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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-11933
AXCESS INC.
(formerly Lasertechnics, Inc.)
(Exact name of Small Business Issuer in Its charter)
<TABLE>
<S> <C>
DELAWARE 85-0294536
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
3208 COMMANDER DRIVE, CARROLLTON, TEXAS 75006
(Address of principal executive offices) (Zip Code)
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(972) 407-6080
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE 3,179,368
(Title of Class) (Number of Shares Outstanding
as of March 19, 1999)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended December 31, 1998 were $43,146.
There were 112,492 shares of non-voting common stock outstanding as of March
19, 1999.
The aggregate market value of voting and non-voting common stock held by
nonaffiliates of the Issuer is approximately $3,050,760. This amount was
calculated by reducing the total number of shares of the Issuer's common stock
outstanding by the total number of shares of common stock held by officers and
directors, and stockholders owning in excess of 5% of the Issuer's common stock,
and multiplying the remainder by the average of the bid and asked price for the
Issuer's common stock on March 19, 1999, as reported on the over-the-counter
Nasdaq SmallCap Market. The information provided shall in no way be construed as
an admission that any officer, director or more than 5% stockholder of the
Issuer may be deemed an affiliate of the Issuer or that such person is the
beneficial owner of shares reported as being held by such person, and any such
inference is hereby disclaimed.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ ]
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PART I
ITEM 1. BUSINESS.
THE COMPANY
AXCESS Inc., a Delaware corporation, was formed in November 1982 (as
Lasertechnics, Inc.). AXCESS is principally engaged in providing Radio Frequency
Identification ("RFID") products through dealers and distributors for tracking
assets, vehicles and personnel. See "Business - RFID Systems and Services." The
company's principal offices are located at 3208 Commander Drive, Carrollton,
Texas, 75006, and its telephone number is 972-407-6080.
Discontinued Operations: Sandia Imaging Systems Corporation, a Delaware
corporation and 96% owned subsidiary of the company, was engaged in distributing
and reselling high-end dye-sublimation card printers and consumables until its
operations were discontinued in October 1998. The company sold this business in
December 1998. Lasertechnics Marking Corporation, a Delaware corporation and
wholly-owned subsidiary of the company, was engaged in fabricating, distributing
and selling high speed laser marking equipment used by manufacturers on various
food products, other date sensitive consumer goods and industrial products to
minimize product counterfeiting, facilitate inventory control and insure product
traceability. The company entered into a definitive agreement in March 1999 to
sell LMC along with the company's rights and interests in DataGlyph(TM) and the
technology under development with XL Vision, Inc. to affiliates of Amphion
Capital Management, a major stockholder of the company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
RFID TECHNOLOGY ACQUISITION
In September 1998, the company consummated the acquisition of the RFID based
intellectual property assets of ASGI, Inc. and Nauta, Inc. The intellectual
property assets included a patent, trade secret rights, software, hardware,
product designs and all other technical information necessary for the company to
manufacture and market radio frequency identification products to the access
control and asset management markets. These assets will be further developed and
enhanced by the company in connection with its efforts to develop and market
products which utilize RFID based intellectual property assets. See "Business -
Patents."
RFID SYSTEMS AND SERVICES
The company designs the hardware components of its RFID products and outsources
all manufacturing operations. Once the hardware components are combined with the
company's software, the RFID systems are capable of identifying and tracking
assets, vehicles and personnel. The company's RFID systems consist of radio
frequency tags, antennas and readers. Tags are affixed to assets, personnel ID
badges or vehicles, depending on the application. The company's RFID system is
active rather than passive. Active systems have a battery in the tag which
offers greater range than passive systems. The tags contain tiny
transmitters/receivers that communicate with the reader through an antenna
located next to a transportation lane, doorway or covertly installed in a
ceiling, wall or picture frame. As the tag enters the coverage zone the reader
transmits a "wake up" signal to activate the tag. Encoded in the activation
signal is a command with special instructions for the tag. The tag interprets
these instructions
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and responds accordingly by permitting or denying access via an alarm sound or a
gate (door) being opened.
The company sells and markets its RFID systems to end users through indirect
channels such as distributors, VAR's (value added resellers), OEM's (original
equipment manufacturers) and dealers. The use of these indirect sales and
distribution channels by the company permits it to operate with a smaller sales
and support staff, as well as reduces marketing expenses compared to
direct-to-user sales channel efforts.
Examples of specific applications of the company's RFID systems are:
o Automatic Vehicle Access Control and Tracking for Commercial
Access Control, Residential Gate Control, Fleet Management,
and Parking Systems;
o Automatic Asset Identification for Theft Deterrence, Covert
Monitoring, and Asset and Personnel Tracking; and
o Automatic Personnel Identification for Access Control,
Personnel Tracking, Time and Attendance, Compliance
Monitoring, Marshaling and Mustering, and Guard Tour.
RFID HARDWARE AND SOFTWARE
Each RFID system requires three components: tags; readers; and antennas. The
hardware configuration may vary, however, depending on the specific application.
In some applications an end user may utilize an antenna tuning unit which allows
the installer to vary the field coverage area. The tags are high performance
active tags containing an on-board battery. Branded NeuroTags(R) respond to the
reader which is the electronic "brain" of the system. It detects the tag and
interfaces with the host equipment via standard communication protocols.
Antennas come in three types. A bar antenna is utilized in monitoring
applications for personnel, vehicles and assets. A road loop antenna is buried
in the pavement and is well suited for tagged vehicles and equipment. The
picture frame antenna provides a "hidden" coverage zone for tracking people and
assets. Secure Monitor(TM) is the resource management software which is used in
combination with the NeuroTag RFID system to locate personnel, vehicles and
assets in real-time.
RESEARCH AND DEVELOPMENT
Although the RFID technology acquired by the company had been in development and
use for some time, significant modifications and enhancements were made to the
technology by the company since its acquisition. These modification and
enhancements were necessary for the successful commercialization of the RFID
systems. Since its acquisition of the RFID technology in September 1998, the
company has expended approximately $389,000 through December 31, 1998, to
upgrade the software and hardware. The company expects to continue to upgrade,
enhance and develop the technology through continued research and development
expenditures in 1999 and the future.
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PATENTS AND PROPRIETARY TECHNOLOGY
The company relies on a combination of patents, trade secrets, technology
licenses, and other intellectual property rights. The company has several
patents in various stages of prosecution with the necessary global patent
authorities and several additional patents being prepared for filing. The
company intends to protect and enforce its intellectual property rights to the
fullest extent and to preserve its rights relating to its key product
technologies. The company has registered a number of trade and service marks,
including but not limited to the following: AXCESS Inc.(TM); the AXCESS Inc.
(logo)(TM); NeuroTag(R); Functional Linkage(TM); TAG-to-TAG(TM); and Secure
Monitor(TM).
COMPETITION
Competing technologies are generally specialized for specific market application
segments. The characteristics and attributes of the applications generally cause
one technology to be more applicable than other competing technologies. Passive
tags are commonly used in a number of retail environments where the individual
item is relatively inexpensive, such that the cost of the tag must also be very
low and need only serve a very limited function. Active tags are more commonly
used when the individual asset is of relatively higher value and the tag
attached to it is to serve multiple purposes. There are currently a limited
number of small companies directly competing with the company for applications
suited for active RFID technology.
MANUFACTURING AND SUPPLIERS
The company depends upon a number of outside suppliers to manufacture its RFID
systems. The company has two tag manufacturers currently in use and one reader
manufacturer. The company is currently engaged in discussions with other
potential manufacturers. Although to date the company has generally been able to
secure adequate manufacturers to produce its RFID systems, the inability of the
company in the future to obtain sufficient manufacturers of its RFID systems
could have material adverse effects on the company's results of operations.
The company depends on a number of outside suppliers for components of its RFID
systems. There are a limited number of components for which there is a single
source of supply and the company expects to either identify additional sources
of supply, substitute components or make the necessary engineering changes to
eliminate any dependence on a component that cannot be obtained from multiple
sources. Although the company has generally been able to secure adequate
suppliers, the inability of the company in the future to obtain sufficient
suppliers of component parts could have material adverse effects on the
company's results of operations.
There are currently no formal agreements between the company and its
manufacturers or suppliers, but the company has entered into these arrangements
with the expectation that these arrangements will lead to long-term
relationships or contracts with these suppliers.
SALES AND MARKETING
The company markets, sells and supports dealers, distributors, OEMs, VARs and
systems integrators who sell, install and support end users in applying RFID
systems and services to their particular application
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requirements. The company markets to end users as part of its support of this
distribution channel, but does not sell direct to end users.
EMPLOYEES
As of December 31, 1998, the company employed 41 people, excluding LMC.
GOVERNMENT REGULATION
Government regulations have not had, nor are they expected to have, a material
effect on the company's financial condition, results of operations or
competitive position.
ENVIRONMENTAL FACTORS
There has been, and it is anticipated that there will continue to be, no
material effect upon the company's capital expenditures, earnings, or
competitive position due to compliance with existing provisions of federal,
state and local laws regulating the discharge of material into, or otherwise
relating to the protection of, the environment.
YEAR 2000 COMPLIANCE
The company's management recognizes the need to ensure that its operations and
relationships with vendors, customers and other third parties will not be
adversely impacted by the Year 2000 issue. The Year 2000 problem is a result of
computer programs being written using two digits rather than four to define the
applicable year. Based on its assessment, the company determined a portion of
its software and certain hardware will require modification or replacement so
that those systems will properly utilize dates beyond December 31, 1999. The
company's assessment indicated that its significant information technology
systems would not be affected.
The company has also established a program to review its product line of RFID
systems and identify date-sensitive inventory and the level of Year 2000
compliance of its RFID systems. This program is to ensure that customers receive
systems that are Year 2000 compliant, or at a minimum, are made aware of systems
that are not compliant. The company also depends on the systems of its
suppliers, manufacturers and customers. Consequently, the company is in the
process of receiving adequate assurances from its suppliers, manufacturers and
customers that those systems and the components on which the company relies are
or will be Year 2000 compliant before the end of 1999.
To the extent possible, the company will develop and implement contingency plans
designed to allow continued operations in the event of failure of the company's
or third party systems to be Year 2000 compliant. These contingency plans have
substantially been completed, and are expected to be completed and implemented
by the end of 1999.
Management of the company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. The company does not believe the
costs related to the Year 2000 program will be material to its financial
position or results of operation. Since the RFID based software and hardware
were recently developed and were developed with Year 2000 compliance awareness,
Year 2000 compliance is less significant to the company's business than is the
case for other businesses.
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Management expects to complete its program without incurring any significant
incremental expenditures utilizing internal resources. However, the company has
not yet completed all necessary phases of the Year 2000 program. Further, the
failure of the company or third parties upon which the company relies, to
identify Year 2000 issues and successfully and timely resolve them could then
have a material adverse impact on the operations of the company.
CAUTIONARY STATEMENTS
Except for the historical information contained herein, this Report includes
"forward looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Although the company believes that the expectations reflected in
such forward looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. Certain important factors that could
cause actual results to differ materially from the company's expectations
("Cautionary Statements") are disclosed in this Report on Form 10-KSB and
qualify the forward looking statements included in this Report. All subsequent
written and oral forward looking statements attributable to the company or
persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
RISK FACTORS
Investing in the company's common stock is very risky. You should be able to
bear a complete loss of your investment. You should carefully consider the
following factors, in addition to the other information in this Form 10-KSB.
History of Losses and Expectation of Future Losses; Uncertainty of Future
Profitability
From its incorporation in 1982 through December 31, 1998, the company has
incurred an accumulated loss of approximately $83.7 million and has been
profitable in only one fiscal year during that time. There can be no assurance
that the company will generate sufficient revenues to achieve profitability in
the future.
Auditors' Report
Our auditors have included an explanatory paragraph in their audit opinion with
respect to our consolidated financial statements related to a significant
uncertainty with respect to our financial position at December 31, 1998, which
states that our recurring losses from operations and resulting continued
dependence on access to external financing raise substantial doubts about our
ability to continue as a going concern. Between 1996 and 1998, we arranged for
an aggregate of $45 million in additional financing. As a result, there can be
no assurance that our future financial statements will not include a similar
explanatory paragraph if we are unable to raise sufficient funds either through
financing or from operations to cover the cost of our operations. The factors
leading to and the existence of the explanatory paragraph may adversely affect
our relationship with customers and suppliers and have an adverse effect on our
ability to obtain financing.
