,000 primarily because of higher
DataGlyph/TM/ license fees and marketing expenses of approximately $306,000,
increases in Asia-Pacific marketing efforts of approximately $115,000, an
increase in allowance for doubtful accounts of $600,000, related to two
contracts discussed in Sales above, and increases in other sales and marketing
expenses of approximately $338,000. These increases were partially offset by
decreases in selling expenses and support personnel and related expenses in
Sandia's Europe operation of approximately $371,000. Sales and marketing
expenses in the Marking segment decreased approximately $393,000 primarily due
to lower personnel and related travel and trade show expenses, as management has
delayed the replacement of personnel lost through attrition.
Other Income (Expense). Other expense, consisting primarily of interest
expense, for the nine months ended September 30, 1997 was $997,382 compared to
$996,591 for the same period in 1996. Because of conversions and redemption of
certain convertible debentures, which were sold by the Company in October 1995
and March 1996, the Company has recorded approximately $700,000 less interest
expense and amortization of the related placement fee expenses and debenture
discount in the first nine months of 1997. This decrease was offset by increases
of approximately $473,000 in interest expense and amortization of discounts
associated with the notes payable to shareholders, increases applicable to other
notes payable of approximately $109,000 and decreases in miscellaneous other
income of approximately $118,000.
F-13
<PAGE>
NET RESULTS. The consolidated net loss for the nine months ended September
30, 1997 was $8,930,323 compared to the $8,494,501 loss incurred in the same
period of 1996 for an increase of $435,822 or 5%. Lower sales and related cost
of sales resulted in lower gross profits of approximately $1,200,000 offset by
lower operating expenses of about $800,000 primarily because of a $1,000,000
contract settlement charge taken in the second quarter of 1996.
Cautionary Statements
This Report includes "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements involve known
and unknown risks, uncertainties and other factors that could cause the actual
results of the Company to differ materially from the results expressed or
implied by such statements, including general economic and business conditions,
conditions affecting the industries served by the Company and its subsidiaries,
conditions affecting the Company's customers and suppliers, competitor responses
to the Company's products and services, the overall market acceptance of such
products and services, results of competitively bid contracts and other factors
disclosed in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996. Moreover, the Company operates in highly competitive industry
segments, and many of the Company's competitors have significantly greater
resources than the Company. Accordingly, although the Company believes that the
expectations reflected in such forward looking statements are reasonable, there
can be no assurance that such expectations will prove to be correct, and
investors are cautioned not to place undue reliance on such forward looking
statements. The Company disclaims any undertaking to update or correct any
forward looking statements contained herein to reflect events and circumstances
that may occur or become known to the Company after the date of this filing.
Because of the specialized nature of its businesses, Lasertechnics 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
imaging and laser technology. There is intense competition for qualified
personnel in the imaging and marking industries, including competition from
companies with substantially greater resources than Lasertechnics. Although the
Company has been successful to date in recruiting adequate numbers of qualified
personnel, there can be no assurance that Lasertechnics 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.
NASDAQ Smallcap Market Listing
Lasertechnics' Common Stock is listed on the Nasdaq SmallCap Market, which
requires maintenance of certain quantitative and other standards for continued
listing thereon. Lasertechnics' stockholders' equity fell below the minimum
standards required at September 30, 1995, and, as a result, the Nasdaq SmallCap
Market temporarily placed the Common Stock on conditional listing on December
20, 1995 subject to the Company's achieving a minimum of $2,450,000 in
stockholders' equity. The Company was able to achieve such stockholders' equity
through the
F-14
<PAGE>
conversion of an aggregate of $1,045,342 of convertible subordinated
debentures of the Company and the issuance of the Company's Series C Preferred
Stock. On January 2, 1996, the Nasdaq SmallCap Market removed the conditional
listing requirements described above and lowered the stockholders' equity
listing requirement to $1 million. While management believes that in the event
of future losses the Company will be able to obtain additional equity financing
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.
On August 22, 1997, the Securities and Exchange Commission ("Commission")
approved certain proposed changes to the continued listing requirements of the
Nasdaq SmallCap Market. One such rule change, which becomes effective February
22, 1998, requires an issuer to maintain a minimum bid price of $1 per share for
its listed securities. Therefore, upon the effectiveness of such rule change the
Company must maintain a $1 minimum bid price for its Common Stock in order to
continue listing such Common Stock on the Nasdaq SmallCap Market. The bid price
for the Common Stock is currently below $1 and there can be no assurance that
the Company will be able to maintain the listing of the Common Stock on the
Nasdaq SmallCap Market.
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 Securities Exchange Act of 1934, as amended, 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 Lasertechnics' Common Stock.
At September 30, 1997, an aggregate of approximately 29,805,534 shares of Common
Stock were freely tradable without restriction under the Securities Act of 1933
(the "Securities Act"). In addition, up to 15,409,755 shares were eligible for
resale in accordance with the manner of sale and volume limitations of Rule 144
promulgated under the Securities Act.
F-15
<PAGE>
Lasertechnics has reserved approximately 10,000,000 shares of Common Stock
for issuance upon the exercise of outstanding convertible securities and
warrants. Lasertechnics has also reserved approximately 1,536,950 shares of
Common Stock for issuance to key employees, officers, directors and consultants
pursuant to the Company's benefit plans.
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 (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 or
will become 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 has substantially identical
terms as the Series D Preferred Stock and the Series B Convertible Debenture
has substantially identical terms as the 1996 Debentures. In June 1997,
$400,000 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. In July 1997, $480,000 principal
amount of Series D Preferred Stock were redeemed by the Company, upon receipt
of the holder's notice of conversion, with the proceeds from the private
placement to a single investor of $480,000 principal amount of a new series
of preferred stock with substantially identical terms as the Series D
Preferred Stock. An aggregate of 681,817 shares of Common Stock was issued in
satisfaction of accrued interest, dividends and redemption premium in
connection with such redemptions.
In July 1997, the holders of the 1996 Debentures, Series B Debenture, Series
D Preferred Stock and Series E Preferred Stock agreed to a ninety day suspension
of conversion rights on 75% of their respective holdings beginning July 14,
1997. Thereafter, holders can exercise the suspended portion at the rate of 20%
per month cumulatively. In exchange for the suspension agreement, the holders
received warrants equal to 25% of the suspended amount at a $1.00 strike price,
and a reduction of the maximum conversion price to $1.00 for the convertible
debentures and $1.14 for the convertible preferred stock, from $2.00 and $2.1406
respectively. The suspension agreement with respect to the Series D and Series E
Preferred Stock was effected by an exchange of the shares of such stock, on a
one-for-one basis, for shares of a new series of Convertible Preferred Stock,
Series F, $0.01 par value (the "Series F Preferred Stock"). 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
suspension agreement described above. Upon the issuance of the Series F
Preferred Stock in such exchange, all of the outstanding shares of Series D and
Series E Preferred Stock were cancelled, and thereafter reverted to the status
of authorized but unissued shares of preferred stock of no particular
designation.
F-16
<PAGE>
As of September 30, 1997, an aggregate of $4,150,000 principal amount of the
1996 Debentures and $5,940,000 stated amount of Series D Preferred Stock and
$120,000 stated amount of Series E Preferred Stock have been converted since the
issuance of such convertible securities, resulting in the issuance of 11,151,645
shares of Common Stock in the aggregate. The conversion price for the 1996
Debentures and Series B Debenture are equal to the lesser of (i) $1.00 or (ii) a
variable conversion rate equal to 85% of the average closing bid price for the
Common Stock for the five trading days prior to conversion (the "Variable
Conversion Rate"). The conversion price for the Series F Preferred Stock is
equal to the lesser of (i) $1.1406 or (ii) a variable conversion rate equal to
85% of the average closing bid price for the Common Stock for the ten trading
days prior to the conversion date. These variable conversion rates for the 1996
Debentures, Series B Debentures and the Series F Preferred Stock would result in
substantial dilution to the existing stockholders of the Company if converted at
the current trading price of the Company's Common Stock. This potential dilution
may also adversely affect the Company's ability to raise additional financing on
favorable terms in the future. In addition, because the conversion prices are
variable, Lasertechnics is unable to determine whether the number of shares it
has reserved or its remaining authorized shares of Common Stock will be
sufficient to satisfy all future requirements for the issuance of shares of
Common Stock upon conversion of the 1996 Debentures, Series B Debenture and
Series F Preferred Stock. The governing instruments for both the Series F
Preferred Stock, the 1996 Debentures and Series B Debenture include substantial
penalties in the event that the Company has insufficient authorized or reserved
shares to satisfy the conversion requirements of the Series F Preferred Stock,
the Series B Debenture and the 1996 Debentures.
F-17
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
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, 1996 and 1995, 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,
1996. 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, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996 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 2 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 2. 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 21, 1997
F-18
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................................... $ 1,598,744 $ 1,892,357
Accounts receivable--trade, less allowance for doubtful accounts of $357,136 in
1996 and $278,263 in 1995......................................................... 3,196,943 4,040,247
Inventory (note 14):
Raw materials.................................................................. 4,293,978 2,700,746
Work-in-process................................................................ 551,340 329,700
Finished goods................................................................. 1,754,689 1,423,904
------------- -------------
6,600,007 4,454,350
Prepaid expenses.................................................................. 230,839 155,859
Current portion of deferred license fee (note 7).................................. 700,000 --
Other............................................................................. 67,606 229,089
------------- -------------
Total current assets........................................................... 12,394,139 10,771,902
------------- -------------
Property, plant & equipment, net (note 4)......................................... 3,334,277 3,000,241
Goodwill.......................................................................... 172,510 254,546
Deferred license fee (note 7)..................................................... 1,400,000 --
Other assets...................................................................... 360,931 615,913
------------- -------------
$ 17,661,857 $ 14,642,602
------------- -------------
------------- -------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-19
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to stockholder (note 8)................................................. $ -- $ 200,000
Notes payable (note 7)................................................................ 775,292 402,945
Accounts payable...................................................................... 1,369,818 3,485,328
Accrued liabilities (note 6).......................................................... 2,957,525 1,858,562
Current portion of capital lease obligations (note 5)................................. 225,676 28,944
---------- ------------
Total current liabilities........................................................ 5,328,311 5,975,779
---------- ------------
Convertible debentures (note 9)........................................................ 1,768,965 4,405,095
Capital lease obligations (note 5)..................................................... 927,411 1,149,096
Note payable, long-term (note 7)....................................................... 1,400,000 --
Other.................................................................................. 149,387 183,046
---------- ------------
Total liabilities..................................................................... 9,574,074 11,713,016
---------- ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-20
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (CONT.) 1996 1995
- ---------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Stockholders' equity (notes 8, 9, 10, 11, 12, and 20):
Convertible preferred stock, $.01 par; 7,000,000 shares
authorized in 1996 and 10,000,000 in 1995;
Series A: $1.30 stated value; 1,153,846 shares issued
and outstanding in 1996 and 1995............................................ 1,500,000 1,473,394
Series B: $1.42 stated value; 1,056,338 shares issued
and outstanding in 1996 and 1995............................................ 1,500,000 1,473,394
Series C: $1.51 stated value; 708,530 shares issued and
outstanding in 1996 and none in 1995........................................ 1,069,880 1,069,880
Series D: $10,000.00 stated value; 585 shares issued
and outstanding in 1996 and none in 1995. 6,049,314 --
Common stock, $.01 par value; Authorized 56,750,000 in
1996 and 41,500,000 in 1995; 37,133,514 shares issued
and outstanding in 1996 and 28,280,798 in 1995................................ 371,335 282,808
Nonvoting convertible common stock, $.01 par value;
Authorized 2,250,000 shares in 1996 and 8,500,000 shares in
1995; 2,249,842 shares issued and outstanding in 1996 and
1995. Convertible into voting common stock on a share for
share basis................................................................... 22,499 22,499
Paid-in capital................................................................. 47,753,080 37,339,799
Accumulated deficit............................................................. (50,178,325) (38,482,188)
-------------- --------------
8,087,783 3,179,586
Less treasury stock, 200,000 common shares, at cost............................. (250,000)
-------------- --------------
Total stockholders' equity...................................................... 8,087,738 2,929,586
-------------- --------------
Commitments and contingencies (notes 2, 5, and 13).............................. $ 17,661,857 $ 14,642,602
-------------- --------------
-------------- --------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-21
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Sales (notes 3 and 17)................................................ $ 17,581,440 13,429,731 15,856,209
Cost of sales......................................................... 12,158,111 9,159,393 10,670,197
------------- ------------ ------------
Gross profit...................................................... 5,423,329 4,270,338 5,186,012
Expenses:
Research and development.......................................... 2,848,767 3,040,830 3,577,209
General and administrative........................................ 5,151,502 4,460,724 2,755,063
Selling and marketing............................................. 5,760,056 4,898,997 4,989,274
Loss on contract settlement and other (note 15)................... 1,287,000 -- 1,148,275
------------- ------------ ------------
Operating expenses.............................................. 15,047,325 12,400,551 12,378,821
------------- ------------ ------------
Loss from operations............................................ (9,623,996) (8,130,213) (7,192,809)
------------- ------------ ------------
Other income (expense):
Interest income..................................................... 110,007 32,182 44,387
Interest expense.................................................... (1,541,001) (968,790) (160,071)
Other............................................................... 25,913 (27,682) 21,537
------------- ------------ ------------
Net other income (expense)........................................ (1,405,081) (964,290) (94,147)
------------- ------------ ------------
Loss before income taxes.............................................. (11,029,077) (9,094,503) (7,286,956)
Income taxes (note 16)................................................ -- -- --
------------- ------------ ------------
Net loss........................................................ (11,029,077) (9,094,503) (7,286,956)
Preferred stock dividend requirements................................. (667,060) (73,234) --
------------- ------------ ------------
Net loss applicable to common stock............................. $(11,696,137) (9,167,737) (7,286,956)
------------- ------------ ------------
------------- ------------ ------------
Net loss per common share............................................. $ (.34) (.33) (.33)
------------- ------------ ------------
------------- ------------ ------------
Weighted average shares of common stock outstanding during the year... 34,339,313 27,511,489 21,997,410
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NONVOTING
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON STOCK
--------------------- -------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ---------- --------- --------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance At December 31, 1993...... -- $ -- 19,014,171 $ 190,142 -- $ -- 24,269,712 (22,027,495)
Exercise of common stock options
(note 12)....................... -- -- 65,830 658 -- -- 59,401 --
Issuance of common stock, net of
issuance expenses (note 20)..... -- -- 5,998,778 59,988 -- -- 5,531,232 --
Foreign currency translation
adjustment...................... -- -- -- -- -- -- 27,105 --
Nonvoting convertible common stock
issued for debt (note 20)....... -- -- -- -- 377,684 3,777 355,023 --
Detachable warrants issued in
conjunction with convertible
debt (notes 8 and 11)........... -- -- -- -- -- -- 60,000 --
Net loss.......................... -- -- -- -- -- -- -- (7,286,956)
--------- ---------- ---------- --------- --------- --------- ---------- ------------
Balance at December 31, 1994...... -- -- 25,078,779 250,788 377,684 3,777 30,302,473 (29,314,451)
--------- ---------- ---------- --------- --------- --------- ---------- ------------
<CAPTION>
<S> <C> <C>
TREASURY
STOCK TOTAL
----------- ----------
Balance At December 31, 1993...... (250,000) 2,182,359
Exercise of common stock options
(note 12)....................... -- 60,059
Issuance of common stock, net of
issuance expenses (note 20)..... -- 5,591,220
Foreign currency translation
adjustment...................... -- 27,105
Nonvoting convertible common stock
