AXCESS INC/TX, PRE 14A, 1998-04-15

AXCESS INC/TX
PRE 14A, 1998-04-15
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES

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<PAGE> 1

SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

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

AXCESS INC.
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(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:

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(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 is 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.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE> 2

PRELIMINARY DRAFT

[AXCESS letterhead]

-------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1998

-------------------

You are hereby notified that the annual meeting (the "Meeting") of the
stockholders of AXCESS Inc., formerly known as Lasertechnics, Inc. (the
"Company"), will be held at the Cooper Aerobics Center, 12200 Preston Road,
Dallas, Texas, on June 9, 1998 at 9:00 a.m. Dallas, Texas time for the following
purposes:

1. To consider and vote on a proposal to elect Richard C.E.
Morgan, Jean-Pierre Arnaudo, Eugene A. Bourque, Harry S. Budow, Richard
M. Clarke, Paul J. Coleman, Jr., C. Seth Cunningham and Alfred E.
Paulekas as directors of the Company;

2. To ratify the selection of KPMG Peat Marwick LLP as the
independent auditor of the Company for the year ending December 31,
1998;

3. To consider and vote on the Director Compensation Plan;

4. To consider and vote on a proposal to amend the Stock
Option Plan to increase the number of authorized shares thereunder from
50,000 to 220,000;

5. To consider and vote on a proposal to issue up to 1,000,000
shares of the Company's common stock, $0.01 par value (the "Common
Stock"), to XL Vision, Inc. ("XLV") in connection with the terms of the
Intellectual Property Transfer Agreement dated as of January 7, 1998,
by and between the Company and XLV;

6. To consider and vote on a proposal to issue more than
twenty percent of the Company's Common Stock at a per share price
potentially less than the per share market price on the date of
issuance to holders of the Company's Series G Preferred Stock upon
conversion of such preferred stock by the holders thereof; and

7. To transact such other business as may properly come before
the Meeting or any adjournment thereof.

Only the stockholders of record at the close of business on April 30,
1998, are entitled to notice of and to vote at the Meeting or any adjournment
thereof. The stock transfer books will not be closed.

The Company desires your presence at the Meeting. However, so that the
Company may be certain that your shares are represented and voted in accordance
with your wishes, please mark, date, sign and return the enclosed proxy in the
enclosed return envelope (requiring no postage if mailed in the United States)
as promptly as possible to assure representation of your shares and a quorum at
the Meeting. If you attend the Meeting, you may revoke your proxy and vote in
person.

By Order of the Board of Directors,

Harry S. Budow, Secretary
Carrollton, Texas
May __, 1998

<PAGE> 3

PRELIMINARY DRAFT

[AXCESS letterhead]

-------------------

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1998

-------------------

SOLICITATION

This Proxy Statement and accompanying form of proxy are being mailed to
stockholders commencing on or about May __, 1998, in connection with the
solicitation by the board of directors (the "Board of Directors" or the "Board")
of AXCESS Inc., formerly known as Lasertechnics, Inc. (the "Company"), of
proxies from the holders of the following securities of the Company:

(i) Voting common stock, $.01 par value per share ("Common Stock");

(ii) Series A Convertible Preferred Stock, $.01 par value per share
("Series A Preferred Stock");

(iii) Series B Convertible Preferred Stock,$.01 par value per share
("Series B Preferred Stock");

(iv) Series C Convertible Preferred Stock,$.01 par value per share
("Series C Preferred Stock); and

(v) Series G Convertible Preferred Stock, $.01 par value per share
("Series G Preferred Stock").

Such proxies are to be used at the annual meeting of stockholders of
the Company (the "Meeting") to be held at the Cooper Aerobics Center, 12200
Preston Road, Dallas, Texas on June 9, 1998 at 9:00 a.m. Dallas, Texas time, as
set forth in the accompanying Notice of Annual Meeting of Stockholders (the
"Notice") and at any adjournment thereof, for the purposes set forth in the
Notice. Management is not currently aware of any matters other than those
referenced in this Proxy Statement that will be presented for action at the
Meeting.

RECORD DATE AND VOTING STOCK

Only stockholders of record at the close of business on Thursday, April
30, 1998 (the "Record Date") will be entitled to vote on matters presented at
the Meeting or any adjournments thereof. As of the Record Date, the Company's
outstanding voting securities consisted of 2,331,652 shares of Common Stock,
57,692 shares of Series A Preferred Stock, 52,816 shares of Series B Preferred
Stock, 35,426 shares of Series C Preferred Stock and 995 shares of Series G
Preferred Stock. The Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock are sometimes referred to collectively as the "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 as the "Voting Preferred Stock." Under the Company's
Certificate of Incorporation, as amended, each share of Common Stock and each
share of Single Vote Preferred stock is entitled to one vote on each of the
proposals specified in the Notice of Meeting, and each share of Series G
Preferred Stock is entitled to 1,000 votes on each of the proposals specified in
the

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PRELIMINARY DRAFT

Notice of Meeting 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 in accordance with the terms thereof.

The holders of a majority of the Common Stock and the Voting Preferred
Stock, voting collectively as a single class and whether or not present in
person or represented by proxy, shall constitute a quorum for the Meeting and
for action on such matters. Holders of the Company's Non-Voting Common Stock,
par value $.01 per share (the "Non-Voting Common Stock"), are not entitled to
vote on the matters brought before the Meeting or any adjournment thereof.

In the election of directors, stockholders are not entitled to cumulate
their votes and are not entitled to vote for a greater number of persons than
the number of nominees named in the Proxy Statement. Votes are counted and the
count is certified by an inspector of elections.

For purposes of determining whether a proposal has received a majority
vote, abstentions will be included in the vote totals, with the result that an
abstention will have the same effect as a negative vote for all proposals other
than the election of directors. If a broker indicates that it is prohibited from
exercising discretionary authority with respect to shares held of record by such
broker, including shares held for beneficial holders that have not returned
proxies (so-called "broker non-votes"), those shares will not be included in the
vote totals and, therefore, will have no effect on the outcome of the vote with
respect to that matter. Abstentions and broker non-votes will, however, be
treated as present for quorum purposes and may be entitled to vote on other
matters.

All duly executed proxies received prior to the Meeting will be voted
in accordance with the choices specified thereon. As to any matter for which no
choice has been specified in a duly executed proxy, the shares of stock
represented thereby will be voted (i) FOR the election as directors of the
nominees listed herein, (ii) FOR the ratification of KPMG Peat Marwick LLP as
the independent auditor of the Company for the period ending December 31, 1998,
(iii) FOR approval of the Director Compensation Plan, (iv) FOR approval of the
amendment to the Stock Option Plan, (v) FOR approval of the issuance of up to
1,000,000 shares under the Intellectual Property Transfer Agreement, (vi) FOR
the issuance of more than twenty percent of the Company's Common Stock at a per
share price potentially less than the per share market price on the date of
issuance to holders of the Company's Series G Preferred Stock upon the
conversion of such preferred stock by the holders thereof; and (vii) in the
discretion of the persons named in the proxy in connection with any other
business that may properly come before the Meeting. A stockholder giving a proxy
may revoke it at any time before it is voted at the Meeting by filing with the
Corporate Secretary an instrument revoking it, by delivering a duly executed
proxy bearing a later date or by appearing at the Meeting and voting in person.

The Annual Report to Stockholders for the year ended December 31, 1997,
will be mailed to each stockholder entitled to vote at the Meeting with the
mailing of this Proxy Statement. The Annual Report is not a part of the proxy
solicitation material.

The cost of soliciting proxies in the accompanying form will be borne
by the Company. In addition to solicitations by mail, regular employees of the
Company may solicit proxies in person or by telephone. The Company will also
reimburse brokers or other persons holding Stock in their names or in the names
of their nominees for their reasonable expenses in forwarding proxy material to
beneficial owners of Stock.

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<PAGE> 5

PRELIMINARY DRAFT

OWNERSHIP OF COMMON STOCK BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of shares of (i) Common
Stock, (ii) Non-Voting Common Stock, (iii) Series A Preferred Stock, (iv) Series
B Preferred Stock, (v) Series C Preferred Stock, (vi) Series G Preferred Stock,
(vii) common stock, par value $.01 per share, of Sandia Imaging Systems
Corporation ("Sandia Common Stock"), a majority-owned subsidiary of the Company
("Sandia"), and (viii) common stock, par value $.01 per share, of Lasertechnics
Marking Corporation ("LMC Common Stock"), a subsidiary of the Company ("LMC"),
beneficially owned as of March 1, 1998, after taking into account the completion
of the Company's one-for-twenty reverse stock split, by (i) each director and
director nominee who beneficially owns Common Stock and certain of the executive
officers of the Company and its subsidiaries, (ii) all of the Company's
directors and executive officers as a group and (iii) each person known by the
Company to be the beneficial owner of more than 5% of the Company's Common Stock
as of March 1, 1998. The business address of each director and executive officer
is c/o AXCESS Inc., 3208 Commander Drive, Carrollton, Texas 75006.

