AXCESS INC/TX, DEF 14A, 1998-06-23

AXCESS INC/TX
DEF 14A, 1998-06-23
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

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, For Use of
the Commission only (as
Permitted by Rule 14a-6(e)(2))
[X] 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:

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(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:

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(5) Total fee paid:

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[ ] 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:

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(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

[AXCESS letterhead]

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 21, 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 July 21, 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
Gregory W. Haskell 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 900,000;

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 June 15,
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,

/s/ Danny G. Hair, Secretary

Dallas, Texas
June 23, 1998

<PAGE> 3

[AXCESS letterhead]

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

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 21, 1998

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

SOLICITATION

This Proxy Statement and accompanying form of proxy are being mailed
to stockholders commencing on or about June 23, 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 July 21, 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

The Company's Form 10-KSB, as amended, for the year ended December 31,
1997, and the quarterly report on Form 10-QSB for the three months ended March
31, 1998, are hereby incorporated by reference in this Proxy Statement. The
Annual Report to Stockholders, including the Form 10-KSB, as amended, for the
year ended December 31, 1997, and the quarterly report on Form 10-QSB for the
three months ended March 31, 1998, are being mailed to each stockholder entitled
to vote at the Meeting with the mailing of this Proxy Statement. Only
stockholders of record at the close of business on Monday, June 15, 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 2,466,868 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

<PAGE> 4

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 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 Company has also authorized a series of non-voting preferred stock
(the "Series H Preferred Stock") and non-voting Common Stock (the "Non-Voting
Common Stock"), each with a par value of $.01 per share. As of the Record
Date, there were 160 shares of Series H Preferred Stock and 112,492 shares of
Non-Voting Common Stock outstanding.

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 Series H Preferred Stock
and 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

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<PAGE> 5

it, by delivering a duly executed proxy bearing a later date or by appearing at
the Meeting and voting in person.

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> 6

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) Series H Preferred Stock, (viii) common stock, par value $.01 per
share, of Sandia Imaging Systems Corporation ("Sandia Common Stock"), a
majority-owned subsidiary of the Company ("Sandia"), and (ix) common stock,
par value $.01 per share, of Lasertechnics Marking Corporation ("LMC Common
Stock"), a subsidiary of the Company ("LMC"), beneficially owned as of April
29, 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 April 29,
1998. The business address of each director and executive officer is c/o
AXCESS Inc., 3208 Commander Drive, Carrollton, Texas 75006.

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

<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER
- ------------------------
DIRECTORS AND NOMINEES FOR DIRECTORS PERCENTAGE OF
(INCLUDING THOSE WHO ARE ALSO EXECUTIVE NUMBER OF SHARES PERCENTAGE COMPANY
OFFICERS): TITLE OF CLASS BENEFICIALLY OWNED OF CLASS VOTING POWER
-------------- ------------------ ---------- -------------
<S> <C> <C> <C> <C>
Richard C.E. Morgan . . . . . . . . . Common Stock 548,497(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%
Series H Preferred Stock 160(6) 100% n/a
Sandia Common Stock 10,000(7)(9) * n/a
</TABLE>

<TABLE>
<S> <C>
Aggregate Number of Shares of Company Stock Entitled to
Vote with Respect to the Matters Presented at the Meeting . . . . . . . . . 1,639,497
Percentage of Company Voting Power with Respect to the
Matters Presented at the Meeting . . . . . . . . . . . . . . . . . . . . . 46.6%
</TABLE>

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<PAGE> 7

<TABLE>
<CAPTION>
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>
Jean-Pierre Arnaudo . . . . . . . . Common Stock 1,875(8) * *
Sandia Common Stock 287,500(9)(10) 3.29% n/a

Eugene A. Bourque . . . . . . . . . Common Stock 7,814(11) * *
Sandia Common Stock 10,000(10)(12) * n/a
LMC Common Stock 32,000(13) * n/a

Harry S. Budow . . . . . . . . . . . Common Stock 200 * *
Sandia Common Stock 50,000(14) * n/a

Richard M. Clarke . . . . . . . . . Common Stock 13,250 * *
Sandia Common Stock 10,000(10)(15) * n/a

C. Seth Cunningham . . . . . . . . . Common Stock 4,250(16) * *

Paul J. Coleman, Jr. . . . . . . . . Common Stock 903(17) * *
Sandia Common Stock 7,500(10)(18) * n/a

Alfred E. Paulekas . . . . . . . . . Common Stock 2,250(19) * *

EXECUTIVE OFFICERS:

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

All Directors and Executive Common Stock 559,032(20) 22.8% 19.2%
Officer as a group (8 individuals). . Sandia Common Stock 434,667(4)(21) 7.9% 4.9%
Series A Preferred Stock 57,692(2) 100% 1.6%
Series B Preferred Stock 52,816(3) 100% 1.5%
Series C Preferred Stock 25,492(4) 72% 0.7%
Series G Preferred Stock 955(5) 96% 26.8%
Series H Preferred Stock 160(6) 100% n/a

OTHER:

Amphion Group Common Stock 520,952(22) 20.8% 17.7%
590 Madison Avenue Series A Preferred Stock 57,692 100.0% 1.7%
New York, NY 10021 (25) . . . . . . Series B Preferred Stock 52,816 100.0% 1.5%
Series C Preferred Stock 25,492(23) 72.0% 0.7%
Series G Preferred Stock 955 96% 27.5%
</TABLE>