issued for debt (note 20)....... -- 358,800
Detachable warrants issued in
conjunction with convertible
debt (notes 8 and 11)........... -- 60,000
Net loss.......................... -- (7,286,956)
----------- ----------
Balance at December 31, 1994...... (250,000) 992,587
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NONVOTING
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON STOCK
--------------------- -------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ---------- --------- --------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994.... -- -- 25,078,779 250,788 377,684 3,777 30,302,473 (29,314,451)
Exercise of common stock options
(note 12)..................... -- -- 625,712 6,257 -- -- 450,593 --
Detachable warrants issued in
conjunction with convertible
debt (notes 8 and 11)......... -- -- -- -- -- -- 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 -- -- -- -- -- (73,234)
Conversion feature of debentures
issued (note 9)............... -- -- -- -- -- -- 2,200,000 --
Debentures converted, net of
unamortized discount and
expenses (note 9)............. -- -- 658,570 6,586 -- -- 673,661 --
Issuance of convertible
preferred stock (note 20)..... 397,351 600,000 -- -- -- -- -- --
Exercise of detachable warrants
(note 11)..................... -- -- 534,105 5,341 -- -- 684,659 --
Foreign currency translation
adjustment.................... -- -- -- -- -- -- (109,248) --
Net loss........................ -- -- -- -- -- -- -- (9,094,503)
--------- ---------- --------- --------- --------- --------- ---------- ------------
Balance at December 31, 1995.... 2,918,714 4,016,668 28,280,798 282,808 2,249,842 22,499 37,339,799 (38,482,188)
--------- ---------- --------- --------- --------- --------- ---------- ------------
<CAPTION>
<S> <C> <C>
TREASURY
STOCK TOTAL
----------- ----------
Balance at December 31, 1994.... (250,000) 992,587
Exercise of common stock options
(note 12)..................... -- 456,850
Detachable warrants issued in
conjunction with convertible
debt (notes 8 and 11)......... -- 207,000
Stock issued for debt, net of
unamortized discount and
expenses (note 8)............. -- 6,306,653
Increasing rate preferred stock
discount...................... -- --
Discount accretion.............. --
Conversion feature of debentures
issued (note 9)............... -- 2,200,000
Debentures converted, net of
unamortized discount and
expenses (note 9)............. -- 680,247
Issuance of convertible
preferred stock (note 20)..... -- 600,000
Exercise of detachable warrants
(note 11)..................... -- 690,000
Foreign currency translation
adjustment.................... -- (109,248)
Net loss........................ -- (9,094,503)
----------- ----------
Balance at December 31, 1995.... (250,000) 2,929,586
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
NONVOTING
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON STOCK
--------------------- -------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ---------- --------- --------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995...... 2,918,714 4,016,668 28,280,798 282,808 2,249,842 22,499 37,339,799 (38,482,188)
Exercise of common stock options
(note 12)....................... -- -- 89,222 893 -- -- 109,898 --
Discount accretion................ -- 53,212 -- -- -- -- -- --
Conversion feature of debentures
issued (note 9)................. -- -- -- -- -- -- 2,216,341 --
Debentures converted, net of
unamortized discount and
expenses (note 9)............... -- -- 6,682,561 66,825 -- -- 6,526,379 --
Issuance of convertible preferred
stock, net of expenses (note
10)............................. 835 8,350,000 -- -- -- -- (762,964) --
Preferred stock accretion and
dividends (note 10)............. -- 257,666 -- -- -- -- -- (667,060)
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.......................... -- -- -- -- -- -- -- (11,029,077)
--------- ---------- --------- --------- --------- --------- ---------- ------------
Balance December 31, 1996......... 2,919,299 $10,119,194 37,133,514 $ 371,335 2,249,842 $ 22,499 47,699,288 (50,178,325)
--------- ---------- --------- --------- --------- --------- ---------- ------------
--------- ---------- --------- --------- --------- --------- ---------- ------------
<CAPTION>
<S> <C> <C>
TREASURY
STOCK TOTAL
----------- ----------
Balance at December 31, 1995...... (250,000) 2,929,586
Exercise of common stock options
(note 12)....................... -- 110,791
Discount accretion................ -- 53,212
Conversion feature of debentures
issued (note 9)................. -- 2,216,341
Debentures converted, net of
unamortized discount and
expenses (note 9)............... -- 6,593,204
Issuance of convertible preferred
stock, net of expenses (note
10)............................. -- 7,587,036
Preferred stock accretion and
dividends (note 10)............. -- (409,394)
Preferred stock converted,
including related accretion
(note 10)....................... --
Retirement of treasury stock...... 250,000 --
Foreign currency translation
adjustment...................... -- (17,708)
Net loss.......................... -- (11,029,077)
----------- ----------
Balance December 31, 1996......... -- 8,033,991
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
LASERTECHNICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................................ $ (11,029,077) $ (9,094,503) $ (7,286,956)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization................................. 725,859 514,988 410,231
Provision for losses on accounts receivable................... 248,489 115,375 65,169
Provision for product warranty reserve........................ 639,606 338,250 687,591
Amortization of financing discount and issuance costs......... 889,703 674,232 --
Accrued interest not paid..................................... 514,163 -- --
Other nonrecurring expense.................................... -- -- 1,148,275
Write-off of software development costs....................... -- -- 552,989
(Increase) decrease in:
Accounts receivable, trade.................................. 628,243 (1,165,875) (1,652,944)
Inventory................................................... (2,187,157) (1,616,559) (1,223,892)
Prepaid expenses............................................ (775,350) 104,779 (101,952)
Other....................................................... (1,280,821) 163,769 (99,577)
Increase (decrease) in:
Accounts payable and notes payable.......................... (2,087,326) (42,450) 1,799,923
Customer advances........................................... (6,409) (278,721) (571,644)
Commissions payable......................................... (127,299) (108,575) 196,417
Product warranty reserve.................................... (381,042) (348,956) (523,867)
Accrued payroll and payroll taxes........................... (40,740) (147,575) 197,485
Accrued vacation............................................ (43,381) (6,685) 66,298
Other....................................................... 608,912 -- --
-------------- -------------- -------------
Net cash used by operating activities....................... (13,703,627) (10,898,506) (6,336,454)
-------------- -------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
LASERTECHNICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures............................................ (783,794) (995,518) (790,409)
Business acquisitions........................................... -- -- (100,000)
Software development............................................ -- -- (119,251)
------------- ------------- -------------
Net cash used by investing activities........................... (783,794) (995,518) (1,009,660)
------------- ------------- -------------
Cash flows from financing activities:
Borrowings under financing agreements............................. 3,800,000 7,329,906 3,936,828
Principal payments on financing agreements........................ (2,200,000) (2,969,452) (1,770,136)
Proceeds from issuance of convertible debentures.................. 5,500,000 7,000,000 --
Convertible debenture issuance costs.............................. (385,000) (520,000) --
Principal payments on capital lease obligations................... (219,018) (164,860) (160,613)
Net proceeds from issuance of preferred and common stock.......... 7,697,826 1,683,729 6,355,268
------------- ------------- -------------
Net cash provided by financing activities....................... 14,193,808 12,359,323 8,361,347
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents.......... (293,613) 465,299 1,015,233
Cash and cash equivalents at beginning of year.................... 1,892,357 1,427,058 411,825
------------- ------------- -------------
Cash and cash equivalents at end of year............................ $ 1,598,744 $ 1,892,357 $ 1,427,058
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
LASERTECHNICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
Supplemental information:
Cash paid during the year for interest............................... $ 151,354 $ 173,619 $ 146,271
------------ ------------ -------------
------------ ------------ -------------
Conversions to stock (notes 8 and 9):
Debentures, net of unamortized discount and expenses............... 6,163,561 659,905 --
Notes payable, net of unamortized discount and expenses............ -- 5,953,773 345,000
Accrued interest................................................... 483,435 373,222 --
------------ ------------ -------------
------------ ------------ -------------
Convertible preferred stock accretion (note 10)...................... $ 257,666 $ -- $ --
------------ ------------ -------------
------------ ------------ -------------
Detachable warrants issued in conjunction with convertible debt
(notes 9 and 11)................................................... $ 462,000 $ 207,000 $ 60,000
------------ ------------ -------------
------------ ------------ -------------
Conversion feature of debentures issued.............................. $ 1,610,000 $ 2,200,000 $ --
------------ ------------ -------------
------------ ------------ -------------
Borrowings under capital lease obligations........................... $ 194,064 $ -- $ --
------------ ------------ -------------
------------ ------------ -------------
Business assets acquired (note 18):
Fair value of net assets acquired.................................. -- -- 779,296
Cash paid.......................................................... -- -- (100,000)
Issuance of common stock of subsidiary............................. -- -- (500)
Assumption of liabilities.......................................... -- -- (881,918)
Minimum guaranteed royalty......................................... $ -- $ -- $ (281,610)
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(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) and Quantrad, Inc., 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.
(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.
F-29
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(e) Goodwill
Goodwill represents the excess of cost over net assets acquired in
the 1994 acquisition of Printis S.A.R.L. (note 18) and is amortized on a
straight-line basis over the expected periods to be benefited (five years).
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected undiscounted future
results. The amount of goodwill impairment, if any, is measured based on
projected, discounted future results. Amortization expense for the years
ended December 31,1996, 1995, and 1994 was $82,036, $82,037 and $73,601,
respectively. Accumulated amortization was $237,674, $155,638 and $73,601 at
December 31, 1996, 1995, and 1994, respectively.
(f) Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, inventory deposit,
accounts payable, notes payable, customer advances, commissions payable and
accrued liabilities are reflected in the financial statements at fair value
because of the short-term maturity of these instruments.
At December 31, 1995, the fair value of the October 1995 convertible
debentures (note 9) approximates recorded value because the fair value of the
debt and equity components of the financial instrument were valued at the
issuance dates and market conditions had not changed significantly since that
date.
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. The outstanding
borrowings under the Company's note payable to Xerox Corporation (note 7)
bear interest at current market rates, and therefore, the carrying amount of
debt approximates estimated fair value at December 31, 1996.
(g) 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
F-30
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recovered or settled. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount more likely than not to 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.
(h) 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.
(i) Net Loss Per Common Share
Net loss per common share is based on the weighted average shares of
common stock and, if dilutive, common equivalent shares (options, warrants,
convertible preferred stock and convertible debt) outstanding during the
period. None of the common stock equivalents were dilutive during the periods
presented. Net loss applicable to common stock is derived by adding to
consolidated net loss the accretion of the discount recorded for the
Company's increasing rate preferred stock Series A, B and C and the annual
accretion applicable to the Series D Preferred Stock (note 10).
(j) Revenue Recognition
The Company recognizes revenue on sales of its products either when
the products are shipped from the plant 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.
(k) 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.
F-31
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(l) 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. Adoption of this Statement did not have a material
impact on the Company's financial position or results of operations.
(m) Advertising Costs
Advertising costs, all of which are nondirect response advertising,
are expensed as incurred. Advertising expense was $250,098, $326,542, and
$234,892 for the years ended December 31, 1996, 1995, and 1994, respectively.
(n) Stock Compensation Plans
Effective January 1, 1996, the Company adopted the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, which
requires pro forma disclosure of net income (loss) and net income (loss) per
share as if the fair value method of SFAS No. 123 had been applied. The
Company continues to apply the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, for the
preparation of its basic consolidated financial statements.
(o) Reclassifications
Certain reclassifications have been made to prior year consolidated
financial statements to conform to the current year presentation.
F-32
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Operations, Liquidity and Going Concern
The Company's operations in 1996 continued to generate losses. The loss in
1996 significantly exceeded losses in either 1995 or 1994. Although, during
1996, the Company raised gross proceeds of approximately $13.85 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 1997. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
The Company's business plan for 1997 is predicated principally upon
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 1997 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.
(3) Significant Customers
One customer accounted for 18, 16, and 46 percent of consolidated revenues
in 1996, 1995 and 1994, respectively. Another customer accounted for 29 percent
of 1996 consolidated revenues.
F-33
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
AMORTIZATION
PERIOD 1996 1995
---------------- ----------- ---------
<S> <C> <C> <C>
Property, plant and equipment under capital leases
Land (note 5)....................................................... lease term $ 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 530,913 363,022
----------- ---------
1,939,609 1,771,718
----------- ---------
Accumulated amortization............................................... $ (648,131) (493,975)
----------- ---------
Property, plant and equipment under capital leases, net................ 1,291,478 1,277,743
----------- ---------
Other property, plant and equipment:
Building............................................................. 14 to 45 years 148,200 148,200
Leasehold improvements............................................... lease term 331,891 328,985
Machinery and equipment ............................................. 5 to 8 years 1,382,267 1,151,409
Demonstration equipment.............................................. 2 to 3 years 933,363 480,226
Research equipment................................................... 3 years 136,005 139,536
Furniture and fixtures............................................... 5 years 682,153 717,685
----------- ---------
3,613,879 2,966,041
Accumulated depreciation............................................... (1,571,080)(1,243,543)
----------- ---------
Other property, plant and equipment, net........................... 2,042,799 1,722,498
----------- ---------
Total property, plant and equipment, net........................... $ 3,334,277 3,000,241
----------- ---------
----------- ---------
</TABLE>
F-34
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) 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. Although the Company's
current ratio was in compliance at December 31, 1995 at 1.5 to 1, its debt to
equity ratio was 4 to 1 which was in violation of 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, 1995. 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, 1996, the
Company's current ratio was 2.3 to 1, which is in compliance with the lease
terms. 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 1997 and management believes the likelihood that such acceleration
provisions will be exercised in 1997 is remote.
F-35
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capital lease obligations are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
City of Albuquerque, New Mexico, due monthly
(approximately $19,100 to maturity) including interest
at 75% of the prime rate of Chase Manhattan Bank
(6.19% at December 31, 1996) but not less than 8% nor
more than 14% maturing September 2001...................................... $955,852 1,113,768
Other capital leases, due $6,601 monthly, with maturity dates
through June 2002, including interest ranging from
15.15% to 19.4%............................................................ 197,235 64,272
---------- ----------
Total capital lease obligations.................................... 1,153,087 1,178,040
Less: Current portion of capital leases.................................. 225,676 28,944
---------- ----------
$ 927,411 1,149,096
---------- ----------
---------- ----------
</TABLE>
The annual aggregate lease payments under capital leases are as follows:
YEAR ENDING DECEMBER 31
- -----------------------
1997................................................. $ 354,275
1998................................................. 299,988
1999................................................. 270,653
2000................................................. 251,627
2001................................................. 228,132
---------
1,404,675
Less amount representing interest............................. (251,588)
---------
$ 1,153,087
---------
---------
F-36
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Accrued Liabilities
Accrued liabilities consist of the following at December 31, 1996 and 1995:
1996 1995
------------ ----------
Customer advances.................................... $ 436,249 426,978
Commissions payable.................................. 65,249 192,548
Product warranty reserve............................. 516,783 256,003
Accrued payroll and payroll taxes.................... 265,928 299,096
Accrued vacation..................................... 163,935 205,541
Preferred stock dividends............................ 356,182 --
Other................................................ 1,153,199 478,396
------------ ----------
Accrued liabilities.................................. $ 2,957,525 1,858,562
------------ ----------
------------ ----------
(7) Notes Payable
On December 27, 1996, Sandia signed a $2,100,000 note payable to Xerox
Corporation ("Xerox"). One-third of the note principal plus accrued interest
is due on December 15 of 1997, 1998 and 1999. Interest payable is calculated
based on a specified prime rate (8.25% at December 31, 1996) on each due
date. The Company has classified as a current liability the first $700,000
payment due in 1997.
