<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:
- -------------------------------------------------------------------------------
(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):
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(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(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
--------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1999
--------------
You are hereby notified that the annual meeting of the stockholders of
AXCESS Inc., will be held at the company's corporate headquarters, 3208
Commander Drive, Dallas, Texas, on June 9, 1999 at 9:00 a.m. central daylight
time for the following purposes:
1. To consider and vote on a proposal to elect Richard C.E.
Morgan, 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 LLP as the independent
auditor of the company for the year ending December 31, 1999;
3. To consider and vote on a proposal to amend the company's
Certificate of Incorporation to: (a) increase the number of authorized
shares of the company's voting common stock from 6,250,000 to
12,000,000; and (b) eliminate a potential ambiguity in the Certificate
of Incorporation which suggests that the directors of the company are
not authorized to issue any new class of stock, including preferred
stock, as authorized in the company's Certificate of Incorporation
(the "Authorized Shares Proposal");
4. To consider and vote on a proposal to issue more than
twenty percent of the company's outstanding voting common stock at a
per share price potentially less than the greater of the per share
book or market value of the voting common stock on the date of
issuance to holders of: (a) Series I Preferred Stock upon the
conversion of the Series I Preferred Stock and (b) Series J Preferred
Stock upon the conversion of the non-voting common stock (the
"Preferred Stock Proposal"); and
5. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Only the stockholders of record at the close of business on April 19,
1999, are entitled to notice of and to vote at the annual 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
Danny G. Hair, Secretary
Dallas, Texas
May 7, 1999
<PAGE> 3
--------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1999
--------------
SOLICITATION
This Proxy Statement and accompanying form of proxy are being mailed
to stockholders commencing on or about May 7, 1999, in connection with the
solicitation by the board of directors of AXCESS Inc. of proxies from the
holders of the following securities of the company:
(a) Voting common stock, $0.01 par value per share ("Voting Common
Stock");
(b) Non-Voting common stock, $0.01 par value per share ("Non-Voting
Common Stock");
(c) Series A Convertible Preferred Stock, $0.01 par value per share
("Series A Preferred Stock");
(d) Series B Convertible Preferred Stock,$0.01 par value per share
("Series B Preferred Stock");
(e) Series C Convertible Preferred Stock,$0.01 par value per share
("Series C Preferred Stock); and
(f) Series I Convertible Preferred Stock, $0.01 par value per share
("Series I Preferred Stock").
Such proxies are to be used at the annual meeting of stockholders of
the company to be held at the company's corporate offices, 3208 Commander
Drive, Dallas, Texas on June 9, 1999 at 9:00 a.m. central daylight time, as set
forth in the accompanying Notice of Annual Meeting of Stockholders 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 annual meeting.
RECORD DATE AND VOTING STOCK
The company's Form 10-KSB for the year ended December 31, 1998, is
hereby incorporated by reference in this Proxy Statement. The Annual Report to
Stockholders, including the Form 10-KSB for the year ended December 31, 1998,
are being mailed to each stockholder entitled to vote at the annual meeting
with the mailing of this Proxy Statement. Holders of record of the company's
Voting Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series I Preferred Stock at the close of business on
Monday, April 19, 1999 (the "Record Date") will be entitled to vote on each
matter presented at the annual meeting or any adjournments thereof. Holders of
record of the company's Non-Voting Common Stock at the close of business on the
Record Date will be entitled to vote at the annual meeting with the Voting
Common Stock, voting together as a single class, with respect to the Authorized
Shares Proposal.
<PAGE> 4
As of the Record Date, the company's outstanding voting securities
consisted of 3,179,368 shares of Voting Common Stock, 57,692 shares of Series A
Preferred Stock, 52,817 shares of Series B Preferred Stock, 35,427 shares of
Series C Preferred Stock and 623 shares of Series I 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 I Preferred Stock are sometimes referred to collectively as
the "Voting Preferred Stock." Under the company's Certificate of Incorporation,
as amended, each share of Voting 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 annual meeting, and each share of Series I Preferred Stock is
entitled to 2,500 votes on each of the proposals specified in the notice of
meeting, representing one vote for each share of Voting Common Stock into which
a single share of Series I Preferred Stock is convertible on the Record Date in
accordance with the terms thereof.
The company has also authorized a series of Non-Voting Common Stock
and a series of non-voting convertible preferred stock (the "Series J Preferred
Stock"). Each share of Non-Voting Common Stock is entitled to one vote on the
Authorized Shares Proposal. As of the Record Date, there were 112,492 shares of
Non-Voting Common Stock and 1,688 shares of Series J Preferred Stock
outstanding.
The affirmative votes of the majority of the outstanding voting power
of the Voting Common Stock and Voting Preferred Stock, voting together as a
single class, is required to adopt each of the proposals, except for the
Authorized Shares Proposal. The affirmative votes of the majority of the
outstanding voting power of the Voting Common Stock and Non-Voting Common
Stock, voting together as a single class, and the Voting Common Stock and
Voting Preferred Stock, voting together as a single class, are required to
adopt the Authorized Shares Proposal. Holders of the company's Series J
Preferred Stock are not entitled to vote on any of the matters brought before
the annual meeting or any adjournment thereof.
The holders of a majority of the Voting 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
transaction of business at the annual meeting. If a quorum is not present or
represented by proxy at the annual meeting, the stockholders entitled to vote
at the annual meeting, present in person or represented by proxy, shall have
the power to adjourn the meeting from time to time, without notice other than
announcement at the annual meeting, until a quorum shall be present or
represented by proxy. At such adjourned meeting at which a quorum shall be
presented or represented by proxy, any business may be transacted which might
have been transacted at the annual meeting as originally called. If the
adjournment is for more than thirty days, or, if after the adjournment a new
record date is set, a notice of adjourned meeting shall be given to each
stockholder of record entitled to vote at the annual meeting.
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.
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<PAGE> 5
All duly executed proxies received prior to the annual 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 (a) FOR the election as directors of
the nominees listed herein, (b) FOR the ratification of KPMG LLP as the
independent auditor of the company for the period ending December 31, 1999, (c)
FOR approval of the Authorized Shares Proposal, (d) FOR the Preferred Stock
Proposal; and (e) in the discretion of the persons named in the proxy in
connection with any other business that may properly come before the annual
meeting. A stockholder giving a proxy may revoke it at any time before it is
voted at the annual meeting by filing with the Secretary of the company an
instrument revoking it, by delivering a duly executed proxy bearing a later
date or by appearing at the annual 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 shares of 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 (a) Voting
Common Stock, (b) Non-Voting Common Stock, (c) Series A Preferred Stock, (d)
Series B Preferred Stock, (e) Series C Preferred Stock, (f) Series I Preferred
Stock and (g) Series J Preferred Stock beneficially owned as of April 1, 1999,
by (i) each director and director nominee who beneficially owns Voting Common
Stock and the executive officers of the company, (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 Voting
Common Stock as of April 1, 1999. The business address of each director and
executive officer is c/o AXCESS Inc., 3208 Commander Drive, Dallas, 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............. Voting Common Stock 953,475(1) 26.8% 11.8%
Series A Preferred Stock 57,692(2) 100.0% 1.2%
Series B Preferred Stock 52,816(3) 100.0% 1.1%
Series C Preferred Stock 25,492(4) 72.0% 0.5%
Series I Preferred Stock 530(5) 85.1% 27.1%
Series J Preferred Stock 1,688(6) 100.0% n/a
Aggregate Number of Shares of Company Stock Entitled to
Vote with Respect to the Matters Presented at the Annual Meeting......................... 2,035,231
Percentage of Company Voting Power with Respect to the
Matters Presented at the Annual Meeting.................................................. 41.7%
</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>
Harry S. Budow............. Voting Common Stock 91,885(7) 2.8% *
Richard M. Clarke.......... Voting Common Stock 36,750(8) 1.1% *
Paul J. Coleman, Jr........ Voting Common Stock 23,090(9) * *
C. Seth Cunningham......... Voting Common Stock 25,750(10) * *
Gregory W. Haskell......... Voting Common Stock 12,500(11) * *
EXECUTIVE OFFICERS:
Danny G. Hair.............. Voting Common Stock 45,242(12) 1.4% *
Glen E. Alcorn............. Voting Common Stock 10,990(13) * *
Jeff Jarvis................ Voting Common Stock 18,750(14) * *
Ken Larkin................. Voting Common Stock 6,836(15) * *
Janice Schroer............. Voting Common Stock 4,672(16) * *
All Directors and Executive
Officers as a group
(11 individuals)........... Voting Common Stock 1,227,794(17) 27.9% 12.3%
Series A Preferred Stock 57,692(2) 100.0% 1.2%
Series B Preferred Stock 52,816(3) 100.0% 1.1%
Series C Preferred Stock 25,492(4) 72.0% *
Series I Preferred Stock 530(5) 85.1% 27.1%
Series J Preferred Stock 1,688(6) 100.0% n/a
OTHER:
Amphion Group Voting Common Stock 862,312(18) 24.3% 10.0%
590 Madison Avenue Series A Preferred Stock 57,692 100.0% 1.2%
New York, NY 10021 (25).... Series B Preferred Stock 52,816 100.0% 1.1%
Series C Preferred Stock 25,492(19) 72.0% *
Series I Preferred Stock 530 85.1% 27.1%
Series J Preferred Stock 1,688 100.0% n/a
Aggregate Number of Shares of Company Stock Entitled to
Vote with Respect to the Matters Presented at the Annual Meeting................... 1,947,068
Percentage of Company Voting Power with Respect to the
Matters Presented at the Annual Meeting............................................ 39.9%
</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 Voting Common Stock 289,422(20) 9.0% 5.5%
60 Wall Street Series I Preferred Stock 50 8.0% 2.6%
New York, NY 10060......... Non-Voting Common Stock 112,492 100.0% n/a
Aggregate Number of Shares of Company Stock Entitled to
Vote with Respect to the Matters Presented at the Annual Meeting.................. 392,170
Percentage of Company Voting Power with Respect to the
Matters Presented at the Annual Meeting........................................... 8.0%
</TABLE>
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* Denotes percentage ownership of less than 1%.