<TABLE>
<S> <C>
Aggregate Number of Shares of Company Stock Entitled to
Vote with Respect to the Matters Presented at the Meeting . . . . . . . . . 1,595,659
Percentage of Company Voting Power with Respect to the
Matters Presented at the Meeting . . . . . . . . . . . . . . . . . . . . . 45.4%
</TABLE>

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<PAGE> 8

<TABLE>
<CAPTION>
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>
J.P. Morgan Investment Corporation
60 Wall Street Common Stock 289,422(24) 11.7% 11.4%
New York, NY 10060 . . . . . . . . . . Non-Voting Common Stock 112,492 100.0% n/a
</TABLE>

<TABLE>
<S> <C> <C>
Aggregate Number of Shares of Company Stock Entitled to
Vote with Respect to the Matters Presented at the Meeting . . . . . . . . . 267,170
Percentage of Company Voting Power with Respect to the
Matters Presented at the Meeting . . . . . . . . . . . . . . . . . . . . . 7.5%
</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 25 below) and 92,753 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 25.

(2) All 57,692 shares are held by Amphion Ventures. See Note 1 and Note 25.

(3) All 52,816 shares are held by Amphion Ventures. See Note 1 and Note 25.

(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 25.

(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 25.

(6) All 160 shares are held by Amphion Ventures. See Note 1 and Note 25.

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

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

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

(10) 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.

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

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

(13) Includes 32,000 shares that Mr. Bourque has the right to acquire within
60 days pursuant to options.

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

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

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

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

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<PAGE> 9

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

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

(20) 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,
8, 11, 16, 17 and 19; 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 25.

(21) 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 7, 9, 10, 12, 14, 15 and 18.

(22) Includes 52,203 and 40,550 shares that Amphion Ventures and Antiope
Partners, respectively, have the right to acquire within 60 days
pursuant to warrants. See Note 25.

(23) Does not include 9,934 shares held by Jackson Hole. See Note 25.

(24) 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.

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

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

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

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

The holdings of the Amphion Group in the Company as of April 29, 1998,
are as follows:

<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES G SERIES H COMMON COMMON
COMMON PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED STOCK STOCK
STOCK STOCK STOCK STOCK STOCK STOCK WARRANTS OPTIONS
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Antiope Partners . . . 37,492 -- -- -- 50 -- 40,550 --

Amphion Ventures . . . 346,289 57,692 52,816 25,492 905 160 70,746 3,843
Amphion Partners . . . 28,125 -- -- -- -- -- -- --

Total . . . . . . . . . 411,906 57,692 52,816 25,492 955 160 92,753 3,843
</TABLE>

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<PAGE> 10

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 May
27, 1998, the names of the directors and the executive officers of the Company
and its subsidiaries, their respective ages and their respective positions with
the Company and its subsidiaries.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard C.E. Morgan . . . . . . . . 53 Chairman of the Board of Directors -- Company; Director -- LMC;
Chairman of the Board of Directors -- Sandia
Jean Pierre Arnaudo . . . . . . . . 53 Director and Vice Chairman of the Board -- 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, President and Chief Executive Officer -- Company;
Director, President and Chief Operating Officer -- Sandia
Danny G. Hair* . . . . . . . . . . 48 Executive Vice President, Secretary 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
Gregory W. Haskell* . . . . . . . . 41 Director -- Company
</TABLE>

*Mr. Hair was appointed to his position by the Board on February 1, 1998. Mr.
Haskell was appointed to his position by the Board on April 30, 1998.

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

RICHARD C.E. MORGAN is Chairman of the Board 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 and Vice Chairman of the Board 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. From 1993 to 1995,
Mr. Bourque served as President of the Company.

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<PAGE> 11

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, President and Chief Executive Officer 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
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, Secretary 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 1994. From November 1996 to January 1997 and from
October 1994 to January 1995, Mr. Hair performed certain independent consulting
services.

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. Since mid-1996, 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 audit committee. 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.
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 and
will not stand for reelection at the Meeting.

PAUL J. COLEMAN, JR. is a director of the Company. He is a member of the
audit, compensation 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.

GREGORY W. HASKELL is a director of the Company. He is a member of the
compensation committee. Mr. Haskell has been the President and Chief Operating
Officer of XL Vision, Inc. since 1995. From 1993 to 1995, Mr. Haskell served
in various executive management positions at XL Vision, Inc.

- 9 -
<PAGE> 12

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 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 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. Clarke, 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. Morgan, Coleman and Haskell. 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. 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
15,000 options to acquire Common Stock at an exercise price of $4.00 per share
(the "Initial Grant") and an annual grant of 5,000 options to acquire Common
Stock at an exercise price equal to the fair market value per share

- 10 -
<PAGE> 13

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 7,500 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. None
of the current board members will receive this special option grant to new
directors. All new board members will also be eligible to receive the Annual
Grant. 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."

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.

- 11 -
<PAGE> 14

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. On April 30, 1998,
Harry S. Budow was named President and Chief Executive Officer of the Company
and Jean-Pierre Arnaudo was named Vice Chairman of the Company. Richard C.E.
Morgan still serves as the Company's Chairman of the Board.

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 received an annual salary of $100,000 while serving as the
Company's Chief Executive Officer, $60,000 of which is payable in cash and
$40,000 of which is payable in Common Stock.

(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.