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Future Development of RFID Products
Introducing new technology involves risks of "bugs", prior release
compatibility, customer modifications affecting standard interfaces,
unanticipated application environment anomalies, to name a few. Although we use
rigorous testing procedures and protocols, delays in new or modified product
introductions or shipments could have a material adverse effect on our results
of operation.
Much of our ability to compete in the RFID security segment depends on trade
secrets, know-how and proprietary technical knowledge that is unprotected by
patents. Although we continue to implement protective measures and intend to
defend our proprietary rights vigorously, there can be no assurance that these
efforts will be successful. Such protections may not preclude competitors from
developing products similar to ours. In addition, the laws of certain foreign
countries do not protect intellectual property rights to the same extent as do
the laws of the United States. There can also be no assurance that third parties
will not assert intellectual property infringement claims against us. Any such
infringement claim could result in protracted and costly litigation and could
have a material adverse effect on our results of operation regardless of the
outcome.
Dependence on Manufacturers Suppliers to Produce RFID Systems
If we were unable to obtain sufficient components and manufacturers for the RFID
systems, or develop alternative sources, delays in product introductions or
shipments could occur and could have a material adverse effect on our results of
operation.
Substantial Additional Financing Requirements; Uncertainty of Available Funding
We are currently in discussions with a number of existing and potential
corporate, strategic and institutional investors. Our actual funding needs will
depend upon numerous factors, however, including actual expenditures and
revenues generated from our operations compared to our business plan. Our actual
funding needs will also depend on the successful development of the RFID systems
and other unanticipated expenditures, none of which can be predicted with
certainty. There can be no assurance, however, that we will acquire the
additional funding we need to fully pursue our business objectives.
Nasdaq Listing
Our common stock is listed on the Nasdaq SmallCap Market, which requires
maintenance of certain quantitative and other standards for continual listing
thereon.
On August 22, 1998, the Securities and Exchange Commission approved the New
Nasdaq Listing Requirements (as defined below) for continued listing on the
Nasdaq SmallCap Market. In particular, the New Nasdaq Listing Requirements
require that a company currently included in Nasdaq meet each of the following
standards to maintain its continued listing: (i) either (A) net tangible assets
(defined as total assets, minus goodwill, minus total liabilities) of $2
million, (B) total market capitalization of $35 million, or (C) net income (in
the latest fiscal year or in two of the last three fiscal years) of $500,000;
(ii) public float of at least 500,000 shares, with a market value of at least $1
million; (iii) minimum bid price of $1; (iv) at least two market makers; (v) at
least 300 round lot beneficial shareholders; and (vi) compliance with certain
corporate governance requirements (the "New Nasdaq Listing Requirements"). As of
March 19, 1999, the closing bid price of our common stock was $1.75 per share,
which is in excess of the
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minimum bid price of $1.00 per share established by the New Nasdaq Listing
Requirements. There can be no assurance, however, that our continued losses or
other factors beyond our control will not cause us to fail to meet such
requirements.
Since January 1, 1998, Antiope Partners, L.L.C. ("Antiope Partners") and Amphion
Ventures, L.P. ("Amphion Ventures") purchased $12.1 million in shares of our
convertible preferred stock to fund our operations and provide for the continued
maintenance of our net tangible assets above the New Nasdaq Listing
Requirements. As of March 31, 1999, our net tangible assets were in excess of
the $2 million threshold established by the New Nasdaq Listing Requirements.
Although management believes that we will be able to preserve the listing of our
common stock on the Nasdaq SmallCap Market, there can be no assurance that we
will be able to do so.
If our 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 our
common stock. In addition, our common stock would be subject to rules
promulgated under the Exchange Act applicable to penny stocks. The Commission
has adopted regulations that generally define a "penny stock" to be an equity
security that has a market price (as determined pursuant to regulations adopted
by the Commission) or exercise price of less than $5.00 per share, subject to
certain exceptions. By virtue of being listed on the Nasdaq SmallCap Market, our
common stock will be exempt from the Definition of "penny stock." If, however,
our common stock is removed from the Nasdaq SmallCap Market, our 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 our common stock and may
affect the ability of purchasers of our common stock to sell such securities in
the secondary market.
Dependence on Key Personnel
We believe that our ability to successfully implement our business strategy is
highly dependent on our management and product development team. One of our
executive officers has entered into an employment agreement which provides for
ninety (90) days severance on termination. The loss of services of one or more
of these individuals might hinder the achievement of our development objectives.
We are highly dependent on our ability to hire and retain qualified RFID
technical personnel. The competition for these employees is intense. We cannot
give any assurance that we will continue to be able to hire and retain the
qualified personnel needed for our business. The loss of the services of or the
failure to recruit key technical personnel could adversely affect our business,
operating results and financial condition.
Potential Adverse Effect of Shares Eligible for Future Sale; Outstanding
Convertible Securities and Warrants
Future sales of our common stock in the public market by existing stockholders,
warrant holders and holders of convertible securities subsequent to the date
hereof could adversely affect the market price of the our common stock. At
December 31, 1998, an aggregate of approximately 1,700,000 shares of common
stock were outstanding and freely tradeable without restriction under the
Securities Act. In
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addition, up to 767,000 shares were eligible for resale in accordance with the
manner of sale and volume limitations of Rule 144 promulgated under the
Securities Act.
We have reserved approximately 2,300,000 shares of common stock for issuance
upon the exercise of outstanding convertible securities and warrants. As of
December 31, 1998, there were 57,692, 52,817, 35,427, 623 and 1,688 shares of
Series A, B, C, I and J convertible preferred stock outstanding, respectively.
Each share of Series A, B and C convertible preferred stock is convertible at
any time, at the option of the holder, into one share of common stock. The
conversion price for the Series I and Series J convertible preferred stock is
$4.00 per share. See "Recent Sale of Unregistered Securities" below.
There are also currently 584,431 warrants outstanding to acquire the same number
of shares of common stock, as well as $535,000 of indebtedness, convertible into
common stock at $5.00 per share.
We have also reserved approximately 1,050,000 shares of common stock for
issuance to key employees, officers, directors and consultants pursuant to the
company's benefit plans. As of December 31, 1998, there were 772,391 options
outstanding.
Competition
New competitors are likely to emerge who also see the absence of a dominant
player. The RFID segment of the security industry is undergoing, and is expected
to continue to undergo, rapid and significant technological change. The
development by others of new, improved or more cost-effective processes or
products may make our products less attractive or render them commercially
obsolete.
Absence of Dividends
We have never declared or paid cash dividends. We do not intend to declare or
pay any cash dividends in the foreseeable future.
Small Trading Volume and Volatility of Stock Price
The weekly trading volume of our common stock in the over-the-counter market has
varied from a few thousand shares to 400,000 shares, which may tend to increase
the volatility of the price. Since January 1994, the closing bid price of our
common stock in the over-the-counter market has varied from a low of $1.219 to a
high of $85.625 per share. There can be no assurance that the price volatility
will not continue in the future.
ITEM 2. PROPERTIES.
The company leases a 14,508 square foot facility in Carrollton, Texas used for
administrative, engineering and sales offices. This facility is rented under a
three year agreement that terminates in 2000. The company's facilities are
suitable and adequate to accommodate the company's operations.
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ITEM 3. LEGAL PROCEEDINGS.
As previously reported in the company's report on Form 10-QSB for the period
ended March 31, 1998, on February 28, 1996, an investor group filed suit against
the company in the United States District Court for the Southern District of New
York. This lawsuit arises out of the company's refusal to recognize the investor
group's attempt to exercise an option to purchase 70,000 shares of the company's
common stock at a price of $9.90 per share. The option had been granted to the
company's former President and CEO who attempted to transfer his option to the
investor group on the last day of the option term in September of 1995. On that
same day, the investor group attempted to exercise the option. The company
refused to recognize the attempted transfer of the option to the investor group
on the primary grounds that the option was granted personally to the company's
former President and CEO and was not transferable to third-parties. The lawsuit
seeks issuance and registration of the 70,000 shares upon payment of the
exercise price, or in the alternative, monetary damages, which the investor
group alleges to be not less than $2,800,000 not including pre-judgment
interest, fees and expenses. On May 1, 1996 the company moved to dismiss the
complaint on the grounds that the court in New York lacked personal jurisdiction
over the company. The court denied the motion to dismiss by order dated June 10,
1997. Subsequently, the company filed an answer, denying the material
allegations of the complaint and asserting various defenses. On December 31,
1997, plaintiffs moved for partial summary judgment on the question of
liability, as to whether or not the option was assignable. The company filed
papers opposing this motion on or about January 26, 1998. On September 30, 1998,
the court granted plaintiffs' partial summary judgment after determining that
the option was assignable.
On September 17, 1998, the plaintiffs filed a separate suit against Amphion
Ventures L.P., Antiope Partners L.L.C., J.P. Morgan Investment Corporation and
two of the company's directors, Richard C.E. Morgan and Seth Cunningham, which
asserts claims for tortious interference by these defendants in connection with
the investor group's attempt to exercise the option described above. The
defendants filed their answer denying all allegations along with a motion to
dismiss the lawsuit.
In March 1999, the plaintiffs, the company and the other named defendants in the
second lawsuit described above agreed to the principal terms under which both
lawsuits would be settled and dismissed, with prejudice. Although the company
anticipates consummating a settlement sometime during the second quarter of
1999, there can be no assurance, however, that the company will consummate any
such settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR AXCESS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The company's common stock trades on the Nasdaq SmallCap Market tier of the
Nasdaq Stock Market under the symbol AXSI. The table below sets forth high and
low last sale prices for the common stock during each of the periods indicated,
as reported by the Nasdaq. Such price quotations represent inter-dealer prices
without retail markup, markdown or commission and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
1998 LAST CLOSING PRICES 1997 LAST CLOSING PRICES
------------------------ ------------------------
CALENDAR PERIOD LOW HIGH LOW HIGH
- - --------------- --- ---- --- ----
<S> <C> <C> <C> <C>
January 1-March 31 $3.76 $6.26 $18.76 $26.88
April 1-June 30 2.19 5.00 11.88 18.76
July 1-September 30 1.44 3.38 10.62 17.50
October 1-December 31 1.22 2.69 5.00 12.50
</TABLE>
As of December 31, 1998, the company had approximately 1,500 holders of record
of voting common stock and one holder of record of non-voting common stock. The
company estimates that there were approximately 9,000 beneficial owners of its
common stock as of the same date.
The company has not paid dividends on its common stock and does not anticipate
the payment of cash dividends in the foreseeable future as it contemplates
retaining all earnings to finance the continued growth of the company's
business. In addition, certain covenants contained in the company's financing
arrangements restrict the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and Notes 9 and 10 to Notes to Consolidated Financial
Statements for the years ended December 31, 1998, 1997 and 1996.
RECENT SALE OF UNREGISTERED SECURITIES
During 1998, the company issued unregistered securities in connection with each
of the transactions described below. The issuance of the preferred stock, common
stock and warrants were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as a transaction not involving
a public offering and an appropriate restrictive legend was affixed to the
certificates and warrants.
EQUITY COMMITMENT BY MAJOR STOCKHOLDER
Prior to the purchase of the 213 shares of Series J Preferred Stock by Amphion
Ventures L.P. during the three month period ended December 31, 1998, which is
described below under the heading Equity Purchases by Major Stockholder, Amphion
Ventures L.P. had previously purchased 205 shares and 792 shares of the
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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 L.P. to
purchase up to an additional $2.3 million of shares of either the company's
Series G Convertible Preferred Stock (the "Series G Preferred Stock"), Series H
Preferred Stock, Series I Convertible Preferred Stock (the "Series I Preferred
Stock") or Series J Preferred Stock (the "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 L.P. 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").
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 common stock
at any time by a holder thereof, Amphion Ventures L.P. 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 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.
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<PAGE> 13
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 L.P.
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 L.L.C.
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 would 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.