(1) Includes 3,000 shares that Mr. Morgan has the right to acquire within
60 days pursuant to options, 486,068 shares held by entities within the
Amphion Group (defined in Note 21 below) and 376,244 shares that
entities within the Amphion Group have the right to acquire within 60
days pursuant to options and warrants. Also includes 1,500 shares held
by Mr. Morgan's daughter, for which he disclaims beneficial ownership.
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 21.
(2) All 57,692 shares are held by Amphion Ventures. See Note 1 and Note 21.
(3) All 52,816 shares are held by Amphion Ventures. See Note 1 and Note 21.
(4) All 25,492 shares are held by Amphion Ventures. Does not include 9,935
shares held by Jackson Hole Investments Acquisitions, L.P., ("Jackson
Hole"). Jackson Hole is not affiliated with Amphion Ventures.
See Note 1 and Note 21.
(5) Includes 476 shares held by Amphion Ventures and 54 shares held by
Antiope Partners L.L.C. ("Antiope Partners"). See Note 1 and Note 21.
(6) All 1,688 shares are held by Amphion Ventures. See Note 1 and Note 21.
(7) Includes 87,500 shares that Mr. Budow has the right to acquire within
60 days pursuant to options.
(8) Includes 23,500 shares that Mr. Clarke has the right to acquire within
60 days pursuant to options.
(9) Includes 23,000 shares that Mr. Coleman has the right to acquire
within 60 days pursuant to options.
(10) Includes 23,000 shares that Mr. Cunningham has the right to acquire
within 60 days pursuant to options.
(11) All 12,500 shares represent shares Mr. Haskell has the right to
acquire within 60 days pursuant to options.
(12) Includes 37,500 shares Mr. Hair has the right to acquire within 60
days pursuant to options.
(13) Includes 9,766 shares Mr. Alcorn has the right to acquire within 60
days pursuant to options.
(14) All 18,750 shares represent shares Mr. Jarvis has the right to acquire
within 60 days pursuant to options.
(15) All 6,836 shares represent shares Mr. Larkin has the right to acquire
within 60 days pursuant to options.
(16) Includes 3,750 shares Ms. Schroer has the right to acquire within 60
days pursuant to options.
(17) Includes the 249,102 shares that officers and directors have the right
to acquire within 60 days pursuant to options, as described in Notes 1,
and 7-16; the 376,244 shares that Amphion Ventures and Antiope Partners
have the right to acquire pursuant to options and warrants; and the
486,068 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 21.
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<PAGE> 9
(18) Includes 335,744 and 40,500 shares that Amphion Ventures and Antiope
Partners, respectively, have the right to acquire within 60 days
pursuant to options and warrants. See Note 21.
(19) Does not include 9,935 shares held by Jackson Hole. See Note 21.
(20) 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 47.9%
of the voting power of the company. JPMIC disclaims beneficial
ownership of the voting stock held by entities within the Amphion
Group.
(21) Includes shares beneficially owned by: (a) Amphion Ventures; (b)
Amphion Partners; (c) Antiope Partners; and (d) Amphion Investments
L.L.C. ("Amphion Investments"). Amphion Ventures, Amphion Partners,
Antiope Partners and Amphion Investments disclaim that they hold any
securities of the company as a group, within the meaning of any
applicable securities law or regulation. 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, Antiope Partners and Amphion Investments
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 partner and member of Amphion
Partners, Antiope Partners and Amphion Investments.
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 1, 1999,
are as follows:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES I SERIES J 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.......... 86,534 -- -- -- 54 123 40,500 --
Amphion Ventures.......... 361,409 57,692 52,816 25,492 476 1,565 331,901 3,843
Amphion Partners.......... 28,125 -- -- -- -- -- -- --
Amphion Investments....... 10,000 -- -- -- -- -- -- --
Total..................... 486,068 57,692 52,816 25,492 530 1,688 372,401 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 April 1, 1999, the names of the directors and the executive officers of
the company, their respective ages and their respective positions with the
company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard C.E. Morgan.................... 54 Chairman of the Board of Directors
Harry S. Budow......................... 37 Director, President and Chief Executive Officer
Danny G. Hair.......................... 49 Executive Vice President, Secretary and Chief Financial
Officer
Glen E. Alcorn......................... 55 Vice President, Product Marketing
Jeff Jarvis............................ 54 Vice President, Sales and Business Development
Ken Larkin............................. 42 Vice President, Technology
Janice Schroer......................... 52 Vice President, Market Communications
C. Seth Cunningham..................... 43 Director
Richard M. Clarke...................... 67 Director
Paul J. Coleman, Jr.................... 67 Director
Gregory W. Haskell..................... 42 Director
</TABLE>
- -------------------------------------------------------------------------------
RICHARD C.E. MORGAN is Chairman of the Board of the company. 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.
HARRY S. BUDOW is a director, President and Chief Executive Officer of the
company. 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. 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.
GLEN E. ALCORN is Vice President, Product Marketing of the company. Prior
to joining the company in November 1997, Mr. Alcorn was a vice president of TSC
Communications Corp. from January 1997 to October 1997. From January 1996 to
December 1996, Mr. Alcorn was manager, new business development of Bell
Packaging Corporation and from 1987 to December 1995, vice president, product
marketing and business development of SpectraVision, Inc.
JEFF JARVIS is Vice President, Sales and Business Development of the
company. Prior to joining the company in January 1998, Mr. Jarvis was president
of eNcircle Systems Corp. from 1996 to 1998 and director, global logistics of
Electronic Data Systems Corporation from 1994 to 1996.
-8-
<PAGE> 11
KEN LARKIN is Vice President, Technology of the company. Prior to joining
the company in October 1997, Mr. Larkin was engineering manager of Estech
Systems from October 1996 to October 1997, and manager, software development of
SpectraVision, Inc. from October 1992 to October 1996.
JANICE SCHROER is Vice President, Market Communications of the company.
Prior to joining the company in January 1998, Ms. Schroer was manager,
communications of Sprint Business from January 1996 to December 1997, and
director, communications of SpectraVision, Inc. from February 1993 to December
1995.
C. SETH CUNNINGHAM is a director of the company. He is a member of the
audit committee. From 1979 to mid-1996, Mr. Cunningham was employed by J.P.
Morgan and 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 has been a private equity investor.
Mr. Cunningham became a director of the company in 1994.
RICHARD M. CLARKE is a director of the company. 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.
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 1998.
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
1998.
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 1998.
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 met separately from the Board on one
occasion during 1998.
COMPENSATION OF THE COMPANY'S DIRECTORS
The current policy of the company is to pay each director who is not
employed by the company and who does not beneficially own more than 5% of the
shares of common stock outstanding the compensation set forth in the Director
Compensation Plan. Under the Director Compensation Plan, each eligible director
receives 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"). The Annual Grant
customarily takes place shortly after each annual meeting of the company's
stockholders. All new board members 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. 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. While directors do not receive additional compensation for
attending meetings, the company pays 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. Each director attended 100% of (a) the total
number of meetings of the Board held during the period in which he was a
director and (b) the total number of meetings held by all committees on which
he served.
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<PAGE> 13
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 with
fair compensation based on their responsibilities, and on the performance of
the company as a whole.
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 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 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 Voting Common Stock by Certain Beneficial Owners and
Management."
The Compensation Committee believes that its earnings and bonus targets
are confidential and disclosure of those targets would adversely effect the
company. The report of the Compensation Committee will not be deemed to be
incorporated by reference into any filing by the company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent that
the company specifically incorporates that report by reference.