- 12 -
<PAGE> 15

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

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

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

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

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

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

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

OPTION GRANTS

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

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

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

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>

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

- 13 -
<PAGE> 16

(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 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 with a fair value of approximately $196,800 as of the
date issued 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) with a fair market value of approximately $120,300 as of the date
issued. The closing bid price of the Common Stock on Nasdaq ranged from
between $0.55 to $0.69 per share ($11.00 to $13.80 on a post reverse split
basis) on

- 14 -
<PAGE> 17

the various dates the restricted shares and warrants were issued. 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.
At any time after September 1, 1997, either Antiope Partners or JPMIC could
convert, in whole or in part, advances under the Note Purchase Agreement into an
equal principal amount of convertible debentures of the Company with the same
economic terms and conditions as the Company's then existing 10% convertible
debentures due March 1, 1999. The March 1999 debentures were convertible into
the Company's common stock at a conversion rate equal to the lessor of $2.00
($40.00 post reverse split) per share or 85% of the average daily closing bid
price of the common stock on Nasdaq over the five day period immediately
preceding the date of conversion (an effective discount of approximately 17.6%
or $500,000). The outstanding principal amount of the advances was convertible
into 14,559,436 (693,307 post reverse split) and 14,908,514 (709,930 post
reverse split) shares of common stock at December 31, 1997, and March 31, 1998,
respectively. 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 with a fair value of approximately $28,200 as of the date issued
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) with a fair
market value of approximately $60,200 as of the date issued. The closing bid
price of the Common stock on Nasdaq was $0.25 ($5.00 post reverse split) on the
date the restricted shares and warrants were issued.

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
with a fair value of approximately $195,200 as of the date issued 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) with a fair
market value of approximately $122,200 as of the date issued. The closing bid
price of the Common Stock on Nasdaq ranged from between $0.25 to $0.66 per
share ($5.00 to $13.30 on a post reverse split basis) on the various dates the
restricted shares and warrants were issued. 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.

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 at
an exercise price of $2.14 ($42.81 post reverse split) was issued to Amphion
Ventures with a fair market value of approximately $85,000 as of the date
issued. The closing bid price of the Common Stock on Nasdaq ranged from
between $2.00 to $3.38 per share ($40.00 to $67.60 on a post reverse split
basis) on the date the warrants were issued.

- 15 -
<PAGE> 18

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 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".

- 16 -
<PAGE> 19

In July 1997, the Company and certain holders of Variable Price Convertible
Securities negotiated a 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 (40,718 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. The approximate
fair value of the warrants as of the date of issuance was $60,000 and the
closing bid price of the Common Stock on Nasdaq was $10.62. 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 with a fair value of approximately $370,000 as of the date issued, 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) with a fair value of approximately $117,000 as of the date issued. 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. The
closing bid price of the Common Stock on Nasdaq was $5.00 on the date the
Common stock was issued.

- 17 -
<PAGE> 20

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED SHARES

The authorized capital stock of the Company consists of (a) 6,250,000
shares of Common Stock, (b) 112,500 shares of Non-Voting Common Stock, and (c)
350,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), issuable in series. To date, five series of Preferred Stock have been
authorized, all of which are currently outstanding: (i) a series of 75,000
shares of Preferred Stock designated the Series A Convertible Preferred Stock;
(ii) a series of 75,000 shares of Preferred Stock designated the Series B
Convertible Preferred Stock; (iii) a series of 75,000 shares of Preferred Stock
designated the Series C Convertible Preferred Stock; (iv) a series of 2,500
shares of Preferred Stock designated the Series G Convertible Preferred Stock;
and (v) a series of 2,500 shares of Preferred Stock designated the Series H
Convertible Preferred Stock. See, "--Preferred Stock," below.

As of May 27, 1998, a total of 2,466,868 shares of Common Stock and 112,492
shares of Non-Voting Common Stock were issued and outstanding. As of May 27,
1998, a total of 147,050 shares of Preferred Stock were issued and outstanding
as follows: (i) 57,693 shares of Series A Preferred Stock; (ii) 52,816 shares
of Series B Preferred Stock; (iii) 35,426 shares of Series C Preferred Stock;
(iv) 995 shares of Series G Preferred Stock and (v) 160 shares of Series H
Preferred Stock. All outstanding shares of the Company's Common Stock,
Non-Voting Common Stock and Preferred Stock are fully paid and nonassessable.
None of the shares of Common Stock, Non-Voting Common Stock or Preferred Stock
has preemptive rights.

COMMON STOCK AND NON-VOTING COMMON STOCK

Each share of Common Stock entitles its holder to one vote on all matters
submitted to a vote of stockholders. Holders of Non-Voting Common Stock do not
have voting rights, except as otherwise provided in the Company's Certificate
of Incorporation, or as required by applicable law. Holders of Non-Voting
Common Stock are entitled to vote as a separate class on any amendment to the
Certificate of Incorporation that adversely affects the powers, preferences or
special rights of holders of Non-Voting Common Stock, and vote together with
the holders of the Common Stock, as a single class, with respect to any
proposal to increase or decrease the number of authorized shares of Common
Stock or Non-Voting Common Stock, and on certain other specified matters.
Holders of Non-Voting Common Stock are entitled to one vote per share for
matters on which such holders are entitled to vote. The Common Stock and
Non-Voting Common Stock are otherwise identical in all respects.