The number of shares of the Company's Common Stock and Preferred Stock
beneficially owned by each individual set forth below under the heading
"Percentage of Class" is determined under the rules of the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which an individual has sole or shared
voting power or investment power and any shares that an individual presently, or
within 60 days, has the right to acquire through the exercise of any stock
option or warrant. However, such shares are not deemed to be outstanding for the
purpose of computing the percentage of outstanding shares beneficially owned by
any other person. Unless otherwise indicated, each individual has sole voting
and investment power (or shares such powers with their spouse) with respect to
the shares of the Company's Common Stock and Preferred Stock set forth in the
table below:

NAME OF BENEFICIAL OWNER
- ------------------------

<S> <C> <C> <C> <C>
Richard C.E. Morgan................... Common Stock 530,744(1) 21.5% 12.3%
Series A Preferred Stock 57,692(2) 100.0% 1.7%
Series B Preferred Stock 52,816(3) 100.0% 1.5%
Series C Preferred Stock 25,492(4) 72.0% 0.7%
Series G Preferred Stock 955(5) 96% 27.5%
Sandia Common Stock 10,000(6)(9) * n/a

Jean-Pierre Arnaudo................... Common Stock 1,875(7) * *
Sandia Common Stock 287,500(8)(9) 3.29% n/a

Eugene A. Bourque..................... Common Stock 7,814(10) * *
LMC Common Stock 10,000(9)(11) * n/a
Sandia Common Stock 32,000(12) * n/a

Harry S. Budow........................ Sandia Common Stock 50,000(13) * n/a

</TABLE>

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<PAGE> 6
PRELIMINARY DRAFT

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER
- ------------------------

DIRECTORS AND NOMINEES FOR DIRECTORS PERCENTAGE OF
(INCLUDING THOSE WHO ARE ALSO EXECUTIVE NUMBER OF SHARES PERCENTAGE COMPANY
OFFICERS): TITLE OF CLASS BENEFICIALLY OWNED OF CLASS VOTING POWER
-------------- ------------------ -------- ------------
<S> <C> <C> <C> <C>
Richard M. Clarke......................... Common Stock 13,250 * *
Sandia Common Stock 10,000(9)(14) * n/a

C. Seth Cunningham........................ Common Stock 4,250(15) * *

Paul J. Coleman, Jr....................... Common Stock 903(16) * *
Sandia Common Stock 7,500(9)(17) * n/a

Alfred E. Paulekas........................ Common Stock 2,250(18) * *

EXECUTIVE OFFICERS:

Danny G. Hair............................. Common Stock 2,000 * *

All Directors and Executive Officers Common Stock 559,032(19) 22.8% 19.2%
as a group (8 individuals)................ Sandia Common Stock 434,667(3)(20) 7.9% 4.9%

OTHER:

Amphion Group Common Stock 508,452(21) 20.8% 17.7%
590 Madison Avenue Series A Preferred Stock 57,692 100.0% 1.7%
New York, NY 10021 (24)................... Series B Preferred Stock 52,816 100.0% 1.5%
Series C Preferred Stock 25,492(22) 72.0% 0.7%
Series G Preferred Stock 955 96% 27.5%

J.P. Morgan Investment Corporation
60 Wall Street Common Stock 289,422(23) 11.7% 11.4%
New York, NY 10060........................ Non-Voting Common Stock 112,492 100.0% n/a
</TABLE>

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* Denotes percentage ownership of less than 1%.

(1) Includes 1,875 shares that Mr. Morgan has the right to acquire within 60
days pursuant to options, 411,906 shares held by entities within the
Amphion Group (defined in Note 24 below) and 92,703 shares that entities
within the Amphion Group have the right to acquire within 60 days
pursuant to warrants. Mr. Morgan is a Managing Member of Amphion
Partners L.L.C. ("Amphion Partners"), the sole general partner of
Amphion Ventures, L.P. ("Amphion Ventures"). Mr. Morgan disclaims
beneficial ownership as to all such shares beneficially owned by
entities within the Amphion Group. See Note 24.

(2) All 57,692 shares are held by Amphion Ventures. See Note 1 and Note 24.

(3) All 52,816 shares are held by Amphion Ventures. See Note 1 and Note 24.

(4) All 25,492 shares are held by Amphion Ventures. Does not include 9,933
shares held by Jackson Hole Investments Acquisitions, L.P., ("Jackson
Hole"). Jackson Hole is not affiliated with Amphion Ventures. See Note 1
and Note 24.

(5) Includes 905 shares held by Amphion Ventures and 50 shares held by
Antiope Partners L.L.C. ("Antiope Partners"). See Note 1 and Note 24.

(6) Includes 10,000 shares that Mr. Morgan has the right to acquire within
60 days pursuant to options.

(7) Includes 1,875 shares that Mr. Arnaudo has the right to acquire within
60 days pursuant to options.

(8) Includes 80,417 shares that Mr. Arnaudo has the right to acquire within
60 days pursuant to options.

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<PAGE> 7
PRELIMINARY DRAFT

(9) The authorized capital stock of Sandia consists of (i) 18,000,000 shares
of Sandia Common Stock, of which 4,830,000 shares are issued and
outstanding and held by the Company and 260,000 shares are issued and
outstanding and held by certain individuals employed or previously
employed by Sandia or the Company, (ii) 3,500,000 shares of Sandia
Voting Convertible Preferred Stock, of which 3,370,925 shares are issued
and outstanding and held by the Company.

(10) Includes 7,314 shares that Mr. Bourque has the right to acquire within
60 days pursuant to options.

(11) Includes 10,000 shares that Mr. Bourque has the right to acquire within
60 days pursuant to options.

(12) Includes 32,000 shares of preferred stock convertible into common stock
that Mr. Bourque has the right to acquire within 60 days pursuant to
options.

(13) Includes 50,000 shares that Mr. Budow has the right to acquire within
60 days pursuant to options.

(14) Includes 10,000 shares that Mr. Clarke has the right to acquire within
60 days pursuant to options.

(15) Includes 1,500 shares that Mr. Cunningham has the right to acquire
within 60 days pursuant to options.

(16) Includes 813 shares that Mr. Coleman has the right to acquire within 60
days pursuant to options.

(17) Includes 7,500 shares that Mr. Coleman has the right to acquire within
60 days pursuant to options.

(18) Includes 1,500 shares that Mr. Paulekas may have the right to acquire
within 60 days pursuant to options.

(19) Includes the 14,877 shares that officers and directors have the right to
acquire within 60 days pursuant to options, as described in Notes 1,
7,10, 15, 16 and 18; the 92,703 shares that Amphion Ventures and Antiope
Partners have the right to acquire pursuant to warrants; and the 411,906
shares held by entities within the Amphion Group (as to which Mr. Morgan
disclaims beneficial ownership). Does not include shares of Voting
Preferred Stock held by entities within the Amphion Group (as to which
Mr. Morgan disclaims beneficial ownership). See Notes 5 and 24.

(20) Includes the 227,584 shares that officers, former officers and directors
have the right to acquire within 60 days pursuant to options, as
described in Notes 6, 8, 9, 11, 13, 14 and 17.

(21) Includes 52,203 and 40,500 shares that Amphion Ventures and Antiope
Partners, respectively, have the right to acquire within 60 days
pursuant to warrants. See Note 24.

(22) Does not include 9,934 shares held by Jackson Hole. See Note 24.

(23) Includes 22,252 shares that J. P. Morgan Investment Corporation
("JPMIC") has the right to acquire within 60 days pursuant to warrants.
As a result of an agreement between JPMIC and Antiope Ventures L.P.
("Antiope Ventures"), Antiope Ventures agreed to vote at JPMIC's request
for any one person designated by JPMIC to be a director of the Company.
To the extent that agreement is binding on any entity in the Amphion
Group, JPMIC could be deemed to have shared voting power with respect to
all the shares of voting stock held by entities within the Amphion
Group. If the shares held by entities within the Amphion Group were
deemed to be beneficially owned by JPMIC, JPMIC would beneficially own
in the aggregate voting securities representing approximately 52% of the
Company voting power. JPMIC disclaims beneficial ownership of the voting
stock held by entities within the Amphion Group.

(24) Includes shares beneficially owned by: (i) Amphion Ventures (formerly
known as Wolfensohn Associates II L.P.); (ii) Amphion Partners (formerly
known as Wolfensohn Partners II L.L.C.); and (iii) Antiope Partners
(formerly known as Wolfensohn Partners L.L.C.). Amphion Ventures,
Amphion Partners and Antiope Partners disclaim that they hold any
securities of the Company as a group, within the meaning of any
applicable securities law or regulation.

The security holdings of the Amphion Group in the Company are largely
the result of a restructuring of Wolfensohn Associates L.P., now known
as Antiope Ventures. As of August 19, 1997, Antiope Ventures transferred
all of its assets and liabilities to Amphion Ventures, in exchange for
limited partnership interests of Amphion Ventures. Amphion Partners is
the sole general partner of Amphion Ventures, and Antiope Partners is
the sole general partner of Antiope Ventures. Amphion Ventures, Amphion
Partners, Antiope Ventures and Antiope Partners are collectively
referred to herein as the "Amphion Group."

Richard C. E. Morgan, a director and the Chairman and Chief Executive
Officer of the Company, is a managing member of both Amphion Partners
and Antiope Partners.

Jackson Hole Management Co. ("JHMC") provides management services to
Amphion Partners, Antiope Partners and the general partner of Jackson
Hole. Richard Morgan is an employee of JHMC. Mr. Morgan disclaims
beneficial ownership of the securities of the Company owned beneficially
by Amphion Partners, Amphion Ventures, Antiope Partners and Antiope
Ventures, and disclaims beneficial ownership of the securities of the
Company owned beneficially by Jackson Hole.

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<PAGE> 8

PRELIMINARY DRAFT

The holdings of the Amphion Group in the Company as of March 1, 1998,
are as follows:

SERIES A SERIES B SERIES C SERIES G COMMON COMMON
COMMON PREFERRED PREFERRED PREFERRED PREFERRED STOCK STOCK
STOCK STOCK STOCK STOCK STOCK WARRANTS OPTIONS
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Antiope Partners ........ 37,492 -- -- -- 50 40,500 --
Amphion Ventures ........ 346,289 57,692 52,816 25,492 905 52,203 3,843
Amphion Partners ........ 28,125 -- -- -- -- -- --
Total ................... 411,906 57,692 52,816 25,492 955 92,703 3,843

</TABLE>

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<PAGE> 9

PRELIMINARY DRAFT

MANAGEMENT OF THE COMPANY

The Board elects executive officers annually at its first meeting following
the annual meeting of stockholders. The following table sets forth, as of March
1, 1998, the names of the directors and the executive officers of the Company
and its subsidiaries, their respective ages and their respective positions with
the Company and its subsidiaries.

NAME AGE POSITION
- ---- --- --------

<S> <C> <C>
Richard C.E. Morgan.................... 53 Chairman of the Board of Directors and Chief
Executive Officer-- Company; Director-- LMC;
Chairman of the Board of Directors-- Sandia
Jean Pierre Arnaudo.................... 53 Director-- Company; Director and Chief Executive
Officer-- Sandia
Eugene A. Bourque...................... 53 Director-- Company; Director, Chairman of the
Board, President and Chief Executive Officer-- LMC
Harry S. Budow......................... 36 Director and Secretary-- Company; Director,
President and Chief Operating Officer-- Sandia
Danny G. Hair*......................... 48 Executive Vice President and Chief Financial Officer
-- Company
C. Seth Cunningham..................... 42 Director-- Company; Director-- Sandia and LMC
Richard M. Clarke...................... 66 Director-- Company; Director-- Sandia and LMC
Alfred E. Paulekas..................... 66 Director-- Company; Director-- LMC
Paul J. Coleman, Jr.................... 66 Director-- Company
</TABLE>

*Mr. Hair was appointed to his position by the Board on February 1, 1998.
- --------------------------------------------------------------------------------

RICHARD C.E. MORGAN is Chairman of the Board and Chief Executive Officer of
the Company. Mr. Morgan is also the Chairman of the Board of Directors of Sandia
and serves on the Board of Directors of LMC. He is a member of the executive,
compensation and stock option committees. Since 1986 Mr. Morgan has been a
managing member of Antiope Partners and Amphion Partners. Mr. Morgan became a
director and Chairman of the Board of the Company in 1985.