EQUITY PURCHASES BY MAJOR STOCKHOLDER
Under the terms of the Amphion Commitment, 213 shares of Series J Convertible
Preferred Stock were purchased 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 L.P., 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 L.P. on December 31, 1998, for a
total purchase price of $980,000 and 5 shares of Series J Preferred Stock to
Antiope Partners L.L.C. 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 L.P. and Antiope Partners L.L.C.
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 L.P. 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 L.L.C. as payment in full
for the $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
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<PAGE> 14
October 31, 1998, exchange date); and (c) 30 shares of Series J Preferred Stock
to Amphion Ventures L.P. 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 L.P. ($400,000), Antiope Partners L.L.C. ($1,820,233) and J.P. Morgan
Investment Corporation ($800,000). In December 1998, Amphion Ventures L.P.,
Antiope Partners L.L.C. 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 L.P.
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 L.P. 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 L.L.C. 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 L.P., Antiope Partners L.L.C. 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 by the company to
ASGI, Inc. and Nauta, Inc. in connection with its acquisition of the RFID
technology from those entities, the company issued an aggregate of 400,000
shares of its restricted common stock.
- 13 -
<PAGE> 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
In September 1998, the company acquired its active Radio Frequency
Identification (RFID) technology. See Note 5 to Notes to Consolidated Financial
Statements. The company determined this technology to be its primary and core
strategic focus, based on market demand, market size, product differentiation,
competitive environment and other factors.
On October 21, 1998, the company's Board of Directors approved a plan to exit
the imaging business as part of the strategy to redeploy and refocus the
company's resources on its core RFID asset, vehicle and personnel tracking
business. The sale of the imaging business was completed on December 15 , 1998.
The company reported a sales price of $500,000 and recorded a loss of $1,095,920
on the disposal in 1998. The remaining $1,511,320 of net assets of the
discontinued operations consist primarily of trade and other receivables, which
are valued at net realizable value as of December 31, 1998.
In March 1999, the company entered into a definitive agreement to sell its
Lasertechnics Marking Corporation subsidiary ("LMC") to affiliates of Amphion
Capital Management, a major stockholder of the company. 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 company will receive $2.5
million in cash at closing, $0.5 million demand note receivable, a $4.0 million
note receivable due March 2002 (or 2004 under certain conditions) and a warrant
to purchase equity in the Amphion-controlled enterprise to which Amphion will
transfer these businesses and assets with an exercise price of $2.50 per share,
representing approximately 8% of that enterprise. If LMC is sold within two
years of its purchase, the company has the option to exchange its warrant for
twenty percent of the defined excess profits from any such sale. The company's
net book value of LMC and the assets sold was approximately $3.0 million. The
gain on disposition will be recorded in the first quarter of 1999 in connection
with the consummation of the purchase and sale of the stock and assets under
the purchase agreement, after giving effect to changes in the company's
investment in LMC through the sale date. The company's net assets of LMC of
$1,675,000 at December 31, 1998, are included in net assets of discontinued
operations.
RESULTS OF OPERATION
Sales and Gross Profit. Sales applicable to the businesses of the company's
discontinued operations are not included in the company's sales in any period
presented in the company's results of operations.
Although the RFID technology acquired in September 1998 had been in development
and use for some time, significant modifications and enhancements were and are
necessary for its successful commercialization, manufacture and distribution in
volume. Through December 31, 1998, the company had not yet shipped a significant
volume of RFID systems. Sales and marketing efforts were launched in the fourth
quarter of 1998 and orders were being accepted. All orders taken during the
period will be realized as sales when the systems have been manufactured and
shipped to the customer.
As a result there are no sales or gross profit reported for the company in any
of the prior periods. Sales for 1998 were $43,146 on which the company realized
a gross profit of $38,848.
Operating Expenses. Operating expenses were $8,738,140, $3,250,383, and
$2,983,734 in 1998, 1997 and 1996, respectively.
- 14 -
<PAGE> 16
Corporate general and administrative expenses were $5,165,756, $3,250,383, and
$2,983,734 in 1998, 1997 and 1996, respectively. The increase in general and
administrative expenses in 1998 and 1997 was primarily a result of increased
legal expenses and litigation related provisions.
Research and development expenses were $2,939,107 in 1998 which includes new
product development costs associated with the Technology Development Agreement
with XL Vision, Inc. of $2,550,000. Because the company's continuing operations
were not initiated until September 1998, no research and development expenses
were incurred prior to that time.
Selling and marketing expenses were $633,277 in 1998. No selling and marketing
expenses were incurred in 1997 and 1996 because the company's continuing
operations were not initiated until September 1998.
Other expense, net was $510,936, $1,743,533, and $1,485,695 in 1998, 1997 and
1996 respectively, and consists primarily of interest expense. The decrease in
1998 from 1997 resulted from the absence of beneficial conversion features of
the company's convertible notes payable fully accreted to interest expense
during 1997. See Notes 9 and 10 to Notes to Consolidated Financial Statements.
Loss from Continuing Operations was $9,210,228, $4,993,916 and $4,469,429 in
1998, 1997 and 1996, respectively. The primary elements of the increased loss in
1998 over 1997 and 1996, were the additional $2,550,000 of development costs
associated with the XL Vision, Inc. technology development agreement and
increased legal expenses and litigation-related provisions.
Loss from Discontinued Operations was $6,248,828, $7,826,525 and $6,929,566 in
1998, 1997 and 1996, respectively. The loss on disposal of the imaging business
was recorded in the third quarter of 1998. See Note 3 to Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the company has utilized the proceeds from a number of public
and private sales of its equity securities, the exercise of options and warrants
and more recently, convertible debt and short-term bridge loans from
shareholders to meet its working capital requirements.
The company's operations continued to generate losses in 1998, primarily due to
lower than expected sales in both the imaging and marking businesses which were
discontinued in 1998. The company's future working capital requirements will
depend upon many factors, including the extent and timing of the company's
product sales, the company's operating results and the status of competitive
products. The company anticipates that its existing working capital resources
and revenues from operations will not be adequate to satisfy its funding
requirements in 1999. The company is continuing discussions with a number of
existing and potential corporate, strategic and institutional investors. The
company's actual funding needs will depend on numerous factors, including actual
expenditures and revenues generated from its operations compared to its business
plan. The company's actual funding needs will also depend on the successful
development and commercialization of the RFID systems and other unanticipated
expenditures, none of which can be predicted with certainty. There can be no
assurance that the company will acquire the additional funding it needs to fully
pursue its business objectives. If the company's losses continue, the company
may have to obtain sufficient funds to meet its cash requirements through
strategic or other financial transactions with compatible entities having the
resources to support its
- 15 -
<PAGE> 17
programs, the sale of securities or other financing arrangements, or it will be
required to curtail its programs or seek a merger partner. Any additional
funding may be on terms which are unfavorable to the company or disadvantageous
to existing stockholders. In addition, no assurance may be given that the
company will be successful in raising additional funds or entering into business
alliances.
OTHER
Inflation. Inflation has not had and is not expected to have a material impact
on the operations and financial condition of the company.
Caution Regarding Forward-Looking Statements. The company occasionally makes
forward-looking statements concerning its plans, goals, product and service
offerings, and anticipated financial performance. These forward-looking
statements may generally be identified by introductions such as "outlook" for an
upcoming period of time, or words and phrases such as "should", "expect",
"hope", "plans", "projected", "believes", "forward-looking" (or variants of
those words and phrases) or similar language indicating the expression of an
opinion or view concerning the future.
These forward-looking statements are subject to risks and uncertainties based on
a number of factors and actual results or events may differ materially from
those anticipated by such forward-looking statements. These factors include, but
are not limited to: the ability to raise capital; the growth rate of the
company's revenue and market share; the consummation of new, and the
non-termination of, existing relationships with customers and suppliers; the
company's ability to effectively manage its business functions while growing the
company's business in a rapidly changing environment; the ability of the company
to adapt and expand its services in such an environment; the effective and
efficient development of new products; the quality of the company's plans and
strategies; and the ability of the company to execute such plans and strategies.
In addition, forward-looking statements concerning the company's expected
revenue or earnings levels are subject to many additional uncertainties
applicable to competitors generally and to general economic conditions over
which the company has no control. The company does not plan to generally
publicly update prior forward-looking statements for unanticipated events or
otherwise and, accordingly, prior forward-looking statements should not be
considered to be "fresh" simply because the company has not made additional
comments on those forward-looking statements. See "Risk Factors."
.
- 16 -
<PAGE> 18
ITEM 7. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................................. F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997.............................. F-2
Consolidated Statements of Operations for the Years
Ended December 31, 1998, 1997 and 1996................................................ F-3
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996................................................ F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996................................................ F-5
Notes to Consolidated Financial Statements ............................................... F-6
</TABLE>
FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts
The company has not presented Schedule II "Valuation and Qualifying Accounts" as
all such accounts relate to assets and liabilities of the discontinued
operations, which were presented as "Net assets of discontinued operations" on
the accompanying consolidated balance sheets. Net assets of discontinued
operations are recorded at estimated net realizable value.
All other financial statement schedules have been omitted because they are not
applicable or the required information is shown in the consolidated financial
statements and notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
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<PAGE> 19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information regarding Directors, Executive Officers, Promoters and Control
Persons is incorporated by reference in this Form 10-KSB to the sections
entitled "Principal Shareholders," "Management," and "General" in the company's
Proxy Statement to be filed with the Commission in connection with the Annual
Meeting of Stockholders to be held on June 9, 1999.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference in this Form
10-KSB to the section entitled "Management" in the company's Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item is incorporated by reference in this Form
10-KSB to the sections entitled "Principal Shareholders" and "Management" in the
company's Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference in this Form
10-KSB to the section entitled "Management" in the company's Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 --Certificate of Incorporation of the company. Incorporated
herein by reference to Exhibit 3.1 to the company's
Registration Statement on Form S-1 (Registration No.
2-80946).
3.2 --By-laws of AXCESS. Incorporated herein by reference to
Exhibit 3.2 to the company's Registration Statement on Form
S-1 (Registration No. 2-80946).
3.3 --First Amendment to Certificate of Incorporation of the
company dated June 6, 1986. Incorporated herein by reference
to Exhibit 3.3 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1987.
3.4 --Second Amendment to Certificate of Incorporation of the
company dated May 27, 1987. Incorporated herein by reference
to Exhibit 3.4 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1987.
- 18 -
<PAGE> 20
3.5 --Third Amendment to Certificate of Incorporation of the
company dated November 11, 1994. Incorporated herein by
reference to Exhibit 4.4 to the company's Registration
Statement on Form S-3 (Registration No. 333- 10665).
3.6 --Fourth Amendment to Certificate of Incorporation of the
company dated July 28, 1995. Incorporated herein by reference
to Exhibit 4.5 to the company's Registration Statement on
Form S-3 (Registration No. 333- 10665).
3.7 --Fifth Amendment to Certificate of Incorporation of the
company dated June 17, 1997. Incorporated herein by reference
to Exhibit 4.6 to the company's Registration Statement on
Form S-3 (Registration No. 333-10665).
3.8 --Sixth Amendment to Certificate of Incorporation of the
company dated March 31, 1998. Incorporated herein by
reference to Exhibit 99.1 to the company's Report on Form 8-K
dated April 13, 1998.
3.9 --Seventh Amendment to Certificate of Incorporation of the
company dated March 31, 1998. Incorporated herein by
reference to Exhibit 99.2 to the company's Report on Form 8-K
dated April 13, 1998.
3.10 --Eighth Amendment to Certificate of Incorporation of the
company dated April 9, 1998. Incorporated herein by reference
to Exhibit 99.3 to the company's Report on Form 8-K dated
April 13, 1998.
4.1 --Certificate of Designation of the Company's Series A, B and
C Preferred Stock, dated December 27, 1995. Incorporated
herein by reference to Exhibit 4.7 to the company's
Registration Statement on Form S-3 (Registration No.
333-10665).
4.2 --Certificate of Designation of the company's Series I
Preferred Stock.*
4.3 --Certificate of Designation of the company's Series J
Preferred Stock.*
10.1 --1991 Incentive Stock Option Plan, dated August 14, 1991.
Incorporated herein by reference to Exhibit 10.10 to
Lasertechnics' Annual Report on Form 10-KSB for the year
ended December 31, 1991.