Regulated Stockholders are entitled to convert shares of Common Stock into
shares of Non-Voting Common Stock. The term "Regulated Stockholder" means (a)
the stockholder ("the SBIC Stockholder") that purchased shares of Common Stock
pursuant to a Common Stock and Convertible Note Purchase Agreement dated July
8, 1994 (the "Purchase Agreement"), between such stockholder and the Company,
(b) any stockholder that is subject to the provisions of Regulation Y of the
Board of Governors of the Federal Reserve System (12 C.F.R. Part 225) or any
successor to such regulation ("Regulation Y"), and that holds shares of Common
Stock or Non-Voting Common Stock originally issued pursuant to the Purchase
Agreement or upon conversion of the Convertible Note issued thereunder, or
shares issued upon conversion(s) of such shares, so long as such stockholder
shall hold any such shares of Common Stock or Non-Voting Common Stock or shares
issued upon conversions(s) of such shares, (c) any Affiliate (as defined below)
of any such Regulated Stockholder specified in clause (a) of (b) above that is
a transferee of any shares of Common Stock or Non-Voting Common Stock of the
Corporation, so long as such Affiliate shall

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<PAGE> 21

hold any such shares of Common Stock or Non-Voting Common Stock or shares
issued upon conversion(s) of such shares and (d) any individual, partnership,
joint venture, corporation, association, trust, or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof (a "Person") (i) to which any such Regulated
Stockholder specified in clause (a) or (b) above or any of its Affiliates has
transferred such shares, so long as such transferee shall hold, and only with
respect to, any shares transferred by such Regulated Stockholder or Affiliate
or any shares issued upon conversion(s) of such shares, and (ii) which
transferee is, or any Affiliate of which is, subject to the provisions of
Regulation Y. The term "Affiliate" means with respect to any Person or any
other Person directly or indirectly controlling, controlled by or under common
control with such Person. For the purpose of this definition, the term
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person;
whether through the ownership of voting securities or by contract or otherwise.

Subject to the following conditions, all stockholders are entitled to
convert shares of Non-Voting Common Stock into shares of Common Stock. No
holder of any shares of Non-Voting Common Stock shall be entitled to convert
any such shares into shares of Common Stock, to the extent that, as a result of
such conversion, such holder and its Affiliates, directly or indirectly, would
own, control or have the power to vote a greater number of shares of Common
Stock or other securities of any kind issued by the Corporation than such
holder and its Affiliates shall be permitted to own, control or have the power
to vote under any law, regulation, rule or other requirement of any
governmental authority at the time applicable to such holder or its Affiliates.
The Corporation shall not be required to record the conversion of, and no
holder of shares shall be entitled to convert, shares of Non-Voting Common
Stock into shares of Common Stock unless such conversion is permitted under
applicable law; provided however, that the Corporation shall be entitled to
rely without independent verification upon the representation of any holder
that the conversion of shares by such holder is permitted under applicable law,
and in no event shall the Corporation be liable to any such holder or any third
party arising from such conversion whether or not permitted by applicable law.
At any time at which any shares of Common Stock or Non-Voting Common Stock are
held by a Regulated Stockholder which is subject to the provisions of
Regulation Y, the Corporation will not directly or indirectly redeem, purchase,
acquire or take any other action affecting outstanding shares of Common Stock
or Non-Voting Common Stock if such action would increase above 4.9% the
percentage of any class of voting securities of the Corporation, or increase
above 24.9% the percentage of outstanding Common Stock or Non-Voting Common
Stock, owned, held or controlled by any Regulated Stockholder and its
Affiliates (other than a stockholder which waives in writing its rights under
the Certificate of Incorporation.

Upon conversion of shares of the Common Stock or Non-Voting Common Stock,
the shares of Common Stock or Non-Voting Common Stock so converted will not be
eligible for reissuance except for reissuance in connection with the conversion
of shares of Common Stock held by Regulated Stockholders into shares of
Non-Voting Stock or the conversion of shares of Non-Voting Common Stock into
shares of Common Stock. Subject to certain conditions, the Company may not
convert or directly or indirectly redeem, purchase or otherwise acquire any
shares of Common Stock or take any other action affecting the voting rights of
such shares, if such action would increase the percentage of outstanding voting
securities owned or controlled by any Regulated Stockholder.

The holders of Common Stock and Non-Voting Common Stock are entitled to
receive ratably such dividends, if any, as are declared by the Company's Board
of Directors out of funds legally available for that purpose, subject to the
rights of holders of Preferred Stock. In the event of the Company's
liquidation,

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<PAGE> 22

dissolution or winding up, the holders of Common Stock and Non-Voting Common
Stock would be entitled to share ratably in all assets of the Company available
for distribution to holders of the Common Stock and Non-Voting Common Stock,
subject to the preferential rights of holders, if any, of shares of Preferred
Stock. See "--Preferred Stock" below.

The Company's Certificate of Incorporation provides that if the Company in
any manner subdivides (by stock split, stock dividend or otherwise) or combines
(by reverse stock split or otherwise) the outstanding shares of the Common
Stock or the Non-Voting Common Stock, the outstanding shares of the other such
class shall be proportionately subdivided or combined, as the case may be. For
purposes of the foregoing, if a dividend of shares of Common Stock were paid on
the outstanding shares of Common Stock, a corresponding dividend of shares of
Non-Voting Common Stock would be required to be paid on the shares of
Non-Voting Common Stock.

Amphion Ventures, the holder of 160 shares of Series H Preferred Stock, has
agreed not to convert any shares of Non-Voting Common Stock it may acquire
upon conversion of shares of the Series H Preferred Stock to Common Stock until
the Company has issued 500,000 shares of Common Stock to XLV under the terms of
the Technology Development Agreement by and between the Company and XLV, unless
it receives the prior written consent of the Company.