JEAN-PIERRE ARNAUDO is a director of the Company and a director and Chief
Executive Officer of Sandia. From 1993 until his appointment as Chief Executive
Officer of Sandia, Mr. Arnaudo served as the President and General Manager of
Sandia Imaging Systems Europe, S.A., a subsidiary of Sandia. Mr. Arnaudo became
a director of the Company in 1995.

EUGENE A. BOURQUE is a director of the Company and is a director, Chairman
of the Board, President and Chief Executive Officer of LMC. He is a member of
the executive committee. From 1993 to 1995, Mr. Bourque served as President of
the Company. From 1988 to 1993, Mr. Bourque served as Vice President and Chief
Financial Officer of the Company. Mr. Bourque became a director of the Company
in 1993.

HARRY S. BUDOW is a director and Secretary of the Company and President and
Chief Operating Officer of Sandia. He is a member of the executive committee.
Before joining the Company, Mr. Budow was Vice

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<PAGE> 10

PRELIMINARY DRAFT

President of Bell Packaging Corporation from January 1996 to February 1997 and
Senior Vice President with SpectraVision, Inc. from March 1990 to December 1995.

DANNY G. HAIR is Executive Vice President and Chief Financial Officer of
the Company and Sandia. Mr. Hair was chief financial officer of PC Service
Source, Inc. from January 1997 to January 1998, Bell Packaging Corporation from
January 1995 to November 1996, and SpectraVision, Inc., from April 1991 to
October 1995.

C. SETH CUNNINGHAM is a director of the Company, as well as Sandia and LMC.
He is a member of the audit committee. From 1979 to mid-1996, Mr. Cunningham was
employed by J.P. Morgan, and has served as a managing director since 1991. From
1985 to mid-1996, Mr. Cunningham worked with and was a founding member of, J.P.
Morgan Capital Corporation, which makes worldwide private equity investments for
J.P. Morgan's own account. Currently, Mr. Cunningham is a private equity
investor. Mr. Cunningham became a director of the Company in 1994.

RICHARD M. CLARKE is a director of the Company, Sandia and LMC. He is a
member of the compensation and stock option committees. Since 1992, Mr. Clarke
has been the chairman of Yankelovich Partners, Inc., a market research firm.
From 1990 to 1993 Mr. Clarke was the chairman and chief executive officer of
Akzo America Inc., a diversified international chemical and health care
corporation. Mr. Clarke is the chairman of NESC and the vice chairman of
Farleigh Dickinson University. Mr. Clarke became a director of the Company in
1988.

ALFRED E. PAULEKAS is a director of the Company and a director of LMC.
He is a member of the compensation committee. Since 1992, Mr. Paulekas has been
President of A.T.C. Associates, a business consulting firm. Mr. Paulekas became
a director of the Company in 1994.

PAUL J. COLEMAN, JR. is a director of the Company. He is a member of the
audit and stock option committees. He is president, chief executive officer, and
a trustee of the Universities Space Research Association, a non-profit space
research, technology and education company, and a professor of space physics at
the University of California at Los Angeles ("UCLA"). He also serves as a
director of Quantrad Sensors, Inc., One Room Systems, Inc. and Southeast
Interactive Technology, LLC. From 1993 through 1996, Dr. Coleman was the
director of the National Institute for Global Environmental Change of the U.S.
Department of Energy, and from 1989 through 1993, he was the director of the
Institute of Geophysics and Planetary Physics at UCLA. Mr. Coleman became a
director of the Company in 1982.

BOARD MEETINGS AND COMMITTEES OF THE BOARD

The Board has a standing Executive Committee, Audit Committee, Compensation
Committee and Stock Option Committee. The principal responsibilities and
membership of each committee are described in the following paragraphs.

EXECUTIVE COMMITTEE. The Executive Committee has the authority to exercise
substantially all of the powers of the Board in the management and business
affairs of the Company, except it does not have the authority to declare
dividends, authorize the issuance of shares of the Company's Common Stock,
modify the Company's Certificate of Incorporation or its Bylaws, adopt any
agreement of merger or consolidation or recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Company's assets or the
dissolution of the Company. Regularly scheduled meetings of the Board are held
periodically

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PRELIMINARY DRAFT

each year and special meetings are held from time to time. As a consequence, the
occasions on which this committee is required to take action are limited. The
members of this committee are Messrs. Morgan, Bourque and Budow. The committee
did not meet separately from the Board during 1997.

AUDIT COMMITTEE. The Audit Committee is responsible for reviewing the
Company's accounting and financial practices and policies and the scope and
results of the Company's audit. The Audit Committee is also responsible for
recommending the selection of the Company's independent public accountants. This
committee is presently comprised of Messrs. Budow, Coleman and Cunningham. The
committee met separately from the Board on one occasion during 1997.

COMPENSATION COMMITTEE. The Compensation Committee reviews the
compensation of executive officers, except members of the committee, and makes
recommendations to the Board regarding executive compensation. This committee is
presently comprised of Messrs. Clarke, Morgan and Paulekas. The committee did
not meet separately from the Board during 1997.

STOCK OPTION COMMITTEE. The Stock Option committee administers the
Company's existing stock option plan. This committee is presently comprised of
Messrs. Clarke, Coleman and Morgan. The committee did not meet separately from
the Board during 1997.

COMPENSATION OF THE COMPANY'S DIRECTORS

The Company's current policy is that non-employee directors of the Company
are eligible to receive an annual fee of $10,000 for preparing for and attending
meetings of directors and committees. While directors do not receive additional
compensation for attending meetings, the Company will pay ordinary and necessary
out-of-pocket expenses for directors to attend Board and committee meetings.
Directors who are officers or employees of the Company receive no fees for
service on the Board or committees thereof. Directors who serve on the Board of
Directors of Sandia or LMC are not separately or additionally compensated for
such service. Each director attended 100% of (i) the total number of meetings of
the Board held during the period in which he was a director and (ii) the total
number of meetings held by all committees on which he served.

The Board of Directors has adopted the Director Compensation Plan, subject
to stockholder approval at this Meeting, under which directors who are not
employees of the Company and who do not beneficially own more than 5% of the
shares of Common Stock outstanding would receive an initial one-time grant of
4,000 options to acquire Common Stock at an exercise price of $10.00 per share
(the "Initial Grant") and an annual grant of 2,000 options to acquire Common
Stock at an exercise price equal to the fair market value per share of the
Common Stock at the time the option is granted (the "Annual Grant"). Assuming
the Director Compensation Plan is approved by the stockholders, the Initial
Grant and Annual Grant will take place shortly after the Meeting. The Annual
Grant will customarily occur on the date of the Company's annual meeting. All
new board members will receive 3,000 options to acquire Common Stock at an
exercise price equal to the fair market value per share of the Common Stock on
the date the board member is approved by the directors. The Company has
temporarily suspended paying any cash to eligible directors for preparing and
attending meetings of directors and committees until the Company reports
quarterly net earnings. Once the Company has reported net earnings for a fiscal
quarter, the Company will reconsider paying additional cash consideration to
eligible directors. See "Proposal 3 -- Approval of the Director Compensation
Plan."

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<PAGE> 12
PRELIMINARY DRAFT

REPORT OF COMPENSATION COMMITTEE ON ANNUAL EXECUTIVE COMPENSATION

The Compensation Committee met informally several times during the year and
met during three of the regular meetings of the Board. The policy of the
Compensation Committee is to provide executive officers of the Company and its
subsidiaries, Sandia and LMC, with fair compensation based on their
responsibilities, and on the performance of the Company as a whole. Regarding
the executive officers of Sandia and LMC, however, their compensation is based
on the performance of Sandia and LMC as a whole, respectively.

The Compensation Committee believes generally that performance goals
enhance teamwork and help focus management's attention on the performance of the
companies rather than the performance of particular areas in the companies.
Additionally, particular areas may in the future need separate performance
goals, but the Compensation Committee does not believe that is currently
required.

The Compensation Committee sets target earnings levels for the Company and
its subsidiaries, and provides a bonus target to each executive officer. The
bonus target is a percentage of that executive's base salary. The Compensation
Committee then sets target levels pursuant to which an executive who is employed
at the time of the bonus award can receive all or a portion of the designated
bonus target based on the Company's, Sandia's or LMC's earnings performance, as
the case may be. If the earnings target is not met, an executive may receive
some portion of his bonus based on the percentage of the earnings target
achieved. In addition, if the earnings target is exceeded, the executives may
receive, based on a formula, up to twice the executive's bonus target. The
earnings target is set by the Compensation Committee prior to the commencement
of each fiscal year and is believed by the Compensation Committee to be
aggressive, but achievable. The Compensation Committee excludes Mr. Morgan, the
Chairman of the Board from participating in the executive bonus plan because it
believes such a bonus is unnecessary after taking into account his ownership of
the Company's Common Stock. See "Ownership of Common Stock by Certain Beneficial
Owners and Management."

The Compensation Committee believes that its earnings and bonus targets are
confidential and disclosure of those targets would adversely effect the Company.
The report of the Compensation Committee will not be deemed to be incorporated
by reference into any filing by the Company under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates that report by reference.