10.2 --Purchase of common stock and Convertible Note Agreement
between the company and J.P. Morgan Investment Corporation,
dated July 8, 1994. Incorporated herein by reference to
Exhibit 10.19 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1994.
10.3 --Amendment to the OEM License Agreement between the company
and Xerox Corporation, dated December 27, 1997. Incorporated
by reference to Exhibit 10.12 to the company's Annual Report
on Form 10-KSB for the year ended December 31, 1997.
10.4 --Note Purchase Agreement dated June 25, 1998, by and among
the company, J.P. Morgan Investment Corporation and
Wolfensohn Associates L.P.
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<PAGE> 21
Incorporated by reference to Exhibit 10.15 to the company's
Quarterly Report on Form 10-QSB for the period ended
September 30, 1998.
10.5 --Intellectual Property Transfer Agreement dated January 8,
1998, by and between XL Vision, Inc. and the company.
Incorporated herein by reference to Exhibit 10.15 to the
company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
10.6 --Amendment to Notes and Note Purchase Agreement dated
December 31, 1998, by and among the company, Antiope Partners
L.L.C. and J.P. Morgan Investment Corporation. Incorporated
herein by reference to Exhibit 10.16 to Amendment No. 1 to
the company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
10.7 --Series H Preferred Stock Purchase Agreement dated December
29, 1997, by and among the company and Amphion Ventures L.P.
Incorporated herein by reference to Exhibit 10.17 to
Amendment No. 1 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
10.8 --Preferred Stock Purchase Agreement dated October 21, 1998
by and between the company and Amphion Ventures L.P.*
10.9 --Pledge Agreement dated August 18, 1997, by and among the
company, Antiope Partners L.L.C. and J.P. Morgan Investment
Corporation. Incorporated herein by reference to Exhibit
10.18 to Amendment No. 1 to the company's Annual Report on
Form 10-KSB for the year ended December 31, 1997.
10.10 --Form of Warrant to purchase shares of the company's common
stock issued to Antiope Partners L.L.C. and Amphion Ventures
L.P. Incorporated herein by reference to Exhibit 10.20 to
Amendment No. 1 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
10.11 --Settlement Agreement dated as of April 21, 1998, by and
between the company and Xerox Corporation. Incorporated
herein by reference to Exhibit 10.21 to Amendment No. 1 to
the company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
10.12 --Note Payable Conversion Agreement dated December 31, 1998,
by and between the company and Amphion Ventures L.P.*
10.13 --Note Payable Conversion Agreement dated December 31, 1998,
by and between the company and Antiope Partners L.L.C.*
10.14 --Note Payable Conversion Agreement dated December 31, 1998,
by and between the company and J.P. Morgan Investment
Corporation.*
10.15 --Stock and Asset Purchase Agreement dated March 30, 1999, by
and between the company and Amphion Ventures L.P.*
21 --Subsidiaries of the company.*
- 20 -
<PAGE> 22
23 --Consent of KPMG LLP.*
27.1 --Financial Data Schedule.*
27.2 --1997 Restated Financial Data Schedule*
27.3 --1996 Restated Financial Data Schedule*
--------------
*Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the company during the last
quarter of fiscal 1998.
- 21 -
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1999 AXCESS INC.
By:/s/ Richard C.E. Morgan
---------------------------------------------
Richard C.E. Morgan, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 31, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ Richard C.E. Morgan Chairman of the Board
- - --------------------------------
Richard C.E. Morgan
/s/ Harry S. Budow Director and President and Chief Executive Officer
- - --------------------------------
Harry S. Budow
/s/ Danny G. Hair Executive Vice President and Chief Financial
- - -------------------------------- Officer (Principal Financial and Accounting Officer)
Danny G. Hair
/s/ Paul J. Coleman, Jr. Director
- - --------------------------------
Paul J. Coleman, Jr.
/s/ C. Seth Cunningham Director
- - --------------------------------
C. Seth Cunningham
/s/ Richard M. Clarke Director
- - --------------------------------
Richard M. Clarke
/s/ Gregory W. Haskell Director
- - --------------------------------
Gregory W. Haskell
</TABLE>
<PAGE> 24
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
AXCESS Inc.
We have audited the accompanying consolidated balance sheets of AXCESS Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AXCESS Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the company's recurring losses from
operations and resulting continued dependence upon access to additional external
financing raise substantial doubt about its ability to continue as an ongoing
concern. Management's plans in regard to these matters are also described in
note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG LLP
Dallas, Texas
March 19, 1999
F-1
<PAGE> 25
AXCESS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,575,429 $ 1,102,341
Note receivable from stockholder 1,030,624 1,158,684
Accounts receivable--trade 30,987 -
Inventory 256,216 -
Prepaid expenses and other 160,087 154,234
---------------- -------------
Total current assets 3,053,343 2,415,259
Net assets of discontinued operations (note 3) 3,186,253 7,738,134
Property, plant and equipment, net (note 6) 574,499 662,149
RFID technology (note 5) 1,714,449 -
Deferred license fee, net (note 12) 532,881 1,400,000
Other assets 9,923 111,660
---------------- -------------
$ 9,071,348 $ 12,327,202
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to stockholders (notes 5 and 9) $ 1,966,900 $ 2,931,821
Notes payable (note 12) 90,882 3,942,495
Accounts payable 466,940 1,445,418
Dividends payable 481,339 60,916
Accrued liabilities (note 8) 1,985,002 937,350
---------------- -------------
Total current liabilities 4,991,063 9,318,000
Notes payable, long-term (notes 9, 10 and 12) 535,205 535,205
Notes payable to stockholder, long-term (note 12) 1,470,000 -
Other long-term liabilities - 4,694
---------------- -------------
Total liabilities 6,996,268 9,857,899
Commitments and contingencies (notes 5 and 14)
Stockholders' equity (notes 4, 9, 10, 11, 12 and 13):
Convertible preferred stock:
Series A: $26.00 stated value; 57,692 shares issued and outstanding
in 1998 and 1997 1,500,000 1,500,000
Series B: $28.40 stated value; 52,817 shares issued and outstanding
in 1998 and 1997 1,500,000 1,500,000
Series C: $30.20 stated value; 35,427 shares issued and outstanding
in 1998 and 1997 1,069,880 1,069,880
Series G: $10,000 stated value; no shares issued and outstanding in
1998, and 790 in 1997 - 7,897,353
Series I: $10,000 stated value; 623 shares issued and outstanding in
1998 and none in 1997 6,230,000 -
Series J: $10,000 stated value; 1,688 shares issued and outstanding
in 16,880,000 -
1998 and none in 1997
Common stock, $.01 par value, 6,250,000 shares authorized in 1998 and 2,837,500
in 1997; 2,879,368 shares issued and outstanding in 1998 and
2,331,748 in 1997 28,794 23,318
Non-voting convertible common stock, $.01 par value, 112,500 shares
authorized in 1998 and 1997; 112,492 shares issued and outstanding in
1998 and 1997; convertible into common stock on a share for share basis 1,125 1,125
Paid-in capital 58,515,848 57,168,716
Accumulated deficit (83,650,567) (66,691,089)
---------------- -------------
Total stockholders' equity 2,075,080 2,469,303
---------------- -------------
$ 9,071,348 $ 12,327,202
================ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 26
AXCESS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales $ 43,146 $ -- $ --
Cost of sales 4,298 -- --
------------ ------------ ------------
Gross profit 38,848 -- --
Expenses:
Research and development 2,939,107 -- --
General and administrative 5,165,756 3,250,383 2,983,734
Selling and marketing 633,277 -- --
------------ ------------ ------------
Operating expenses 8,738,140 3,250,383 2,983,734
------------ ------------ ------------
Loss from operations (8,699,292) (3,250,383) (2,983,734)
Other income (expense):
Interest expense (532,797) (1,742,543) (1,582,621)
Interest income 2 8,232 69,497
Other 21,861 (9,222) 27,429
------------ ------------ ------------
Other expense, net (510,936) (1,743,533) (1,485,695)
------------ ------------ ------------
Loss from continuing operations (9,210,228) (4,993,916) (4,469,429)
Discontinued operations (note 3):
Loss from operations (5,152,908) (7,826,525) (6,929,566)
Loss on disposal of discontinued operations (1,095,920) -- --
------------ ------------ ------------
Loss from discontinued operations (6,248,828) (7,826,525) (6,929,566)
------------ ------------ ------------
Net loss (15,459,056) (12,820,441) (11,398,995)
Preferred stock dividend requirement (1,500,422) (1,072,389) (1,865,115)
------------ ------------ ------------
Net loss applicable to common stock $(16,959,478) $(13,892,830) $(13,264,110)
============ ============ ============
Basic and diluted net loss per share:
For continuing operations $ (3.43) $ (2.24) $ (2.60)
For discontinued operations $ (2.33) $ (3.50) $ (4.04)
For preferred stock dividends $ (0.56) $ (0.48) $ (1.09)
------------ ------------ ------------
Net loss applicable per common share $ (6.32) $ (6.22) $ (7.73)
============ ============ ============
Weighted average shares of common stock outstanding 2,681,456 2,234,239 1,716,966
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 27
AXCESS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 145,937 $ 4,016,668 1,414,040 $ 141.40
Exercise of common stock options (note 13) -- -- 4,461 45
Increasing rate preferred stock discount (note 11) -- 53,212 -- --
Conversion feature of debentures and detachable warrants issued (note 10) -- -- -- --
Conversion feature of Series D Preferred Stock (note 11) -- (1,198,055) -- --
Debentures converted, net of expenses (note 10) -- -- 334,128 3,341
Warrant discount net of related debenture conversion (note 10) -- -- -- --
Issuance of convertible preferred stock, net of expenses (note 11) 835 8,350,000 -- --
Preferred stock accretion and dividends (note 11) -- 1,455,721 -- --
Preferred stock converted, including related accretion (note 11) (250) (2,558,352) 114,047 1,140
Retirement of treasury stock -- -- (10,000) (100)
Other -- -- -- --
Net loss -- -- -- --
-------- ------------ ---------- --------
Balance at December 31, 1996 146,522 10,119,194 1,856,676 18,566
Issuance of common stock -- -- 1,149 12
Issuance of common stock for extension of stockholder notes payable
(note 9) -- -- 5,647 56
Conversion feature of stockholder notes payable (note 9) -- -- -- --
Conversion feature of debentures issued (note 10) -- -- -- --
Issuance of common stock in connection with stockholder notes payable
(note 9) -- -- 36,713 367
Debentures converted, net of expenses (note 10) -- -- 99,045 990
Issuance of Series G Preferred Stock, net of expenses and conversion of
Series F Preferred Stock, including common stock issued (note 11) 802 7,980,842 -- --
Issuance of common stock for the conversion of Series F to Series G
Preferred Stock -- -- 44,868 449
Preferred stock accretion and dividends (note 11) -- 231,911 -- --
Preferred stock converted, including related accretion (note 11) (359) (3,829,218) 287,650 2,878
Preferred stock redeemed (note 11) (133) (1,350,000) -- --
Preferred stock converted to debt (note 11) (106) (1,185,496) -- --
Issuance of warrants in connection with the stockholder notes payable
agreement and December 1997 restructuring (notes 9, 10, and 11) -- -- -- --
Other -- -- -- --
Net loss -- -- -- --
-------- ------------ ---------- --------
Balance at December 31, 1997 146,726 11,967,233 2,331,748 23,318
Issuance of common stock -- -- 12,500 125
Issuance of restricted common stock in connection with settlement
(note 12) -- -- 120,000 1,200
Issuance of preferred stock -- 2,647 -- --
Issuance of common stock in connection with notes payable to
stockholders (note 12) -- -- 15,120 151
Restricted common stock issued with asset purchase (note 5) -- -- 400,000 4,000
Issuance of Series G Preferred Stock and exchanged for Series I Preferred
Stock (note 11) 205 2,050,000 -- --
Issuance of Series H Preferred Stock and exchanged for Series J Preferred
Stock (note 11) 792 7,920,000 -- --
Issuance of Series J Preferred Stock (note 11) 213 2,130,000 -- --
Conversion of stockholders' notes payable to Series J Preferred Stock
(note 9) 153 1,530,000 -- --
Conversion of stockholders' notes payable to Series I Preferred Stock
(note 9) 50 500,000 -- --
Issuance of Series I and Series J Preferred Stock for dividends payable