PREFERRED STOCK

The Certificate of Incorporation authorizes the Company's Board of
Directors to issue shares of Preferred Stock in one or more series and to fix
and state the designations, powers, preferences, qualifications, limitations,
restrictions and relative rights of the shares of each such series. The Board
of Directors may determine, without any vote or action by the holders of either
Common Stock or Non-Voting Common Stock, among other things, the payment and
rates of dividends, if any, whether dividends are to be cumulative or
noncumulative, whether the Preferred Stock is to be subject to redemption and,
if so, the manner of redemption and the redemption price, the preference of any
series of Preferred Stock over any other series of Preferred Stock or Common
Stock or Non-Voting Common Stock on liquidation, dissolution, distribution of
assets or winding up of the Company, any sinking fund or other retirement
provisions for the Preferred Stock and any conversion or exchange rights or
other privilege of the holders to acquire shares of any other series of
Preferred Stock or Common Stock or Non-Voting Common Stock. The Board of
Directors may also determine the number of shares in each series of Preferred
Stock, the voting rights of each such series (subject to any requirements of
applicable law) and any stated value applicable to the shares of any series of
Preferred Stock.

SERIES A PREFERRED STOCK. The Board of Directors has designated a maximum
of 1,500,000 shares of the Preferred Stock as Series A Preferred Stock, $26.00
stated value per share. Each share of Series A Preferred Stock is convertible
at any time, at the option of the holder, into one share of Common Stock,
subject to anti-dilution adjustments. All shares of Series A Preferred Stock
are entitled to vote on matters brought before the Company's stockholders as if
such shares of Series A Preferred Stock had been converted into shares of
Common Stock, in addition to any class voting rights provided by law.

Subject to the prior preferences and other rights of any class or series of
the Company's capital stock ranking prior to the Series A Preferred Stock, the
holders of shares of Series A Preferred Stock are entitled to receive and,
subject to any prohibition or restriction contained in any instrument
evidencing indebtedness of the Company, the Company will be obligated to pay,
preferential cumulative cash dividends on such shares

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<PAGE> 23

out of funds legally available therefor. Dividends are payable quarterly and
accrue cumulatively, whether or not such dividends are declared or funds are
legally or contractually available for payment of dividends, at a rate per
annum as follows: (i) 5% from January 1, 1996 to March 31, 1996; (ii) 7 1/2%
from April 1, 1996 through June 30, 1996; and (iii) 10% from July 1, 1996 and
thereafter. Dividends are payable in cash or in additional shares of Series A
Preferred Stock, but since July 1, 1996, only the holders of the Series A
Preferred Stock, rather than the Company, may make such election. Any dividends
paid in kind on the Series A Preferred Stock are to be valued on the basis of
the stated value of the Series A Preferred Stock.

Upon dissolution, liquidation or winding up of the Company, holders of the
Series A Preferred Stock will be entitled, after payment of preferential
amounts on any securities ranking senior to the Series A Preferred Stock, to
receive from the assets of the Company available for distribution to
stockholders an amount in cash, per share, equal to the stated value of such
share and all accrued dividends attributable to such share at the time of such
dissolution, liquidation or winding up of the Company. The Series A Preferred
Stock ranks senior to the Common Stock and Non-Voting Common Stock as to any
such distributions and pari passu with the Series B Preferred Stock, the Series
C Preferred Stock, the Series G Preferred Stock and the Series H Preferred
Stock.

The Series A Preferred Stock is subject to optional redemption at any time
by the Company, in whole or in part, at a redemption price per share equal to
the stated value of the shares of Series A Preferred Stock so redeemed and all
accrued unpaid dividends thereon. The Company's optional right of redemption is
subject to each Series A Preferred stockholder's right to convert such Series A
Preferred Stock into Common Stock within the 10 business days immediately
following the Company's notice of such redemption.

SERIES B PREFERRED STOCK. The Board of Directors has designated a maximum
of 1,500,000 shares of the Preferred Stock as Series B Preferred Stock, $26.00
stated value per share. Each share of Series B Preferred Stock is convertible
at any time, at the option of the holder, into one share of Common Stock,
subject to anti-dilution adjustments. All shares of Series B Preferred Stock
are entitled to vote on matters brought before the Company's stockholders as if
such shares of Series B Preferred Stock had been converted into shares of
Common Stock, in addition to any class voting rights provided by law.

Subject to the prior preferences and other rights of any class or series of
the Company's capital stock ranking prior to the Series B Preferred Stock, the
holders of shares of Series B Preferred Stock are entitled to receive and,
subject to any prohibition or restriction contained in any instrument
evidencing indebtedness of the Company, the Company will be obligated to pay,
preferential cumulative cash dividends on such shares out of funds legally
available therefor. Dividends are payable quarterly and accrue cumulatively,
whether or not such dividends are declared or funds are legally or
contractually available for payment of dividends, at a variable rate per annum
as follows: (i) 5% from January 1, 1996 to March 31, 1996; (ii) 7 1/2% from
April 1, 1996 through June 30, 1996; and (iii) 10% from July 1, 1996 and
thereafter. Dividends are payable in cash or in additional shares of Series B
Preferred Stock, but since July 1, 1996, only holders of Series B Preferred
Stock, rather than the Company, may make such election. Any dividends paid in
kind on the Series B Preferred Stock are to be valued on the basis of the
stated value of the Series B Preferred Stock.