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<PAGE> 13
PRELIMINARY DRAFT

EXECUTIVE COMPENSATION

The following table summarizes the compensation earned by the Company's
Chief Executive Officer and its three other most highly compensated executive
officers (whose compensation exceeded $100,000 in 1997) and two additional
individuals for whom disclosures would have been provided had the individuals
been serving as executive officers as of December 31, 1997, collectively, the
"Named Officers," for services rendered in all capacities to the Company during
the fiscal years ended December 31, 1997, 1996 and 1995.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------- -------------
Securities
Underlying
Options/ All Other
Salary Bonus SARs Compensation
Name and Principal Positions Year ($) ($) (#) ($)
---------------------------- ---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Richard C.E. Morgan .................... 1997 60,000 -- -- 40,000
Chief Executive Officer (A) .......... 1996 100,000 -- 60,000(E) --
1995 -- -- 5,000(F) --

Jean-Pierre Arnaudo .................... 1997 180,000 40,000 -- 37,956(J)
Chief Executive Officer - ............ 1996 180,000 50,000 162,500(F) 49,700(J)
Sandia (B) ........................... 1995 150,000 25,000 75,000(G) 10,840(J)

Eugene A. Bourque ...................... 1997 140,000 5,625 -- --
President and Chief Executive ........ 1996 138,358 -- 80,000(H) --
Officer - LMC (B) .................... 1995 125,029 -- -- --

Harry S. Budow ......................... 1997 87,500 22,498 50,000(F) --
President and Chief Operating ........ 1996 -- -- -- --
Officer - Sandia (C) ................. 1995 -- -- -- --

Milo Mattorano ......................... 1997 122,083 -- -- --
former Vice President and Chief ...... 1996 93,747 10,000 111,000(I) --
Financial Officer of the Company ..... 1995 65,000 10,000 5,000(F) --
and Sandia (D)

Stephen C. Nesbit ...................... 1997 117,384 -- -- --
former Vice President and ............ 1996 120,000 30,000 81,000(F) --
General Manager DataGlyphs ........... 1995 30,000 22,500 20,000(F) --
Business - Sandia (D)
</TABLE>

- --------------------

(A) Mr. Morgan receives an annual salary of $100,000, $60,000 of which is
payable in cash and $40,000 of which is payable in Common Stock. The cash
and stock portions of Mr. Morgan's 1997 salary have been accrued, but remain
unpaid as of the date of this Proxy Statement.

(B) Mr. Arnaudo's compensation for January to May 1995 was for his service as
the President of the Company and the President and General Manager of Sandia
Europe, S.A., a subsidiary of Sandia.

(D) Mr. Mattorano and Mr. Nesbit resigned in December 1997.

(E) Securities underlying options are 50,000 shares of Common Stock and 10,000
shares of LMC Common Stock.

(F) Securities underlying options are shares of Sandia Common Stock.

- 11 -
<PAGE> 14
PRELIMINARY DRAFT

(G) Securities underlying options are 50,000 shares of Common Stock and 25,000
shares of Sandia Common Stock.

(H) Securities underlying options are shares of LMC Common Stock.

(I) Securities underlying options are 91,000 shares of Sandia Common Stock and
20,000 shares of Common Stock.

(J) Represents the payment of transitional living expenses incurred from January
1996 to December 1997, under Mr. Arnaudo's Employment Agreement with the
Company. Represents the payment of (i) moving expenses incurred due to Mr.
Arnaudo's relocation from Paris, France to Dallas, Texas and (ii)
transitional living expenses incurred from September 1, 1995 to December 31,
1995, pursuant to Mr. Arnaudo's Employment Agreement with the Company. See
"Employment Contracts with Executive Officers."

Option Grants

The Company did not grant any options to acquire the Company's Common
Stock to the Named Officers during the fiscal year ended December 31, 1997.

AGGREGATE OPTION EXERCISES IN 1997 BY THE COMPANY'S EXECUTIVE OFFICERS

The following table provides information as to options exercised, if any,
by each of the Named Officers in 1997 and the value of options held by those
officers at year-end measured in terms of the last reported sale price for the
shares of the Company's Common Stock on December 31, 1997 ($4.40 post reverse
split as reported on Nasdaq).

AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END
OPTION VALUES

<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of in-the-Money
Acquired Securities Underlying Options at
on Value Unexercised Options December 31, 1997
Exercise Realized at December 31, 1997(#) (A)($)
-------- -------- --------------------------- --------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. E. Morgan -- -- 1,875 625 -- --
10,000(B) 10,000(B) -- --
2,500(C) 7,500(C) -- --
Jean-Pierre Arnaudo -- -- 1,875 625 -- --
80,417(B) 287,500(B) -- --
Eugene A. Bourque -- -- 7,314 -- -- --
16,000(C) 64,000(C) -- --
Harry S. Budow -- -- 50,000(B) 150,000(B) -- --
Milo Mattorano (D) -- -- 5,000 15,000 -- --
2,188(B) 96,000(B) -- --
Stephen C. Nesbit (D) -- -- 20,000(B) 81,000(B) -- --
</TABLE>

- -------------------------

(A) Market value of shares covered by in-the-money options on December 31,
1997, less option exercise price. Options are in-the-money if the market
value of the shares covered thereby is greater than the option exercise
price.

(B) Securities underlying options are shares of Sandia Common Stock.

(D) In December 1997, Mr. Mattorano resigned as Vice President and Chief
Financial Officer of the Company and Sandia, and Mr. Nesbit resigned as
Vice President and General Manager of DataGlyphs Business. In connection
with their resignations, all options held by Messrs. Mattorano and Nesbit
have been cancelled.

EMPLOYMENT CONTRACTS WITH EXECUTIVE OFFICERS

Sandia and Jean-Pierre Arnaudo are parties to an employment agreement,
which provides for the employment of Mr. Arnaudo through August 31, 2002 at a
minimum annual base salary of $160,000, subject

- 12 -
<PAGE> 15

PRELIMINARY DRAFT

to increase by the Board of Directors of Sandia. The agreement also provides for
the payment to Mr. Arnaudo of up to one times his annual salary in the event he
is terminated after a change in control (as defined in the employment agreement)
of Sandia or if he is terminated without cause at the election of the Board of
Directors of Sandia. The employment agreement also contains confidentiality and
non-competition provisions.

TRANSACTIONS WITH MANAGEMENT AND RELATED PARTIES

During 1996 the Company received consulting services from director nominee
Alfred E. Paulekas relating to the Company's manufacturing and production
operations. In 1996, Mr. Paulekas was Chairman of the LMC Board of Directors and
was paid a total of $15,000 per quarter (an aggregate of $10,000 per year for
his services as a director of the Company and an aggregate of $50,000 per year
for his services as the Chairman of the LMC Board of Directors) for his services
to the Company. Mr. Paulekas received the same compensation during 1997 for his
services to the Company. The Company has complete discretion over whether or not
to use the consulting services of Mr. Paulekas.

Notes Payable to Stockholders

During the first quarter of 1997, the Company obtained a commitment for a
working capital bridge loan of up to $1,000,000 from Antiope Partners. The
Company made draws of $1,000,000 under this agreement during the first and
second quarters of 1997. Borrowings bore interest at 12% and were due on demand.
The borrowings were ultimately convertible into the Company's voting common
stock. In June 1997, borrowings under this agreement were converted into an
advance under the terms of the new bridge loan financing provided to the Company
by Antiope Partners and JPMIC pursuant to a note purchase agreement dated June
25, 1997 (the "Note Purchase Agreement"). The Note Purchase Agreement provided
the Company with additional bridge financing up to a total of $3,000,000 to be
funded 60% by Antiope Partners and 40% by JPMIC. Under the Note Purchase
Agreement, the Company received additional fundings of $2,000,000 by September
1997. The Note Purchase Agreement provided for an interest rate of 10% per annum
for advances by Antiope Partners and 6.64% per annum for advances by JPMIC, with
a final maturity of December 31, 1997. In connection with the advances, the
Company issued to Antiope Partners and JPMIC an aggregate of 308,571 (15,428
post reverse split) restricted shares of the Company's common stock and warrants
to purchase 600,000 (30,000 post reverse split) shares of the Company's common
stock with a strike price of $0.70 ($14.00 post reverse split). Further,
advances under the Note Purchase Agreement were convertible into convertible
debentures with terms similar to the currently outstanding convertible
debentures, which were ultimately convertible into common stock at a discount.
See "Restructuring of Variable Price Convertible Securities" below. Advances
under the Note Purchase Agreement are secured by a pledge of all the capital
stock of the Company's LMC subsidiary held by the Company.

In December 1997, JPMIC, Antiope Partners and Amphion Ventures, extended
the maturity of the Note Purchase agreement to December 31, 1998, in exchange
for 112,942 (5,647 post reverse split) restricted shares of the Company's common
stock and warrants to purchase 600,000 (30,000 post reverse split) shares of
common stock at an exercise price of $0.25 ($5.00 post reverse split).

The Company borrowed additional funds of $4,138,575 from Amphion Ventures
during late September 1997 through early December 1997 under an informal
borrowing agreement. The advances accrued interest at a rate of ten percent per
annum. In connection with these advances, the Company issued 425,681 (21,284
post reverse split) restricted shares of the Company's common stock and warrants
to purchase 827,715 (41,385 post reverse split) shares of the Company's common
stock at an exercise price of $.70 ($14.00 post reverse split). In December
1997, the Company entered into an agreement whereby it converted the advances
under this informal borrowing agreement into shares of Series G Preferred Stock.
See "Equity Investments by Major Stockholders" below.

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<PAGE> 16

PRELIMINARY DRAFT

During June and July 1996, the Company obtained a 12% working capital
bridge loan totaling $1.7 million from Amphion Ventures. The loan principal and
related interest were paid in full in August 1996 with proceeds from the sale of
Series D Convertible Preferred Stock, par value $.01 per share ("Series D
Preferred Stock"). See "Restructuring of Variable Price Convertible Securities"
below. In connection with these borrowings, a five year warrant to purchase a
total of 56,341 (2,817 post reverse split) shares of Common Stock was issued to
Amphion Ventures.

Series F Preferred Stock

In July 1997, the Company completed a private placement of $480,000 face
amount of Series F Convertible Preferred Stock, par value $.01 per share
("Series F Preferred Stock") with Antiope Partners , the proceeds of which were
used to redeem $480,000 of existing Series D Convertible Preferred Stock from a
stockholder. The Series F Preferred stock had substantially identical terms as
the Company's Series D Preferred Stock, except as necessary to reflect the terms
of the Standstill Agreement described below.