Concurrent with the signing of the note, Sandia signed an amendment to
its OEM License Agreement with Xerox. Under the terms of the amendment to
this agreement, Xerox granted to Sandia an exclusive license for the
development and sale of DataGlyphs-TM-, a portable database symbology, for
use on security and identification media such as passports, visas, drivers'
licenses, border crossing, and government entitlement programs. The license
fee of $2,100,000 has been recorded as a deferred license fee and will be
amortized over the three year term of the license agreement. Accordingly, the
Company has reflected $700,000 as a current asset and $1,400,000 as a
noncurrent asset. In years following 1999, upon license renewal the Company
will pay a minimum royalty of $500,000. 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-37
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Convertible Notes Payable to Stockholders
During June and July 1996, the Company obtained a 12 percent per annum
working capital bridge loan totaling $1.7 million from Wolfensohn Partners LP
("Wolfensohn"), a significant stockholder. 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") (note 10).
In December 1994, the Company entered into agreements to borrow a total
of $2,000,000 from J.P. Morgan Investment Corporation ("JPMIC"), a
significant stockholder. During 1995, the Company borrowed an additional
$6,900,000 from Wolfensohn. These borrowings from shareholders were evidenced
by unsecured notes bearing interest at 12%. Interest and principal were due
on demand, but if no demand was made, principal and interest became due and
payable at various dates from February 1, 1996 through September 15, 1996. In
the event that the Company completed an equity financing of $5,000,000 or
more, then JPMIC and Wolfensohn had the right to convert the outstanding
principal and interest, or a portion thereof, into either the Company's
voting common stock, par value $.01 per share, (the "Common Stock") or
non-voting convertible common stock, par value $.01 per share (the
"Non-voting Common Stock"), at the price per share paid by the investors in
the equity financing. In connection with these note agreements, JPMIC and
Wolfensohn also received warrants to purchase the Company's Common Stock
(note 11).
Although the Company did not complete an equity financing of $5,000,000,
the Company agreed to convert $6,210,000 of the debt plus accrued interest of
approximately $353,000 held by the shareholders above into a combination of
Common Stock, Non-voting Common Stock and preferred stock of the Company
evidenced by debt to equity conversion agreements. In addition, the Company
paid Wolfensohn $2,000,000 of principal out of the proceeds of the October
1995 convertible debenture private placement (note 9). The remaining
outstanding debt to Wolfensohn was repaid when Wolfensohn exercised 534,105
warrants to purchase Common Stock (note 11) resulting in total proceeds of
$690,000. The following table summarizes the 1995 convertible note payable
conversion activity:
F-38
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONVERSION SHARES OF
AMOUNT PRICE PER STOCK
DATE NOTEHOLDER CONVERTED SHARE CLASS OF STOCK RECEIVED
- -------------------- ------------------ -------------- -------------------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
May 1995............ JPMIC $ 314,450 $ 0.95 Voting common 331,000
Non-voting
May 1995............ JPMIC 1,778,550 0.95 common 1,872,158
May 1995............ Wolfensohn 1,000,000 0.95 Voting common 1,052,632
August 1995......... Wolfensohn 1,500,000 1.30 Series A preferred 1,153,846
September 1995...... Wolfensohn 1,500,000 1.42 Series B preferred 1,056,338
December 1995....... Wolfensohn 469,879 1.51 Series C preferred 311,179
------------------ -------------- -------------------- -------------------- ----------
Total............ $6,562,879 5,777,153
-------------- ----------
-------------- ----------
</TABLE>
(9) Convertible Debentures
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, are 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 has 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. The Company has assigned a value of $2,072,000 to the
conversion feature of the 1996 Debentures and the 550,000 related detachable
warrants to purchase Common Stock (note 11). This value is being amortized
ratably as an interest rate adjustment over the life of the 1996 Debentures
or until conversion. Assuming no 1996 Debentures are converted until
maturity, the effective yield is approximately 30%. All outstanding 1996
Debentures shall automatically be converted into Common Stock at 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.
F-39
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 assigned a value of $2,200,000 to the conversion
feature of the 1995 Debentures which was amortized ratably as an interest
rate adjustment over the life of the 1995 Debentures or until conversion.
Assuming that no 1995 Debentures were converted prior to maturity, the
effective yield at the time the 1995 Debentures were issued was 26 percent.
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.
(10) 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 are 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 Series D Preferred Stock does not accrue
dividends; however, each share possesses an 8 percent per annum accretion
rate prior to conversion which is payable in Common Stock upon conversion or
redemption at the conversion price then in effect. All shares of Series D
Preferred Stock outstanding on August 2, 1999 are subject to automatic
conversion at the conversion rate then in effect. The Company has 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
F-40
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
such Series D Preferred Stock into Common Stock. 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.
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, 1996 and 1995.
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) Common Stock Warrants
In connection with the 1996 Debenture private placement (note 9), 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
F-41
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
warrants to purchase 550,000 shares of Common Stock at $2.00 per share were
issued with the 1996 Debentures.
In connection with the Series D Preferred Stock issued in July 1996 (note
10), 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.
In connection with the June and July 1996 bridge loan (note 8), a five
year warrant to purchase a total of 56,341 shares of Common Stock was issued
to Wolfensohn. The warrants may be exercised at prices ranging from $2.18 to
$3.39, or at an alternate rate dependent upon either of the following events:
(i) if the Company completes an equity financing of $5 million or more on or
before December 31, 1996, the exercise price shall equal the price per share
at which shares of the Common Stock are issued in such financing, or (ii) if
such financing involves convertible or exchangeable securities, the exercise
price shall equal the price at which such securities may be converted into or
exchanged for Common Stock.
In connection with the 1995 Debenture private placement (note 9), a five
year warrant to purchase 222,222 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.
During 1995, the Company agreed to issue to an unrelated third party
warrants to purchase up to 65,000 shares of voting Common Stock at a price of
$2.00 per share in connection with an investor relations agreement. The
issuance of the warrants was conditioned upon an increase in the Company's
stock price to specified levels, which were reached in May 1996. Accordingly,
a warrant to purchase 25,000 shares of Common Stock at a price of $2.00 per
share, which expires in 5 years, was issued to the third party. This
agreement expired in September 1996. In addition, the Company issued to
unrelated employees of the investor relations firm warrants to purchase up to
95,000 shares of voting Common Stock at a price of $1.50 per share and
warrants to purchase up to 80,000 shares of voting Common Stock at a price of
$2.50 per share, all such warrants expiring in 5 years.
During 1995, the Company entered into convertible notes payable
agreements with Wolfensohn (note 8). In conjunction with these agreements,
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,
F-42
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
was reflected as a discount on the convertible promissory notes and was being
amortized ratably over the one year stated term of the notes. Wolfensohn
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.
During 1994, the Company entered into several convertible notes payable
agreements with JPMIC (note 8). In conjunction with these agreements JPMIC
received detachable warrants to purchase Common Stock as follows: warrants
issued on December 14, 1994 to purchase 58,824 shares and warrants issued on
December 29, 1994 to purchase 66,225 shares. The exercise price of the
warrants is the lesser of (i) $1.70 per share (December 14, 1994 warrants) or
$1.51 per share (December 29, 1994 warrants) or (ii) the price per share
realized in an equity financing completed prior to December 31, 1995. No such
financing was completed. The warrants have not been exercised and they expire
in December 1999. The value allocated to the warrants, $60,000, was reflected
as a discount on the convertible promissory notes and was being amortized
ratably over the one year stated term of the notes. JPMIC converted its debt
during 1995 and the unamortized portion of this discount was netted against
additional paid-in capital as of the date of conversion.
In connection with a 1994 investor relations agreement, the Company
agreed to issue to an unrelated third party warrants to purchase up to
110,000 shares of voting Common Stock at a price of $1.22 per share. Warrants
for the purchase of 20,000 shares of voting Common Stock were issued upon
execution of the agreement, February 15, 1994. Issuance of the warrants for
the other 90,000 shares of Common Stock was conditioned upon an increase in
the Company's stock price to specified levels to be measured at three points
in time. Although the first target price level was not achieved under the
original terms of the agreement, the Company's stock rose to the targeted
level soon thereafter. The Company amended the original agreement and issued
a warrant to purchase 30,000 shares of Common Stock at a price per share of
$1.22. However, the other target stock prices set out in the agreement were
not met so the final conditional warrants for 60,000 shares of common stock
were not issued by the Company. The two warrants to purchase an aggregate of
50,000 shares of the Company's Common Stock expire February 15, 1999.
F-43
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the warrants activity is as follows:
<TABLE>
<CAPTION>
WARRANTS PRICE PER
OUTSTANDING SHARE
----------- ------------
<S> <C> <C>
December 31, 1994...................................................................... 175,049 1.22--1.70
Warrants issued....................................................................... 931,327 1.01--2.81
Warrants exercised.................................................................... (534,105) 1.01--1.76
----------- ------------
December 31, 1995...................................................................... 572,271 1.50--2.81
Warrants issued....................................................................... 1,018,525 2.00--2.20
----------- ------------
December 31, 1996...................................................................... 1,590,796 2.00--2.81
----------- ------------
----------- ------------
</TABLE>
(12) Stock Compensation Plans
At December 31, 1996, 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>
1996 1995
-------------- --------------
<S> <C> <C> <C>
Net loss applicable to common stock..... As reported $ (11,696,137) $ (9,167,737)
Pro forma $ (11,791,466) $ (9,216,070)
Net loss per common share............... As reported $ (0.34) $ (0.33)
Pro forma $ (0.34) $ (0.33)
</TABLE>
F-44
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had a key employee stock option plan (the 1981 Plan) that
terminated on November 29, 1991. Under the 1981 Plan, 98,286 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.
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 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 the
estimated fair value of each subsidiary's stock on the date of grant and the
option's maximum term is five years.
The fair value of each option grant is estimated on the date of grant
using the Black-Sholes 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
rates of 8% and expected lives of 5 years for non-employee options and 10
years for employee options.
F-45
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION> 1996 1995 1994
--------------------- ------------------------ ----------------------
WT. AVE. WT. AVE. WT. AVE.
EXERCISE EXERCISE EXERCISE
LASERTECHNICS, INC. SHARES PRICE SHARES PRICE SHARES PRICE
- ------------------------------------------------------ ---------- --------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year...................... 707,162 $ 1.19 2,624,743 $ 0.69 2,546,449 $ 0.63
Granted............................................... 70,000 1.80 127,587 1.42 187,624 1.38
Exercised............................................. (69,228) 1.06 (627,212) 0.73 (25,830) 0.77
Forfeited............................................. (92,374) 1.07 (1,417,956) 0.50 (83,500) 1.09
---------- ----------- ----------
Outstanding at end of year............................ 615,560 1.29 707,162 1.19 2,624,743 0.69
---------- ----------- ----------
---------- ----------- ----------
Options exercisable at end of year.................... 528,060 647,245 2,560,537
Weighted-average fair value of options granted during
the year............................................ $ 1.60 $ 1.20 N/A
SUBSIDIARIES
- ------------------------------------------------------ ---------- --------- ----------- ----------- ---------- ----------
Outstanding at beginning of year...................... 177,500 $ 0.20 227,500 $ 0.09 180,000 $ 0.01
Granted............................................... 1,260,675 0.97 40,000 0.50 70,000 0.26
Exercised............................................. (10,000) 0.01 (45,000) 0.01 (5,000) 0.01
Forfeited............................................. (153,000) 0.93 (45,000) 0.06 (17,500) 0.01
---------- ----------- ----------
Outstanding at end of year............................ 1,275,175 0.87 177,500 0.20 227,500 0.09
---------- ----------- ----------
Options exercisable at end of year.................... 249,747 95,208 91,250
Weighted-average fair value of options granted during
the year............................................ $ 0.53 $ 0.28 N/A
</TABLE>
F-46
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about the stock options
outstanding at December 31, 1996. Certain ranges of exercise prices overlap
because of the significant difference in contract 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 12/31/96 LIFE/YEARS PRICE AT 12/31/96 PRICE
- ------------------------- ---------------- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Lasertechnics, Inc.
$0.66 98,286 4.0 $ 0.66 98,286 $ 0.66
$1.00 to $1.29 93,750 4.6 1.04 93,750 1.04
$1.22 to $1.81 322,624 2.3 1.44 285,124 1.41
$1.58 to $1.79 100,900 8.5 1.67 50,900 1.67
---------------- ---------
$0.66 to $1.81 615,560 3.9 1.29 528,060 1.23
---------------- ---------
---------------- ---------
Subsidiaries:
$0.01 97,500 1.9 $ 0.01 92,500 $ 0.01
$0.50 to $1.00 1,177,675 9.2 0.94 157,247 0.75
---------------- ---------
$0.01 to $1.00 1,275,175 8.6 0.87 249,747 0.48
---------------- ---------
</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
expenses under these agreements for the years ended December 31, 1996, 1995
and 1994 were approximately $126,000, $151,000, and $248,000, 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
F-47
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996, management estimates that the ultimate outcome of this
claim will not have a materially 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 materially adverse effect upon the Company's financial
position or results of operations. Management's evaluation may change
depending upon the results of its investigation.
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 (note 20). 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.
F-48
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 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.
As part of the settlement, the Company was granted the option to distribute
two new plastic card printer lines in North and South America and Western
Europe. Of the total settlement amount, $465,000 was deposited with SPI as of
December 31, 1995. The remaining amounts were paid in 1996 after completion
of the negotiations.
(15) Loss on Contract Settlement and Other
The Company recorded an expense of $1 million in the second quarter of
1996 as a cost of settling the termination of a manufacturing agreement which
is more fully described in note (14) above. Additionally in 1996, the imaging
segment recorded a one-time $287,000 charge in the quarter to reduce on-going
expenses in its international operations.
During the fourth quarter of 1994, Sandia and Sandia Europe recorded a
charge of $1,148,275 to adjust the net carrying value of certain inventory to
its estimated net realizable value. The provision was principally
necessitated by the planned discontinuance of the Digital Image Recorder
product line and the introduction of a new generation plastic card printer
product. The provision was estimated by management based on a review of the
market for its products and the anticipated net revenues, less disposal
costs, to be received from the sale of this inventory.
(16) Income Taxes
Due to the Company's losses, no income tax expense was recorded for the
years ended December 31, 1996, 1995 and 1994. At December 31, 1996, the
Company had a net operating loss carryforward of approximately $39,000,000
for U.S. federal income tax purposes, which will begin expiring in 1997. Of
this federal net operating loss carryforward approximately $7,000,000 is
available for state income tax purposes. The tax benefit (approximately
$13,260,000) 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 $2,760,000 during 1996. Because of
conversions of existing
F-49
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Additionally, the Company had approximately
$400,000 and $40,000, respectively, of research and development and
investment tax credit carryforwards. The carryforwards expire from 1997 to
2006. The credit carryforwards will also be restricted in their usage as a
result of the ownership change.