Upon dissolution, liquidation or winding up of the Company, holders of the
Series B Preferred Stock will be entitled, after payment of preferential
amounts on any securities ranking senior to the Series B Preferred Stock, to
receive from the assets of the Company available for distribution to
stockholders an amount in cash, per share, equal to the stated value of such
share and all accrued dividends attributable to such share at the time of such
dissolution, liquidation or winding up of the Company. The Series B Preferred
Stock ranks

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<PAGE> 24

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 C
Preferred Stock, the Series G Preferred Stock and the Series H Preferred Stock.

The Series B Preferred Stock is subject to optional redemption at any time
by the Company, in whole or in part, at a redemption price per share equal to
the stated value of the shares of Series B Preferred Stock so redeemed and all
accrued dividends thereon. The Company's optional right of redemption is
subject to each Series B Preferred stockholder's right to convert such Series B
Preferred Stock into Common Stock within the 10 business days immediately
following the Company's notice of such redemption.

SERIES C PREFERRED STOCK. The Board of Directors has designated a maximum
of 1,500,000 shares of the Preferred Stock as Series C Preferred Stock, $30.20
stated value per share. Each share of Series C Preferred Stock is convertible
at any time, at the option of the holder, into one share of Common Stock,
subject to anti-dilution adjustments. All shares of Series C Preferred Stock
are entitled to vote on matters brought before the Company's stockholders as if
such shares of Series C Preferred Stock had been converted into shares of
Common Stock, in addition to any class voting rights provided by law.

Subject to the prior preferences and other rights of any class or series of
the Company's capital stock ranking prior to the Series C Preferred Stock, the
holders of shares of Series C Preferred Stock are entitled to receive and,
subject to any prohibition or restriction contained in any instrument
evidencing indebtedness of the Company, the Company will be obligated to pay,
preferential cumulative cash dividends on such shares out of funds legally
available therefor. Dividends are payable quarterly and accrue cumulatively,
whether or not such dividends are declared or funds are legally or
contractually available for payment of dividends, at a rate of 10% per annum
commencing January 1, 1996. Dividends are payable in cash or in additional
shares of Series C Preferred Stock, but since October 1, 1996, only holders of
Series C Preferred Stock, rather than the Company, may make such election. Any
dividends paid in kind on the Series C Preferred Stock are to be valued on the
basis of the stated value of the Series C Preferred Stock.

Upon dissolution, liquidation or winding up of the Company, holders of the
Series C Preferred Stock will be entitled, after payment of preferential
amounts on any securities ranking senior to the Series C Preferred Stock, to
receive from the assets of the Company available for distribution to
stockholders an amount in cash, per share, equal to the stated value of such
share and all accrued dividends attributable to such share at the time of such
dissolution, liquidation or winding up of the Company. The Series C Preferred
Stock ranks senior to the Common Stock and Non-Voting Common Stock as to any
such distributions and pari passu with the Series A Preferred Stock, the Series
B Preferred Stock, the Series G Preferred Stock and the Series H Preferred
Stock.

The Series C Preferred Stock is subject to optional redemption at any time
by the Company, in whole or in part, at a redemption price per share equal to
the stated value of the shares of Series C Preferred Stock so redeemed and all
accrued dividends thereon. The Company's optional right of redemption is
subject to each Series C Preferred stockholder's right to convert such Series C
Preferred Stock into Common Stock within the 10 business days immediately
following the Company's notice of such redemption.

SERIES G PREFERRED STOCK. The Board of Directors has designated 2,500
shares of the Preferred Stock as Series G Preferred Stock, par value $.01 per
share. Each share of Series G Preferred Stock has a stated value of $10,000
(the "Original Series G Issue Price") and is convertible into Common Stock at
any time, at the option of the holder, at a conversion rate equal to the
Original Series G Issue Price divided by the

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<PAGE> 25

Conversion Price of the Series G Preferred Stock, as in effect from time to
time. Such Conversion Price shall initially be $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 (on a pre-Reverse
Stock Split basis) for 20 consecutive trading days, then, commencing on such
20th trading day, the cumulative dividend will not be payable; provided,
however, that if the closing bid price per share of the Common Stock remains
below $20.00 for 20 consecutive trading days, then the dividend will resume as
of such 20th day.

Upon dissolution, liquidation or winding up of the Company, holders of the
Series G Preferred Stock will be entitled, after payment of preferential
amounts on any securities ranking senior to the Series G Preferred Stock, to
receive from the assets of the Company available for distribution to
stockholders an amount in cash, per share, equal to the Original Series G Issue
Price, plus any and all accrued unpaid dividends attributable to such share at
the time of such dissolution, liquidation or winding up of the Company. The
Series G Preferred Stock ranks senior to the Common Stock and Non-Voting Common
Stock as to any such distributions and pari passu with the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the
Series H 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 holder's right to convert such Series G Preferred Stock into
Common Stock within 10 business days after the Company's notice of redemption.

In addition to the rights and privileges of the Series G Preferred Stock,
as set forth in the Certificate of Designations with respect thereto, the
Company has agreed with the initial holders of the Series G Preferred Stock,
that if, at any time prior to December 31, 1999, the Company completes a
financing with third parties raising at least $3,000,000 in new equity, such
initial holders will have the non-assignable right (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.