Equity Investments by Major Stockholders

On December 29, 1997, the Company concluded an agreement with Amphion
Ventures and Antiope Partners with respect to the purchase by Amphion Ventures
and Antiope Partners as of such date of 700 and 50 shares, respectively, of the
Company's Series G Preferred Stock for an aggregate purchase price of
$7,500,000. The purchase price was payable primarily through a combination of
cash and the cancellation and exchange of existing indebtedness of the Company
to Amphion Ventures. In addition, Amphion Ventures had the right to offset a
portion of the purchase price, aggregating approximately $709,000, against the
Company's obligation to pay previously accrued and unpaid cash dividends on
outstanding shares of Series A, Series B or Series C Preferred Stock of the
Company held by Amphion Ventures on such date, and to pay a portion of such
total purchase price, not to exceed an aggregate of $1,500,000, by delivery of
Amphion Ventures' unconditional promissory note, payable on demand, in principal
amount equal to the portion of the purchase price so paid.

As additional consideration to Amphion Ventures and Antiope Partners, the
Company agreed that if, at any time on or before December 31, 1999, the Company
completes a financing with third parties raising at least $3,000,000 in new
equity, the initial holders of the Series G Preferred will have the
non-assignable right, but not the obligation, to exchange all or a portion of
their shares of Series G Preferred Stock for shares of a new series of preferred
stock with substantially the same terms and conditions offered to such third
parties; provided that no such exchange will result in an increase in the
conversion price above $10.00 per share.

Restructuring of Variable Price Convertible Securities

In December 1997, the Company entered into negotiations with the holders of
certain outstanding convertible securities of the Company, with respect to the
restructuring and/or refinancing of such securities.

The Company originally issued 10% Convertible Debentures due March 1, 1999
in the original principal amount of $5,500,000 (the "1996 Debentures"), 10%
Convertible Series B Debentures due March 1, 1999 in the original principal
amount of $500,000 (the "Series B Debentures" and together with the 1996
Debentures, the "Convertible Debentures"), the Series D Preferred Stock, and the
Series E Convertible Preferred Stock, par value $.01 per share (the "Series E
Preferred Stock") in separate private placements to institutional investors in
1996 and 1997. In July 1997, the Company issued shares of the Series F Preferred
Stock, in exchange for, and/or to finance the

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<PAGE> 17

PRELIMINARY DRAFT

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
seventy-five percent of their holdings for a period of at least three months,
with the locked-up portion released in five equal monthly installments
thereafter. The provisions of the Standstill Agreement (which also included a
reduction in the maximum conversion price to $1.14 ($22.80 post reverse split)
in the case of the Series D and Series E Preferred Stock and $1.00 ($20.00 post
reverse split) in the case of the Convertible Debentures, and the issuance of
$.70 ($14.00 post reverse split) warrants to acquire 814,375 (271,875 post
reverse split) shares of Common Stock as an additional inducement to the
participating holders) were implemented by the execution of allonges to the
Convertible Debentures and by exchanging all of the outstanding shares of Series
D Preferred Stock and Series E Preferred Stock for an equal number of shares of
Series F Preferred Stock, which shares were substantially identical to the
shares exchanged, except as necessary to implement the terms of the Standstill
Agreement. Concurrently therewith, the Company issued 48 shares of Series F
Preferred Stock to a single existing investor for $480,000 in cash, which was
used by the Company to repurchase and cancel an equal number of shares of Series
D Preferred Stock, the holder of which had declined to participate in the
Standstill Agreement. By December 14, 1997, 70% of the face amount of the
Variable Price Convertible Securities held by such holders on the date of the
Standstill Agreement were available for conversion, with the remainder to become
convertible in equal installments in January and February 1998.

In December 1997, the Company re-initiated negotiations with the holders of
the Variable Price Convertible Securities, with the intention of restructuring
or refinancing such securities to remove the variable price conversion feature.
In December 1997 and January 1998, the Company converted, redeemed or
restructured all of the Variable Price Convertible Securities that had been
outstanding on December 1, 1997, comprising in the aggregate $1,250,000
principal amount of Convertible Debentures and 237 shares ($2,370,000 face
amount) of Series F Preferred Stock (collectively, the "December 1997
Restructuring"). Based on the closing bid prices of the Common Stock for the
applicable trading periods prior to December 24, 1997, such Variable Price
Convertible Securities, together with accrued interest and dividends, would have
been convertible on that date into an aggregate of approximately 17 million
shares of Common Stock (pre reverse split), with further dilution possible in
the event of further declines in the market price of the Common Stock.

To implement the December 1997 Restructuring, including all related
conversions, the Company made cash payments totaling approximately $1.3 million
and issued in the aggregate approximately: $1.1 million in non-convertible
short-term indebtedness; $535,000 of indebtedness with a two-year maturity,
convertible into Common Stock at $.25 ($5.00 post reverse split) per share (the
"1997 Debentures"); 1,407,000 (70,350 post reverse split) shares of Common
Stock, most of which are subject to certain transfer restrictions; 90 shares of
Series G Preferred Stock; and warrants to purchase an additional 72,000 shares
of Common Stock at an average exercise price in excess of $9.20 per share post
reverse split). The fair market value of the additional securities issued, at
the time of their issuance, represents the conversion inducement. The Company
funded the cash and short-term debt portion of the restructuring by issuing
shares of Series G Preferred Stock as described above. In connection with the
December 1997 Restructuring, Antiope Partners received 50 shares of Series G
Preferred Stock and 24,889 shares of Common Stock in exchange for its $480,000
face amount of Series F Preferred Stock plus $17,780 of accrued but unpaid
dividends.

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<PAGE> 18

PRELIMINARY DRAFT

MATTERS TO BE BROUGHT BEFORE THE MEETING

PROPOSAL 1. Election of Directors

Eight persons currently serve on the Board and are expected to continue to
serve until the Meeting. Unless contrary instructions are set forth in the
proxy, it is intended that the persons named in the proxy will vote all shares
of Stock represented by the proxy for the election as directors of Messrs.
Richard C.E. Morgan, Jean-Pierre Arnaudo, Eugene A. Bourque, Harry S. Budow,
Richard M. Clarke, Paul J. Coleman, Jr., C. Seth Cunningham and Alfred E.
Paulekas, all of whom are presently members of the Board of Directors of the
Company. The eight directors elected at the Meeting will each serve for a term
expiring on the date of the annual meeting in 1999. Directors of the Company are
elected annually and hold office until their successors have been elected and
qualified or their earlier resignation or removal. Should any nominee become
unavailable for election, the Board of Directors of the Company may designate
another nominee, in which case the persons acting under duly executed proxies
will vote for the election of the replacement nominee, although management is
not aware of any circumstances likely to render any nominee unavailable for
election. Election of directors will be by a plurality of the votes cast. A
stockholder may, in the manner set forth in the enclosed proxy card, instruct
the proxy holder not to vote that stockholder's shares of Stock for one or more
of the named nominees. The proxies solicited hereby cannot be voted for a number
of persons greater than the number of nominees named herein. The Certificate of
Incorporation of the Company, as amended to date, does not permit cumulative
voting. A plurality of the votes of the holders of the outstanding shares of
Common Stock and Voting Preferred Stock (voting together as a single class) of
the Company represented at a meeting at which a quorum is present may elect
directors. For information regarding the nominees for directors of the Company
see "Management of the Company."

THE BOARD OF DIRECTORS URGES YOU TO VOTE FOR EACH OF THE NOMINEES FOR
DIRECTOR SET FORTH ABOVE.

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<PAGE> 19

PRELIMINARY DRAFT

PROPOSAL 2. Ratification of Selection of Independent Auditor

The Board of Directors has approved and recommends the appointment of KPMG
Peat Marwick LLP, certified public accountants to serve as independent auditor
for the Company for the fiscal year ending December 31, 1998. Approval of the
appointment of the accountants is being sought in order to give stockholders the
opportunity to express their opinion on the matter. Approval will require the
affirmative vote of the holders of a majority of the shares of Common Stock and
Voting Preferred Stock, voting together as a class, which are represented and
entitled to vote at the Meeting. Should approval not be obtained, the Board of
Directors would expect to reconsider the appointment.

Members of KPMG Peat Marwick LLP are expected to attend the Meeting and, if
present, be available to answer appropriate questions which may be asked by
stockholders. Such members will also have an opportunity to make a statement at
the Meeting if they desire to do so.

REQUIRED AFFIRMATIVE VOTE

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 ratify KPMG Peat Marwick LLP as independent auditor for the Company.

THE BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE RATIFICATION OF KPMG PEAT
MARWICK LLP AS INDEPENDENT AUDITOR OF THE COMPANY.

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<PAGE> 20

PRELIMINARY DRAFT

PROPOSAL 3. Approval of the Director Compensation Plan

The current policy of the Company is to pay each director who is not an
officer or employee of the Company, or who does not provide significant ongoing
consulting services to the Company, an annual fee of $10,000. While directors do
not receive additional compensation for attending meetings, the Company will pay
ordinary and necessary out-of-pocket expenses for directors to attend Board and
committee meetings.

Subject to stockholder approval, the Board has adopted a revised Director
Compensation Plan pursuant to which directors who are not employees of the
Company, and who do not beneficially own more than 5% of the shares of Common
Stock outstanding, would receive an initial one-time grant of 4,000 options to
acquire Common Stock at an exercise price of $10.00 per share (the "Initial
Grant") and an annual grant of 2,000 options to acquire Common Stock at an
exercise price equal to the fair market value per share of the Common Stock at
the time the option is granted (the "Annual Grant"). Assuming the Director
Compensation Plan is approved by the stockholders, the Initial Grant and Annual
Grant will take place shortly after the Meeting. The Annual Grant will
customarily occur on the date of the Company's annual meeting. All new board
members will receive 3,000 options to acquire Common Stock at an exercise price
equal to the fair market value per share of the Common Stock on the date the
board member is approved by the directors. The Company has temporarily suspended
paying any cash to eligible directors for preparing and attending meetings of
directors and committees until the Company reports quarterly net earnings. Once
the Company has reported net earnings for a fiscal quarter, the Company will
reconsider paying additional cash consideration to eligible directors. The
Company will continue to pay ordinary and necessary out-of-pocket expenses for
directors to attend Board and Committee meetings.

There are authorized for issuance and delivery under the Director
Compensation Plan an aggregate of 50,000 shares of Common Stock. The shares,
whether or not registered for resale under the Securities Act of 1933, as
amended, would be subject to an agreement on the part of the director not to
resell such securities for at least two years without the written consent of the
Company.