(17) Export Sales
Export sales totaled approximately $9,411,000, $4,991,000, and $4,191,000
in 1996, 1995 and 1994, respectively.
(18) Acquisitions
On February 19, 1992, the Company purchased a 43 percent equity interest
in Printis, S.A.R.L (Printis) of Paris, France for approximately $279,000. In
April 1994, Sandia Europe purchased the remaining 57 percent equity interest
in Printis for $100,000 cash, 50,000 shares of Sandia common stock and
minimum royalties totaling approximately $282,000 through 1999. This
acquisition was accounted for using the purchase method of accounting and
resulted in goodwill of approximately $410,000. During 1995 Printis was
merged into Sandia Europe.
(19) Segment Information
Business Segments
The Company operates with its product groups organized into two business
segments: marking and imaging. Operations in marking involve the production
and sale of laser systems which mark products with a serial number, logo or
bar code. Imaging operations involve the sale of plastic card printers.
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, 1996, 1995 and 1994. General corporate
assets and expenses are allocated to the respective business segments.
F-50
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
IMAGING CONSOLIDATED
(SANDIA) MARKING (LMC) (LASX)
------------ --------------- ------------
<S> <C> <C> <C>
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 (a) 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
1994
- --------
Sales................................... $ 3,892,810 (a) 11,963,399 15,856,209
Loss from operations.................... (6,776,649) (416,160) (7,192,809)
Identifiable assets (c)................. 4,212,664 6,497,792 10,710,456
Capital expenditures.................... 372,417 417,992 790,409
Depreciation............................ 139,860 174,116 313,976
</TABLE>
- ------------------------
(a) Sales of imaging products to two customers were $5,122,000 and $1,107,000 in
1996, which represents 63% and 14% of imaging sales for that year.
(b) Sales of marking products to single customers were $3,153,000, $2,171,000,
and $7,296,000 in 1996, 1995 and 1994, which represents 34, 21, and 61
percent of marking sales, respectively.
(c) Identifiable assets by business segment are those assets used in the
Company's operations in each segment.
F-51
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
1996:
Sales............................................... $18,320,335 7,143,779 (7,882,674)(d) 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 2,549,943 (850,589)(d) 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
1994:
Sales............................................... $13,722,594 2,831,014 (697,399)(d) 15,856,209
Loss from operations................................ (5,644,499) (1,511,232) (37,078) (7,192,809)
Identifiable assets (e)............................. 10,326,512 3,639,280 (3,255,336) 10,710,456
</TABLE>
- ------------------------
(d) 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.
(20) Stock Issuances
In July 1996, the Company issued 835 shares of its new class of
convertible preferred stock, the Series D Preferred Stock, at $10,000 per
share, or $8,350,000 (see note 10).
F-52
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 27, 1995, the Company issued 198,676 shares of convertible
preferred stock to Wolfensohn for cash totaling $300,000 and an additional
198,675 shares of convertible preferred stock to an affiliate of Wolfensohn
for cash totaling $300,000.
In January 1994, the Company issued 272,331 shares of its unregistered
Common Stock to Wolfensohn at a per share price of approximately $.73. The
$200,000 proceeds from this sale were principally utilized by Sandia in its
acquisition of Printis (note 18).
In June 1994, the Company issued 826,447 shares of its unregistered
Common Stock at $1.21 per share (total of $1,000,000) to SPI. Under the terms
of the agreement, a nonvoting representative of SPI is entitled to attend
Lasertechnics, Inc., board meetings. Concurrently with SPI's purchase of
Common Stock, Sandia entered into a contract manufacturing agreement and a
distribution agreement with SPI (see note 14).
In July 1994, the Company issued 4,900,000 shares of its unregistered
Common Stock to JPMIC at $.95 per share (total of $4,655,000). The Company
also issued a $345,000 convertible note payable bearing interest at 10
percent and convertible at $.95 per share into Non-voting Common Stock. The
Non-voting Common Stock is convertible into voting Common Stock on a one
share for one share basis. On November 29, 1994, the convertible note payable
plus interest was converted into 377,684 shares of Non-voting Common Stock.
Under the terms of the stock purchase agreement JPMIC is entitled to one seat
on the Board of Directors.
F-53
<PAGE>
SCHEDULE 1
LASERTECHNICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS,
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT TO COSTS BALANCE
BEGINNING AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ---------------------------------------------------------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
For the year ended December 31, 1996:
Reserves and allowances 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 (343,385)(b) 256,003
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
For the year ended December 31, 1994:
Reserves and allowance deducted from asset accounts-allowance
for doubtful accounts....................................... $ 104,841 65,169 -- (a) 170,010
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
Product Warranty Reserve...................................... $ 97,415 687,591 (523,868)(b) 261,138
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
</TABLE>
(a) Charge-offs.
(b) Actual costs incurred.
See accompanying Notes to Condensed Consolidated Financial Statements.
F-54
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................ $ 640,107 $ 1,598,744
Accounts receivable--trade, less allowance for doubtful accounts of $812,603 in
1997 and $357,136 in 1996...................................................... 2,879,386 3,196,943
Inventory........................................................................ 5,517,862 6,600,007
Prepaid expenses and other....................................................... 491,798 998,445
------------- -------------
Total current assets......................................................... 9,529,153 12,394,139
Property, plant & equipment, net................................................... 3,054,019 3,334,277
Goodwill......................................................................... 110,982 172,510
Other assets..................................................................... 1,593,844 1,760,931
------------- -------------
Total assets................................................................. $ 14,287,998 $ 17,661,857
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to stockholders (note 3)........................................... $ 3,289,077 $ --
Notes payable.................................................................... 926,258 775,292
Accounts payable................................................................. 2,864,549 1,369,818
Accrued payroll and related expenses............................................. 300,888 495,112
Customer advances................................................................ 153,719 436,249
Product warranty reserve......................................................... 538,453 516,783
Capital lease obligations, current............................................... 211,106 225,676
Dividends payable................................................................ 664,815 356,182
Other accrued liabilities........................................................ 672,048 1,153,199
------------- -------------
Total current liabilities.................................................... 9,620,913 5,328,311
------------- -------------
Convertible debentures (note 4).................................................... 1,157,224 1,768,965
Capital lease obligations, noncurrent.............................................. 762,576 927,411
Note payable--long term............................................................ 1,400,000 1,400,000
Other.............................................................................. 4,694 149,387
------------- -------------
Total liabilities................................................................ $ 12,945,407 $ 9,574,074
------------- -------------
------------- -------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-55
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Stockholders' equity (notes 3 and 4):
Convertible preferred stock, no par; 7,000,000 shares authorized in 1997 and 1996
Series A: $1.30 stated value; 1,153,846 shares outstanding in 1997 and 1996...... $ 1,500,000 $ 1,500,000
Series B: $1.42 stated value; 1,056,338 shares outstanding in 1997 and 1996...... 1,500,000 1,500,000
Series C: $1.51 stated value; 708,530 shares outstanding in 1997 and 1996........ 1,069,880 1,069,880
Series D: $10,000.00 stated value; exchanged for Series F in 1997, 585 shares
outstanding in 1996,........................................................... -- 6,049,314
Series F: $10,000.00 stated value; 239 shares outstanding in 1997 and none in
1996........................................................................... 2,552,297 --
Common stock, $.01 par value, 56,750,000 shares authorized in 1997 and 1996;
44,615,289 shares issued and outstanding in 1997 and 37,133,514 in 1996.......... 446,153 371,335
Nonvoting convertible common stock, $.01 par value shares authorized in 1997 and
1996; 2,249,842 shares issued and outstanding in 1997 and 1996. Convertible into
common stock on a one share for one share basis.................................. 22,499 22,499
Paid-in Capital.................................................................. 53,360,410 47,753,080
Accumulated deficit.............................................................. (59,108,648) (50,178,325)
------------- -------------
Total stockholders' equity................................................... 1,342,591 8,087,783
Total liabilities and stockholders' equity................................... $ 14,287,998 $ 17,661,857
------------- -------------
------------- -------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-56
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Sales.............................................................................. $ 9,163,813 $ 14,818,140
Cost of sales...................................................................... 6,032,332 10,490,228
------------- -------------
Gross Profit....................................................................... 3,131,481 4,327,912
Expenses:
Research and development......................................................... 1,974,518 2,301,910
General and administrative....................................................... 3,912,620 4,032,894
Selling and marketing............................................................ 4,669,677 4,073,993
Loss on contract settlement...................................................... -- 1,000,000
------------- -------------
Operating expenses........................................................... 10,556,815 11,408,797
------------- -------------
Loss from operations......................................................... (7,425,334) (7,080,885)
------------- -------------
Other income (expense):
Interest income.................................................................. 16,300 53,249
Interest expense................................................................. (1,044,878) (1,192,395)
Other............................................................................ 31,196 142,555
------------- -------------
Other expense, net............................................................... (997,382) (996,591)
------------- -------------
Net loss......................................................................... (8,422,716) (8,077,476)
Preferred stock dividend requirements.............................................. (507,607) (417,025)
------------- -------------
Net loss applicable to common stock.............................................. $ (8,930,323) $ (8,494,501)
------------- -------------
------------- -------------
Net loss per share................................................................. $ (0.20) $ (0.26)
------------- -------------
------------- -------------
Shares of common stock used in computing net loss per share (note 1)............. 43,824,795 33,095,445
------------- -------------
------------- -------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-57
<PAGE>
LASERTECHNICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................... $(8,422,716) $(8,077,476)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization..................................................... 386,050 448,552
Provision for losses on accounts receivable....................................... 529,314 129,966
Provision for product warranty reserve............................................ 255,660 317,555
Amortization of financing discount and issuance costs............................. 259,850 633,519
Accrued interest on convertible debentures........................................ 118,890 451,449
Non-cash compensation (increase) decrease in:..................................... 40,000 --
Accounts receivable............................................................... (211,757) (2,082,462)
Inventory......................................................................... 1,082,145 (1,328,734)
Prepaid expenses and other........................................................ 551,082 (180,485)
Other assets...................................................................... 32,722 (24,394)
Increase (decrease) in:
Accounts payable.................................................................. 1,494,731 (110,769)
Customer advances................................................................. (282,530) 15,661
Accrued payroll and related expenses.............................................. (194,224) (172,084)
Product warranty reserve.......................................................... (233,990) (262,900)
Other current liabilities......................................................... (481,151) 474,383
Other liabilities................................................................. (144,693) 377,790
------------ -------------
Net cash used by operating activities............................................. (5,220,617) (9,390,429)
Cash flows from investing activities:
Capital expenditures................................................................ (44,264) (304,086)
------------- -------------
Cash flows from financing activities:
Borrowings under financing agreements............................................. 4,363,477 1,700,000
Principal payments on financing agreements........................................ 150,966 (1,900,000)
Proceeds from issuance of convertible debentures.................................. 500,000 5,500,000
Redemption of convertible debentures.............................................. (600,000) --
Convertible debenture issuance costs.............................................. -- (385,000)
Redemption of convertible preferred stock......................................... (880,000) --
Principal payments on capital lease obligations................................... (179,405) (168,138)
Net proceeds from issuance of preferred and common stock.......................... 951,206 7,691,475
------------- -------------
Net cash provided by financing activities..................................... 4,306,244 12,438,337
Net increase (decrease) in cash and cash equivalents.......................... (958,637) 2,743,822
Cash and cash equivalents, beginning of period...................................... 1,598,744 1,892,357
------------- -------------
Cash and cash equivalents, end of period............................................ $ 640,107 $ 4,636,179
------------- -------------
------------- -------------
Supplemental information:
Cash paid during the year for interest......................................... $ 146,838 112,059
------------- -------------
------------- -------------
Conversions to stock:
Debentures, net of unamortized discount and expenses....................... 486,866 5,534,873
Accrued interest........................................................... 163,685 386,201
Accretion attributable to Series D convertible preferred stock............. $ 198,974 111,638
------------- -------------
------------- -------------
Conversion feature of debentures issued........................................ $ 150,000 1,610,000
------------- -------------
------------- -------------
Conversion feature, detachable warrants and restricted common
stock issued in connection with notes payable to stockholders.............. $ 1,074,400 -
------------- -------------
------------- -------------
Borrowings under capital lease obligations..................................... $ - 194,064
------------- -------------
------------- -------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-58
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Condensed Consolidated Financial Statements
The accompanying condensed consolidated financial statements are unaudited
and include the accounts of Lasertechnics, Inc. ("LASX"), the holding company,
LASX's wholly owned subsidiary Lasertechnics Marking Corporation ("LMC"), LASX's
96 percent owned subsidiary Sandia Imaging Systems Corporation ("Sandia"), and
Sandia's wholly owned French subsidiary Sandia Imaging Systems Europe SA
("Sandia Europe"). As used herein, the terms "Company" and "Lasertechnics" refer
to LASX and its consolidated subsidiaries unless the context otherwise requires.
All significant intercompany accounts and transactions have been eliminated.
Information contained in the Company's condensed consolidated financial
statements and notes thereto should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto contained in
Lasertechnics' Annual Report on Form 10-KSB for the year ended December 31,
1996.
The Consolidated Balance Sheet at September 30, 1997 and December 31,
1996, the Consolidated Statements of Operations for the nine month periods
ended September 30, 1997 and 1996, and the Consolidated Statements of Cash
Flows for the nine month periods ended September 30, 1997 and 1996 have been
prepared by the Company and are unaudited. In the opinion of the Company's
management, all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the financial position at September 30, 1997,
results of operations for the nine month period ended September 30, 1997 and
1996, and changes in cash flow for the nine month periods ended September 30,
1997 and 1996 have been made.
Net loss per common share is based on weighted average common shares
outstanding and does not give effect to outstanding common stock options,
warrants and convertible debt because their inclusion would be anti-dilutive.
Net loss applicable to common stock is derived by adding to consolidated net
loss the accretion of conversion discounts and dividends recorded for the
Company's preferred stock series A, B, C, D, E and F.
Certain reclassifications have been made to prior year amounts in order to
present the consolidated financial position and results of operations on a
consistent basis.
2. Issuance of Common Stock
During the quarter ended September 30, 1997, a total of 1,774,428 shares of
Lasertechnics common stock were issued pursuant to conversions and redemption of
outstanding convertible debentures and preferred stock, and pursuant to the note
purchase agreement described in note 3.
F-59
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Notes Payable to Stockholder
During the first quarter of 1997, the Company obtained a commitment for a
working capital bridge loan of up to $1,000,000 from Wolfensohn Partners
L.P.("Wolfensohn"), the general partner of Wolfensohn Associates L.P., a
significant stockholder. On March 27, 1997, the Company made a $250,000 draw on
this commitment. In the second quarter the Company made additional draws
totaling $750,000 for a total amount payable of $1,000,000 to Wolfensohn under
such bridge loan commitment. These unsecured notes bore interest at 12% per
annum. Interest and principal were due on demand, but if no demand was made,
principal and interest become due and payable on December 31, 1997. In the event
that the Company completed an equity financing of $5,000,000 or more on or
before December 31, 1997, then Wolfensohn had the right to convert the
outstanding principal and interest, or a portion thereof, into either the
Company's voting common stock, par value $0.01 per share (the "Common Stock"),
or non-voting convertible common stock, par value $0.01 per share, at the price
per share paid by the investors in such equity financing.