(note 10) 108 1,080,000 -- --
Preferred stock dividends (note 11) -- -- -- --
Purchase of treasury stock -- -- -- --
Other -- -- -- --
Net loss -- -- -- --
-------- ------------ ---------- --------
Balance at December 31, 1998 148,247 $ 27,179,880 2,879,368 $ 28,794
======== ============ ========== ========
</TABLE>
<TABLE>
<CAPTION>
NONVOTING
CONVERTIBLE
COMMON STOCK
----------------
PAID-IN
SHARES AMOUNT CAPITAL
------- ------ ------------
<S> <C> <C> <C>
Balance at December 31, 1995 112,492 $1,125 $ 36,710,433
Exercise of common stock options (note 13) -- -- 110,746
Increasing rate preferred stock discount (note 11) -- -- --
Conversion feature of debentures and detachable warrants issued (note 10) -- -- 1,555,981
Conversion feature of Series D Preferred Stock (note 11) -- -- 1,198,055
Debentures converted, net of expenses (note 10) -- -- 8,859,726
Warrant discount net of related debenture conversion (note 10) -- -- 53,792
Issuance of convertible preferred stock, net of expenses (note 11) -- -- (762,964)
Preferred stock accretion and dividends (note 11) -- -- --
Preferred stock converted, including related accretion (note 11) -- -- 2,557,212
Retirement of treasury stock -- -- 100
Other -- -- (17,708)
Net loss -- -- --
------- ------ ------------
Balance at December 31, 1996 112,492 1,125 50,265,373
Issuance of common stock -- -- 40,671
Issuance of common stock for extension of stockholder notes payable
(note 9) -- -- 28,180
Conversion feature of stockholder notes payable (note 9) -- -- 687,833
Conversion feature of debentures issued (note 10) -- -- 88,235
Issuance of common stock in connection with stockholder notes payable
(note 9) -- -- 390,675
Debentures converted, net of expenses (note 10) -- -- 1,032,456
Issuance of Series G Preferred Stock, net of expenses and conversion of
Series F Preferred Stock, including common stock issued (note 11) -- -- --
Issuance of common stock for the conversion of Series F to Series G
Preferred Stock -- -- 236,376
Preferred stock accretion and dividends (note 11) -- -- --
Preferred stock converted, including related accretion (note 11) -- -- 3,826,340
Preferred stock redeemed (note 11) -- -- --
Preferred stock converted to debt (note 11) -- -- --
Issuance of warrants in connection with the stockholder notes payable
agreement and December 1997 restructuring (notes 9, 10, and 11) -- -- 567,593
Other -- -- 4,984
Net loss -- -- --
------- ------ ------------
Balance at December 31, 1997 112,492 1,125 57,168,716
Issuance of common stock -- -- 49,875
Issuance of restricted common stock in connection with settlement (note
12) -- -- 561,300
Issuance of preferred stock -- -- (2,647)
Issuance of common stock in connection with notes payable to
stockholders (note 12) -- -- 99,923
Restricted common stock issued with asset purchase (note 5) -- -- 621,200
Issuance of Series G Preferred Stock and exchanged for Series I Preferred
Stock (note 11) -- -- --
Issuance of Series H Preferred Stock and exchanged for Series J Preferred
Stock (note 11) -- -- --
Issuance of Series J Preferred Stock (note 11) -- -- --
Conversion of stockholders' notes payable to Series J Preferred Stock
(note 9) -- -- --
Conversion of stockholders' notes payable to Series I Preferred Stock
(note 9) -- -- --
Issuance of Series I and Series J Preferred Stock for dividends payable
(note 10) -- -- --
Preferred stock dividends (note 11) -- -- --
Purchase of treasury stock -- -- (50,000)
Other -- -- 67,481
Net loss -- -- --
------- ------ ------------
Balance at December 31, 1998 112,492 $1,125 $ 58,515,848
======= ====== ============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
S DEFICIT TOTAL
-------------- ------------
<S> <C> <C>
Balance at December 31, 1995 $(39,534,149) $ 1,208,217
Exercise of common stock options (note 13) -- 110,791
Increasing rate preferred stock discount (note 11) -- 53,212
Conversion feature of debentures and detachable warrants issued (note 10) -- 1,555,981
Conversion feature of Series D Preferred Stock (note 11) -- --
Debentures converted, net of expenses (note 10) -- 8,863,067
Warrant discount net of related debenture conversion (note 10) -- 53,792
Issuance of convertible preferred stock, net of expenses (note 11) -- 7,587,036
Preferred stock accretion and dividends (note 11) (1,865,115) (409,394)
Preferred stock converted, including related accretion (note 11) -- --
Retirement of treasury stock -- --
Other -- (17,708)
Net loss (11,398,995) (11,398,995)
------------ ------------
Balance at December 31, 1996 (52,798,259) 7,605,999
Issuance of common stock -- 40,683
Issuance of common stock for extension of stockholder notes payable
(note 9) -- 28,236
Conversion feature of stockholder notes payable (note 9) -- 687,833
Conversion feature of debentures issued (note 10) -- 88,235
Issuance of common stock in connection with stockholder notes payable
(note 9) -- 391,042
Debentures converted, net of expenses (note 10) -- 1,033,446
Issuance of Series G Preferred Stock, net of expenses and conversion of
Series F Preferred Stock, including common stock issued (note 11) -- 7,980,842
Issuance of common stock for the conversion of Series F to Series G
Preferred Stock -- 236,825
Preferred stock accretion and dividends (note 11) (1,072,389) (840,478)
Preferred stock converted, including related accretion (note 11) -- --
Preferred stock redeemed (note 11) -- (1,350,000)
Preferred stock converted to debt (note 11) -- (1,185,496)
Issuance of warrants in connection with the stockholder notes payable
agreement and December 1997 restructuring (notes 9, 10, and 11) -- 567,593
Other -- 4,984
Net loss (12,820,441) (12,820,441)
------------ ------------
Balance at December 31, 1997 (66,691,089) 2,469,303
Issuance of common stock -- 50,000
Issuance of restricted common stock in connection with settlement (note
12) -- 562,500
Issuance of preferred stock -- --
Issuance of common stock in connection with notes payable to
stockholders (note 12) -- 100,074
Restricted common stock issued with asset purchase (note 5) -- 625,200
Issuance of Series G Preferred Stock and exchanged for Series I Preferred
Stock (note 11) -- 2,050,000
Issuance of Series H Preferred Stock and exchanged for Series J Preferred
Stock (note 11) -- 7,920,000
Issuance of Series J Preferred Stock (note 11) -- 2,130,000
Conversion of stockholders' notes payable to Series J Preferred Stock
(note 9) -- 1,530,000
Conversion of stockholders' notes payable to Series I Preferred Stock
(note 9) -- 500,000
Issuance of Series I and Series J Preferred Stock for dividends payable
(note 10) -- 1,080,000
Preferred stock dividends (note 11) (1,500,422) (1,500,422)
Purchase of treasury stock -- (50,000)
Other -- 67,481
Net loss (15,459,056) (15,459,056)
------------ ------------
Balance at December 31, 1998 $(83,650,567) $ 2,075,080
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 28
AXCESS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (9,210,228) $(4,993,916) $ (4,469,429)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 781,243 700,000 174,571
Amortization of financing discount and issuance costs 188,486 -- --
Non-cash compensation 50,000 -- --
Changes in operating assets and liabilities:
Accounts receivable (30,987) -- --
Inventory (256,216) -- --
Prepaid expenses and other (5,853) 113,749 (100,995)
Deferred license fees -- -- (2,100,000)
Other assets 101,737 308,124 587,379
Accounts payable (978,478) 119,422 (880,218)
Other liabilities 1,787,916 (225,249) 489,057
------------ ----------- ------------
Net cash used by operating activities (7,572,380) (3,977,870) (6,299,635)
Cash flow from investing activities:
RFID technology purchase (404,249) -- --
Capital expenditures (46,450) (6,163) --
------------ ----------- ------------
Net cash used by investing activities (450,699) (6,163) --
Cash flows from financing activities:
Borrowings under financing agreements 1,611,685 6,099,024 1,772,347
Principal payments on financing agreements (3,591,631) (3,115,544) (4,075,715)
Net proceeds from issuance of common and preferred stock 12,245,542 6,229,795 18,152,959
------------ ----------- ------------
Net cash provided by financing activities 10,265,596 9,213,275 15,849,591
Net cash used by discontinued operations (1,769,429) (5,072,869) (8,602,999)
Net increase in cash and cash equivalents 473,088 156,373 946,957
Cash and cash equivalents, beginning of period 1,102,341 945,968 (989)
------------ ----------- ------------
Cash and cash equivalents, end of period $ 1,575,429 $ 1,102,341 $ 945,968
============ =========== ============
Supplemental information:
Cash paid during the year for interest 112,446 2,031 151,354
============ =========== ============
Conversions to common stock (notes 9, 10 and 11):
Debentures, net of unamortized discount and expenses -- 1,000,000 9,225,000
Accrued interest -- 33,446 483,435
Preferred stock -- 3,829,218 --
Convertible preferred stock accretion (note 11) -- 231,911 257,666
============ =========== ============
Other conversions:
Restricted common stock issued in connection with Xerox settlement (note 12) 562,500 -- --
============ =========== ============
Restricted common stock issued in connection with RFID Asset Purchase (note 5) 625,200 -- --
============ =========== ============
Note payable to stockholder in connection with RFID asset purchase (Note 5) 685,000 -- --
============ =========== ============
Detachable warrants and restricted common stock issued in conjunction
with notes payable to stockholders (note 12) 100,704 -- --
============ =========== ============
Detachable warrants stock issued in conjunction with convertible debt
and preferred stock (notes 9, 10 and 11) -- 567,593 462,000
============ =========== ============
Conversion feature of debentures and stockholder notes issued (notes 9 and 10) -- 776,068 1,555,981
============ =========== ============
Common stock issued in connection with stockholder notes payable
and preferred stock -- 656,103 --
============ =========== ============
Debentures and accrued interest converted to short- and long-term
notes payable (note 10) -- 1,035,205 --
============ =========== ============
Preferred stock converted to notes payable (note 11) -- 1,185,496 --
============ =========== ============
Exchange of convertible preferred stock for new issues (note 11) 15,050,000 -- --
============ =========== ============
Conversion of notes payable to stockholders and accrued interest to
preferred stock (Note 11) 2,030,000 -- --
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 29
AXCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Company Organization and Basis of Presentation
The accompanying consolidated financial statements include the
accounts of AXCESS Inc. and its 96 percent owned subsidiary Sandia Imaging
Systems Corporation (Sandia), which is no longer operating (see note 3)
(collectively, "the company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to the 1997 and 1996 consolidated financial statements to conform
to the 1998 presentation, including classification of the imaging business and
Lasertechnics Marking Corporation ("LMC") as discontinued operations (note 3).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Statements of Cash Flows
The company considers all highly liquid debt instruments with
original maturities of three months or less to be cash equivalents.
(c) Inventory
Inventory is valued at the lower of cost or market using the
first-in, first-out method. Inventory was comprised of the following at December
31, 1998:
<TABLE>
<S> <C>
Raw materials $ 98,010
Work-in-process 137,124
Finished goods 21,082
----------------
$ 256,216
================
</TABLE>
(d) Depreciation and Amortization
Depreciation on property and equipment is calculated using the
straight-line method over the estimated useful lives of the respective assets.
(e) Fair Value of Financial Instruments
The carrying amount of cash equivalents, note receivable from
stockholder, accounts receivable, accounts payable, notes payable to
stockholder, notes payable and accrued liabilities approximate fair value
because of the short-term maturity of these instruments.
F-6
<PAGE> 30
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The outstanding borrowings under the company's long-term notes payable
(note 9) bear interest at current market rates, and therefore, the carrying
amount of debt approximates estimated fair value at December 31, 1998 and 1997.
(f) Income Taxes
The company accounts for income taxes under the asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount more likely than not to be realized. Income tax expense is
the total of tax payable for the period and the change during the period in
deferred tax assets and liabilities.