The purpose of the Director Compensation Plan is to encourage the ownership
of Common Stock by the outside directors upon whose judgment and ability the
Company depends for its long term growth and development and to provide an
effective and economic manner of compensating outside directors. The Director
Compensation Plan is intended to promote a close identity of interest among the
Company, the outside directors and the stockholders, and to provide a further
means to attract and retain outstanding board members.

The Director Compensation Plan will become effective on the date at which
it is approved by the stockholders and will remain in effect until terminated by
the Board of Directors. Of the current directors and nominees, the following
individuals will be eligible for receipt of fees and shares under the Director
Compensation Plan: Messrs. Clarke, Coleman, Cunningham and Paulekas.

The Board of Directors has the power to amend, modify or terminate the
Director Compensation Plan at any time, except that stockholder approval of an
amendment may be required if deemed to be necessary and advisable under the
securities, tax or other applicable laws or regulations.

Upon exercise of a non-qualified stock option, an eligible director will
recognize ordinary income in an amount equal to the excess, if any, of the fair
market value, on the date of exercise, of the stock acquired over the exercise
price of the option. Thereupon, the Company will be entitled to a tax deduction
in an amount equal to the ordinary income recognized by the eligible director.
Any additional gain or loss realized by an eligible director on disposition of
the shares generally will be capital gain or loss to the eligible director and
will not result in any additional tax deduction to the Company. The taxable
event arising from exercise of non-qualified stock options by eligible directors
of the Company subject to Section 16(b) of the Securities Exchange Act of 1934,
as amended, occurs on the later of the date on which the option is exercised or
the date six months after the date the option was granted unless the optionee
elects, within 30 days of the date of exercise, to recognize ordinary income as
of the date of exercise. The income recognized at the end of any deferred period
will include any appreciation in the value of the stock during that period and
the capital gain holding period will not begin to run until the completion of
such period.

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An eligible director receiving fees under the Director Compensation Plan will
recognize compensation taxable as ordinary income upon receipt of the cash paid
under the Director Compensation Plan.

REQUIRED AFFIRMATIVE VOTE

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 Director Compensation Plan.

The Board of Directors believes that the proposal is in the best interest
of the Company and its stockholders and recommends that the stockholders vote
FOR approval of the Director Compensation Plan.

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PROPOSAL 4. Approval of Amendment to the Company's Stock Option Plan

The Board of Directors proposes that the Company's Stock Option Plan be
amended to increase the aggregate number of shares subject to issuance under the
Stock Option Plan by 170,000 shares from 50,000 shares to 220,000 shares. As of
March 1, 1998, the Company had granted incentive and nonstatutory stock options
to purchase shares of Common Stock issuable under the Stock Option Plan, which
had been exercised as to 34,822 shares and which were outstanding as to 22,941
shares.

Subject to stockholder approval, the Board has adopted the Amendment to the
Stock Option Plan. The purpose of the Stock Option Plan is to strengthen the
ability of the Company to attract and retain well-qualified executive and
managerial personnel, to furnish additional incentive to those persons
responsible for the successful management of the Company and thereby to enhance
stockholder value.

Pursuant to the Stock Option Plan, incentive and nonstatutory options may
be granted to eligible individuals for the purchase of an aggregate of up to
220,000 shares of Common Stock, of which options to acquire 53,110 shares have
already been granted. Eligible individuals include key employees of the Company
and its subsidiaries. The Plan is administered by the Stock Option Committee of
the Board of Directors, which determines, in its discretion, the number of
shares subject to each incentive and nonstatutory option granted and the related
purchase price and option period.

Subject to receiving stockholder approval of the amendment to the Stock
Option Plan, the Company has conditionally granted the following options to the
individuals named below:

Richard C.E. Morgan - 2,500; and
Jean-Pierre Arnaudo - 2,500.

The Plan requires that the exercise price for each incentive and
nonstatutory stock option must not be less than the fair market value per share
of the Common Stock at the time the option is granted. No incentive stock
option, however, may be granted to an employee who owns more than ten percent of
the total combined voting power of all classes of outstanding stock of the
Company. No employee may be granted incentive stock options that first become
exercisable during a calendar year to purchase Common Stock, or stock of any
affiliate (or a predecessor of the Company or an affiliate), with an aggregate
fair market value (determined as of the date of grant of each option) in excess
of $100,000. An incentive stock option counts against the annual limitation only
in the year it first becomes exercisable. Incentive and nonstatutory stock
options may be granted only to employees of the Company and its subsidiaries.

The option period may not be more than ten years from the date the option
is granted. Options may be exercised in annual installments as specified by the
Stock Option Committee. All installments that become exercisable are cumulative
and may be exercised at any time after they become exercisable until the option
expires. Options are not assignable or transferable other than by will or the
laws of descent and distribution.

Payment for shares purchased upon the exercise of an option by and employee
of the Company or one of its subsidiaries during their term of employment may,
with the consent of the Stock Option Committee, be payable in installments. The
Plan provides that an option agreement may permit an optionee to tender
previously owned shares of Common Stock in partial or full payment for shares to
be purchased on exercising a nonstatutory option. Unless sooner terminated by
action of the Board of Directors, the Stock Option Plan will terminate on May
28, 2001. Subject to certain exceptions, the Stock Option Plan may be amended,
altered, or discontinued by the Board of Directors without stockholder approval.

The Board of Directors has retained the right to amend or terminate the
Plan as it deems advisable. However, no amendment shall be made to increase the
number of shares of stock which may be optioned under the Plan, change the class
of executive officers and other key employees eligible under the Stock Option
Plan

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or materially increases the benefits which may accrue to participants under the
Stock Option Plan without submitting such amendments to stockholders for
approval. In addition, no amendments to, or termination of, the Stock Option
Plan shall impair the rights of any individual under options previously granted
without such individual's consent.

FEDERAL INCOME TAX CONSEQUENCES

No tax obligation will arise for the optionee or the Company upon the
granting of either incentive stock options or non-qualified stock options under
the Plan. Upon exercise of a non-qualified stock option, an optionee will
recognize ordinary income in an amount equal to the excess, if any, of the fair
market value, on the date of exercise, of the stock acquired over the exercise
price of the option. Thereupon, the Company will be entitled to a tax deduction
in an amount equal to the ordinary income recognized by the optionee. Any
additional gain or loss realized by an optionee on disposition of the shares
generally will be capital gain or loss to the optionee and will not result in
any additional tax deduction to the Company. The taxable event arising from
exercise of non-qualified stock options by officers of the Company subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, occurs on the
later of the date on which the option is exercised or the date six months after
the date the option was granted unless the optionee elects, within 30 days of
the date of exercise, to recognize ordinary income as of the date of exercise.
The income recognized at the end of any deferred period will include any
appreciation in the value of the stock during that period and the capital gain
holding period will not begin to run until the completion of such period.

Upon the exercise of an incentive stock option, an optionee recognizes no
immediate taxable income. The tax cost is deferred until the optionee ultimately
sells the shares of stock. If the optionee does not dispose of the option shares
within two years from the date the option was granted and within one year after
the exercise of the option, and the option is exercised no later than three
months after the termination of the optionee's employment, the gain on the sale
will be treated as long term capital gain. Subject to the limitations in the
Plan, certain of these holding periods and employment requirements are
liberalized in the event of the optionee's death or disability while employed by
the Company. The Company is not entitled to any tax deduction, except that if
the stock is not held for the full term of the holding period outlined above,
the gain on the sale of such stock, being the lesser of (i) the fair market
value of the stock on the date of exercise minus the option price, and (ii) the
amount realized on disposition minus the option price, will be taxed to the
optionee as ordinary income and the Company will be entitled to a deduction in
the same amount. Any additional gain or loss realized by an optionee upon
disposition of shares prior to the expiration of the full term of the holding
period outlined above generally will be capital gain or loss to the optionee and
will not result in any additional tax deduction to the Company. The "spread"
upon exercise of an incentive stock option constitutes a tax preference item
within the computation of the "alternative minimum tax" under the Internal
Revenue Code. The tax benefits which might otherwise accrue to an optionee may
be affected by the imposition of such tax if applicable to the optionee's
individual circumstances.

REQUIRED AFFIRMATIVE VOTE

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 Amendment to the Stock Option Plan.

THE BOARD OF DIRECTORS BELIEVES THAT THIS PROPOSAL IS IN THE BEST INTEREST
OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO THE STOCK OPTION PLAN.

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PROPOSAL 5. Approval of the issuance of up to 1,000,000 shares of the
Company's Common Stock under the terms of the Technology
Acquisition Agreement

XLV TECHNOLOGY DEVELOPMENT AGREEMENT

In January 1998, the Company and XL Vision, Inc., a Safeguard Scientifics
"partnership company" ("XLV"), entered into the Intellectual Property Transfer
Agreement (the "Technology Development Agreement") that provides the Company
with options to acquire XLV's document reader, digital camera and dithering
technology (the "XLV Technology"). Under the terms of the Technology Development
Agreement, the parties agreed that the Company would not exercise the License
Option without first having obtained stockholder approval with respect to the
issuance of the maximum number of shares of Common Stock issuable under the
Technology Development Agreement (1,000,000 shares post reverse split).
Accordingly, the Company will not issue any shares of Common Stock to XLV under
the Technology Development Agreement without first obtaining stockholder
approval with respect to the issuance of such shares of Common Stock.

The Technology Development Agreement provides that, beginning on the
Initial Funding Date (as defined below) 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 the XLV Technology in exchange for 200,000
shares of Common Stock. If the Company exercises the License Option, then for 90
days beginning on the date on which payment of all development funds
contemplated by the Technology Development Agreement has been made in full (the
"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 if funding under the Technology Development
Agreement is accelerated, 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"). In
addition, if the Assignment Option is exercised, up to an additional 200,000
shares of Common Stock may be issued by the Company to XLV against receipt by
the Company of certain amounts that may be paid pursuant to the Spot/Mag
Provision (as defined below), a possible third party license agreement that XLV
may enter into with respect to the XLV Technology. 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 that may be brought or instituted against the Company prior to July
1, 2004. 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 Development Agreement, including as to the ownership of the
technology.

Certain Effects of the Technology Development Agreement

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 Development Agreement would be 1,000,000 shares of Common Stock
(collectively, the "Maximum Technology Shares"). The Maximum Technology Shares
represent approximately 22.4% of the voting power, 30% of the outstanding common
equity and 20.8% of the full-diluted equity of the Company as of March 1, 1998.