In June 1997, the Wolfensohn bridge loan of $1,000,000 plus accrued interest
was converted into an advance under the terms of a new bridge loan financing
provided to the Company by Wolfensohn 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, to be funded 60% by Wolfensohn and 40% by JPMIC.
Under the Note Purchase Agreement the Company received additional funding of
$2,000,000 during the third quarter ended September 30, 1997. The Note Purchase
Agreement provides for: (i) an interest rate of 10% per annum for advances by
Wolfensohn and 6.64% per annum for advances by JPMIC, with a final maturity of
December 31, 1997 for all advances; (ii) issuance to Wolfensohn and JPMIC of an
aggregate of 298,285 restricted shares of Common Stock; and (iii) issuance to
Wolfensohn and JPMIC of an aggregate of 580,000 Common Stock 3-year warrants at
a $0.70 strike price. The Company recorded a discount to equity of approximately
$816,000 related to the conversion feature of the outstanding notes payable of
$3,000,000 plus accrued interest of $20,223, and to the warrants and restricted
common stock. Such discount is being accreted to interest expense. 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. There are no
prepayment penalties and the Company is obligated to apply 100% of any proceeds
from the sale of assets in excess of $1,000,000 to repayment of any notes issued
pursuant to the Note Purchase Agreement. The Company is also obligated to apply
the entire proceeds from the sale of the LMC headquarters if sold independently
of the disposition of LMC. If the Company does not repay the bridge loan
principal and accrued interest by December 31, 1997, the Company will issue
Wolfensohn and JPMIC, as a late payment fee, (i) additional 3-year warrants with
an aggregate strike price equal to 5% of the unpaid principal under the notes
and (ii) additional shares of restricted Common Stock having an aggregate market
value on the date of issuance equal to 1% of such unpaid principal amount. The
strike price of any such additional warrants would be at the current market
price at the time such warrants were issued. In addition, the interest rate will
increase by 5% per annum, and the notes will be payable on demand. This bridge
loan is intended to be senior indebtedness of the Company.
F-60
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In September the Company entered into a new note purchase agreement with
Wolfensohn to fund the Company's operations until suitable outside financing
can be obtained. The Company's draws under this agreement were $950,000 as of
September 30, 1997. The Company recorded a discount to equity of
approximately $258,400 related to the conversion feature of the outstanding
notes payable of $950,000 and to the warrants and restricted common stock.
Such discount is being accreted to interest expense. The Company had
additional draws of $1,302,000 as of October 31, 1997 for a total of
$2,252,000. The new note purchase agreement has the same terms as the Note
Purchase Agreement except the Company has pledged all Inventory and Accounts
Receivable of its Sandia subsidiary.
4. Preferred Stock and Convertible Debenture Issuance
In May 1997, the Company redeemed $600,000 principal amount of its March
1996 10% Convertible Debentures due March 1999 (the "1996 Debentures") with the
proceeds from the private placement of $500,000 principal amount of 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,
par value $0.01, (the "Series E Preferred Stock"), with substantially identical
terms as the Series D Convertible Preferred Stock, par value $0.01 (the "Series
D Preferred Stock"), outstanding. In June 1997, $400,000 of Series D Preferred
Stock was redeemed by the Company with the remaining proceeds from the issuance
of the Series E Preferred Stock. In connection with the issuance of the Series B
Debenture, the Company recorded a discount to equity of $150,000 related to the
conversion feature of the debt. Such discount is being accredit to interest
expense.
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, holders of the
Suspended Securities can exercise the suspended portion at a cumulative rate of
20% per month. In exchange for the suspension agreement, the holders received
warrants equal to 25% of the aggregate value of the suspended amount for an
exercise price of $1.00 per share, and a reduction of the maximum conversion
price to $1.00 for the convertible debentures and $1.14 for the convertible
preferred stock, from $2.00 and $2.14 respectively.
The suspension agreement with respect to the Series D and Series E
Convertible Preferred Stock was effected by an exchange of the shares of such
stock, on a one-for-one basis, for shares of a new series of Convertible
Preferred Stock, Series F, $0.01 par value (the "Series F Preferred Stock"). 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 suspension agreement described above. Upon the issuance of the
Series F Preferred Stock in the exchange, all of the outstanding shares of
Series D and Series E Preferred Stock were canceled, and thereafter reverted to
the status of authorized but unissued shares of preferred stock of no particular
designation.
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LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In July 1997, $480,000 principal amount of Series D Preferred Stock was
redeemed by the Company, upon receipt of the holder's notice of conversion, with
the proceeds from the private placement to a single investor of $480,000
principal amount of a Series F Preferred Stock.
5. Contingencies
The Company is involved in various other claims and legal actions arising in
the ordinary course of business. In the opinion of management of the Company,
after consultation with outside legal counsel, the ultimate disposition of these
matters will not have a material effect on the accompanying condensed
consolidated financial statements. See also Legal Proceedings, Part II, Item I.
6. Sale of Subsidiary
In April, 1997, the Company retained Southport Partners as financial advisor
to advise on strategic alternatives for LMC, including the possibility of a
disposition or strategic partnership of such subsidiary. The Company disengaged
Southport Partners as financial advisor in September 1997. The Company is
continuing to explore possible strategic alternatives for LMC, but it has not
entered into a definitive agreement with respect to any such transaction, and
there can be no assurance that any such transaction will be consummated.
7. Subsequent Events
Proposed Restructuring
On November 10, 1997, the Company announced a proposed restructuring plan.
The plan consists of (i) the proposed acquisition of certain software and
hardware technology from XL Vision ("XLV", an affiliate of Safeguard
Scientifics, Inc., for $10 million in Company common stock, valued at $.50 per
share; (ii) a plan to seek up to $10 million in additional financing, including
a commitment for up to $4 million from an affiliate of an existing investor; and
(iii) the reorganization of the Company's Sandia Imaging Systems subsidiary into
two divisions. The proposed restructuring plan is subject to the negotiation,
execution and delivery of definitive documents with XLV and other parties and
other conditions.
Technology Acquisition. On November 10, 1997, the Company and XLV entered
into a letter of intent with respect to the acquisition by the Company of
certain technology, including a series of temporal and spatial optical butting
techniques and modular 2D digital camera technology. The Company plans to use
such technologies to develop card readers for the corporate security and access
control markets and the like. The Company will issue to XLV up to 20 million
shares of common stock, valued at $.50 per share, to pay for the acquired
technology and certain related rights, subject to achievement of agreed
development milestones and other conditions. The letter of intent
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<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
is not a binding acquisition agreement and is subject to the satisfactory
completion of due diligence by each party, the negotiation, execution and
delivery of definitive documents, and the approval of the Company's
stockholders.
Proposed Financing. On November 10, 1997, the Company announced that it
expected to require approximately $10 million of additional financing over the
following 12 months. The Company has received a commitment for up to $4 million
of new financing from an affiliate of an existing institutional investor,
subject to definitive documentation and other customary conditions to funding.
The Company is currently in discussions with other existing and potential
corporate and institutional investors, and believes that the Company will be
able to obtain the additional funding required; however, no other commitments
have been received by the Company for such funding, and there can be no
assurances that such funding will be available on terms satisfactory to the
Company, or on any terms. The Company is also planning a rights offering to give
current stockholders an opportunity to participate in the Company's proposed
financing. To the extent subscribed, proceeds from the rights offering would be
applied to the Company's capital requirements and would substitute for other
funding alternatives. The Company currently expects to use the proceeds of such
financing activities to funding its transition to the revised business plans
described herein, to finance projected operating cash flow deficits and, if
sufficient funds are available, to repay existing bridge loans and/or redeem
outstanding convertible securities.
Reorganization of Sandia. The Company has announced that Sandia will
organize and manage its new business plan through two divisions: Systems and
Technology.
The Systems Division, to be based in Carrollton, Texas, will provide
overnight delivery of fraud-resistant wallet size ID cards, sell turnkey
security systems to take advantage of biometrics and portable databases on
Sandia-produced and other cards, and resell high-performance card printers, the
original basis for Sandia's business.
The Technology Division, to be based in Sebastian, Florida, will be
responsible for developing and commercializing the new camera and software
technology to be acquired from XLV for use in card readers and other digital
image-acquisition applications. The Company expects that its new card readers
will read a wide range of card-mounted symbologies, including DataGlyphs-TM-,
at high speeds.
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<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. Recent Developments
Nasdaq Listing Requirements
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 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, as currently in effect (the
"Old Nasdaq Listing Requirements") which require 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 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, and that it will remain in compliance with such standards until
the New Nasdaq Listing Requirements go into effect on February 22, 1998. The
Company also believes, but cannot assure, that, if the Reverse Stock Split
Proposal is adopted at the Special Meeting, the Company will be able to meet the
New Nasdaq Listing Requirements at the time such requirements go into effect.
(See, "--Equity Investments by Major Stockholder").
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 shares of the Company's 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 Amphion Ventures. In
addition, the purchasers had the right to offset a portion of the purchase
price, aggregating approximately $707,000, 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 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 principle amount equal to
the portion of the purchase price so paid.
As additional consideration to Amphion Ventures, the Company agreed that
if, at any time prior to December 31, 1999, the Company completes a financing
with third parties raising at
F-64
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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). See, "DESCRIPTION OF CAPITAL STOCK--Series G Preferred
Stock".
Extension of Bridge Loans
Also on December 29, 1997, the Company concluded an agreement (the
"Extension Agreement") with Amphion Ventures, Antiope Partners and JPMIC, with
respect to the extension of the Company's obligations under a Note Purchase
Agreement dated as of June 25, 1997 (the "June Note Purchase Agreement"), among
the Company, Antiope Partners (formerly, Wolfensohn Partners, L.P.) and JPMIC,
which was assigned by Antiope Partners to Amphion Ventures, 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 Amphion Ventures.
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 its Convertible Debentures due March 1, 1999
(the "March 1996 Debentures"), Convertible Debentures due March 1, 1999, Series
B (the "Series B Debentures" and, together with the March 1996 Debentures, the
"Convertible Debentures"), Series D Convertible Preferred Stock, par value $.01
per share ("Series D Preferred Stock"), and Series E Convertible Preferred
Stock, par value $.01 per share ("Series E Preferred Stock"), in separate
private placements to institutional investors in 1996 and 1997. The Series F
Preferred Stock was issued by the Company in July 1997 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 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".
F-65
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 as additional compensation 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 Antiope
Partners, 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 $750,000 principal amount of Convertible Debentures
and 199 shares ($1,990,000 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, were convertible on that date into an
aggregate of approximately 13 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 of approximately $1.02 million
and issued approximately $1.14 million in non-convertible short-term
indebtedness, 510,000 shares of Common Stock and warrants to purchase an
additional 1,340,000 shares of Common Stock at an average exercise price in
excess of $.48 per share. The Company funded the cash and short-term debt
portion of the restructuring by issuing shares of Series G Preferred Stock to
Amphion Ventures, as described above. See, "--Equity Investments by Major
Stockholders." Such securities have a fixed conversion price of $.50 per
share, subject to the Series G Reset Right. See "DESCRIPTION OF CAPITAL
STOCK--Series G Preferred Stock." In addition, Antiope Partners exchanged its
Series F Preferred Stock and accrued dividends for an equivalent face amount
of Series G Preferred Stock, plus one share of common stock for each $1.00
face amount of Series F Preferred Stock exchanged, which common shares are
subject to certain transfer restrictions.
The Company is currently in negotiations with respect to the remainder of
the Variable Price Convertible Securities outstanding, which have an aggregate
face amount (including accrued interest or dividends, as applicable) of
approximately $930,000, and are convertible,
F-66
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
based on price data as of December 24, 1997, into approximately 3.94 million
shares of Common Stock, subject to adjustment and the remaining term of the
gated standstill arrangement. The Company believes, but cannot assure, that
it will agree and implement the restructuring and/or refinancing of such
remaining Variable Price Convertible Securities in the first quarter of 1998.
The Company has agreed that if the holders of such Variable Price Convertible
Securities receive terms more favorable than those provided to Antiope
Partners with respect to the restructuring and/or refinancing thereof,
Antiope Partners will be provided with additional consideration to compensate
for such differential.
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.
Increase in Aggregate Voting Power of The Amphion Group; Possible Deemed
Change of Control
The issuance of shares of Common Stock and Series G Preferred Stock to
Amphion Ventures and Antiope Partners in connection with the transactions
described above (see, "--Equity Investments by Major Stockholders," and "--
Restructuring of Variable Price Convertible Securities"), together with open
market purchases of Common Stock, have resulted in an increase in the collective
aggregate voting power in the Company of the Amphion Group and Richard Morgan
from approximately 23.08% at September 30, 1997, to over 42% at January 8, 1998.
Such ownership of voting securities, together with Mr. Morgan's position as
chairman and chief executive officer of the Company and the service on its Board
of Directors of two representatives of the Amphion Group, Mr. Morgan and C. Seth
Cunningham, may be deemed for some purposes to confer control of the Company.
However, Amphion Ventures, Antiope Partners and Amphion Partners, individually
and in the aggregate, disclaim control of the Company or any intent or purpose
to acquire such control; and each of Mr. Morgan and Mr. Cunningham disclaims the
possession or exercise of any right or power to control the Company, except to
the extent that, as directors, Mr. Morgan and Mr. Cunningham participate in the
direction of the management and control of the Company, in accordance with
Delaware law.
Legal Proceedings
As previously reported, 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 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
F-67
<PAGE>
LASERTECHNICS, INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
filed an answer, denying the material allegations of the complaint and
asserting various defenses. By letter dated December 19, 1997, the Company
withdrew its defense that the court lacked personal jurisdiction over it. 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 expects to file papers opposing this motion on or about January 26,
1998. The Company believes the claim is without merit and will vigorously
oppose it.
Deferral of Rights Offering
On November 10, 1997, the Company announced a proposed restructuring plan,
consisting of (i) the proposed acquisition of the XLV Technology, (ii) a plan to
seek up to $10 million in additional financing, including a commitment for up to
$4 million from Amphion Ventures and Antiope Partners, and (iii) the
reorganization of Sandia into two divisions, the Systems Division and the
Technology Division. The Proposals described in this Proxy Statement, and the
transactions described above under the headings "--Equity Investments by Major
Stockholders," "--Extension of Bridge Loans," and "--Restructuring of Variable
Price Convertible Securities" are consistent with, and a part of, such
previously announced restructuring plan. As part of such earlier announcement,
the Company had also announced that it was planning a rights offering to its
stockholders as part of its financing plan. The Company does not believe that a
rights offering is in the best interests of the Company and its stockholders at
this time, and on December 29, 1997, the Board of Directors voted to defer
further consideration of a rights offering until such time as management
determined that such an offering would be in the interests of the Company and
its stockholders.
Dispute Regarding Dataglyphs License
The Company is currently in discussions with Xerox Corporation ("Xerox")
regarding the possible restructuring of the Company's license for
DataGlyphs-TM-, a portable database symbology developed by Xerox. In 1996,
the Company was granted an exclusive three-year license from Xerox, for an
initial license fee of $2.1 million, for the development and sale of products
utilizing DataGlyphs-TM- for security and identification media. 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
certain issues identified by the Company relating to the license. Xerox has
advised the Company in writing that it believes that such payment is now past
due. The Company has scheduled a meeting with Xerox to discuss this matter
in January 1998.