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<PAGE> 14
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by the company's
Chief Executive Officer and its four other most highly compensated executive
officers (whose compensation exceeded $100,000 in 1998) and one additional
individual for whom disclosure would have been provided had the individual been
serving as an executive officer as of December 31, 1998, collectively, the
"Named Officers," for services rendered in all capacities to the company during
the fiscal years ended December 31, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying
Options/ All Other
Salary Bonus SARs Compensation
Name and Principal Positions Year ($) ($) (#) ($)
---------------------------- ---- ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Richard C.E. Morgan.............. 1998 -- -- -- --
Chairman of the Board (A) 1997 60,000 -- -- 40,000
1996 100,000 -- 50,000 --
Harry S. Budow................... 1998 206,000 36,000 200,000 --
President and Chief Executive 1997 87,500 22,498 -- --
Officer (A) 1996 -- -- -- --
Danny G. Hair.................... 1998 158,000(B) 73,000(B) 150,000 --
Executive Vice President, Chief 1997 -- -- -- --
Financial Officer and Secretary 1996 -- -- -- --
Jeff Jarvis...................... 1998 114,000(B) 20,000(B) 75,000 --
Vice President, Sales and 1997 -- -- -- --
Business Development 1996 -- -- -- --
Glen E. Alcorn................... 1998 106,000 15,000 25,000 --
Vice President, Product 1997 17,904(B) -- -- --
Marketing 1996 -- -- -- --
Eugene A. Bourque................ 1998 151,000 -- -- --
President and Chief Executive 1997 140,000 5,625 -- --
Officer - LMC (C) 1996 138,358 -- 80,000(D) --
Jean-Pierre Arnaudo.............. 1998 260,000 -- 55,000 --
former Chief Executive Officer 1997 180,000 40,000 -- 37,956(E)
- Sandia (C) 1996 180,000 50,000 -- 49,700(E)
</TABLE>
- --------------------
(A) Mr. Morgan served as the company's interim Chief Executive Officer from
January 1, 1998 to April 30, 1998, for which he did not receive any
compensation. Harry S. Budow became the company's Chief Executive Officer
on April 30, 1998. Mr. Morgan still serves as the company's Chairman of
the Board. During 1997, Mr. Morgan received an annual salary of $100,000
while serving as the company's Chief Executive Officer, $60,000 of which
was payable in cash and $40,000 of which was payable in Voting Common
Stock.
(B) The 1998 compensation of Messrs. Hair and Jarvis represents less than a
full year, and the 1997 compensation for Mr. Alcorn represents less than a
full year. The 1998 bonus received by Messrs. Hair and Jarvis includes a
one-time hiring bonus.
(C) Mr. Arnaudo resigned from the company in December 1998. Upon the
consummation of the sale of the company's wholly-owned subsidiary,
Lasertechnics Marking Corporation which was announced in March 1999, Mr.
Bourque will become an employee of the buyer of that business.
(D) Securities underlying options were for LMC common stock.
(E) Represents the payment of transitional living expenses incurred from
January 1996 to December 1997 and the payment of moving expenses incurred
due to Mr. Arnaudo's relocation from Paris, France to Dallas, Texas.
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<PAGE> 15
OPTION GRANTS IN 1998 TO THE COMPANY'S EXECUTIVE OFFICERS
The following table provides information regarding the stock options
granted by the company to Named Officers in 1998.
<TABLE>
<CAPTION>
1998 OPTION GRANTS
Individual Grants
---------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Number of Percent of Stock Price
Securities Total Exercise Appreciation for Option
underlying Options of Base Term (A)
Name Option/SARs Granted to Price Expiration -----------------------
---- Granted (#) Employees ($/Sh) Date 5% ($) 10% ($)
----------- ---------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Harry S. Budow 200,000(B) 28.0% $3.00 7/21/08 214,447 696,872
Danny G. Hair 150,000(C) 21.0% $3.00 7/21/08 160,835 522,654
Jeff Jarvis 75,000(C) 10.5% $3.00 7/21/08 80,418 261,327
Glen E. Alcorn 25,000(B) 3.5% $3.00 7/21/08 26,806 87,109
Jean-Pierre Arnaudo(D) 55,000 7.7% $3.00 (D) 58,973 191,640
</TABLE>
- -----------------------
(A) The potential realizable values set forth under these columns result from
calculations assuming 5% and 10% growth rates as set by the Securities and
Exchange Commission and are not intended to forecast future price
appreciation of the company's common stock. The amounts reflect potential
future value based upon growth at these prescribed rates. The company did
not use an alternative formula for a grant date valuation, an approach
which would state gains at present, and therefore lower, value. The
company is not aware of any formula which will determine with reasonable
accuracy a present value based on future unknown or volatile factors.
Actual gains, if any, on stock option exercises are dependent on the
future performances of the company's common stock. There can be no
assurance that the amounts reflected in this table will be achieved.
(B) One-fourth (1/4) of these options are currently exercisable and an
additional one-fourth becomes exercisable on each of April 30, 1999, 2000
and 2001.
(C) One-fourth (1/4) of these options become exercisable on April 30, 1999,
2000, 2001 and 2002.
(D) Mr. Arnaudo resigned as the Vice Chairman of the Board in December 1998
and his stock options will expire if unexercised in October 1999.
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<PAGE> 16
AGGREGATE OPTION EXERCISES IN 1998 BY THE COMPANY'S EXECUTIVE OFFICERS
The following table provides information as to options exercised, if any,
by each of the Named Officers in 1998 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 Voting Common Stock on December 31, 1998 ($1.44 as
reported on Nasdaq).
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of in-the-Money
Securities Underlying Options at
Unexercised Options December 31, 1998
at December 31, 1998(#) (A)($)
----------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard C. E. Morgan 3,000 -- -- --
Harry S. Budow 87,500 112,500 -- --
Danny G. Hair 37,500 112,500 -- --
Jeff Jarvis 18,750 56,250 -- --
Glen E. Alcorn 9,766 15,234 -- --
Eugene A. Bourque(B) 7,814 -- -- --
Jean-Pierre Arnaudo(B) 60,000 -- -- --
</TABLE>
- -------------------------
(A) Market value of shares covered by in-the-money options on December 31,
1998, 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) Upon the consummation of the company's sale of LMC, which was announced in
March 1999, Mr. Bourque will become an employee of the buyer of LMC. Mr.
Arnaudo resigned as the Vice Chairman of the Board in December 1998 and
his stock options if unexercised expire in October 1999.
Certain Relationships and Related Transactions
During 1998, the company received consulting services from director
nominee Richard M. Clarke relating to the manufacturing and production
operations of the company's LMC subsidiary, which the company announced in
March 1999 will be sold. In 1998, Mr. Clarke was a member of the company's
Board and was paid a total of $10,000 per month for the five months of
consulting services provided by Mr. Clarke to the company's LMC subsidiary. Mr.
Clarke's consulting agreement was terminated prior to the announcement of the
sale of LMC.
In March 1999, the company entered into a definitive agreement to sell its
LMC subsidiary to Amphion Ventures and Antiope Partners, both members of the
Amphion Group. The company's rights and interests in DataGlyph(TM) and the
technology under development with XL Vision, Inc. were also included in the
sale. The Amphion Group is the holder of more than ten percent of the company's
outstanding Voting Common Stock and the company's voting power. See "Ownership
of Common Stock by Certain Beneficial Owners and Management." Mr. Richard C.E.
Morgan, Chairman of the Board of the company, is a managing member of Amphion
Partners, the sole general partner of Amphion Ventures, and a managing member
of Antiope Partners.
The company will receive $7.0 million at closing in the form of (a) $2.5
million in cash, (b) a $0.5 million demand note receivable, (c) a $4.0 million
note receivable secured by the LMC stock and the technology assets described
above and (d) a warrant to purchase equity in the Amphion Group-controlled
entity to which the LMC stock and the technology assets will be transferred by
the Amphion Group following the closing.
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<PAGE> 17
Approximately $2.0 million of the sale proceeds will be used by the company to
retire notes payable of the company to the Amphion Group. The company's net
book value of LMC and the technology assets sold was approximately $3.0
million. This transaction is expected to close within the next thirty days.
Equity Commitment by Major Stockholder
Prior to the purchase of the 213 shares of Series J Preferred Stock by
Amphion Ventures during the three month period ended December 31, 1998, which
is described below under the heading Equity Purchases by Major Stockholder,
Amphion Ventures had previously purchased 205 shares and 792 shares of the
company's Series G Convertible Preferred Stock (the "Series G Preferred Stock")
and Series H Convertible Preferred Stock (the "Series H Preferred Stock"),
respectively, for a total purchase price of $9,970,000. In October 1998, the
company obtained a formal commitment from Amphion Ventures to purchase up to an
additional $2.3 million of shares of either the company's Series G Preferred
Stock, Series H Preferred Stock, Series I Preferred Stock or Series J Preferred
Stock raising their commitment to a total of $6.3 million, to fund the
company's operations (the "1998 Amphion Commitment"). In connection with this
commitment, Amphion Ventures received common stock warrants to purchase 264,998
shares of the company's common stock at an exercise price of $2.50 per share.
Each share of Series I Preferred Stock is convertible in whole or in part
at any time at the option of the holder into shares of Voting Common Stock of
the company equal to the quotient of (a) the aggregate original Series I
Preferred Stock issue price of $10,000 per share (the "Original Series I Issue
Price") divided by (b) the conversion price of $4.00 per share, which is
subject to being adjusted from time to time. See "Exercise of Preferred Stock
Reset Right by Stockholders" below. The Series J Preferred Stock is
substantially the same as the Series I Preferred Stock, except the Series J
Preferred Stock is convertible in whole or in part at any time at the option of
the holder into shares of the company's Non-Voting Common Stock of the company
based on the same formula. The original Series J Preferred Stock issue price is
also $10,000 per share (the "Original Series J Issue Price"). See "Description
of Capital Stock."