Although the Technology Development Agreement values the shares of Common
Stock issuable thereunder at $10.00 per share of Common Stock, 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 under the Technology
Development Agreement will equal or exceed the aggregate market price of the
Maximum Technology Shares on the date of issuance. The Company has not obtained
an independent appraisal or

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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 Development 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 Development
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. Accordingly, the issuance of shares of Common Stock to XLV
pursuant to the Technology Development Agreement may result in dilution to the
stockholders of the Company at the date of such issuance.

Applications to the Company's Businesses

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 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 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
Development 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 Development 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. 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.

Technology Enhancement Services

Pursuant to the Technology Agreement, XLV will continue to devote
personnel, services and project management for the enhancement and
commercialization of the XLV Technology. The Company will fund the enhancement
of the XLV Technology pursuant to this arrangement, as provided in the
Technology Development Agreement. The Company paid to XLV $500,000 at the
execution of the Technology Development Agreement. The Technology Development
Agreement provides for the Company to make additional payments to XLV of up to
$4.1 million to fund enhancement and commercialization of the XLV Technology,
subject to achievement of development milestones and other conditions. Of that
amount, $1.0 million is payable within 30 days after the Meeting, subject to the
Company's receipt of stockholder approval relating to the issuance by the
Company of the Maximum Technology Shares, and the date such $1.0 million payment
is made is referred to as the "Initial Funding Date." The Company may, at its
option, accelerate funding the development of the XLV Technology. All payments
made prior to the development of a working model, including the costs of
acquiring the options under the 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

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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, the License Option,
the Exclusive License Option and the Assignment Option, to the extent not
previously exercised, will terminate automatically.

Deliverables under the Technology Development Agreement include schematics,
computer assisted design files, computer source code and other computer
programming code and architecture, a limited number of prototypes, jigs,
fixtures and toolings (if any), and related documentation, books and records--in
each case as the same are developed under the Technology Development Agreement.
Except for the anticipated payment of amounts due under the Technology
Development Agreement for further development, the Technology Development
Agreement does not contemplate the acquisition of any assets or any assumption
of liabilities by the Company.

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 Provision

XLV and Spot/Mag, Inc., a corporation organized under the laws of Taiwan
("Spot/Mag"), are currently engaged in discussions regarding the possibility of
entering into an agreement (the "Spot/Mag Agreement") under which Spot/Mag would
receive certain intellectual property rights relating to the XLV Technology, for
certain limited uses, in exchange for an obligation to pay royalties and other
remuneration to XLV. If the Spot/Mag Agreement is executed within three years
after the effective date of the Technology Development Agreement and if the
Company exercises the Assignment Option, XLV will assign its rights and
obligations under the Spot/Mag Agreement to the Company, including the right to
receive all royalties and amounts payable under the Spot/Mag Agreement. In
consideration for the assignment of the Spot/Mag Agreement, the Company has
agreed to pay to XLV on a quarterly basis one share of Common Stock for each ten
dollars ($10.00) of royalty actually received by the Company from Spot/Mag under
the Spot Mag Agreement, up to a maximum of 200,000 shares of Common Stock.
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 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. XLV may, however, 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 anniversaries of the effective date under the
Technology Development 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 Development 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 12 months. The Company has agreed to
indemnify XLV against

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certain liabilities relating to the filing of such registration statement and
has agreed to certain penalties in the event that the Company fails to comply
with its obligations relating to such registration rights.

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 Development Agreement, the
Company will use its reasonable best efforts to cause one person designated by
XLV to be nominated to serve as a member of the Board of Directors of the
Company.

XLV

XLV is a privately-held corporation with its principal executive offices in
Sebastian, Florida, which specializes in the development of front-end
applications for the electronic imaging industry. XLV is a "partnership company"
of Safeguard Scientifics, Inc. ("Safeguard"), a NYSE-listed company with
principal executive offices in Wayne, Pennsylvania. Safeguard currently owns
approximately 26% of the outstanding voting power, and 57% of the fully-diluted
equity, of XLV.

Richard C.E. 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
twenty percent 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 Development
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 IS 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.

REQUIRED AFFIRMATIVE VOTE

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 issuance of up to 1,000,000 shares of the Company's Common
Stock to XLV pursuant to the terms of the Technology Development Agreement.

THE BOARD OF DIRECTORS BELIEVES THAT THIS PROPOSAL IS IN THE BEST INTEREST
OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE ISSUANCE OF THE MAXIMUM TECHNOLOGY SHARES.

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PROPOSAL 6. Approval of the issuance of more than twenty percent of
the outstanding Common Stock at a per share price potentially
less than the per share market price on the date of issuance
to holders of Series G Preferred Stock upon Conversion of the
such preferred stock by the holders thereof.

In December 1997, the Company completed a $7,500,000 private placement of
750 shares of Series G Preferred Stock with Antiope Partners and Amphion
Ventures. Additionally, Amphion Ventures has committed to purchase up to an
additional $5,500,000 of Series G Preferred Stock or an additional series of
preferred stock, which will be convertible into shares of non-voting common
stock, to fund the Company's operations and, along with the private placement
discussed above, to provide for the continued maintenance of the Company's net
tangible assets above the New Nasdaq Listing Requirements (as defined below).

SERIES G PREFERRED STOCK

The Board of Directors has designated 2,500 shares of its Preferred Stock
as Series G Preferred Stock, par value $0.1 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 is currently $10.00 per share of Common Stock,
subject to anti-dilution adjustments (the "Conversion Price"). 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 $20.00 per share 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 $20.00 for 20 consecutive trading days, on such basis, 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, 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 and the Series C Preferred Stock.

The Series G 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 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

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holder's right to convert such Series G Preferred Stock into Common Stock within
ten 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 (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 $10.00
per share.

NEW NASDAQ LISTING REQUIREMENTS

On August 23, 1997, the Securities and Exchange Commission (the
"Commission") approved new listing requirements for continued listing on the
Nasdaq SmallCap Market. These new listing requirements became effective on
February 23, 1998. In particular, the new listing requirements require that a
Company currently included on 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 last fiscal year
or in two of the last three fiscal years) of $500,000; and (ii) public float of
at least 500,000 shares, with a market value of at least $1 million; and (iii)
minimum bid price of $1; and (iv) at least two market makers; (v) at least 300
round lot beneficial stockholders; and (vi) compliance with certain corporate
governance requirements (the "New Nasdaq Listing Requirements"). The Company is
currently in compliance with the New Nasdaq Listing Requirements. Although
management believes the Company will be able to preserve the listing of the
Common Stock on the Nasdaq SmallCap Market, there can be no assurance that the
Company will be able to do so.

One of the new corporate governance requirements of the New Nasdaq Listing
Requirements provides that shareholder approval is required of a plan or
arrangement to issue common stock (or securities convertible into or exercisable
common stock) equal to twenty percent or more of the common stock, or twenty
percent or more of the voting power, outstanding before the issuance, for less
than the greater of book or market value of the common stock. If the holders of
the series G Preferred stock already issued or to be issued elect to convert all
of their shares of the Series G Preferred Stock into Common Stock, such holders
would receive approximately 29.9% of the outstanding Common Stock, approximately
28.6% of the voting power and 26.2% of the fully-diluted equity of the Company
as of March 1, 1998. Although the Conversion Price of the Series G Preferred
stock is currently $10.00 per share and the closing bid price per share of the
Common Stock on the Nasdaq SmallCap Market as of April 13, 1998, is $4.625 per
share, there can be no assurance that when and if the Series G Preferred stock
is converted to Common Stock, the Conversion Price will exceed the aggregate
market price of the Common Stock on the date of conversion.

In order to fund the Company's operations and provide for the continued
maintenance of the Company's net tangible assets above the New Nasdaq Listing
Requirements, the Company will need to issue additional shares of Series G
Preferred Stock or a new series of preferred stock, or both, to Amphion Ventures
in connection with its $5,500,000 commitment. Because the Series G Preferred
Stock may be converted into more than twenty percent of the outstanding Common
Stock at a time when the market value per share of Common Stock exceeds the
Conversion Price, the Company may not issue additional shares of Series G
Preferred stock without first obtaining stockholder approval in accordance with
the New Nasdaq Listing Requirements. The Company, however, may not be able to
meet its working capital requirements or maintain the Company's net tangible
assets above the New Nasdaq Listing Requirements if it does not receive
stockholder approval to issue additional shares of Series G Preferred Stock.

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

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PRELIMINARY DRAFT

Board and/or on the pink sheets of the National Quotation Bureau. As a result,
an investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Common Stock. In addition, the Common Stock
would be subject to rules promulgated under the Exchange Act applicable to penny
stocks. The Commission has adopted regulations that generally define a "penny
stock" to be an equity security that has a market price (as determined pursuant
to regulations adopted by the Commission) or exercise price of less than $5.00
per share, subject to certain exceptions. By virtue of being listed on the
Nasdaq SmallCap Market, the Common Stock will be exempt from the Definition of
"penny stock." If, however, the Common stock is removed from the Nasdaq SmallCap
Market, the Company's securities may become subject to the penny stock rules
that impose additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors. Consequently, the penny stock rules may affect the ability of
broker-dealers to sell the Common Stock and may affect the ability of purchasers
of Common Stock to sell such securities in the secondary market.

REQUIRED AFFIRMATIVE VOTE

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 issuance of shares of Common Stock to holders of Series G
Preferred Stock.

THE BOARD OF DIRECTORS BELIEVES THAT THIS PROPOSAL IS IN THE BEST INTEREST
OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDER VOTE FOR
THE ISSUANCE OF MORE THAN TWENTY PERCENT OF THE OUTSTANDING COMMON STOCK AT A
PER SHARE PRICE POTENTIALLY LESS THAN THE PER SHARE MARKET PRICE ON THE DATE OF
ISSUANCE TO HOLDERS OF SERIES G PREFERRED STOCK UPON CONVERSION OF SUCH
PREFERRED STOCK BY THE HOLDERS THEREOF.

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<PAGE> 31

PRELIMINARY DRAFT

DEADLINE FOR STOCKHOLDER PROPOSALS

Proposals of stockholders intended to be presented at the Company's 1999
annual meeting, and otherwise eligible, must be received by the Company no later
than January __, 1999, 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.