F-68
<PAGE>
APPENDIX A
[Form of]
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LASERTECHNICS, INC.
Lasertechnics, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL") does hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted
resolutions setting forth the following amendment to the Certificate of
Incorporation of the Corporation (the "Amendment"), declaring the Amendment to
be advisable and calling for the submission of the proposed Amendment to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed Amendment is as follows:
RESOLVED, that Article FOURTH of the Certificate of Incorporation is hereby
amended by adding thereto the following new paragraph (d) to the end thereof:
"(d) Reverse Split.
(A) Share Value Change. Effective immediately upon the filing of this
Amendment to the Certificate of Incorporation in the office of the Secretary of
State of the State of Delaware, the outstanding shares of Common Stock,
Non-Voting Common Stock, Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, and Series C Convertible Preferred Stock, shall be
and hereby are combined and reclassified as follows: (i) each share of Common
Stock shall be reclassified as and converted into one-twentieth of a share of
Common Stock; (ii) each share of Non-Voting Common Stock shall be reclassified
as and converted into one-twentieth of a share of Non-Voting Common Stock; (iii)
each share of Series A Convertible Preferred Stock shall be reclassified as and
converted into one-twentieth of a share of Series A Convertible Preferred Stock;
(iv) each share of Series B Convertible Preferred Stock shall be reclassified as
and converted into one-twentieth of a share of Series B Convertible Preferred
Stock; and (v) each share of Series C Convertible Preferred Stock shall be
reclassified as and converted into one-twentieth of a share of Series C
Convertible Preferred Stock; provided, however, that fractional shares of Common
Stock will not be issued in connection with such combination and
reclassification, and each holder of a fractional share of Common Stock shall
receive in lieu thereof a cash payment from the Corporation determined by
multiplying such fractional share of Common Stock by twenty times the average
closing price per share of Common Stock on the Nasdaq SmallCap Market for the
five trading days immediately preceding the effective date of this Amendment,
such payment to be made upon such other terms and conditions as the officers of
A-1
<PAGE>
the Corporation, in their judgment, determine to be advisable and in the best
interests of the Corporation.
(B) Certificate Exchange. Certificates representing shares combined and
reclassified as provided in this Amendment are hereby canceled, and, upon
presentation of the canceled certificates to the Corporation, the holders
thereof shall be entitled to receive new certificates representing the shares
resulting from such combination and reclassification.
(C) Effect on Stated Value. Effective immediately upon the combination
and reclassification of the outstanding shares of Common Stock. Non-Voting
Common Stock, Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock, and Series C Convertible Preferred Stock provided for in
subparagraph (A) of this paragraph (d), the stated value of Series A
Convertible Preferred Stock will be adjusted from $1.30 per share to $26.00
per share, the stated value of Series B Convertible Preferred Stock will be
adjusted from $1.30 per share to $26.00 per share, and the stated value of
Series C Convertible Preferred Stock will be adjusted from $1.51 per share to
$30.20 per share."
SECOND: That thereafter, pursuant to a resolution of the Board of
Directors, a special meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the DGCL, at
which meeting the necessary number of shares as required by statute were voted
in favor of the Amendment.
THIRD: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
FOURTH: That the Amendment shall be effective on the date this Certificate
of Amendment is filed and accepted by the Secretary of State of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by _________, its _________, and attested by _________, its Secretary,
this __ day of _____, 1998.
LASERTECHNICS, INC.
By __________________
Name:
Title:
ATTEST:
_______________________
Name:
Title:
A-2
<PAGE>
APPENDIX B
[Form of]
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LASERTECHNICS, INC.
Lasertechnics, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted
resolutions setting forth the following amendment to the Certificate of
Incorporation of the Corporation (the "Amendment"), declaring the Amendment to
be advisable and calling for the submission of the proposed Amendment to the
shareholders of the Corporation for consideration thereof. The resolution
setting forth the proposed Amendment is as follows:
RESOLVED, that Article FOURTH, paragraph (a) of the Certificate of
Incorporation is hereby amended to read in its entirety as follows:
"FOURTH: (a) The total number of shares of capital stock that the
Corporation shall have authority to issue is 15,500,000, consisting of 6,250,000
shares of Common Stock, par value $.01 per share ("Common Stock"), 2,250,000
shares of Non-Voting Common Stock, par value $.01 per share ("Non-Voting Common
Stock" and together with the Common Stock, "Common Shares"), and 7,000,000
shares of preferred stock, par value $.01 per share ("Preferred Stock").
SECOND: That thereafter, pursuant to a resolution of the Board of
Directors, a special meeting of the shareholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the DGCL, at
which meeting the necessary number of shares as required by statute were voted
in favor of the Amendment.
THIRD: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
FOURTH: That the Amendment shall be effective on the date this Certificate
of Amendment is filed and accepted by the Secretary of State of the State of
Delaware.
B-1
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by _________, its _________, and attested by _________, its Secretary,
this __ day of _____, 1998.
LASERTECHNICS, INC.
By __________________
Name:
Title:
ATTEST:
_______________________
Name:
Title:
B-2
<PAGE>
APPENDIX C
[Form of]
INTELLECTUAL PROPERTY TRANSFER AGREEMENT
This INTELLECTUAL PROPERTY TRANSFER AGREEMENT (the "Agreement") is made
as of the __th day of January, 1998, (the "Execution Date") by and between
LASERTECHNICS, INC., (hereinafter "LASX"), a corporation organized under the
laws of Delaware, having its principal place of business at 3208 Commander
Drive, Carrollton, Texas 75006, and XL Vision, Inc. (hereinafter "XLV") a
corporation organized under the laws of Delaware, having its principal place
of business at 10305 102nd Terrace, Sebastian, Florida 32958.
WHEREAS, LASX and XLV, for and in consideration of the mutual promises,
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
enter into this Agreement.
1. GENERAL DEFINITIONS
Terms in this Agreement (other than the headings) that are capitalized have
the meanings established for such terms in the succeeding Paragraphs of this
Section 1.
a. EXECUTION DATE. The term Execution Date is the date first above
written.
b. EFFECTIVE DATE. The term Effective Date is the date of LASX
shareholder approval in accordance with Section 9(p) of this
Agreement.
c. INTELLECTUAL PROPERTY. The term Intellectual Property shall mean
and include the following interests and rights: (a) all patents
and patent rights including, without limitation, all utility
models, applications, continuations, divisions, provisionals,
continuations-in-part, reissues, and any reexamined patents; (b)
all patentable subject matter including, without limitation, any
and all inventions, information, proprietary processes and
formulae, designs, schematics, parts lists, manufacturing diagrams,
devices, source code, object code, algorithms, architecture,
structure, display screens, layouts, processes, development tools,
and the like that may contain subject matter that is eligible to be
protected through patent protection, whether or not fixed in a
tangible medium and whether or not reduced to practice; (c) all
Trademarks; (d) all copyrights and copyright applications
including, without limitation, all original works of authorship
fixed in a tangible medium, whether registered or unregistered; (e)
all trade secrets; (f) all know-how; (g) all confidential
information including, without limitation, all data, information,
compilations, disclosures, documentation, source code commentary
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and media constituting, describing or relating to the above, and
the like; and (h) all other world-wide intellectual property
rights, whether currently vested, perfected, registered, or
available only through the common law.
d. TRADEMARKS. The term Trademarks means all rights in registered,
unregistered, intent-to-use, and/or common law trademarks, service
marks, trade names, icons, logos, slogans, trade dress, and any
other indicia of source or sponsorship of goods and services,
including all associated and appurtenant goodwill throughout the
world.
e. SPOT/MAG AGREEMENT. XLV and Spot/Mag, Inc., a corporation
organized under the laws of Taiwan having its principal place of
business at [_________________________________], are currently
negotiating a license agreement to be entered into between XLV and
Spot/Mag under which Spot/Mag will receive certain Intellectual
Property rights for digital still camera and dithering technology
in exchange for an obligation to pay royalties and other
remuneration to XLV. The term Spot/Mag Agreement shall refer to
the above license agreement.
f. PRODUCTS. The term Products shall mean and include the systems
specified in Exhibit C developed and commercialized based on the
XLV Technology as defined herein.
g. SHARES. The term Shares shall mean shares of the Common Stock, One
Cent ($.01) par value, of LASX, as in effect immediately following
the one-for-twenty reverse stock split contemplated by Sections
9(p) and 9(q) of this Agreement.
2. ASSIGNMENT OF XLV TECHNOLOGY AND XLV LICENSE OPTION
a. ASSIGNMENT OPTION
i. On April 1, 1999, or upon such date LASX accelerates
technology enhancement funding in accordance with Section
5(b)(vii) of this Agreement and LASX pays to XLV all sums
required under Section 5 of this Agreement, whichever date
occurs first, and extending for a period of ninety (90)
days thereafter, provided LASX has exercised the Exclusive
License Option (as hereinafter defined), LASX shall have
the right to receive an assignment of the XLV Technology
(as hereinafter defined) from XLV, such right to be
exercised at LASX's option (the "Assignment Option").
LASX may exercise the Assignment Option by providing XLV
with written notice of LASX's desire to exercise the
Assignment Option within the time frame specified above.
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b. EXERCISE OF ASSIGNMENT OPTION
Upon LASX exercising LASX's Assignment Option in accordance with the
Section 2(a)(i) of this Agreement, XLV agrees to the following:
i. XLV hereby agrees to assign, grant, convey, and transfer
all world-wide rights, title, and interest in all of its
Intellectual Property relating or associated in any way to
the document reader and digital camera technology
specified in Exhibit A and the dithering technology
described in Exhibit B (hereinafter "the XLV Technology"),
including all associated goodwill and world-wide rights to
sue, recover damages, and seek injunctive relief for past
infringement or misappropriation, to LASX, its successors,
assigns and legal representatives.
ii. XLV hereby agrees to execute all documents necessary to
perfect and record LASX's interest in the XLV Technology.
iii. XLV hereby agrees to cooperate fully with LASX in the
acquisition, prosecution and enforcement of all
Intellectual Property rights in the XLV Technology and all
improvements to the XLV Technology. Specifically, by way
of example and not limitation, XLV agrees to fully review
and execute any patent applications associated with the
XLV Technology, to execute any assignment documents to be
recorded in the patent office of the United States or
other countries, to aid in the arguments during
examination and prosecution of any patent applications
covering the XLV Technology, and to cooperate as a
consultant and/or witness in any proceedings to enforce
patent or other Intellectual Property rights associated
with the XLV Technology.
iv. XLV hereby agrees to assign to LASX all improvements to
the XLV Technology developed in whole or in part by XLV
within ninety (90) days of the assignment of the XLV
Technology. XLV agrees not to disclose or market any such
improvements to any party other than LASX for ninety (90)
days following the assignment of the XLV Technology.
v. XLV hereby agrees that it shall receive no further
compensation beyond what is specified in this Agreement
for the obligations to cooperate and to assign further
rights detailed in this Section.
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c. WARRANTIES, REPRESENTATIONS, AND COVENANTS REGARDING THE ASSIGNMENT
OF XLV TECHNOLOGY
(1) Upon LASX exercising LASX's Assignment Option in accordance
with Section 2(a)(i) of this Agreement, XLV makes the
following ongoing warranties, representations, and covenants
to LASX regarding the assignment of the XLV Technology:
i. XLV represents and warrants that: (a) it has all
requisite legal power and authority to execute and deliver
the assignments and to perform its obligations detailed
herein; (b) the assignments specified in this Section 2
shall be duly executed and delivered by a duly authorized
officer of XLV; (c) the execution and delivery of the
assignments specified in this Section 2 and the
performance of its obligations hereunder shall be duly
authorized by all necessary corporate action of XLV; and
(d) that there shall be no outstanding agreements,
assignments, or encumbrances inconsistent with any
provisions of the assignments specified in this Section 2.
ii. XLV represents and warrants that the assignments,
obligations and other terms specified in this Section 2
shall constitute legal, valid and binding obligations and
shall be enforceable against XLV in accordance with their
terms.
iii. XLV represents and warrants that it owns full right,
title, and interest in and to the XLV Technology to be
transferred herein, subject only to the Spot/Mag
Agreement, free and clear of all liens, claims, charges,
or encumbrances, and no person or entity other than XLV
has any interest in the XLV Technology, including, without
limitation, any license, security interest, royalty
interest, contingent interest or otherwise. XLV further
represents and warrants to LASX that it has full power to
convey all rights in the XLV Technology.
iv. XLV represents that the XLV Technology represents and
includes valuable trade secrets owned by XLV and XLV knows
of no instance of disclosure or other circumstance that
would prevent LASX from asserting and enforcing the
ownership rights in the XLV Technology transferred under
this Section 2.
v. XLV represents that it knows of no reason why the XLV
Technology may not be patented in the United States or
other countries.
vi. XLV represents and warrants that neither XLV's present and
former employees and consultants, nor any other present or
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former employer or contractor of any kind of XLV's present
and former employees and consultants, has any rights in or
claim to any portion of the XLV Technology.
vii. XLV represents that no other party has any rights in or
claims to any portion of the XLV Technology.
viii. XLV represents that it knows of no United States or foreign
Intellectual Property rights which would be infringed by
the use of the XLV Technology by LASX in the United States
or elsewhere.
ix. XLV represents and warrants that it has no obligation to
compensate any person or entity for the development, use,
sale, or exploitation of the XLV Technology to be
transferred herein, and XLV has not granted to any other
person or entity any license, option or other rights to
develop, use, sell, or exploit in any manner the XLV
Technology transferred herein, other than the Spot/Mag
Agreement, whether or not requiring the payment of
royalties or other consideration.
x. XLV agrees that LASX shall have the sole discretion and
right in determining whether to institute, maintain, or
settle any suit for infringement(s) or misappropriation of
any of the Intellectual Property rights associated with
the XLV Technology to be transferred herein with all
costs, attorneys fees, and expenses to be paid by LASX.
LASX further shall have the sole right to collect and keep
any and all damages from such infringement or
misappropriation, whether past, present, or future.
xi. XLV agrees to notify LASX in writing of any claims,
assertions, allegations, suggestions, and the like that
XLV or LASX infringes any right of a third party through
the use of the XLV Technology to be transferred to LASX
under this Section 2.
(2) Upon LASX exercising LASX's Assignment Option in accordance
with Section 2(a)(i) of this Agreement, LASX makes the
following warranties, representations, and covenants to XLV
regarding the assignment of the XLV Technology:
i. LASX warrants and represents that LASX shall have all
requisite legal power and authority to execute and receive the
assignments specified in this Section 2 and to perform its
obligations hereunder.
ii. LASX represents that LASX shall sell to XLV, at XLV's
request, Products relating to dithered 2D imaging upon terms and
conditions consistent with market prices then in effect.
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d. ASSIGNMENT FEE
i. Upon LASX exercising LASX's Assignment Option, and in
consideration of the above assignment, LASX agrees to pay XLV
a technology assignment fee payable in full by delivery of
Three Hundred Thousand (300,000) Shares. The Shares paid to
XLV under this Section 2(d)(i), shall be delivered to XLV upon
the assignment of the XLV Technology.