The Series I Preferred Stock and the Series J Preferred Stock are both
subject to the optional redemption at any time by the company, in whole or in
part, at a redemption price per share equal to the Original Series I Issue
Price or the Original Series J Issue Price, as the case may be, plus any
accrued, but unpaid dividends thereon. The company's optional right of
redemption is subject to each Series I Preferred Stock or Series J Preferred
Stock holder's right, as the case may be, to convert such Series I Preferred
Stock or Series J Preferred Stock, as the case may be, into common stock within
ten (10) business days after the company's notice of redemption.
The Series I Preferred Stock and the Series J Preferred Stock are also
subject to the mandatory conversion by the company into shares of the company's
Voting or Non-Voting Common Stock, as the case may be, if the closing bid price
of the company's Voting Common Stock on the Nasdaq SmallCap Market is at least
$10.00 per share for a period of at least ninety (90) consecutive trading days.
Although the company's Non-Voting Common Stock may be converted to Voting
Common Stock at any time by a holder thereof, Amphion Ventures has agreed not
to convert any shares of Non-Voting Common Stock to Voting Common Stock without
the prior consent of the company.
Exercise of Preferred Stock Reset Right by Stockholders
In connection with the issuance of the company's Series G Preferred Stock
and the Series H Preferred Stock during 1997 and 1998, the company agreed with
the initial holders of the Series G Preferred Stock and the Series H Preferred
Stock, that if, at any time prior to December 31, 1999, the company were to
complete an equity financing raising at least $3,000,000 in new equity, such
initial holders would have the non-assignable right (the "Reset Right"), but
not the obligation to exchange all or a portion of their shares of
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<PAGE> 18
Series G Preferred Stock or Series H Preferred Stock for shares of a new series
of preferred stock with substantially the same terms and conditions offered to
the participants in the new equity financing. No such change, however, would
result in an increase in the conversion price above $10.00 per share.
The 1998 Amphion Commitment described above triggered the reset right held
by the holders of the Series G Preferred Stock and the Series H Preferred
Stock. As a result, all of the holders of the Series G Preferred Stock and the
Series H Preferred Stock elected to exercise their rights to exchange all
shares of Series G Preferred Stock held by such holders for shares of Series I
Preferred Stock, as well as all shares of Series H Preferred Stock held by such
holders for shares of Series J Preferred Stock.
In connection with its exercise of the Reset Right, Amphion Ventures
exchanged all 405 shares of Series G Preferred Stock held by it for 405 shares
of Series I Preferred Stock and all 792 shares of Series H Preferred Stock held
by it for 792 shares of Series J Preferred Stock. Also, Antiope Partners
converted all 50 shares of Series G Preferred Stock held by it for 50 shares of
Series I Preferred Stock and the other holder converted all 40 shares of Series
G Preferred Stock held by it for 40 shares of Series I Preferred Stock. The
Series I Preferred Stock and Series J Preferred Stock also contain a similar
reset provision such that if at any time prior to December 31, 1999, the
company were to complete an equity financing with third parties raising at
least $1,000,000 in new equity, the initial holders would have the
non-assignable right (the "Series I and J Reset Right"), but not the obligation
to exchange all or a portion of their shares of Series I Preferred Stock or
Series J Preferred Stock for shares of a new series of preferred stock with
substantially the same terms and conditions offered to the participants in the
new equity financing. Further, if the company fails to complete such an equity
financing prior to December 31, 1999, the conversion price of the Series I
Preferred Stock and Series J Preferred Stock will automatically be reset to not
less than the greater of $1.00 or one-half of the average closing bid price of
the company's common stock on the Nasdaq SmallCap Market during the last twenty
(20) consecutive trading days of 1999. See "Description of Capital Stock." If
the Series I and J Reset Right is triggered, Amphion Ventures has agreed to
convert or exchange a sufficient number of shares of Series I Preferred Stock
to Series J Preferred Stock or such other series of preferred stock such that
Amphion Ventures and its affiliates will not be deemed the beneficial owner of
more than fifty percent (50%) of the company's Voting Common Stock.
Equity Purchases by Major Stockholder
Under the terms of the Amphion Commitment, 213 shares of Series J
Preferred Stock were issued to Amphion Ventures during the three month period
ended December 31, 1998, for an aggregate purchase price of $2,130,000.
$1,110,000 of the purchase price was payable primarily by the delivery of
unconditional promissory notes payable to the company by Amphion Ventures, the
balance of which was paid in full by December 31, 1998. In addition, the
company issued 98 shares of Series J Preferred Stock to Amphion Ventures on
December 31, 1998, for a total purchase price of $980,000 and 5 shares of
Series J Preferred Stock to Antiope Partners for a total purchase price of
$50,000. The purchase price for both of these issuances was payable in cash by
each of Amphion Partners and Antiope Partners.
Payment of Dividends on Preferred Stock
The holders of the Series G Preferred Stock, the Series H Preferred Stock,
the Series I Preferred Stock and the Series J Preferred Stock are entitled to
receive dividends on each such share held by a holder at the annual rate of 8%
of the original issue price of each such share ($10,000) payable in arrears,
when, as and if declared by the company's board of directors, in cash or
additional shares of preferred stock. On December 31, 1998, the company issued:
(a) 71 shares of Series I Preferred Stock to Amphion Ventures as payment in
full for the $710,000 of accrued, but unpaid dividends on the Series I
Preferred Stock as of such date (which included all accrued, but unpaid
dividends on the Series G Preferred Stock as of the October 31, 1998, exchange
date); (b) 4 shares of Series I Preferred Stock to Antiope Partners as payment
in full for the
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<PAGE> 19
$40,000 of accrued, but unpaid dividends on the Series I Preferred Stock as of
such date (which included all accrued, but unpaid dividends on the Series G
Preferred Stock as of the October 31, 1998, exchange date); and (c) 30 shares
of Series J Preferred Stock to Amphion Ventures as payment in full for the
$300,000 of accrued, but unpaid dividends on the Series J Preferred Stock as of
such date (which included all accrued, but unpaid dividends on the Series H
Preferred Stock as of the October 31, 1998, exchange date).
Conversion of Notes Payable by Stockholders
Under the terms of a Note Purchase Agreement dated December 29, 1997 (the
"Note Purchase Agreement"), the company borrowed a total of $3,020,233 from
Amphion Ventures ($400,000), Antiope Partners ($1,820,233) and J.P. Morgan
Investment Corporation ($800,000). In December 1998, Amphion Ventures, Antiope
Partners and J.P. Morgan Investment Corporation each elected to convert
one-half of the outstanding indebtedness of the company to each of them under
the Note Purchase Agreement, including all accrued, but unpaid interest thereon
through December 31, 1998, into shares of the company's Series I Preferred
Stock or Series J Preferred Stock. In addition, Amphion Ventures elected to
convert $100,000 of the accrued, but unpaid interest under the terms of its
$1.47 million note payable from the company (the "Amphion Note Payable"), the
proceeds of which were used by the company to settle its dispute with Xerox
Corporation in December 1998, into shares of Series I Preferred Stock or Series
J Preferred Stock.
As a result of the debt conversions described above, the company issued:
(a) 35 shares of Series J Preferred Stock to Amphion Partners for its
conversion of indebtedness of the company in the aggregate amount of $350,000
($200,000 under the terms of the Note Purchase Agreement plus $50,000 of
accrued, but unpaid interest thereon, and $100,000 of accrued, but unpaid
interest on the Amphion Note Payable); (b) 118 shares of Series J Preferred
Stock to Antiope Partners for its conversion of indebtedness of the company in
the aggregate amount of $1,180,000 ($910,000 under the terms of the Note
Purchase Agreement plus $270,000 of accrued, but unpaid interest thereon); and
(c) 50 shares of Series I Preferred Stock to J.P. Morgan Investment Corporation
for its conversion of indebtedness of the company in the aggregate amount of
$500,000 ($400,000 under the terms of the Note Purchase Agreement plus $100,000
of accrued, but unpaid interest thereon).
Also in December 1998, Amphion Ventures, Antiope Partners and J.P. Morgan
Investment Corporation agreed with the company to extend the maturity date of
the balance remaining under the senior notes issued under the Note Purchase
Agreement for a period of one year. The balance of the indebtedness under the
senior notes issued under the Note Purchase Agreement is now due in full by the
company on December 31, 1999.
Acquisition of RFID Technology
In September 1998, as a part of the total consideration paid to ASGI, Inc.
and Nauta, Inc. by the company in connection with its acquisition of the RFID
technology from those entities, the company issued an aggregate of 400,000
shares of its restricted Voting Common Stock.
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<PAGE> 20
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED SHARES
The authorized capital stock of the company consists of (a) 6,250,000
shares of Voting Common Stock, (b) 2,250,000 shares of Non-Voting Common Stock,
and (c) 7,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), issuable in series. To date, 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 I Convertible Preferred
Stock; and (v) a series of 2,500 shares of Preferred Stock designated the
Series J Convertible Preferred Stock. See "Description of Capital
Stock--Preferred Stock," below.