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<PAGE> 26

SERIES H PREFERRED STOCK. The Board of Directors has designated 2,500
shares of the Preferred Stock as Series H Preferred Stock, par value $.01 per
share. Each share of Series H Preferred Stock has a stated value of $10,000
(the "Original Series H Issue Price") and is convertible into Non-Voting Common
Stock at any time, at the option of the holder, at a conversion rate equal to
the Original Series H Issue Price divided by the Conversion Price of the Series
H Preferred Stock, as in effect from time to time. Such Conversion Price shall
initially be $10.00 per share of Common Stock, subject to anti-dilution
adjustments (the "Conversion Price"). Holders of shares of Series H Preferred
Stock are not entitled to vote on any matters brought before the Company's
stockholders.

Subject to the prior preferences and other rights of any class or series of
the Company's capital stock ranking prior to the Series H Preferred Stock, and
in preference to the holders of shares of capital stock ranking junior to the
Series H Preferred Stock as to dividends, the holders of Series H Preferred
Stock are entitled to receive dividends on each share of Series H Preferred
Stock held of record at the annual rate of 8% of the Original Series H 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 H 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 H 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, then the dividend will resume as of such 20th day.

Upon dissolution, liquidation or winding up of the Company, holders of the
Series H Preferred Stock will be entitled, after payment of preferential
amounts on any securities ranking senior to the Series H 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 H 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 H Preferred Stock ranks senior to the Common Stock and Non-Voting Common
Stock as to any such distributions and pari passu with the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the
Series G Preferred Stock.

The Series H 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 H Issue Price plus any accrued unpaid dividends thereon.
The Company's optional right of redemption is subject to each Series H
Preferred Stock holder's right to convert such Series H Preferred Stock into
Non-Voting Common Stock within 10 business days after the Company's notice of
redemption.

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<PAGE> 27

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 Gregory W.
Haskell, 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> 28

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> 29

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 15,000 options to
acquire Common Stock at an exercise price of $4.00 per share (the "Initial
Grant") and an annual grant of 5,000 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 7,500 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. None of the current board members
will receive this special option grant to new directors. All new board members
will also be eligible to receive the Annual Grant. 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 150,000 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.

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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. 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 900,000 shares.
As of May, 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
900,000 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 an 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

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<PAGE> 32

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 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.

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<PAGE> 33

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 closing per share bid price of the Company's Common Stock as of the
date of the Technology Development Agreement (January 7, 1998) was $5.62 and
was $4.00 as of May 26, 1998. Because of the low trading volume of the Common
Stock, the Company and XLV did not believe that the market price accurately
reflected the value of the Common Stock. Accordingly, the parties valued the
Common Stock issuable to XLV under the Technology Development Agreement at
$10.00 (on a post reverse split basis), rather than the then current market
price of $5.62 (on a post reverse split basis). The value of the Common
Stock, however, was for allocation purposes only and was not demonstrative of
how many shares of Common Stock were to be received by XLV.

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 for use in the infrared
navigation business. XLV makes customary representations and warranties
regarding the XLV Technology in the Technology Development Agreement, including
as to the ownership of the technology.

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<PAGE> 35

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 May 31,
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 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

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<PAGE> 36

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.

The development of the XLV Technology is currently proceeding as
anticipated by the Company. In that regard, the Company anticipates having
demonstration models available sometime in June 1998 and a pre-production
prototype available in September 1998. The Company currently anticipates that
it will begin producing marketable products by the end of the first quarter of
1999. Regarding the Company's DataGlyph(TM) technology, the Company is
currently evaluating different biometrics for application to its reader
technology. The Company anticipates that the development of this technology
will show steady progress now that the Company has reached a settlement with
Xerox Corporation regarding the scope of the Company's license for
DataGlyph(TM). There can be no assurances, however, that the development of
the XLV Technology and related products will continue to progress as planned.

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
$3.6 million to fund enhancement and commercialization of the XLV Technology,
subject to achievement of development milestones and other conditions. Subject
to the Company's receipt of stockholder approval relating to the issuance by
the Company of the Maximum Technology Shares, the date on which $1.0 million of
the $3.6 million is paid by the Company to XLV 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 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.

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<PAGE> 37

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 the exclusive right to use the XLV Technology in connection with
manufacturing digital still cameras to be marketed and sold to consumers, 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 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

Under the terms of the Technology Development Agreement, 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

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<PAGE> 38

nominated to serve as a member of the Board of Directors of the Company.
However, on April 30, 1998, the board appointed Mr. Gregory W. Haskell, the
President and Chief Operating Officer of XLV, to the board to serve until the
1998 annual meeting of stockholders, at which time he will stand for election.
Due to the progress of the development of the XLV Technology and Mr. Haskell's
experience, the Company believed it was in its and its stockholders' best
interest to appoint Mr. Haskell to the board.

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. If
all 1,000,000 shares of Common Stock are issued to XLV under the Technology
Development Agreement, the aggregate percentage of the Company voting power
held by the Amphion Group will fall from 45.4% to 35.4%.

In 1996, the Company and XLV discussed the possibility of working together
to develop a document reader to be used in the access control business. The
parties decided to temporarily postpone their plans until late 1997, at which
time the Company and XLV again held discussions related to new product designs
and desire to further develop both the hardware and software components of the
XLV Technology for use in the access control business. As a result, in January
1998, the Company and XLV entered into the Technology Development Agreement.