3. LICENSE OF INTELLECTUAL PROPERTY RIGHTS
a. LICENSE GRANT
Upon LASX exercising LASX's Assignment Option in accordance with
Section 2, LASX agrees to the following:
i. LASX hereby agrees to grant to XLV, and XLV agrees to
accept from LASX an exclusive, fully transferable, worldwide,
irrevocable, royalty-free, fully paid-up and perpetual license
to make, have made, use, import, sell, and offer to sell, the
Intellectual Property rights to the XLV Technology within the
field of use specified in Exhibit E attached hereto. XLV
shall have and maintain the right to modify and make
derivative works of the XLV Technology for improvements solely
applicable within the field of use specified in Exhibit E and
the right to grant sublicenses to its rights within such field
of use. Subject to Section 2(b)(iv), the derivative works of
XLV for such improvements shall be the sole and exclusive
property of XLV.
ii. For all improvements to the XLV Technology applicable in
any manner outside the field of use specified in Exhibit E,
XLV agrees to assign to LASX all improvements to the XLV
Technology in accordance with Section 2(b)(i) of this
Agreement.
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4. ASSIGNMENT OF SPOT/MAG AGREEMENT
a. ASSIGNMENT
Provided the Spot/Mag Agreement is executed within three (3) years of
the Effective Date, XLV agrees to the following:
i. XLV does hereby agree to sell, assign, transfer and set
over to LASX, and LASX hereby agrees to accept from XLV, all
right and interest in the Spot/Mag Agreement or in respect
thereof, including without limitation choses in action. LASX
agrees to assume the rights and obligations arising after the
assignment of the Spot/Mag Agreement, including without
limitation the right to receive all royalties and other
amounts payable under the Spot/Mag Agreement, the same to be
held and enjoyed by LASX for its own use and enjoyment and for
the use and enjoyment of its successors, and assigns, to the
end of the term or terms of the Spot/Mag Agreement is or may
be granted, as fully and entirely as the same would have been
held and enjoyed by XLV if the assignment made under this
paragraph had not been made.
b. WARRANTIES, REPRESENTATIONS AND COVENANTS REGARDING THE SPOT/MAG
AGREEMENT
i. XLV does hereby warrant and represent that:
(1) The Spot/Mag Agreement shall not grant, convey or
transfer to Spot/Mag any exclusive Intellectual Property
rights;
(2) The Spot/Mag Agreement shall not assign, grant, convey or
transfer to Spot/Mag any ownership interest in any
Intellectual Property rights but shall only license such
Intellectual Property rights to Spot/Mag;
(3) The Spot/Mag Agreement shall not grant to Spot/Mag the
right to assign the Spot/Mag Agreement or to sublicense
the rights contained therein; and
(4) The only consideration for the Spot/Mag Agreement between
XLV and Spot/Mag shall be a royalty payable to XLV in
United States currency.
ii. XLV hereby agrees to present the Spot/Mag Agreement to
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LASX for LASX's approval prior to XLV entering into the
Spot/Mag Agreement with Spot/Mag. LASX's approval shall not be
unreasonably withheld.
iii. XLV represents and warrants that it shall have the right
and authority to fully assign the Spot/Mag Agreement to LASX
and that it shall take all corporate action necessary to
effect such transfer. XLV agrees to notify Spot/Mag of such
transfer and to take all necessary steps so that royalty
payments due under the Spot/Mag Agreement shall be delivered
directly to LASX and that, in addition to all other rights
under the Spot/Mag Agreement, any right to reports or right to
audit records of such royalties shall inure to the benefit of
LASX.
iv. XLV represents and warrants that it shall not grant,
convey or transfer any Intellectual Property rights in the XLV
Technology to any other party other than LASX in accordance
with the terms of this Agreement or to Spot/Mag pursuant to
the Spot/Mag Agreement.
c. ASSIGNMENT FEE
i. In consideration of the assignment of the Spot/Mag
Agreement, LASX agrees to pay XLV a license assignment fee
payable in full by delivery of Two Hundred Thousand (200,000)
Shares under the following conditions:
(1) LASX shall deliver to XLV, on the 15th day following the
expiration of each quarter, One (1) Share for each Ten
Dollars ($10.00) of royalty received from Spot/Mag under
the Spot/Mag Agreement until such time as LASX has
delivered Two Hundred Thousand (200,000) Shares.
(2) XLV agrees and understands that royalties received by
LASX under the Spot/Mag Agreement after the delivery of Two
Hundred Thousand (200,000) Shares to XLV in accordance
with Section 4(b)(i)(1) of this Agreement shall be the
sole and exclusive property of LASX.
5. OPTION PURCHASE AND TECHNOLOGY ENHANCEMENT
a. TECHNOLOGY ENHANCEMENT SERVICES
i. XLV agrees to continue to provide personnel services and
project management for the enhancement and
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commercialization of the Products specified in Exhibit C
in accordance with the product development schedule as
detailed below and shown in Exhibit D attached hereto.
Any personnel supplied by XLV shall be deemed to be
independent contractors and shall not be deemed to be
employees of LASX for any purpose.
ii. XLV and LASX agree that within sixty (60) days of the
Effective Date, staffing for the enhancement of the
Products of employees and/or independent contractors
shall be complete (the "Staffing Date").
iii. XLV agrees to maintain true and accurate records that
substantiate expenses relating to the enhancement of the
Products (the "Expense Report") including the date incurred
and the nature thereof. The Expense Report shall be delivered
to LASX at the times specified under Section 5(a)(iv) of this
Agreement and at any other time upon the request of LASX.
iv. XLV and LASX agree that upon the first (1st) day of each
calendar month after the Execution Date, LASX management and
XLV project management personnel shall meet to discuss the
development of the Products. XLV shall supply to LASX at such
meetings the Expense Report and any and all relevant
information relating to the enhancement of the Products,
including, but not limited to, all current Product
specifications and documentation, Product development
schedules and marketing studies. Any modifications requested
by LASX to the Product development schedule or Product
specifications described above must be approved in writing by
XLV so as not to materially alter the terms of this Agreement.
Such approval shall not be unreasonable withheld.
v. XLV and LASX agree that LASX shall have the right to cease
payments under Section 5(b) anytime after the Staffing Date,
without further liability, in accordance with reasonable
business judgment decisions or for failure of the development
to meet critical milestone dates as detailed in Exhibit D.
Upon the cessation of payments under this Section 5(a)(v), any
License Option, Exclusive License Option or Assignment Option
right not previously exercised by LASX as of the date of
payment cessation shall be terminated.
vi. LASX shall notify XLV in writing of its decision to cease
payments pursuant to Section 5(a)(v) of this Agreement.
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b. OPTION PURCHASE RIGHTS AND TECHNOLOGY ENHANCEMENT FUNDING
In consideration for the option rights to purchase technology and
the technology enhancements set forth in this Agreement, LASX ,
either directly or through a corporate intermediary, shall pay to
XLV the sums specified below:
i. Upon the Execution Date, LASX shall pay to XLV the sum of
Five Hundred Thousand Dollars ($500,000.00).
ii. Within thirty (30) days of the Effective Date, LASX shall
pay to XLV the sum of One Million Dollars ($1,000,000.00).
iii. On May 15, 1998, LASX shall pay to XLV the sum of Five
Hundred Thousand Dollars ($500,000.00).
iv. On July 1, 1998, LASX shall pay to XLV the sum of Five
Hundred Thousand Dollars ($500,000.00).
v. On September 1, 1998, LASX shall pay to XLV the sum of One
Million Dollars ($1,000,000.00).
vi. On October 1, 1998, LASX shall pay to XLV the sum of Five
Hundred Thousand Dollars ($500,000.00).
vii. On December 1, 1998, LASX shall pay to XLV the sum of Six
Hundred Thousand Dollars ($600,000.00).
viii. LASX may, at LASX's option, accelerate the technology
funding schedule detailed in this Section 5(b) and pay the
sums indicated prior to the dates specified herein.
c. TECHNOLOGY ENHANCEMENT AND TRANSFER OPTION EXERCISE
i. On April 1, 1998, and extending for a period of six (6)
months thereafter, LASX shall have the right to receive, at
LASX's option, and XLV shall grant to LASX upon LASX
exercising such option, a nonexclusive, fully transferable,
worldwide, irrevocable, royalty-free perpetual license to
make, have made, use, import, sell, and offer to sell, the
Intellectual Property rights to the XLV Technology (the
"License Option").
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ii. LASX may exercise the License Option by notifying XLV in
writing of its desire to obtain the above license within the
time frame specified in Section 5(c)(i).
iii. Upon the exercising of the License Option by LASX, and in
consideration of the above license, LASX shall vest in XLV Two
Hundred Thousand (200,000) Shares.
iv. On January 1, 1999, or upon such date LASX accelerates
technology enhancement funding in accordance with Section
5(b)(vii) of this Agreement and LASX pays to XLV all sums
required under Section 5 of this Agreement, whichever date
occurs first, and extending for a period of ninety (90) days
thereafter, provided LASX has exercised the License Option,
LASX shall have the right to receive, at LASX's option, and
XLV shall grant to LASX upon LASX exercising such option, an
exclusive, fully transferable, worldwide, irrevocable,
royalty-free, perpetual license to make, have made, use,
import, sell, and offer to sell, the Intellectual Property
rights to the XLV Technology (the "Exclusive License Option")
subject to those rights, and only those rights, granted to
Spot/Mag pursuant to the Spot/Mag Agreement.
v. LASX may exercise the Exclusive License Option by
notifying XLV in writing of its desire to obtain the above
exclusive license within the time frame specified in Section
5(c)(vi).
vi. Upon the exercising of the Exclusive License Option by
LASX, and in consideration of the above exclusive license,
LASX shall vest in XLV Three Hundred Thousand (300,000) Shares.
vii. Any shares vested in XLV under this Section 5(c) of this
Agreement shall be delivered to XLV within ninety (90) days of
vesting.
d. OWNERSHIP OF TECHNOLOGY
i. All technology and any Intellectual Property rights
associated therewith conceived or developed by XLV or LASX in
performance of the work or obligations contemplated under this
Agreement relating in whole or in part to the enhancement and
commercialization of the Products ("Product Technology"),
including but not limited to the Products, or the process of
manufacture thereof, shall be owned solely and exclusively by
XLV subject to the License Option, the Exclusive License
Option, and the Assignment Option.
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ii. XLV shall execute and deliver any documents reasonably
requested by LASX to transfer such Product Technology to LASX
under the License Option, the Exclusive License Option, or the
Assignment Option in accordance with their respective terms as
described herein.
iii. Provided LASX exercises the Assignment Option, LASX
shall control the filing of applications for patents,
trademarks, copyrights and other Intellectual Property rights
for such Product Technology whether or not it shall be deemed
to have been jointly or solely developed and whether or not
one party is believed to have contributed more to the
development than the other.
iv. Provided LASX exercises the Assignment Option, XLV agrees
to cooperate fully in the acquisition, prosecution and
enforcement of all Intellectual Property rights relating in
whole or in part to the Product Technology. Specifically, by
way of example and not limitation, XLV agrees to fully review
and execute any patent applications associated with the
Product Technology, to execute any assignment documents to be
recorded in the patent office of the United States or other
countries, to aid in the arguments during examination and
prosecution of any patent applications covering the Product
Technology, and to cooperate as a consultant and/or witness in
any proceedings to enforce patent or other intellectual
property rights associated with the Product Technology.
e. WARRANTIES, REPRESENTATIONS AND COVENANTS REGARDING PRODUCT
ENHANCEMENT AND SERVICES
i. XLV warrants and represents that XLV consulting and
management personnel will use all possible efforts to develop
and market the Products.
ii. XLV warrants and represents that XLV shall not disclose
to any third party any proprietary, confidential, technical
and/or business information, know-how, data, operating
practices, developments or inventions relating to the
enhancement and commercialization of the Products.
iii. Provided LASX has exercised the License Option or the
Exclusive License Option, XLV shall indemnify and hold LASX
harmless against any and all claims by third parties that any
use of the XLV Technology contemplated under this Agreement
infringes upon any Intellectual Property rights of such third
party.
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iv. XLV agrees that upon the successful completion of a
demonstration unit of the Products, LASX shall have the right,
at LASX's expense and on behalf of XLV, to seek the
prosecution and acquisition of all Intellectual Property
rights related to the enhancement of the Products. XLV agrees
to cooperate fully with LASX in the prosecution and
acquisition of such Intellectual Property rights.
v. XLV and LASX understand and agree that the parties' joint
agreement to cooperate in the enhancement of the Products is
not an agreement of partnership and none is intended hereby.
In no event is one party the agent for the other for any
purpose other than as specifically required by this Agreement.
vi. Provided LASX has exercised the Exclusive License Option,
LASX represents that LASX shall sell to XLV, at XLV's request,
Products relating to dithered 2D imaging upon terms and
conditions consistent with market prices then in effect.
6. LOCK-UP AGREEMENT
a. XLV hereby irrevocably agrees that it will not sell, offer to sell,
solicit an offer to buy, contract to sell, grant any option to
purchase, or otherwise transfer or dispose of any Shares issued
pursuant to the License Option, Exclusive License Option or the
Assignment Option for a period of one (1) year after the exercise
of the applicable option without the prior written consent of LASX;
provided, however, that XLV may pledge such Shares as long as the
beneficiary of such pledge agrees in writing to be bound by the
terms of this lock-up provision.
7. REGISTRATION
a. XLV shall have the right on any two (2) occasions between the
second and fourth anniversary of the Effective Date to make a
written request of LASX for registration with the SEC (a "Demand
Registration"), under and in accordance with the provisions of the
Securities Act, for the offer and sale by XLV of the Shares issued
pursuant to this Agreement (the "Registrable Securities"). Upon
receipt of the written request by XLV of a Demand Registration,
LASX shall prepare and file with the SEC, within sixty (60) days
following the receipt of such request, a registration statement on
Form S-3 (or another appropriate form) (the "Registration
Statement") for the offer and sale by XLV of the Registrable
Securities and use reasonable efforts to have each such
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Registration Statement declared effective by the SEC as promptly as
reasonably practicable after the filing thereof with the SEC. LASX
shall use its reasonable efforts to keep such Registration
Statement and the prospectus used in connection therewith effective
and in compliance with applicable law for a period of at least 90
days (the "Effectiveness Period"). All expenses incident to LASX's
performance or compliance with this Section 7(a) shall be paid by
LASX; provided, however, XLV shall be responsible for and shall pay
any underwriting, brokerage or selling agent's fees, discounts or
commissions, and shall be responsible for and pay all legal fees
and expenses of counsel to XLV or counsel to any underwriter or
selling agent. In connection with any underwritten offering to
which LASX shall have consented, LASX shall provide, or cause to be
provided, such representations, warranties, covenants, opinions,
"cold comfort" letters, indemnifications, opportunities for due
diligence and other matters, and shall take all such other
reasonable actions, as are customary in underwritten public
offerings of securities.
b. Notwithstanding anything to the contrary in Section 6(a), LASX may,
by delivering written notice to XLV, prohibit offers and sales of
Registrable Securities pursuant to the Registration Statement at
any time if (A)(i) LASX is in the possession of material non-public
information relating to LASX, (ii) LASX determines that such
prohibition is necessary in order to avoid a requirement to
disclose such material non-public information to the public and
(iii) LASX determines in good faith that public disclosure of such
material non-public information would not be in the best interests
of LASX and its stockholders or (B)(i) LASX has made a public
announcement relating to an acquisition or business combination
transaction including LASX and/or one or more of its subsidiaries
that is material to LASX and its subsidiaries taken as a whole and
(ii) LASX determines in good faith that (x) offers and sales of
Registrable Securities pursuant to the Registration Statement prior
to the consummation of such transaction (or such earlier date as
LASX shall determine) is not in the best interests of LASX and its
stockholders or (y) it would be impracticable at the time to obtain
any financial statements relating to such acquisition or business
combination transaction that would be required to be set forth in
the Registration Statement; provided, however, that upon (i) the
public disclosure by LASX of the material non-public information
described in clause (A) of this paragraph or (ii) the consummation,
abandonment or termination of, or the availability of the required
financial statements with respect to, a transaction described in
clause (B) of this paragraph, the suspension of the use of the
Registration Statement pursuant to this Section 7(b) shall cease
and LASX shall promptly notify XLV that dispositions of Registrable
Securities may be resumed.
c. LASX may require XLV to furnish to LASX such information regarding
the distribution of Registrable Securities as is required by law to
be disclosed in the Registration Statement, and LASX may delay the
filing of the Registration Statement if XLV fails to furnish such
information within a reasonable time after receiving such request.