As of April 1, 1999, a total of 3,179,368 shares of Voting Common Stock
and 112,492 shares of Non-Voting Common Stock were issued and outstanding. As
of April 1, 1999, a total of 148,254 shares of Preferred Stock were issued and
outstanding as follows: (i) 57,692 shares of Series A Preferred Stock; (ii)
52,817 shares of Series B Preferred Stock; (iii) 35,427 shares of Series C
Preferred Stock; (iv) 623 shares of Series I Preferred Stock and (v) 1,688
shares of Series J Preferred Stock. All outstanding shares of the company's
Voting Common Stock, Non-Voting Common Stock and Preferred Stock are fully paid
and nonassessable. None of the shares of Voting Common Stock, Non-Voting Common
Stock or Preferred Stock has preemptive rights.
VOTING COMMON STOCK AND NON-VOTING COMMON STOCK
Each share of Voting 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 Voting Common Stock, as a single
class, with respect to any proposal to increase or decrease the number of
authorized shares of Voting 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 Voting Common Stock and Non-Voting Common Stock are otherwise
identical in all respects.
Regulated Stockholders are entitled to convert shares of Voting Common
Stock into shares of Non-Voting Common Stock. The term "Regulated Stockholder"
means (a) the stockholder ("the SBIC Stockholder") that purchased shares of
Voting Common Stock pursuant to a Voting 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 Voting 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 Voting 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
Voting Common Stock or Non-Voting Common Stock of the Corporation, so long as
such Affiliate shall hold any such shares of Voting Common Stock or Non-Voting
Common Stock or shares issued upon conversion(s) of such shares and (d) any
individual, partnership, joint
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<PAGE> 21
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 Voting Common Stock.
No holder of any shares of Non-Voting Common Stock shall be entitled to convert
any such shares into shares of Voting 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 Voting Common Stock or other securities of any kind issued by the
company 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 company 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 Voting Common Stock unless such conversion is permitted
under applicable law; provided however, that the company 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 company 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 Voting Common Stock or Non-Voting Common
Stock are held by a Regulated Stockholder which is subject to the provisions of
Regulation Y, the company will not directly or indirectly redeem, purchase,
acquire or take any other action affecting outstanding shares of Voting 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 company, or increase above
24.9% the percentage of outstanding Voting 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 Voting Common Stock or Non-Voting Common
Stock, the shares of Voting 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 Voting 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 Voting Common Stock. Subject
to certain conditions, the company may not convert or directly or indirectly
redeem, purchase or otherwise acquire any shares of Voting 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 Voting Common Stock and Non-Voting Common Stock are
entitled to receive ratably such dividends, if any, as are declared by the
company's Board of Directors out of funds legally available for that purpose,
subject to the rights of holders of Preferred Stock. In the event of the
company's liquidation, dissolution or winding up, the holders of Voting 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 Voting
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<PAGE> 22
Common Stock and Non-Voting Common Stock, subject to the preferential rights of
holders, if any, of shares of Preferred Stock. See "Description of Capital
Stock--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 Voting
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 Voting Common
Stock were paid on the outstanding shares of Voting 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 1,688 shares of Series J Preferred Stock,
has agreed not to convert any shares of Non-Voting Common Stock it may acquire
upon conversion of shares of the Series J Preferred Stock to Voting Common
Stock 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
Voting 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 Voting
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 Voting 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 75,000 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 Voting 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
Voting Common Stock, in addition to any class voting rights provided by law.
Subject to the prior preferences and other rights of any class or series
of the company's capital stock ranking prior to the Series A Preferred Stock,
the holders of shares of Series A Preferred Stock are entitled to receive and,
subject to any prohibition or restriction contained in any instrument
evidencing indebtedness of the company, the company will be obligated to pay,
preferential cumulative cash dividends on such shares out of funds legally
available therefor. Dividends are payable quarterly and accrue cumulatively,
whether or not such dividends are declared or funds are legally or
contractually available for payment of dividends, at a rate of 10% per annum.
Dividends are payable in cash or in additional shares of Series A Preferred
Stock, but after 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.
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<PAGE> 23
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 Voting 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 I Preferred Stock and the Series J
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 Voting 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 75,000 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 Voting 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
Voting 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 rate of 10% per annum.
Dividends are payable in cash or in additional shares of Series B Preferred
Stock, but after July 1, 1996, only holders of Series B Preferred Stock, rather
than the company, may make such election. Any dividends paid in kind on the
Series B Preferred Stock are to be valued on the basis of the stated value of
the Series B Preferred Stock.
Upon dissolution, liquidation or winding up of the company, holders of the
Series B Preferred Stock will be entitled, after payment of preferential
amounts on any securities ranking senior to the Series B Preferred Stock, to
receive from the assets of the company available for distribution to
stockholders an amount in cash, per share, equal to the stated value of such
share and all accrued dividends attributable to such share at the time of such
dissolution, liquidation or winding up of the company. The Series B Preferred
Stock ranks senior to the Voting 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 I Preferred Stock and the Series J
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 Voting 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 75,000 shares of the Preferred Stock as Series C Preferred Stock, $30.20
stated value per share. Each share of Series C Preferred
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<PAGE> 24
Stock is convertible at any time, at the option of the holder, into one share
of Voting 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 Voting 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 after 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 Voting 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 I Preferred Stock and the Series J
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 Voting Common Stock within the 10 business days
immediately following the company's notice of such redemption.
SERIES I PREFERRED STOCK. The Board of Directors has designated 2,500
shares of the Preferred Stock as Series I Preferred Stock, par value $.01 per
share. Each share of Series I Preferred Stock has a stated value of $10,000
(the "Original Series I Issue Price") and is convertible into Voting Common
Stock at any time, at the option of the holder, at a conversion rate equal to
the Original Series I Issue Price divided by the conversion price of the Series
I Preferred Stock, as in effect from time to time. Such conversion price shall
initially be $4.00 per share of Voting Common Stock, subject to anti-dilution
adjustments (the "Series I Conversion Price"). Holders of shares of Series I
Preferred Stock are entitled to vote on all matters brought before the
company's stockholders as if such shares of Series I Preferred Stock had been
converted into shares of Voting 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 I Preferred Stock,
and in preference to the holders of shares of capital stock ranking junior to
the Series I Preferred Stock as to dividends, the holders of Series I Preferred
Stock are entitled to receive dividends on each share of Series I Preferred
Stock held of record at the annual rate of 8% of the Original Series I 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 I Preferred Stock, or any combination thereof, as
determined from time to time by the company in its sole discretion. If
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<PAGE> 25
at any time that any shares of Series I Preferred Stock are outstanding, the
closing bid price per share of the Voting Common Stock on The Nasdaq SmallCap
Market (or, if the Voting 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 Voting 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 Voting 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 I Preferred Stock will be entitled, after payment of preferential
amounts on any securities ranking senior to the Series I 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 I 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 I Preferred Stock ranks senior to the Voting 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 J Preferred Stock.
The Series I 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 I Issue Price plus any accrued unpaid dividends thereon.
The company's optional right of redemption is subject to each Series I
Preferred Stock holder's right to convert such Series I Preferred Stock into
Voting Common Stock within 10 business days after the company's notice of
redemption.
If at any time that any shares of Series I Preferred Stock are
outstanding, the closing bid price per share of the Voting Common Stock on
Nasdaq (or, if the Voting 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 Voting Common Stock is then listed) remains at
$10.00 per share or more for 90 consecutive trading days, then each share of
Series I Preferred Stock shall automatically be converted into that number of
shares of Voting Common Stock which is equal to the Original Series I Issue
Price, plus all accrued, but unpaid dividends thereon, divided by the then
applicable Series I Conversion Price.
Also, if at any time prior to December 31, 1999, the company completes a
financing of at least $1,000,000 in new equity (a "Qualified Equity
Financing"), the holders of Series I Preferred Stock have the non-assignable
right (the "Series I Reset Right"), but not the obligation, to exchange all or
a portion of their Series I Preferred Stock for shares of a new series of
Preferred Stock with substantially the same terms and conditions offered to
such purchases of the new equity, so long as no such exchange will result in an
increase in the Series I Conversion Price above $4.00 per share. If the company
does not complete a Qualified Equity Financing by December 31, 1999, the Series
I Conversion Price shall automatically be reset to not less than the greater of
(a) $1.00 or (b) one-half of the average closing bid price per share of the
company's Voting Common Stock on Nasdaq (or if the Voting Common Stock is not
then included on Nasdaq, but is listed on any national securities exchange, on
the principal national securities exchange on which the Voting Common Stock is
then listed) during the last twenty trading days of 1999.
SERIES J PREFERRED STOCK. The Board of Directors has designated 2,500
shares of the Preferred Stock as Series J Preferred Stock, par value $.01 per
share. Each share of Series J Preferred Stock has a stated value of $10,000
(the "Original Series J 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 J Issue Price divided by the Conversion Price of the Series
J Preferred Stock, as in effect from time to time. Such Conversion Price shall
initially be $10.00 per share of Voting Common Stock, subject to anti-dilution
adjustments (the "Series J Conversion Price"). Holders of shares of Series J
Preferred Stock are not entitled to vote on any matters brought before the
company's stockholders.