(g) Net Loss Per Common Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 revised the previous calculation methods and
presentations of earnings per share and requires that all prior-period earnings
(loss) per share data be restated to conform to SFAS No. 128. The company
adopted SFAS No. 128 in the fourth quarter of 1997 as required by this
Statement. In accordance with SFAS No. 128, the company has presented basic loss
per share, computed on the basis of the weighted average number of common shares
outstanding during the year. Diluted earnings per share which includes the
dilutive effect of options and warrants has not been presented since, due to the
net losses recorded by the company for all periods presented, their inclusion
would be antidilutive.
Net loss applicable to common stock is derived by adding to the
consolidated net loss the accretion of the discount recorded for the company's
increasing rate preferred stock Series A, B and C in 1996, the annual accretion
of Series D, E and F Preferred Stock in 1996 and 1997, and dividend requirements
on Series G, H, I and J Preferred Stock in 1998, the value of warrants issued to
induce conversions from Series F to Series G Preferred Stock during 1997 and in
connection with a 1997 standstill agreement and the intrinsic value of the
beneficial conversion feature of the Series D Preferred Stock (note 11).
(h) Revenue Recognition
The company recognizes revenue on sales of its products either
when the products are shipped from the company or received by the customer,
depending on the shipping terms.
(i) Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed Of
Long-lived assets and certain identifiable intangibles are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the
F-7
<PAGE> 31
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
carrying amount of the asset exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(j) Stock Compensation Plans
On January 1, 1996, the company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
in 1995 and future years as if the fair value-based method defined in SFAS No.
123 had been applied. The company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosures of SFAS
No. 123. Under APB Opinion No. 25, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price.
(k) Capital Structure
Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS No. 129") was
adopted by the company for the year ended December 31, 1998. SFAS No. 129
requires disclosures about capital structure to include a brief discussion of
rights and privileges for securities outstanding.
(l) Segment Reporting
The company adopted SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," effective January 1, 1998. The
statement supercedes SFAS No. 14 "Financial Reporting for Segments of a Business
Enterprise." The adoption of this statement had no impact on the company as the
company operates in one industry segment upon discontinuing the operations of
LMC and the imaging business.
(2) OPERATIONS, LIQUIDITY AND GOING CONCERN
The company's operations in 1998 continued to generate losses. The loss
in 1998 exceeded losses in either 1997 or 1996. Although during 1998, the
company raised gross proceeds of approximately $15 million through equity and
debt transactions, the company's operations, capital expenditures and debt
service requirements have utilized substantially all of such proceeds through
March 1999. These factors raise substantial doubt about the company's ability to
continue as a going concern.
The company's business plan for 1999 is predicated principally upon the
successful introduction of its new RFID products. Because of the uncertainty and
anticipated timing of new product
F-8
<PAGE> 32
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
introductions the company will require additional external financing to meet its
1999 requirements. However, there can be no assurance that sufficient additional
external financing can be obtained to fund any increases in financing
requirements resulting from delays in or inability to successfully introduce
planned new products. If the company is unable to obtain such additional funds,
it may be necessary to either reduce or stop certain product development
programs, reduce its sales and marketing efforts or undertake other actions as
may be appropriate.
(3) DISCONTINUED OPERATIONS
On October 21, 1998, the company's Board of Directors approved a plan
to exit the imaging business as part of the strategy to redeploy and refocus the
company's resources on its core RFID asset, vehicle and personnel tracking
business. The sale of the imaging business was completed on December 15 , 1998.
The company reported a sales price of $500,000 and recorded a loss of $1,095,920
on the disposal in 1998. The remaining $1,511,320 of net assets of the
discontinued operations consist primarily of trade and other receivables, which
are valued at net realizable value as of December 31, 1998. Below is a summary
of the operating results of the imaging business, which have been reclassified
to loss from discontinued operations for all periods presented (there is no
related income tax benefit or expense).
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales $ 3,014,465 $ 4,353,318 $ 8,197,639
Costs and expenses 5,540,978 9,897,212 13,856,525
----------- ----------- ------------
Loss from operation of discontinued business $(2,526,513) $(5,543,894) $ (5,658,886)
=========== =========== ============
</TABLE>
In March 1999, the company entered into a definitive agreement to sell
its Lasertechnics Marking Corporation subsidiary ("LMC") to affiliates of
Amphion Capital Management, a major stockholder of the company. 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 company will receive $2.5
million in cash at closing, $0.5 million demand note receivable, a $4.0 million
note receivable due March 2002 (or 2004 under certain conditions) and a warrant
to purchase equity in the Amphion-controlled enterprise to which Amphion will
transfer these businesses and assets with an exercise price of $2.50 per share,
representing approximately 8% of that enterprise. If LMC is sold within two
years of its purchase, the company has the option to exchange its warrant for
twenty percent of the defined excess profits from any such sale. The company's
net book value of LMC and the assets sold was approximately $3.0 million. The
gain on disposition will be recorded in the first quarter of 1999 in connection
with the consummation of the purchase and sale of the stock and assets under the
purchase agreement, after giving effect to changes in the company's investment
in LMC through the sale date. The company's net assets of LMC
F-9
<PAGE> 33
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of $1,675,000 at December 31, 1998, are included in net assets of discontinued
operations. Below is a summary of the operating results of LMC, which have been
reclassified to loss from discontinued operations for all periods presented
(there is no related income tax benefit or expense).
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales $ 5,495,475 $ 6,765,021 $ 9,383,801
Costs and expenses 8,121,870 9,047,652 10,654,481
----------- ----------- ------------
Loss from operation of discontinued business $(2,626,395) $(2,282,631) $ (1,270,680)
=========== =========== ============
</TABLE>
(4) REVERSE STOCK SPLIT
The company has restated its consolidated financial statements for the
years ended December 31, 1997 and 1996 to give effect to the 1-for-20 reverse
stock split of the outstanding Common Stock, Nonvoting Common Stock, and Series
A, B and C Convertible Preferred Stock effective as of April 2, 1998. There was
no change to total stockholders' equity. However, to reflect the decreased
number of common and non-voting common convertible shares outstanding following
the reverse stock split, there was a reduction in total par value of common
stock and non-voting common stock offset by an increase in paid-in capital. The
effects of the reverse stock split are summarized below. The reverse stock split
had the effect of increasing the company's 1997 and 1996 net loss per common
share by a factor of 20, but had no impact on the net loss or net loss
applicable to common stock, as shown below:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Number of weighted average shares of common stock 44,684,785 34,339,313
outstanding, as previously reported
Restated number of weighted average shares of common stock 2,234,239 1,716,966
outstanding after reverse stock split
Net loss attributable to common stockholders, as previously and $(13,892,830) $(13,264,110)
currently reported
Basic and diluted net loss per share, as previously reported $ (0.31) $ (0.39)
Restated basic and diluted net loss per share after reverse stock split $ (6.22) $ (7.73)
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1997
----
<S> <C>
Balance Sheet:
Common stock, $.01 par value:
Number of shares issued and outstanding
As previously reported 46,634,964
After reverse stock split 2,331,748
Total par value, as previously reported $ 466,350
Total par value, after reverse stock split 23,318
------------
Reduction in par value $ (443,032)
Non-voting convertible common stock, $.01 par value:
Number of shares issued and outstanding
As previously reported 2,249,842
After reverse stock split 112,492
Total par value, as previously reported $ 22,499
Total par value, after reverse stock split 1,125
------------
Reduction in par value $ (21,374)
Paid-in Capital:
As previously reported $ 56,704,310
After reverse stock split 57,168,716
------------
Increase in paid-in capital $ 464,406
------------
Net effect on total stockholders' equity $ --
============
</TABLE>
F-10
<PAGE> 34
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Unaudited quarterly financial data was also restated from amounts
previously reported for the fiscal 1997 and 1996 quarterly results (note 16).
(5) RFID TECHNOLOGY
In September 1998, the company consummated the acquisition of the RFID
based (Radio Frequency Identification) intellectual property assets of ASGI,
Inc., and Nauta, Inc. (collectively, the "Sellers"). The intellectual property
assets included a patent, trade secret rights, software, hardware, product
designs and all other technical information necessary for the company to
manufacture and market radio frequency identification products in the areas of
access control and asset management. The company accomplished the asset
acquisition pursuant to an Asset Purchase Agreement dated September 9, 1998, by
and among the company and the Sellers. At closing, the company made a cash
payment of $415,000, signed a one-year promissory note for $685,000, interest at
prime, and delivered 400,000 shares of its common stock. Up to an aggregate of
$6,000,000 is payable by the company to Sellers only if certain net operating
profit targets are realized during each of the next five years. The balance
outstanding under the promissory note at December 31, 1998 was approximately
$457,000. Such amounts will be treated as additional cost of the RFID
technology, if and when paid, and amortized over the remaining economic life of
the technology.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Amortization/
Depreciation
Period 1998 1997
------------ ---- ----
<S> <C> <C> <C>
Property, plant and equipment:
Leasehold improvements Lease term $ 55,752 $ 31,305
Machinery and equipment 5 to 8 years 1,060,255 1,159,689
Furniture and fixtures 5 years 70,461 99,309
----------- ----------
1,186,648 1,290,303
Accumulated depreciation and amortization (612,149) (628,154)
----------- ----------
Property, plant and equipment, net $ 574,499 $ 662,149
=========== ==========
</TABLE>
(7) LEASE OBLIGATIONS
On November 6, 1998, the company executed a sale-leaseback transaction
for LMC's headquarters facility in Albuquerque, New Mexico, which generated net
cash proceeds of approximately
F-11
<PAGE> 35
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
$725,000, after retiring industrial revenue bonds issued by the City of
Albuquerque. As part of the transaction, the company's long-term capital lease
with the City of Albuquerque was terminated.
The company leases its office space and certain equipment under operating
leases. The rental expense recorded for operating leases was $162,431, $187,701
and $179,202 for the years ended December 31, 1998, 1997 and 1996, respectively.
At December 31, 1998, future minimum lease payments on operating leases were as
follows:
<TABLE>
<CAPTION>
Year ending December 31
-----------------------
<S> <C>
1999 $140,909
2000 123,224
2001 16,220
2002 5,407
</TABLE>
(8) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accrued payroll and payroll taxes $ 152,257 $ 60,902
Accrued vacation 82,407 49,665
Interest payable 36,303 255,192
Accrued legal, litigation settlements and other 1,714,035 571,591
----------- --------
$ 1,985,002 $937,350
=========== ========
</TABLE>
(9) NOTES PAYABLE TO STOCKHOLDERS
During June and July 1996, the company obtained a 12% working capital
bridge loan totaling $1.7 million from Antiope Partners L.L.C. f/k/a Wolfensohn
Partners L.P. ("Antiope Partners"). The loan principal and related interest were
paid in full in August 1996 with proceeds from the sale of Series D Convertible
Preferred Stock (note 11). In connection with these borrowings, a five year
warrant to purchase a total of 2,817 shares of common stock was issued to
Antiope Partners.
During the first quarter of 1997, the company obtained a commitment for
a working capital bridge loan of up to $1,000,000 from Antiope Partners. The
company made draws of $1,000,000 under this agreement during the first and
second quarters of 1997. Borrowings bore interest at 12% and were due on demand.
The borrowings were ultimately convertible into the company's voting common
stock. In June 1997, borrowings under this agreement were converted into an
advance under the terms of a new bridge loan financing provided to the company
by Antiope Partners and J.P. Morgan Investment Corporation ("JPMIC") pursuant to
a note purchase agreement dated June 25, 1997 (the "Note Purchase Agreement").
The Note Purchase Agreement provided the company with additional bridge
financing up to a total of
F-12
<PAGE> 36
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
$3,000,000, to be funded 60% by Antiope Partners and 40% by JPMIC. Under the
Note Purchase Agreement, the company received additional fundings of $2,000,000
by September 1997. The Note Purchase Agreement provided for an interest rate of
10% per annum for advances by Antiope Partners and 6.64% per annum for advances
by JPMIC, with a final maturity of December 31, 1997. In connection with the
advances, the company issued to Antiope Partners and JPMIC an aggregate of
15,428 restricted shares of the company's common stock and warrants to purchase
30,000 shares of the company's common stock with a strike price of $14.00. In
connection with the restricted shares and warrants, the company recorded a
discount to equity of $287,144. Further, advances under the Note Purchase
Agreement are convertible into convertible debentures with terms similar to the
currently outstanding convertible debentures (see note 10), which are ultimately
convertible into common stock at a discount. The company recorded a discount to
equity of approximately $688,000 for the intrinsic value of the beneficial
conversion feature. The discount attributable to the restricted shares, warrants
and conversion feature was fully accreted to interest expense during 1997.