XLV agrees to notify LASX as promptly as practicable of any
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inaccuracy or change in information previously furnished by XLV to
LASX or of the occurrence of any event as a result of which the
prospectus included in the Registration Statement contains or would
contain an untrue statement of a material fact regarding XLV or
XLV's intended method of distribution of Registrable Securities, or
omits to state any material fact regarding XLV or XLV's intended
method of distribution of Registrable Securities, necessary to make
the statements therein, in light of the circumstances then
existing, not misleading and promptly furnish to LASX any
additional information required to correct and update any
previously furnished information or required so that such
prospectus shall not contain, with respect to XLV or the
distribution of the Registrable Securities, an untrue statement of
a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances then
existing, not misleading.
d. LASX will indemnify and hold harmless XLV from and against any and
all loss, damage, liability, cost and expense to which XLV may
become subject under the Securities Act or otherwise, insofar as
such losses, damages, liabilities, costs or expenses arise out of
or are based upon any untrue statement or alleged untrue statement
of any material fact contained in such Registration Statement, any
prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading;
provided, however, that LASX will not be liable in any such case to
the extent that any such loss, damage, liability, cost or expense
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission provided by XLV.
e. XLV will indemnify and hold harmless LASX, each of its directors,
each of its officers who have signed the Registration Statement,
and each person, if any, who controls LASX from and against any and
all loss, damage, liability, cost and expense to which any such
person may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are
arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in such
Registration Statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading; in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission
or alleged omission was provided by XLV.
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8. BOARD REPRESENTATION
a. So long as XLV and permitted assigns own in the aggregate at least
Four Hundred Thousand (400,000) Shares delivered pursuant to this
Agreement, LASX warrants and represents that LASX will use its
reasonable best efforts to cause two (2) persons designated by XLV to be
nominated to serve as members of the board of directors of LASX.
9. GENERAL PROVISIONS
a. GENERAL WARRANTIES, REPRESENTATIONS AND COVENANTS.
i. LASX warrants and represents that: (a) this Agreement has
been duly executed and received by a duly authorized officer of
LASX; and (b) subject to Section 9(p) hereof, the performance of
its obligations hereunder, other than the issuance of the Shares
shall be, and, subject to shareholder approval as provided in
Section 9(b), the issuance of the Shares as provided herein will
be, duly authorized by all necessary corporate action of LASX.
ii. XLV represents and warrants that the obligations and other
terms specified in this Agreement shall constitute legal, valid
and binding obligations and shall be enforceable against XLV in
accordance with their terms.
iii. XLV warrants and represents that this Agreement has been
duly executed and received by a duly authorized officer of XLV
and has been duly authorized by all necessary corporate action of
XLV.
iv. LASX warrants and represents that upon delivery of the
Shares pursuant to the terms of this Agreement, such Shares will
be duly authorized, validly issued, fully paid and nonassessable,
and will not have been issued in violation of any preemptive
rights of any stockholder. The Shares to be issued to XLV
pursuant to this Agreement will be issued free and clear of any
lien, option or preemptive or other right or claim.
v. LASX warrants and represents that LASX has made available to
XLV a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by
LASX with the Securities and Exchange Commission ("SEC") since
December 31, 1996 and prior to or on the date of this Agreement
(the "SEC Documents"), which are all the documents (other than
preliminary material) that LASX was required
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<PAGE>
to file with the SEC between December 31, 1996 and the date of
this Agreement. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the
Securities Exchange Act of 1934, as amended, as the case may be,
and the rules and regulations of the SEC thereunder applicable to
such SEC Documents, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading as of the date filed. The
financial statements of LASX included in the SEC Documents
complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by Rule
10-01 of Regulation S-X of the SEC) and fairly present in
accordance with applicable requirements of GAAP (subject, in the
case of the unaudited statements, to normal, recurring
adjustments, none of which are material) the consolidated
financial position of LASX and its consolidated subsidiaries as
of their respective dates and the consolidated results of
operations and the consolidated cash flows of LASX and its
consolidated subsidiaries for the periods presented therein.
vi. LASX represents that except as set forth in the SEC
Documents, as of the date hereof, there are no liabilities of
LASX of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that are
reasonably likely to have a material adverse effect on the
financial condition or results of operations of LASX, other than:
(i) liabilities provided for on the balance sheet of LASX dated
as of September 30, 1997 (including the notes thereto) contained
in LASX's Quarterly Report on Form 10-Q for the period ended
September 30, 1997; (ii) additional borrowings of $2,991,000
under a Note Purchase Agreement among LASX and Wolfensohn
Associates II L.P.; (iii) the acceleration of all payments due
under a $2,100,000 Secured Promissory Note, dated December 26,
1996, to the benefit of Xerox Corporation; (iv) liabilities
incurred in the ordinary course of business subsequent to
September 30, 1997; and (v) liabilities under this Agreement.
b. NOTICES.
i. All payments, correspondence, notices, and legal process
delivered or deliverable pursuant to this Agreement shall be in
writing and
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<PAGE>
deemed delivered: (i) upon personal or telecopy (with receipt
confirmed) delivery; (ii) three (3) days after being sent by
reliable overnight delivery; or (iii) ten (10) days after being
sent by certified mail, postage prepaid, return receipt
requested, to the addresses set forth below:
If to XLV: Bill Haskell
President and COO
XL Vision, Inc.
10305 102nd Terrace
Sebastian, Florida 32958
If to LASX: Harry S. Budow
President and COO
LASERTECHNICS, INC.
Sandia Imaging Systems
3208 Commander Drive
Carrollton, Texas 75006
ii. Either party hereto may change the address to which notice
is to be sent via written notice to the other party in accordance
with the provisions of this section.
c. ENTIRE AGREEMENT. This Agreement contains the entire
understanding between the parties hereto concerning the subject matter
hereof, and supersedes and replaces all prior negotiations and
agreements, if any, both written and oral.
d. AUTHORITY. The individuals executing this Agreement for and on
behalf of XLV and LASX represent that they are fully authorized and
empowered to do so for and on behalf of their respective principals.
e. SUCCESSORS AND ASSIGNS. This Agreement is intended to benefit
and shall be binding on XLV and LASX and their respective successors and
permitted assigns.
f. AMENDMENTS. No modification, amendment, waiver, termination or
discharge of this Agreement, or any of the terms or provisions hereof,
shall be binding upon either of the parties unless confirmed by a
written instrument signed by both parties.
g. NO WAIVER. No waiver by either party of any term or provision of
this
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<PAGE>
Agreement or of any default hereunder shall affect such party's rights
thereafter to enforce such term or provision or to exercise any right or
remedy in the event of any other default, whether or not similar.
h. SEVERABILITY. If any provision of this Agreement shall be held
void, voidable, invalid or inoperative, no other provision of this
Agreement shall be affected as a result thereof, and accordingly, the
remaining provisions of this Agreement shall remain in full force and
effect as though such void, voidable, invalid or inoperative provision
had not been contained herein.
i. CONFIDENTIALITY. XLV and LASX agree to maintain all terms and
conditions of this Agreement in strictest confidence, except as
otherwise required by law, including the public disclosure requirements
of LASX under federal securities law and applicable exchange or Nasdaq
rules and listing agreements. The parties agree that, except as
required by law, including the public disclosure requirements of LASX
under federal securities law and applicable exchange or Nasdaq rules and
listing agreements, neither LASX nor XLV shall issue any publicly
available reports, statements or releases pertaining to this Agreement
without the prior consent of the other party, which consent shall not
unreasonably be withheld or delayed.
j. CUMULATIVE RIGHTS AND REMEDIES. Except as otherwise provided in
this Agreement, all rights and remedies herein or otherwise shall be
cumulative, and none of them shall limit any other rights or remedies.
k. CHOICE OF LAW. The validity, performance, and all matters
relating to the effect of this Agreement and any amendments hereto shall
be governed by the laws of the State of Texas without regard to choice
of law provisions, statutes, regulations or principles of this or any
other jurisdiction.
l. NON-AGENCY RELATIONSHIP. It is understood and agreed that no
agency relationship is involved or created with respect to this
Agreement.
m. SURVIVAL. All representations, warranties and covenants
contained in this Agreement shall continue in full force and effect and
shall survive notwithstanding the full payment of all amounts due
hereunder or the termination of this Agreement in any matter whatsoever.
n. HEADINGS. The headings contained herein are for the convenience
of the parties only and shall not be interpreted to limit or affect in
any way the meaning of the language contained in this Agreement.
o. LIMITATIONS ON LIABILITY. NOTWITHSTANDING ANY OTHER PROVISIONS
OF THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
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SHALL LASX, ANY OF ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR ANY SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF XLV OR ANY OF THEIR
RESPECTIVE AFFILIATES, EVEN IF LASX OR SUCH AFFILIATE HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR PUNITIVE DAMAGES, LOSS OF
ANTICIPATED PROFITS, SAVINGS OR BUSINESS, LOSS OF COMMERCIAL REPUTATION
OR OTHER ECONOMIC LOSS, OR FOR DAMAGES THAT COULD HAVE BEEN AVOIDED,
USING REASONABLE DILIGENCE BY XLV OR SUCH AFFILIATE.
p. SHAREHOLDERS MEETING AND CHARTER AMENDMENTS REQUIREMENTS. The
rights and obligations under this Agreement are expressly contingent
upon the approval by the stockholders of LASX at a meeting duly called
and held of (i) an amendment to the Charter of LASX to effect a
one-for-twenty reverse stock split of the issued and outstanding shares
of Common Stock, as described in the preliminary proxy statement filed
by LASX with the Securities and Exchange Commission on or about January
7, 1998 (the "Reverse Stock Split"), and (ii) the issuance of the Shares
to XLV in accordance with the terms of this Agreement.
q. PROPOSED REVERSE STOCK SPLIT. The parties acknowledge that all
references herein to the Shares of LASX refer to the voting common
stock, par value $.01 per share, of LASX, after giving effect to the
proposed Reverse Stock Split.
IN WITNESS WHEREOF, the parties hereto have caused their respective duly
authorized representatives to execute this Agreement as of the date first above
written:
LASERTECHNICS, INC. XL VISION, Inc.
("LASX") ("XLV")
By:____________________________ By:____________________________
Title:_________________________ Title:_________________________
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EXHIBIT A
Definition or Description of Document Reader and Digital Camera Technology
[Intentionally Omitted]
C-21
<PAGE>
EXHIBIT B
Definition and Description of Dithering Technology
[Intentionally Omitted]
C-22
<PAGE>
EXHIBIT C
Products
[Intentionally Omitted]
C-23
<PAGE>
EXHIBIT D
Product Development Schedule and Milestone Dates
[Intentionally Omitted]
C-24
<PAGE>
EXHIBIT E
Fields of Uses for Intellectual Property License
[Intentionally Omitted]
C-25
<PAGE>
APPENDIX D
[Form of]
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LASERTECHNICS, INC.
Lasertechnics, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted
resolutions setting forth the following amendment to the Certificate of
Incorporation of the Corporation (the "Amendment"), declaring the Amendment to
be advisable and calling for the submission of the proposed Amendment to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed Amendment is as follows:
RESOLVED, that Article FIRST of the Certificate of Incorporation is hereby
amended to read in the its entirety as follows:
"FIRST: The name of the corporation is AXCESS Inc."
SECOND: That thereafter, pursuant to a resolution of the Board of
Directors, a special meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the DGCL, at
which meeting the necessary number of shares as required by statute were voted
in favor of the Amendment.
THIRD: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
FOURTH: That the Amendment shall be effective on the date this Certificate
of Amendment is filed and accepted by the Secretary of State of the State of
Delaware.
D-1
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by _________, its _________, and attested by _________, its Secretary,
this __ day of _____, 1998.
LASERTECHNICS, INC.
By __________________
Name:
Title:
ATTEST:
_______________________
Name:
Title:
D-2
<PAGE>
[Form of Proxy Card]
LASERTECHNICS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
February 20, 1998 9:30a.m. C.S.T.
The undersigned hereby appoints Richard C.E. Morgan and Harry S. Budow,
severally, proxy, with full power of substitution and revocation, to vote on
behalf of the undersigned all shares of Common Stock, Non-Voting Common Stock,
Series A, B, and C Convertible Preferred Stock, and Series G Preferred Stock of
Lasertechnics, Inc. (The "Company") which the undersigned is entitled to vote at
the Special Meeting of Shareholders to be held February 20, 1998, and any
adjournments thereof.
1. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO EFFECT A
ONE-FOR-TWENTY REVERSE STOCK SPLIT OF THE ISSUED AND OUTSTANDING SHARES OF
THE COMPANY'S COMMON STOCK, NON-VOTING COMMON STOCK, AND SERIES A, B AND C
CONVERTIBLE PREFERRED STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. IF PROPOSAL 1 IS ADOPTED, PROPOSAL TO DECREASE THE AUTHORIZED NUMBER OF
SHARES OF COMMON STOCK TO 6,250,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IF PROPOSAL 1 IS ADOPTED, PROPOSAL TO AUTHORIZE THE ISSUANCE OF UP TO
1,000,000 SHARES OF COMMON STOCK (DETERMINED AFTER GIVING EFFECT TO THE
PROPOSED ONE-FOR-TWENTY REVERSE STOCK SPLIT DESCRIBED IN PROPOSAL 1) TO
ACQUIRE CERTAIN TECHNOLOGY AND RELATED RIGHTS, PURSUANT TO THE INTELLECTUAL
PROPERTY AGREEMENT BETWEEN XL VISION, INC. AND THE COMPANY DATED AS OF
JANUARY 7, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE
CORPORATE NAME TO "AXCESS Inc."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT(S) THEREOF.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED IN FAVOR OF EACH OF THE ABOVE PROPOSALS.
Dated: ______________________________
______________________________
Signature
______________________________
Signature if held jointly
(Please sign exactly as ownership appears on this
proxy Where stock is held by joint tenants, both
should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please sign
in full corporate name by President or other
authorized officer. If a partnership, please sign
in partnership name by authorized person.)