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<PAGE> 26
Subject to the prior preferences and other rights of any class or series
of the company's capital stock ranking prior to the Series J Preferred Stock,
and in preference to the holders of shares of capital stock ranking junior to
the Series J Preferred Stock as to dividends, the holders of Series J Preferred
Stock are entitled to receive dividends on each share of Series J Preferred
Stock held of record at the annual rate of 8% of the Original Series J 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 J 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 J Preferred Stock are outstanding, the closing
bid price per share of the Voting Common Stock on Nasdaq (or, if the Voting
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
Voting 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 Voting 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 J Preferred Stock will be entitled, after payment of preferential
amounts on any securities ranking senior to the Series J 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 J 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 J Preferred Stock ranks senior to the Voting 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 I Preferred Stock.
The Series J 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 J Issue Price plus any accrued unpaid dividends thereon.
The company's optional right of redemption is subject to each Series J
Preferred Stock holder's right to convert such Series J Preferred Stock into
Non-Voting Common Stock within 10 business days after the company's notice of
redemption.
If at any time that any shares of Series J Preferred Stock are
outstanding, the closing bid price per share of the Voting Common Stock on
Nasdaq (or, if the Voting 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 Voting Common Stock is then listed) remains at
$10.00 per share or more for 90 consecutive trading days, then each share of
Series J Preferred Stock shall automatically be converted into that number of
shares of Voting Common Stock which is equal to the Original Series J Issue
Price, plus all accrued, but unpaid dividends thereon, divided by the then
applicable Series J Conversion Price.
Also, if at any time prior to December 31, 1999, the company completes a
financing of at least $1,000,000 in new equity (a "Qualified Equity
Financing"), the holders of Series J Preferred Stock have the non-assignable
right (the "Series J Reset Right"), but not the obligation, to exchange all or
a portion of their Series J Preferred Stock for shares of a new series of
Preferred Stock with substantially the same terms and conditions offered to
such purchases of the new equity, so long as no such exchange will result in an
increase in the Series J Conversion Price above $4.00 per share. If the company
does not complete a Qualified Equity Financing by December 31, 1999, the Series
J Conversion Price shall automatically be reset to not less than
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<PAGE> 27
the greater of (a) $1.00 or (b) one-half of the average closing bid price per
share of the company's Voting Common Stock on Nasdaq (or if the Voting Common
Stock is not then included on Nasdaq, but is listed on any national securities
exchange, on the principal national securities exchange on which the Voting
Common Stock is then listed) during the last twenty trading days of 1999.
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<PAGE> 28
MATTERS TO BE BROUGHT BEFORE THE MEETING
PROPOSAL 1. Election of Directors
Six persons currently serve on the Board and are expected to continue to
serve until the annual 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, 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. See "Management of
the Company." The six directors elected at the annual meeting will each serve
for a term expiring on the date of the annual meeting in 2000. 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.
REQUIRED AFFIRMATIVE VOTE
A plurality of the votes of the holders of the outstanding shares of
Voting Common Stock and Voting Preferred Stock of the company, voting together
as a single class, 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> 29
PROPOSAL 2. Ratification of Selection of Independent Auditor
The Board of Directors has approved and recommends the appointment of KPMG
LLP, certified public accountants to serve as independent auditor for the
company for the fiscal year ending December 31, 1999. Approval of the
appointment of the accountants is being sought in order to give stockholders
the opportunity to express their opinion on the matter. Should approval not be
obtained, the Board of Directors would expect to reconsider the appointment.
Members of KPMG LLP are expected to attend the annual 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 annual meeting if they desire to do so.
REQUIRED AFFIRMATIVE VOTE
The affirmative vote of a majority of the outstanding voting power of the
Voting Common Stock and Voting Preferred Stock, voting together as a single
class, which are represented and entitled to vote at the annual meeting is
required to ratify KPMG LLP as independent auditor for the company.
THE BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE RATIFICATION OF KPMG LLP
AS INDEPENDENT AUDITOR OF THE COMPANY.
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<PAGE> 30
PROPOSAL 3. Approval of the Authorized Shares Proposal
The Authorized Share Proposal provides for the amendment of the
Certificate of Incorporation of the company to (a) increase the number of
authorized shares of the company's Voting Common Stock from 6,250,000 to
12,000,000 and (b) eliminate a potential ambiguity in the Certificate of
Incorporation which suggests that the Board of Directors of the company is not
authorized to issue any new class of stock, including preferred stock, as
authorized in the company's Certificate of Incorporation. The following table
shows the changes in the numbers of shares of Voting Common Stock authorized;
issued and outstanding; authorized but unissued; reserved; authorized but
neither issued nor reserved; and the change in the number of authorized but
unissued shares (and authorized but unissued and unreserved shares) as a
percentage of authorized shares, as a result of the Authorized Shares Proposal:
<TABLE>
<CAPTION>
PRIOR TO GIVING EFFECT AFTER GIVING EFFECT
TO THE AUTHORIZED TO THE AUTHORIZED
VOTING COMMON STOCK SHARE PROPOSAL SHARE PROPOSAL
- ------------------- ---------------------- -------------------
<S> <C> <C>
Total Authorized....................................................... 6,250,000 12,000,000
Issued and Outstanding(1).............................................. 3,179,368 3,179,368
Authorized but Unissued................................................ 3,070,632 8,820,632
Percent Authorized but Unissued........................................ 49.1% 73.5%
Reserved(2)............................................................ 3,805,608 3,805,608
Authorized but Unissued and Unreserved(2).............................. (734,976) 5,015,024
Percentage Authorized but Unissued and Unreserved(2)................... 0% 42.5%
</TABLE>
- ---------------------
(1) Based on shares outstanding at March 31, 1999.
(2) Prior to giving effect to the Authorized Share Proposal, the company does
not have a sufficient number of authorized but unissued shares of Voting
Common Stock to reserve the full number of such shares required to be
issued upon the conversion, exercise or exchange of all outstanding
securities of the company that by their terms are convertible into, or
exercisable or exchangeable for shares of Voting Common Stock.
Accordingly, the company has agreed with certain holders of such
securities that (a) the company will use its best efforts to increase the
number of authorized, but unissued shares to permit such reservation in
full and (b) such holders will waive their rights to require such
reservation, to the extent of such deficiency until the second business
day after approval of the Authorized Share Proposal.
Subject to stockholder approval, the Authorized Shares Proposal will be
effected by the filing of an amendment to the Certificate of Incorporation of
the company, substantially in the form of Appendix B. The change in the number
of authorized shares of Voting Common Stock as provided in the Authorized
Shares Proposal will be effective immediately upon the filing of such amendment
to the Certificate of Incorporation with the office of the Delaware Secretary
of State.
REASONS FOR THE AUTHORIZED SHARES PROPOSAL
The purpose of the Authorized Shares Proposal is to increase the number of
authorized shares of Voting Common Stock so that there will be sufficient
available shares for issuance upon the conversion, exercise or exchange of
outstanding convertible securities. Authorized shares of Voting Common Stock in
excess of the number of shares of Voting Common Stock issued and outstanding,
reserved for issuance upon the conversion, exercise or exchange of outstanding
convertible securities or otherwise reserved for issuance may be used for any
corporate purposes that may in the future from time to time be identified by
the Board of Directors, such as financing transactions, possible future
acquisitions, employee benefits, and other corporate purposes. The Board of
Directors believes that the availability of such additional shares gives the
company the flexibility necessary to take advantage of opportunities that may
arise, without the delay and expense of a stockholders' meeting.
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<PAGE> 31
The company currently intends to seek additional financing through the
possible public or private sale of its securities. The availability of
authorized but unissued shares of Voting Common Stock would permit the company
to issue Voting Common Stock or convertible securities in connection with any
such financing, if the Board of Directors determines that such issuance is in
the best interests of the company and its stockholders. The company has not
determined how many of its authorized but unissued shares it intends to issue
for any of the above purposes, if any, or when, if ever, it intends to issue
such shares. The Board of Directors does not intend to solicit stockholder
authorization for the issuance of any additional shares of Voting Common Stock
unless required by applicable law or the requirements of Nasdaq.
The following table shows the number of shares of Voting Common
authorized, issued and outstanding, reserved for issuance, and available for
future purposes, after giving effect to the Authorized Shares Proposal:
<TABLE>
<CAPTION>
NUMBER OF SHARES ASSUMING
APPROVAL OF
AUTHORIZED SHARES
VOTING COMMON STOCK PROPOSAL
- ------------------- --------------------------
<S> <C>
Authorized ....................................................... 12,000,000
Issued and Outstanding (1) ....................................... 3,179,368
Reserved for Issuance Upon Conversion of
Outstanding Convertible Preferred Stock(2) ....................... 2,203,436
Reserved for Issuance Upon the Exercise of
Outstanding Common Stock Warrants and
Convertible Notes(3) ............................................. 771,431
Reserved for Issuance Pursuant to Outstanding
Stock Options(4) ................................................. 830,741
Available for Other Corporate Purposes ........................... 5,015,024
</TABLE>
- ---------------------
(1) Based on the number of shares of Voting Common Stock issued and outstanding
on March 31, 1999.
(2) Based on Single Vote Preferred Stock and Series I Preferred Stock
outstanding on March 31, 1999.
(3) Includes shares issuable upon the conversion of any outstanding convertible
notes and the exercise of all outstanding warrants as of March 31, 1999,
whether or not then exercisable and whether or not the exercise price
thereof is greater or less than the current market price per share of
Voting Common Stock.