In December 1997, JPMIC, Antiope Partners and Amphion Ventures, L.P.
("Amphion Ventures"), an affiliate of Antiope Partners, extended the maturity of
the Note Purchase Agreement to December 31, 1998 in exchange for 5,647
restricted shares of the company's common stock and warrants to purchase 30,000
shares of common stock at an exercise price of $5.00. The company recorded a
debt discount of $88,412 representing the estimated fair value of the warrants
and restricted stock provided under this arrangement. The debt discount was
accreted to interest expense through the extended maturity date of December 31,
1998.
The company borrowed additional funds of $4,138,575 from Amphion
Ventures during late September 1997 through early December 1997 under an
informal borrowing agreement. The advances accrued interest at a rate of 10% per
annum. In connection with these advances, the company issued 21,284 restricted
shares of the company's common stock and warrants to purchase 41,385 shares of
the company's common stock at an exercise price of $14.00. The company recorded
a debt discount of approximately $317,000 representing the estimated fair value
of the warrants and restricted stock, which was fully accreted to interest
expense as of December 31, 1997. In December 1997, the company entered into an
agreement whereby it converted the advances under this informal borrowing
agreement into Series G Preferred Stock (see note 11). The effective interest
rate associated with the borrowings from Antiope Partners and JPMIC in 1997 was
71% including the beneficial conversion feature, and 39% excluding the same.
In December 1998, Amphion Ventures L.P., Antiope Partners and JPMIC
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 (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.
F-13
<PAGE> 37
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 JPMIC 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 JPMIC
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 Note Purchase Agreement is
now due in full by the company on December 31, 1999.
(10) CONVERTIBLE DEBENTURES
In March 1996, the company completed a $5,500,000 private placement of
10 percent convertible subordinated debentures maturing March 1, 1999 (the "1996
Debentures"). The 1996 Debentures, plus accrued interest, were convertible into
the company's unregistered common stock. The Common Stock issued upon conversion
has registration rights under certain circumstances. In connection with the 1996
Debentures, five year warrants to purchase 9,625 shares of Common Stock at
$44.00 per share were issued to the placement agent for the offering as part of
the placement fee. In addition, five year warrants to purchase 27,500 shares of
Common Stock at $40.00 per share were issued with the 1996 Debentures. The
company recorded a debt discount of approximately $606,341 for the estimated
fair value of such warrants. The company recorded a debt discount of
approximately $950,000 representing the intrinsic value of the beneficial
conversion feature of the 1996 Debentures and approximately $462,000 for the
estimated fair value of the 27,500 related detachable warrants to purchase
Common Stock. The discount related to the detachable warrants was being
amortized ratably as an interest rate adjustment over the life of the 1996
Debentures or until conversion. All outstanding 1996 Debentures were to be
automatically converted into Common Stock prior to maturity. During 1996,
$3,250,000 face amount of the 1996 Debentures plus $127,612 of accrued interest
were converted into 119,603 shares of Common Stock.
During 1997, $1,000,000 face amount of the 1996 Debentures plus
$181,239 accrued interest were converted into 99,045 shares of the company's
common stock. Additionally, in May 1997, the company redeemed $600,000 principal
of its March 1996 Debentures with the proceeds from the private placement of
$500,000 principal amount of the Series B 10% Convertible Debenture due March
1999 (the "Series B Debenture") with substantially identical terms as the 1996
Debentures and $100,000 in proceeds from the private placement of $500,000 of
Series E convertible preferred stock (see note 11). The company recorded a debt
discount of approximately $88,000 representing the intrinsic value of the
beneficial
F-14
<PAGE> 38
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
conversion feature of the Series B Debenture. The discount was fully accreted to
interest expense during 1997. The company redeemed an additional $50,000 face
amount of the 1996 Debentures during 1997.
In July 1997, the holders of the 1996 Debentures, Series B Debenture,
Series D Preferred Stock and Series E Preferred Stock (the "Suspended
Securities") agreed to a ninety day suspension of conversion rights on 75% of
their holdings beginning July 14, 1997. From October 14, 1997 and thereafter,
the holders of the Suspended Securities can exercise the suspended portion at a
cumulative rate of 20% per month. In exchange for the standstill agreement, the
holders of the 1996 Debentures and the Series B Debenture received warrants to
purchase 13,594 shares of the company's common stock at an exercise price of
$14.00. In connection with the issuance of these warrants, the company recorded
a charge to interest expense of $59,653, which represents the estimated fair
value of the warrants provided as an inducement to the holders of the Suspended
Securities.
At December 31, 1997, as part of a series of transactions to convert
debentures and preferred stock into notes payable (the "December 1997
Restructuring"), the remaining $600,000 face amount of the 1996 Debentures were
converted into a 12% short-term note payable with $300,000 principal due in
January 1998 and three installments of $100,000 plus current interest due in
March, April and May 1998. Each of these obligations were paid in full in 1998.
Additionally, the company converted the $500,000 principal amount of the Series
B Debenture into an 8% long-term promissory note due January 15, 2000. In
connection with these conversions, the company issued to the holders warrants to
purchase 30,000 shares of the company's common stock at an exercise price of
$5.00. In connection with the warrants issued, the company recorded a charge to
interest expense of $47,774, which represents the estimated fair value of the
warrants provided as a conversion inducement.
(11) PREFERRED STOCK
Series D Preferred Stock
In July 1996, the company completed an $8,350,000 private placement of
835 shares of a new class of preferred stock, Series D Convertible Preferred
Stock, par value $.01 per share ("Series D Preferred Stock"). Shares of Series D
Preferred Stock were convertible into Common Stock in increments of up to 1/3 of
Series D Preferred Stock purchased at the lesser of (i) $42.812 per share or
(ii) (a) the average closing bid price of the common stock for the ten trading
days immediately prior to the conversion date multiplied by (b) a percentage
which is 90 percent from October 1, 1996 through November 29, 1996, 87.5 percent
from November 30, 1996 through January 28, 1997, and 85 percent thereafter. The
company assigned a value of approximately $1,198,055 to the beneficial
conversion feature of the Series D Preferred Stock, which has been included as a
preferred stock dividend for purposes of calculating loss applicable to common
stockholders for the year ended December 31, 1996 in the accompanying
consolidated financial statements. The Series D Preferred Stock did not accrue
dividends; however, each share possessed an 8 percent per annum accretion rate
prior to conversion which was payable in Common Stock upon conversion or
redemption at the conversion price then in effect. Any shares of Series D
Preferred Stock outstanding on August 2, 1999 were to be subject to automatic
conversion at the
F-15
<PAGE> 39
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
conversion rate then in effect. The company effected a Registration Statement on
Form S-3 (Registration No. 333-10665), which registers up to 300,000 shares of
Common Stock to be offered by the holders of Series D Preferred Stock upon such
holders' conversion of such Series D Preferred Stock into Common Stock.
In connection with the Series D Preferred Stock, a five year warrant to
purchase 9,752 shares of Common Stock at $42.812 per share was issued to the
placement agent for the offering as part of the placement fee.
During 1996, 250 shares of Series D Preferred Stock, having an
aggregate face value of $2,500,000, and an aggregate accretion value of $58,352,
were converted into 114,047 shares of Common Stock.
Series E and F Preferred Stock
In June 1997, the company completed the private placement of $500,000
Series E Convertible Preferred Stock ("Series E Preferred Stock"). The Series E
Preferred Stock had substantially identical terms as the Series D Preferred
Stock. The proceeds of this placement were used to redeem $400,000 of Series D
Preferred Stock and a portion of the $600,000 principal amount of 1996
Debentures redeemed (see note 10). As discussed in note 10, in July 1997, the
holders of the 1996 Debentures, Series B Debenture, Series D Preferred Stock and
Series E Preferred Stock (the "Suspended Securities") agreed to a ninety day
suspension of conversion rights on 75% of their holdings beginning July 14,
1997. In exchange for the standstill agreement, the holders of the Series D and
Series E preferred stock received warrants to purchase 27,125 shares of the
company's common stock at an exercise price of $14.00. The company recorded a
discount of $119,031 representing the estimated fair value of the warrants
provided for under this arrangement. These warrants provided as an inducement to
the holders of the Suspended Securities have been accounted for as stock
dividends to the Series D and E Preferred Stockholders. In connection with the
standstill agreement, the company converted the outstanding shares of Series D
and Series E Preferred Stock into Series F Convertible Preferred Stock ("Series
F Preferred Stock"). The Series F Preferred Stock had substantially identical
terms as the Series D and Series E Preferred Stock. Additionally, the company
completed a private placement of $480,000 face amount of Series F Preferred
Stock in July 1997 with Antiope Partners, the proceeds of which were used to
redeem $480,000 of existing Series F Preferred Stock from a stockholder.
During 1997, the company converted a total of $3,590,000 face amount
plus $239,218 in accreted dividends of Series D, E and F Preferred Stock into
287,650 shares of common stock and redeemed for cash a total $1,350,000 face
amount.
Series G Preferred Stock and December 1997 Restructuring
In December 1997, in connection with the December 1997 Restructuring,
the company completed a $7,897,353 private placement of Series G Convertible
Preferred Stock (the "Series G Preferred Stock") with stockholders of the
company. Proceeds
F-16
<PAGE> 40
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
from the private placement were as follows: cash of $931,000; a short-term note
receivable of $1,158,684 (which was repaid in full in January and February
1998); forgiveness of accrued dividends payable of $708,620 on Series A, B and C
Series Preferred Stock; conversion of $4,138,575 principal and $63,121 accrued
interest from the informal borrowing agreement (see note 9); and conversion of
$860,000 face amount plus $37,353 of accreted dividends in Series F Preferred
Stock. In connection with the Series F to Series G Preferred Stock conversion,
the company issued 44,868 shares of common stock to the Series F Preferred
Stockholders with a fair value of $224,338 as a conversion inducement. This
conversion inducement has been accounted for as a stock dividend to the Series F
Preferred Stockholders.
Additionally, in connection with the December 1997 Restructuring,
$980,000 face amount of Series F Preferred Stock plus $112,768 in accrued
dividends were converted into a short-term note payable due in two installments
in January and September 1998. The remaining $75,000 face amount of Series F
Preferred Stock was converted into a 12% short-term note payable, with accrued
interest at December 31, 1997 of $17,759. In connection with these conversions,
the company issued to the Series F holders warrants to purchase 42,000 shares of
the company's common stock at an exercise price of $10.00 per share. The company
recorded a debt discount of $70,425 representing the estimated fair value of the
warrants provided for under this arrangement. This conversion inducement has
been accounted for as a stock dividend to the Series F Preferred Stockholders.
1998 Equity Commitment by Major Stockholder
Prior to the purchase of the 213 shares of Series J Convertible
Preferred Stock (the "Series J Preferred Stock") by Amphion Ventures L.P. 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
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 Convertible
Preferred Stock (the "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. 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").
F-17
<PAGE> 41
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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 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 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-
F-18
<PAGE> 42
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 would 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.
Equity Purchases by Major Stockholder
Under the terms of the Amphion Commitment, 213 shares of Series J
Convertible Preferred Stock were purchased 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 theses issuances was payable in cash by each of Amphion Partners and
Antiope Partners.
Payment of Dividends on Preferred Stock During 1998
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 at the company's option. 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 $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).
The company has three additional classes of convertible preferred
stock, Series A, B and C Convertible Preferred Stock, stated value $26.00,
$28.40, and $30.20, respectively. Each share of Series A, B, and C Convertible
Preferred Stock is convertible at the option of the holder into voting Common
F-19
<PAGE> 43
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Stock on a share for share basis and is entitled to vote as if converted into
voting Common Stock. The company may redeem the preferred stock at any time at
stated value plus accrued dividends.