CERTAIN INFORMATION IS IN THIS PROXY STATEMENT REGARDING SAFEGUARD, XLV AND
CHROMAVISION WAS PROVIDED BY SAFEGUARD, XLV AND CHROMAVISION THROUGH
PUBLICLY-AVAILABLE SOURCES. ALL SUCH INFORMATION IS BELIEVED BY THE COMPANY TO
BE ACCURATE.

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. Authorization to issue more than twenty percent of the
outstanding Common Stock at a per share price potentially less
than the per share market price of the Common Stock on the
date of issuance to holders of Series G Preferred Stock upon
the conversion of the Series G Preferred Stock.

There are currently 995 shares of Series G Preferred Stock issued and
outstanding. Antiope Partners and Amphion Ventures currently hold 955 of the
995 shares of Series G Preferred Stock outstanding. If Antiope Partners and
Amphion Ventures elect to convert all 955 shares of Common Stock, the result
would be the issuance of 955,000 shares of Common Stock or approximately 39% of
the currently outstanding Common Stock. Although the current 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 Nasdaq was $4.00 on May 26, 1998,
the New Nasdaq Listing Requirements (as defined below) require the Company to
receive the consent of its stockholders to issue more than twenty percent of
its Common Stock at a per share price less than the current market price.
Although the current market price ($4.00) is less than the current conversion
price ($10.00), 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 market price of the Common Stock on the date converted. Accordingly,
because the Series G Preferred Stock may be converted into more than twenty
percent of the outstanding Common Stock at a time when the per share market
value of the Common Stock could potentially exceed the conversion price, the
Company is seeking stockholder approval to issue that amount of Common Stock
pursuant to the New Nasdaq Listing Requirements upon the conversion of the
Series G Preferred Stock.

SERIES G PREFERRED STOCK

The Board of Directors has designated 2,500 shares of its Preferred Stock
as Series G Preferred Stock, par value $0.01 per share. Each share of Series G
Preferred Stock has a stated value of $10,000 (the "Original Series G Issue
Price") and is convertible into Common Stock at any time, at the option of the
holder, at a conversion rate equal to the Original Series G Issue Price divided
by the conversion price of the Series G Preferred Stock, as in effect from time
to time. Such conversion price is currently $10.00 per share of Common Stock,
subject to anti-dilution adjustments. 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. See "Description of Capital Stock -- Preferred Stock."

NEW NASDAQ LISTING REQUIREMENTS

On August 23, 1997, the Securities and Exchange 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.

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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 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 May 26, 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 May 26, 1998, was
$4.00 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 market price of the Common Stock on the date of conversion. 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 must receive stockholder
approval in accordance with the New Nasdaq Listing Requirements in order to
issue Common Stock upon the conversion of Series G Preferred Stock.

The failure to adhere to the New Nasdaq Listing Requirements could result
in the Common Stock being delisted from the Nasdaq SmallCap Market. If the
Common Stock were delisted from the Nasdaq SmallCap Market, trading, if any,
would likely be conducted in the over-the-counter market on the National
Association of Securities Dealers' OTC Bulletin Board and/or on the pink sheets
of the National Quotation Bureau. As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the Common Stock. In addition, the Common Stock would be subject to rules
promulgated under the 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.

- 38 -
<PAGE> 41

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 February 23, 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.

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 to Stockholders, including the
Form 10-KSB, as amended, for the year ended December 31, 1997, which contains
audited financial statements, and the quarterly report on Form 10-QSB for the
three months ended March 31, 1998, accompanies this Proxy Statement. 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.

- 39 -
<PAGE> 42

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated herein by reference:

1. Annual Report on Form 10-KSB, as amended, for the year ended December
31, 1997; and

2. Quarterly Report on Form 10-QSB for the three months ended March 31,
1998.

By Order of the Board of Directors,

/s/ Danny G. Hair, Secretary

June 23, 1998

- 40 -
<PAGE> 43
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 150,000 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

<PAGE> 44
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 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.

<PAGE> 45
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 21st day of July, 1998 (pursuant to the Notice of Annual
Meeting dated June 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.

1. ELECTION OF DIRECTORS

FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to vote for all
to the contrary) nominees listed below.)

[ ] [ ]

NOMINEES: Richard C.E. Morgan, Jean-Pierre Arnaudo, Eugene A.
Bourque, Harry S. Budow, Richard M. Clarke, Paul J.
Coleman, Jr., C. Seth Cunningham and Gregory W. Haskell.

(INSTRUCTION: To withhold authority to vote for any individual nominee, 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.

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

3. APPROVAL OF THE DIRECTOR COMPENSATION PLAN

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

4. APPROVAL OF THE AMENDMENT TO THE STOCK OPTION PLAN TO INCREASE THE NUMBER
OF SHARES RESERVED FOR ISSUANCE UNDER THE PLAN FROM 50,000 TO 900,000
SHARES.

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

5. APPROVAL OF THE ISSUANCE OF UP TO 1,000,000 SHARES OF THE COMPANY'S COMMON
STOCK TO XLV PURSUANT TO THE TECHNOLOGY DEVELOPMENT AGREEMENT.

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

6. AUTHORIZATION 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
OF THE COMMON STOCK ON THE DATE OF ISSUANCE UPON THE CONVERSION OF THE
SERIES G PREFERRED STOCK.

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

7. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS PROPERLY COME BEFORE THE MEETING.

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.

Dated:____________________________________, 1998

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(Signature)

- --------------------------------------------------------------------------------
(Signature if held jointly)