(4) Includes shares issuable upon exercise of all outstanding options as of
March 31, 1999, whether or not then exercisable and whether or not the
exercise price thereof is greater or less than the current market price of
the Voting Common Stock.
CERTAIN POSSIBLE EFFECTS ON AUTHORIZED BUT UNISSUED SHARES
The company's existing stockholders do not have any preemptive rights
under the Certificate of Incorporation of the company or otherwise to purchase
any shares of Voting Common Stock that may from time to time be issued by the
company. It is possible that shares of Voting Common Stock may be issued at a
time and under circumstances that may dilute the voting power of existing
stockholders, increase or decrease earnings per share and/or increase or
decrease the book value per share of the shares then outstanding. The
Authorized Shares Proposal would increase the number of shares of Voting Common
Stock authorized following effectiveness of the Authorized Shares Proposal.
The ability of the Board of Directors to issue additional shares of Voting
Common Stock without further stockholder approval could have the effect of
discouraging any possible unsolicited efforts to acquire control of the
company. However, the Authorized Shares Proposal is not intended as an
anti-takeover device, and no specific anti-takeover measures are currently
being contemplated by the Board of Directors. Management is not aware of any
third party that may currently intend to accumulate the company's Voting Common
Stock or to obtain control of the company.
CLARIFICATION OF AMBIGUITY
The company's stockholders approved an amendment to the company's
Certificate of Incorporation in July 1995, which authorized the company's Board
of Directors to authorize and issue one or more series of Preferred Stock (the
"Preferred Stock Amendment"). The Certificate of Incorporation, however, could
be
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<PAGE> 32
read to be inconsistent with the terms of the Preferred Stock Amendment.
Accordingly, the company desires to remove any potential ambiguity in its
Certificate of Incorporation suggesting that the company's Board of Directors
does not have the authority to issue any new class of stock, including
Preferred Stock, notwithstanding the adoption of the Preferred Stock Amendment
in July 1995. Any such potential ambiguity will be clarified by the filing of
the amendment to the Certificate of Incorporation, substantially in the Form of
Appendix B.
The company is dependent upon the equity investments in Preferred Stock by
third parties, including its principal stockholders, to fund the company's
operations and to remain in compliance under the new Nasdaq Listing
Requirements. The Preferred Stock Amendment was designed to provide the Board
of Directors with the necessary flexibility to authorize and issue Preferred
Stock without the delay and expense of having to hold a stockholder's meeting.
Accordingly, the sole purpose of the amendment is to remove any ambiguity that
may affect the Preferred Stock Amendment.
REQUIRED AFFIRMATIVE VOTE
The affirmative vote of a majority of the outstanding voting power of the
Voting Common Stock and Voting Preferred Stock, voting together as a single
class; and the Voting Common Stock and Non-Voting Common Stock, voting together
as a single class, is required to adopt the Authorized Shares Proposal.
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 AUTHORIZED SHARES PROPOSAL.
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<PAGE> 33
PROPOSAL 4. Authorization to issue more than twenty percent of the
outstanding Voting Common Stock at a per share price
potentially less than the greater of the per share book or
market value of the Voting Common Stock on the date of
issuance to holders of (a) Series I Preferred Stock upon the
conversion of the Series I Preferred Stock and (b) Series J
Preferred Stock upon the conversion of the Non-Voting Common
Stock.
There are currently issued and outstanding 623 shares of Series I
Preferred Stock. Antiope Partners and Amphion Ventures currently hold 530 of
the 623 shares of Series I Preferred Stock outstanding. These shares were
issued to Antiope Partners and Amphion Ventures in connection with the equity
commitments and subscriptions for preferred stock by those entities. See
"Transactions with Management and Related Parties -- Equity Investments by
Major Stockholders." The company was dependent on these equity commitments
during 1998 to fund its operations and maintain its Nasdaq listing under the
New Nasdaq Listing Requirements (as defined below). If Antiope Partners and
Amphion Ventures were to elect to convert all 530 shares of Series I Preferred
Stock to Voting Common Stock, the result would be the issuance of 1,325,000
shares of Voting Common Stock. Although the conversion price of the Series I
Preferred Stock is currently $4.00 per share and the closing bid price per
share of the Voting Common Stock on Nasdaq was $2.50 on April 15, 1999, the New
Nasdaq Listing Requirements require the company to receive the consent of its
stockholders to issue more than twenty percent of its Voting Common Stock at a
per share price less than the current market price. Although the current market
price ($2.50) is less than the current conversion price ($4.00), there can be
no assurance that when and if the Series I Preferred Stock is converted to
Voting Common Stock, the conversion price will exceed the market price of the
Voting Common Stock on the date converted. Accordingly, because the Series I
Preferred Stock may be converted into more than twenty percent of the
outstanding Voting Common Stock at a time when the per share market value of
the Voting Common Stock could potentially exceed the conversion price, the
company is seeking stockholder approval to issue that amount of Voting Common
Stock pursuant to the New Nasdaq Listing Requirements. Both Antiope Partners
and Amphion Ventures have agreed not to convert their shares of Series I
Preferred Stock to Voting Common Stock until such time as the company's
stockholders have approved this proposal.
There are currently issued and outstanding 1,688 shares of Series J
Preferred Stock. Antiope Partners and Amphion Ventures currently hold all 1,688
shares of Series J Preferred Stock outstanding. These shares were issued to
Antiope Partners and Amphion Ventures in connection with the equity commitments
and subscriptions for preferred stock by those entities. See "Transactions with
Management and Related Parties -- Equity Investments by Major Stockholders."
The company was dependent on these equity commitments during 1998 to fund its
operations and maintain its Nasdaq listing under the New Nasdaq Listing
Requirements. If Antiope Partners and Amphion Ventures were to elect to (a)
convert all 1,688 shares of Series J Preferred Stock to Non-Voting Common Stock
and (b) convert all shares of Non-Voting Common Stock to Voting Common Stock,
the result would be the issuance of 3,970,000 shares of Voting Common Stock.
Although the current market price of the company's common stock on Nasdaq
($2.50) is less than the current conversion price of the Series J Preferred
Stock ($4.00), there can be no assurance that when and if the Non-Voting Common
Stock issuable upon the conversion of the Series J Preferred stock is converted
to Voting Common Stock, the conversion price will exceed the market price of
the Voting Common Stock on the date converted. Accordingly, because the
Non-Voting Common Stock may be converted into more than twenty percent of the
outstanding Voting Common Stock following the conversion of the Series J
Preferred Stock at a time when the per share market value of the Voting Common
Stock could potentially exceed the conversion price, the company is seeking
stockholder approval to issue that amount of Voting Common Stock pursuant to
the requirements of the New Nasdaq Listing Requirements. Both Antiope Partners
and Amphion Ventures have agreed not to convert their shares of Series J
Preferred Stock to Non-Voting Common Stock until such time as the company's
stockholders have approved this proposal. Further, both Antiope Partners and
Amphion Ventures have agreed not to convert any shares of Non-Voting Common
Stock into Voting Common Stock without having received the prior written
consent of the company.
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<PAGE> 34
SERIES I PREFERRED STOCK
The Board of Directors has designated 2,500 shares of its Preferred Stock
as Series I Preferred Stock, par value $0.01 per share. Each share of Series I
Preferred Stock has a stated value of $10,000 (the "Original Series I Issue
Price") and is convertible into Voting Common Stock at any time, at the option
of the holder, at a conversion rate equal to the Original Series I Issue Price
divided by the conversion price of the Series I Preferred Stock, as in effect
from time to time. Such conversion price is currently $4.00 per share of Voting
Common Stock, subject to anti-dilution adjustments. Holders of shares of Series
I Preferred Stock are entitled to vote on all matters brought before the
company's stockholders as if such shares of Series I Preferred Stock had been
converted into shares of Voting Common Stock, in addition to any class voting
rights provided by law. See "Description of Capital Stock -- Preferred Stock."
SERIES J PREFERRED STOCK
The Board of Directors has designated 2,500 shares of its Preferred Stock
as Series J Preferred Stock, par value $0.01 per share. Each share of Series J
Preferred Stock has a stated value of $10,000 (the "Original Series J 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 J Issue
Price divided by the conversion price of the Series J Preferred Stock, as in
effect from time to time. Such conversion price is currently $4.00 per share of
Non-Voting Common Stock, subject to anti-dilution adjustments. Holders of
shares of Series J Preferred Stock are not entitled to vote on any matter
brought before the company's stockholders. See "Description of Capital Stock --
Preferred Stock."
NEW NASDAQ LISTING REQUIREMENTS
On August 23, 1997, the SEC 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 Voting Common
Stock on the Nasdaq SmallCap Market, there can be no assurance that the company
will be able to do so.
One of the new corporate governance requirements of the New Nasdaq Listing
Requirements provides that shareholder approval is required of a plan or
arrangement to issue common stock (or securities convertible into or
exercisable common stock) equal to twenty percent or more of the common stock,
or twenty percent or more of the voting power, outstanding before the issuance,
for less than the greater of book or market value of the common stock.