GENERAL

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act") directors, certain officers and beneficial owners of
ten percent or more of the Company's Common Stock are required from time to time
to file with the Commission reports on Forms 3, 4 or 5, relating principally to
transactions in Company securities by such persons. Based solely upon a review
of Forms 3, 4 and 5 submitted to the Company during and with respect to 1997,
and written representations received by the Company from certain reporting
persons that no Forms 5 were required from such persons, the Company believes
that all of the directors and executive officers of the Company have timely
filed their respective Forms 3, 4 or 5 required by Section 16(a) of the
Securities Exchange Act during 1997, except Harry Budow, a director and officer
of the Company, who did not file timely a Form 3 when he joined the Company in
June 1997. Mr. Budow does not own any Common Stock or options to acquire Common
Stock.

COUNTING OF VOTES

All matters specified in this Proxy Statement that are to be voted on at
the Meeting will be by written ballot. Inspectors of election will be appointed,
among other things, to determine the number of shares outstanding and the voting
power of each, the shares represented at the Meeting, the existence of a quorum
and the authenticity, validity and effect of proxies, to receive votes or
ballots, to hear and determine all challenges and questions in any way arising
in connection with the right to vote, to count and tabulate all votes and to
determine the result. See "Record Date and Voting Stock" above.

OTHER BUSINESS

Management does not intend to bring any business before the Meeting other
than the matters referred to in the accompanying Notice. If, however, any other
matters properly come before the Meeting, it is intended that the persons named
in the accompanying proxy will vote pursuant to the proxy in accordance with
their best judgment on such matters to the extent permitted by applicable law
and regulations. The discretionary authority includes matters that the Board of
Directors does not know are to be presented at the Meeting by others and any
proposals of stockholders omitted from the proxy material pursuant to Rule 14a-8
of the Securities and Exchange Commission.

ANNUAL REPORT

A copy of the Company's 1998 Annual Report containing audited financial
statements accompanies this Proxy Statement. The Annual Report does not
constitute any part of the proxy solicitation materials. Upon written request to
Investor Relations, AXCESS Inc., 3208 Commander Drive, Carrollton, Texas 75006,
the Company will provide, without charge, copies of its annual report to the
Commission on Form 10-KSB.

By Order of the Board of Directors,

Harry S. Budow, Secretary

May __, 1998

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<PAGE> 32

APPENDIX A

AXCESS INC.

DIRECTOR COMPENSATION PLAN

1. PURPOSE. The purpose of the Director Compensation Plan (the "Plan") of
AXCESS Inc., a Delaware corporation ("AXCESS"), is to (a) provide an incentive
to directors of AXCESS who are not also employees or significant stockholders of
AXCESS ("Directors") to concentrate their efforts in a manner that will provide
for the long-term growth and profitability of AXCESS; (b) encourage stock
ownership by Directors in order to promote an identity of interests with AXCESS
stockholders; and (c) provide a means of attracting and retaining qualified
Directors.

2. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on such
date as it is approved by the stockholders of AXCESS and shall remain in effect
until terminated by the Board of Directors of AXCESS (the "Board").

3. STOCK OPTIONS SUBJECT TO THE PLAN. Nonstatutory options may be granted
to eligible directors under the Plan for the purchase of an aggregate of up to
50,000 shares of Common Stock, $.01 par value per share ("Common Stock"),
subject to adjustment as provided in Section 8 hereof. Shares issued upon the
exercise of options may be, in whole or in part, authorized but unissued shares,
whether now or hereafter authorized, or issued shares that have been reacquired
by AXCESS.

4. PLAN ADMINISTRATION. The Plan shall be administered by the Stock Option
Committee (the "Committee") of the Board of Directors. The Committee shall have
full and final authority to interpret the Plan, adopt, amend and rescind rules
and regulations relating to the Plan, and make all other determinations and take
all other actions necessary and advisable for the administration of the Plan.
Decisions and determinations of the Committee on all matters relating to the
Plan shall be in its sole discretion and shall be conclusive. The Plan shall be
interpreted in view of the intention to qualify as an exempt transaction under
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").

5. ELIGIBILITY. Any member of the Board of Directors who is not an employee
of AXCESS or a subsidiary of AXCESS and who does not beneficially own (as
defined by Rule 13d-3 of the Exchange Act) 5% of the outstanding Common Stock of
the Company may participate in the plan.

6. CHANGES IN CAPITALIZATION. If the outstanding shares of Common Stock are
increased, decreased or exchanged for a different number or kind of shares or
other securities, or if additional shares or other property (other than ordinary
dividends) are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially all of
the assets of AXCESS, reorganization, recapitalization, reclassification,
dividend, stock split, spin-off, split-off or other distribution with respect to
such shares of Common Stock, or other securities, an appropriate and
proportionate adjustment may be made in the maximum number and kind of shares
reserved for issuance under the Plan.

7. NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan nor any action
taken pursuant to the Plan, shall constitute evidence of any agreement or
understanding, express or implied, that AXCESS will retain a participant as a
Director for any period of time, or at any particular rate of compensation.

8. AMENDMENT, MODIFICATION, AND TERMINATION. The Board at any time may
terminate and in any respect amend or modify the Plan; provided, however, that
the Board of Directors shall condition any amendments on the approval of
stockholders, if such approval is necessary or advisable with respect to
securities, tax or other applicable law. No amendment, modification, or
termination of the Plan shall in any manner adversely affect the rights of any
participant with respect to shares of Common Stock to which he or she became
entitled prior

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<PAGE> 33

PRELIMINARY DRAFT

to such amendment, modification or termination or with respect to amounts that
have been credited to a deferred compensation account.

9. STOCKHOLDER APPROVAL. The Plan shall be submitted to the stockholders of
AXCESS for their approval at the 1998 Annual Meeting of Stockholders. If such
approval is not obtained, no shares of Common Stock will be issued to Directors
through the Plan.

10. RESTRICTIONS ON DELIVERY AND SALE OF SHARES; LEGENDS. Each share of
Common Stock issued upon the exercise of an option under the Plan is subject to
the condition that if at any time the Committee, in its discretion, shall
determine that the listing, registration or qualification of such shares upon
any securities exchange or under any state or federal law is necessary or
desirable as a condition of or in connection with the delivery of shares
thereunder, the delivery of any or all shares may be withheld unless and until
such listing, registration or qualification shall have been effected. If a
registration statement is not in effect under the Securities Act of 1933, as
amended (the "1993 Act"), or any applicable state securities laws with respect
to the shares of Common Stock deliverable upon the exercise of options
hereunder, the Director shall represent in writing, as a condition to any
delivery of Common Stock hereunder, that the shares received are being acquired
for investment and not with a view to distribution and agree that the shares
will not be disposed of except pursuant to an effective registration statement,
unless AXCESS shall have received an opinion of counsel that such disposition is
exempt from such registration under the 1993 Act and any applicable state
securities laws. AXCESS shall include on certificates representing shares
delivered upon the exercise of options issued pursuant to the Plan such legends
referring to the foregoing representations or restrictions and any other
applicable restrictions on resale as the Committee, in its discretion, shall
deem appropriate. In addition, unless waived by the Committee, each Director, as
a condition of receipt of Common Stock upon the exercise of an option shall
agree that such Common Stock shall not be sold for two years following its
issuance unless consented to in writing by the Committee.

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<PAGE> 34
APPENDIX B

PROXY

AXCESS INC.
SOLICITED ON BEHALF OF THE COMPANY AND APPROVED BY THE BOARD OF DIRECTORS

The undersigned hereby constitutes and appoints Richard C.E. Morgan and Harry S.
Budow, and each of them, as attorneys and proxies of the undersigned, with full
power of substitution, for and in the name, place, and stead of the undersigned,
to appear at the 1998 Annual Meeting of Stockholders of AXCESS Inc. to be held
on the 9th day of June, 1998 (pursuant to the Notice of Annual Meeting dated May
__, 1998, and accompanying proxy statement), and at any postponement or
adjournment thereof, and to vote all of the shares of AXCESS Inc. that the
undersigned is entitled to vote with all the powers ant authority the
undersigned would possess if personally present in accordance with the following
instructions.

When properly executed, this Proxy will be voted in the manner directed herein
by the undersigned Stockholder. If no direction is made, this Proxy will be
voted for proposals 1, 2, 3, 4, 5, 6 and 7.

<S> <C> <C>
1. ELECTION OF DIRECTORS NOMINEES: Richard C.E. Morgan, Jean-Pierre Arnaudo, Eugene A.
Bourque, Harry S. Budow, Richard M. Clarke, Paul J.
FOR all nominees WITHHOLD Coleman, Jr., C. Seth Cunningham and Alfred E. Paulekas.
listed to the right AUTHORITY
(except as marked to vote for all (INSTRUCTION: To withhold authority to vote for any individual nominee,
to the contrary) nominees listed below.) write such individual's name in the space provided to the right

[ ] [ ] -----------------------------------------------------------------------

2. RATIFICATION OF KPMG PEAT MARWICK LLP
AS INDEPENDENT AUDITOR OF THE COMPANY. 6. APPROVAL OF THE ISSUANCE OF MORE THAN TWENTY PERCENT OF THE
COMPANY'S COMMON STOCK AT A PER SHARE PRICE POTENTIALLY LESS
FOR AGAINST ABSTAIN THAN THE PER SHARE MARKET PRICE ON THE DATE OF ISSUANCE TO
[ ] [ ] [ ] HOLDERS OF THE COMPANY'S SERIES G PREFERRED STOCK UPON THE
CONVERSION OF SUCH STOCK BY THE HOLDERS THEREOF.

3 APPROVAL OF THE DIRECTOR COMPENSATION PLAN FOR AGAINST ABSTAIN
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 7. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS PROPERLY COME BEFORE THE MEETING.
4. APPROVAL OF THE AMENDMENT TO THE STOCK
OPTION PLAN FOR AGAINST ABSTAIN
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
[ ] [ ] [ ]

5. APPROVAL OF THE ISSUANCE OF UP TO 1,000,000 SHARES Please sign exactly as name appears below. When shares are held
OF THE COMPANY'S COMMON STOCK TO XLV PURSUANT by joint tenants, both should sign. When signing as attorney,
TO THE TECHNOLOGY DEVELOPMENT AGREEMENT. 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,
FOR AGAINST ABSTAIN please sign in partnership name by authorized person.
[ ] [ ] [ ]

Dated: , 1998
------------------------------------

------------------------------------------------------
(Signature)

------------------------------------------------------
(Signature if held jointly)
</TABLE>

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