If the holders of the Series I Preferred Stock already issued elect to
convert all of their shares of the Series I Preferred Stock into Voting Common
Stock, such holders would receive approximately 33% of the
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<PAGE> 35
outstanding Voting Common Stock and voting power, and approximately 15% of the
fully-diluted equity of the company as of April 15, 1999. Although the
Conversion Price of the Series I Preferred stock is currently $4.00 per share
and the closing bid price per share of the Voting Common Stock on Nasdaq as of
April 15, 1999, was $2.50 per share, there can be no assurance that when and if
the Series I Preferred stock is converted to Voting Common Stock, the
Conversion Price will exceed the market price of the Voting Common Stock on the
date of conversion. Because the Series I Preferred Stock may be converted into
more than twenty percent of the outstanding Voting Common Stock at a time when
the market value per share of Voting Common Stock exceeds the Conversion Price,
the company must receive stockholder approval in accordance with the New Nasdaq
Listing Requirements in order to issue Voting Common Stock upon the conversion
of Series I Preferred Stock.
If the holders of the Series J Preferred Stock already issued elect to
convert (a) all of their shares of the Series J Preferred Stock into Non-Voting
Common Stock, and (b) all Non-Voting Common Stock into Voting Common Stock such
holders would be eligible to receive approximately 57% of the outstanding
Voting Common Stock and voting power, and approximately 40% of the
fully-diluted equity of the company as of April 15, 1999. The holders of Series
J Preferred Stock have, however, agreed not to convert any Non-Voting Common
Stock issued upon conversion of Series J Preferred Stock to Voting Common Stock
without having first received the prior written consent of the company.
Although the Conversion Price of the Series J Preferred stock is currently
$4.00 per share and the closing bid price per share of the Voting Common Stock
on Nasdaq as of April 15, 1999, was $2.50 per share, there can be no assurance
that when and if the Non-Voting Common Stock issuable upon the conversion of
the Series J Preferred Stock is converted to Voting Common Stock, the
Conversion Price will exceed the market price of the Voting Common Stock on the
date of conversion. Because the Non-Voting Common Stock issuable upon the
conversion of Series J Preferred Stock may be converted into more than twenty
percent of the outstanding Voting Common Stock at a time when the market value
per share of Voting Common Stock exceeds the Conversion Price, the company is
required under the New Nasdaq Listing Requirements to seek and obtain
stockholder approval to issue the Voting Common Stock upon the conversion of
the Non-Voting Common Stock.
The failure to adhere to the New Nasdaq Listing Requirements could
result in the Voting Common Stock being delisted from the Nasdaq SmallCap
Market. If the Voting 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 Voting Common Stock. In addition, the Voting
Common Stock would be subject to rules promulgated under the Exchange Act
applicable to penny stocks. The SEC 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 SEC) 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 Voting Common Stock will be exempt
from the Definition of "penny stock." If, however, the Voting 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 Voting Common Stock
and may affect the ability of purchasers of Voting Common Stock to sell such
securities in the secondary market.
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<PAGE> 36
REQUIRED AFFIRMATIVE VOTE
The affirmative vote of a majority of the outstanding voting power of
the Voting Common Stock and Voting Preferred Stock, voting together as a single
class, is required to adopt the issuance of shares of Voting Common Stock to
holders of Series I Preferred Stock and Series J Preferred Stock under the
circumstances described in this proposal.
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 VOTING COMMON STOCK AT A PER SHARE PRICE POTENTIALLY LESS THAN THE
PER SHARE MARKET PRICE OF THE VOTING COMMON STOCK ON THE DATE OF ISSUANCE TO
HOLDERS OF (A) SERIES I PREFERRED STOCK UPON CONVERSION OF THE SERIES I
PREFERRED STOCK AND (B) SERIES J PREFERRED STOCK UPON THE CONVERSION OF THE
NON-VOTING COMMON STOCK.
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<PAGE> 37
DEADLINE FOR STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the company's 2000
annual meeting, and otherwise eligible, must be received by the company no
later than January 8, 2000, 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
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 Voting Common Stock are required from
time to time to file with the SEC 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 1998, 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 1998, except for Amphion Ventures,
the holder of more than ten percent (10%) of the company's Voting Common Stock.
Amphion Ventures did not timely file a Form 5 for its subscription of preferred
stock and the conversion of indebtedness to preferred stock during the fourth
quarter of 1998.
COUNTING OF VOTES
All matters specified in this Proxy Statement that are to be voted on at
the annual 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 annual 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 annual meeting
other than the matters referred to in the accompanying notice. If, however, any
other matters properly come before the annual 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 annual
meeting by others and any proposals of stockholders omitted from the proxy
material pursuant to Rule 14a-8 of the Securities Exchange Act.
ANNUAL REPORT
A copy of the company's 1999 Annual Report to Stockholders, including the
Form 10-KSB for the year ended December 31, 1998, which contains audited
financial statements, accompanies this Proxy Statement. Upon written request to
Investor Relations, AXCESS Inc., 3208 Commander Drive, Dallas, Texas 75006, the
company will provide, without charge, copies of its annual report to the SEC on
Form 10-KSB.
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<PAGE> 38
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference:
1. Annual Report on Form 10-KSB for the year ended December 31, 1998.
By Order of the Board of Directors,
/s/ Danny G. Hair
Danny G. Hair, Secretary
May 7, 1999
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<PAGE> 39
APPENDIX A
[FORM OF]
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AXCESS INC.
AXCESS Inc. (the "Company"), a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted
resolutions setting forth the following amendment to the Certificate of
Incorporation of the Corporation (the "Amendment"), declaring the Amendment to
be advisable and calling for the submission of the proposed Amendment to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed Amendment is as follows:
RESOLVED, that Article FOURTH, paragraphs (a) and (c)(C)(4) of the
Certificate of Incorporation are hereby amended to read in their entirety as
follows:
"FOURTH: (a) The total number of shares of capital stock that the
Corporation shall have authority to issue is 21,250,000, consisting of
12,000,000 shares of Common Stock, par value $0.01 per share ("Common Stock"),
2,250,000 shares of Non-Voting Common Stock, par value $0.01 per share
("Non-Voting Common Stock" and together with the Common Stock, "Common Shares")
and 7,000,000 shares of preferred stock, par value $0.01 per share ("Preferred
Stock").
(c)(C)(4) In addition to any affirmative vote required by law or by this
Certificate of Incorporation, the affirmative vote or written consent of the
holders of not less than a majority of the then outstanding shares of both
classes of Common Shares, voting together as a single class, shall be required
for any increase, reduction or other change in the authorized number of shares
of any class of Common Shares. The affirmative vote or written consent
specified in the preceding sentence shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage vote may be
specified, by law, by the Bylaws of the Corporation or otherwise."
SECOND: That thereafter, pursuant to a resolution of the Board of
Directors, an annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the DGCL, at
which meeting the necessary number of shares as required by statute were voted
in favor of the Amendment.
THIRD: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.
FOURTH: That the Amendment shall be effective on the date this Certificate
of Amendment is filed and accepted by the Secretary of State of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Harry S. Budow, its Chief Executive Officer, and attested by Danny G.
Hair, its Secretary, this ___ day of June, 1999.
AXCESS INC.
By:
---------------------------------------
Harry S. Budow, Chief Executive Officer
ATTEST:
- -------------------------------------
Danny G. Hair, Secretary
<PAGE> 40
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-in-fact 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 1999 Annual Meeting of Stockholders
of AXCESS Inc. to be held on the 9th day of June, 1999 (pursuant to the Notice
of Annual Meeting dated May 1999, 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 and 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 AND 4.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS NOMINEES: Richard C.E. Morgan, Harry S. Budow,
FOR all nominees WITHHOLD Richard M. Clarke, Paul J. Coleman, Jr.,
listed to the right AUTHORITY C. Seth Cunningham and Gregory W. Haskell.
(except as marked to vote for all
to the contrary) nominees listed (INSTRUCTION: To withhold authority to vote for any individual
to the right. nominee, write such individual's name in the space provided below).
[ ] [ ] -------------------------------------------------------------------
2. RATIFICATION OF KPMG LLP AS
INDEPENDENT AUDITOR OF THE COMPANY. 4. AUTHORIZATION TO ISSUE MORE THAN TWENTY PERCENT OF THE
COMPANY'S VOTING COMMON STOCK AT A PER SHARE PRICE
POTENTIALLY LESS THAN THE GREATER OF THE PER SHARE BOOK
OR MARKET VALUE OF THE VOTING COMMON STOCK ON THE DATE
OF ISSUANCE TO HOLDERS OF (A) SERIES I
FOR AGAINST ABSTAIN PREFERRED STOCK UPON THE CONVERSION OF VOTING COMMON STOCK AND
[ ] [ ] [ ] (B) SERIES J PREFERRED STOCK UPON THE CONVERSION OF
NON-VOTING COMMON STOCK.
3. APPROVAL OF THE AMENDMENT TO THE CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF FOR AGAINST ABSTAIN
AUTHORIZED SHARES OF VOTING COMMON STOCK TO
12,000,000 AND ELIMINATE A POTENTIAL [ ] [ ] [ ]
AMBIGUITY IN ARTICLE FOURTH OF THE CERTIFICATE
OF INCORPORATION.
5 IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
FOR AGAINST ABSTAIN 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:____________________________________, 1999
-----------------------------------------------------
(Signature)
-----------------------------------------------------
(Signature if held jointly)
</TABLE>