The Series A and B Preferred Stock accrue dividends at the following
rates per annum: 0 percent through December 31, 1995; 5 percent January 1, 1996
through March 31, 1996; 7.5 percent April 1, 1996 through June 30, 1996 and 10
percent thereafter. Series C Preferred Stock accrues dividends at 0 percent per
annum through December 31, 1995 and 10 percent per annum thereafter. Dividends
are payable within 15 days following each calendar quarter in cash or in
additional shares of preferred stock at the option of the company through June
30, 1996 (September 30, 1996 for Series C Preferred Stock). After June 30, 1996
(September 30, 1996 for Series C Preferred Stock), dividends are payable in cash
or additional shares of preferred stock at the option of the stockholders. There
were no dividends in arrears at December 31, 1998 and 1997. Dividends payable of
$473,557 were accrued at December 31, 1998.
A discount on the Series A, B, and C Convertible Preferred Stock was
recorded equal to the present value of the difference between the actual
dividends that would be paid and the 10 percent perpetual dividend amount,
calculated over the increasing dividend rate period. The discount was amortized
to provide a constant effective dividend rate. The 1996 aggregate discount
amortization for all three series of preferred stock was $53,212. The discount
was fully amortized during 1996.
All series of preferred stock rank senior in right of payment to the
company's Common Stock as to dividends or upon a liquidation or dissolution of
the company.
(12) NOTES PAYABLE
On December 27, 1996, the company owed a $2,100,000 note payable to
Xerox Corporation ("Xerox") in connection with a license agreement for certain
technology. Initially, one-third of the note principal plus accrued interest was
due on each of December 15 of 1997, 1998 and 1999. At December 31, 1997, the
outstanding balance of $2,100,000 was classified as a current liability as the
parties were in a dispute as to the obligation. In the first quarter of 1998,
the company agreed to pay Xerox $1.47 million in license fees for certain
technology and issued Xerox 120,000 shares of common stock. Xerox agreed not to
sell any of these shares before December 1999, at which time their shares may be
subject to certain limitations. The difference between the original note and the
sum of the cash and stock ultimately paid was $292,458, which was applied as a
reduction of the deferred licence fee. The company funded the payment to Xerox
from proceeds received from Amphion Ventures under the terms of a two-year loan
which bears interest at the rate of 10% per annum. Amphion Ventures received, as
a loan origination fee, (i) 15,120 shares of restricted common stock and (ii)
3-year warrants to purchase 14,700 shares of common stock with an exercise price
of $5.00 per share.
The license fee of $2,100,000 was recorded as a deferred license fee
and was being amortized over the three year term of the license agreement.
Accordingly, the company has reflected the unamortized balance of $532,881 and
$1,400,000 at December 31, 1998 and 1997 respectively, as a noncurrent asset.
The company's rights and interests in the technology were included in the sale
of LMC and certain assets to Amphion Ventures in March 1999 (See note 3).
F-20
<PAGE> 44
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The balance in notes payable at December 31, 1998 and 1997 include the
following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Note payable issued to 1996 Debenture holder $ -- $ 600,000
Notes payable issued to Series F Preferred stockholders -- 1,167,767
Note payable to Xerox -- 2,100,000
Other notes payable 90,882 74,728
----------
Total short-term notes payable $ 90,882 $3,942,495
========== ==========
Long-term note payable to stockholder $1,470,000 --
========== ==========
Long-term note payable issued to Series B debenture holder $ 535,205 $ 535,205
========== ==========
</TABLE>
(13) STOCK COMPENSATION PLANS AND WARRANTS
The company has two stock-based compensation plans that are described
below. The company applies APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
related to stock option grants since the intrinsic value of stock options
awarded is zero at the date of grant. Had compensation cost for the company's
stock-based compensation plans been determined based on the grant date fair
value method in accordance with SFAS No. 123, the company's net loss and net
loss per share would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net loss applicable
to common stock As reported $(16,959,478) $ (13,892,830) $(13,264,110)
Pro forma (17,239,562) (14,140,970) (13,359,439)
Basic and diluted
net loss per
common share As reported $ (6.32) $ (6.22) $ (7.73)
Pro forma $ (6.43) $ (6.33) $ (7.78)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: (i) expected volatility of 99, 107 and 92 percent,
(ii) risk-free interest of 5.0%, and (iii) expected lives of 5 years.
Under the company's 1991 Employee Stock Option Plan, the company may
grant up to 900,000 shares of Common Stock to its employees. The exercise price
of each option is not less than the market price of the company's stock on the
date of grant and an option's maximum term is ten years. Options granted vest
over a four year period. The company has issued stock options to various members
of the Board of Directors and officers of the company under this plan. The
exercise price of each option is not less than the average market price of the
company's stock during the thirty trading days immediately prior to the date of
grant and the option term is ten years. Options are generally granted each year
and have various vesting requirements. During 1998, options outstanding of
27,698 under this plan and a
F-21
<PAGE> 45
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
terminated by employee stock option plan were cancelled and the company granted
options to purchase 27,698 shares at an exercise price of $3.00. Further, the
company cancelled options outstanding under a terminated key employee stock
option plan and granted new options primarily with an exercise price of $3.00.
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Balance outstanding at December 31, 1995 35,358 $23.80
Granted 3,500 36.00
Exercised (3,461) 21.20
Forfeited (4,619) 21.40
-------- ------
Balance outstanding at December 31, 1996 30,778 25.80
Granted -- --
Exercised -- --
Forfeited (3,080) 27.20
-------- ------
Balance outstanding at December 31, 1997 27,698 25.80
Granted 743,241 3.00
Exercised -- --
Forfeited (58,350) 3.00
Cancelled (27,698) 27.20
-------- ------
Balance outstanding at December 31, 1998 684,891 $ 3.00
======== ======
</TABLE>
At December 31, 1998, 1997, and 1996, there were 182,556, 25,948 and
26,403 AXCESS Inc. options exercisable, respectively. Weighted-average fair
values of AXCESS Inc. options granted during the year ended December 31, 1998
and 1996 were $3.00 and $32.00 per share, respectively.
In 1998 the company adopted a director compensation plan pursuant to
which it pays 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 an
annual grant of 5,000 options to acquire common stock of the company 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 occurs on the date of the company's annual meeting. The director
compensation plan also provided for an one-time initial grant of 15,000 to each
director of the company as of July 21, 1998, the date the director compensation
plan was approved by the company's stockholders (the "Initial Grant"). The
company has authorized 150,000 shares for issuance under this plan.
In 1998, the company issued a total of 87,500 options pursuant to the
terms of the director compensation plan. The company issued 60,000 options at an
exercise price of $4.00 for the Initial Grant, 20,000 options at an exercise
price of $3.00 for the Annual Grant and 7,500 options at an exercise price of
$4.00 to the one new director in 1998.
F-22
<PAGE> 46
AXCESS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The company has issued warrants to purchase common stock in connection
with issuance of notes payable to stockholders (note 9), convertible debentures
(note 10), and preferred stock (note 11). At December 31, 1998, warrants to
purchase 584,431 shares of the company's common stock are outstanding with a
weighted average exercise price of $10.53. The outstanding warrants have a range
of exercise prices of $2.50 to $56.25.
(14) COMMITMENTS AND CONTINGENCIES
On February 28, 1996, an investor group filed suit against the company.
This lawsuit arose out of the company's refusal to recognize the investor
group's attempt to exercise an option to purchase 70,000 shares of Common Stock
at $9.90 per share. The option had been granted to the company's former
President and CEO who attempted to transfer his option to the investor group on
the last day of the option term in September 1995. On that same day the investor
group attempted to exercise the option. The company refused to recognize the
attempted transfer of the option to the investor group on the primary grounds
that the option was granted personally to the company's former President and CEO
and the company believed that it was not transferable to third parties. The
lawsuit sought monetary damages which the investor group alleged to be not less
than $2,800,000. In March 1999, the plaintiffs, the company and the other named
defendants in the second lawsuit described above agreed to the principal terms
under which both lawsuits would be settled and dismissed, with prejudice.
Although the company anticipates consummating a settlement sometime during the
second quarter of 1999, there can be no assurance, however, that the company
will consummate any such settlement. The company has fully accrued the expected
cost of settlement as of December 31, 1998 (see note 8).
The company is also involved in various other claims and lawsuits which
are generally incidental to its business. The company is vigorously contesting
all such matters and believes that their ultimate resolution will not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows.
(15) INCOME TAXES
Due to the company's losses, no income tax expense was recorded for the
years ended December 31, 1998, 1997 and 1996. At December 31, 1998, the company
had a net operating loss carryforward of approximately $25,100,000 for U.S.
federal income tax purposes, which will begin expiring in 1999. A net operating
loss carryforward approximately $19,000,000 is available for state income tax
purposes. The tax benefit (approximately $21,900,000) of the net operating loss
carryforward has been fully offset by a valuation allowance, since the company
cannot currently conclude that it is more likely than not that the benefit will
be realized. The valuation allowance increased by approximately $4,960,000
during 1998. A change in ownership, as defined for purposes of the Internal
Revenue Code, occurred in 1996 and the company believes that a subsequent
ownership change occurred during 1998, each of which limit the annual
utilization of the U.S. federal net operating loss carryforward under applicable
Internal Revenue Service regulations. Additionally, the company had
approximately $400,000 of research and development carryforwards. The
carryforwards expire from 1999 to 2006. The credit carryforwards will also be
restricted in their usage as a result of the ownership changes.
F-23
<PAGE> 47
(16) QUARTERLY FINANCIAL DATA (UNAUDITED - AS RESTATED (NOTES 3 AND 4))
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1998:
Net revenues $ -- $ -- $ -- $ 43,146
Operating loss (1,984,106) (1,713,330) (2,065,771) (2,936,085)
Loss from continuing operations (2,151,235) (1,860,686) (2,178,047) (3,020,261)
Loss from discontinued operations (1,171,073) (822,784) (2,287,663) (1,967,308)
Net loss (3,603,835) (3,025,500) (4,879,425) (5,450,718)
Basic and diluted net loss per share:
Continuing operations (0.88) (0.72) (0.82) (1.09)
Discontinued operations (0.48) (0.32) (0.87) (0.71)
Net loss (1.47) (1.17) (1.85) (1.98)
1997:
Net revenues -- -- -- --
Operating loss (615,501) (997,483) (927,354) (710,045)
Loss from continuing operations (697,337) (1,681,376) (1,188,857) (1,426,346)
Loss from discontinued operations (743,674) (1,248,250) (3,117,405) (2,717,196)
Net loss (1,630,226) (3,094,533) (4,459,747) (4,708,324)
Basic and diluted net loss per share:
Continuing operations (0.36) (0.77) (0.53) (0.61)
Discontinued operations (0.37) (0.57) (1.39) (1.16)
Net loss (0.81) (1.41) (1.98) (2.02)
1996:
Net revenues -- -- -- --
Operating loss (845,542) (924,992) (862,631) (350,669)
(Loss) from continuing operation (1,139,983) (1,751,596) (1,011,488) (566,362)
(Loss) from discontinued operations (896,489) (2,561,679) (1,154,039) (2,317,359)
Net loss stock (2,144,870) (4,408,256) (2,381,174) (4,321,811)
Basic and diluted net loss per share:
Continuing operations (0.73) (1.06) (0.58) (0.33)
Discontinued operations (0.57) (1.55) (0.66) (1.35)
Net loss (1.37) (2.67) (1.36) (2.52)
</TABLE>
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------ -------
<S> <C>
3.1 --Certificate of Incorporation of the company. Incorporated
herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No.
2-80946).
3.2 --By-laws of AXCESS. Incorporated herein by reference to
Exhibit 3.2 to the company's Registration Statement on Form
S-1 (Registration No. 2-80946).
3.3 --First Amendment to Certificate of Incorporation of the
company dated June 6, 1986. Incorporated herein by reference
to Exhibit 3.3 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1987.
3.4 --Second Amendment to Certificate of Incorporation of the
company dated May 27, 1987. Incorporated herein by reference
to Exhibit 3.4 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1987.
3.5 --Third Amendment to Certificate of Incorporation of the
company dated November 11, 1994. Incorporated herein by
reference to Exhibit 4.4 to the company's Registration
Statement on Form S-3 (Registration No. 333-10665).
3.6 --Fourth Amendment to Certificate of Incorporation of the
company dated July 28, 1995. Incorporated herein by reference
to Exhibit 4.5 to the company's Registration Statement on
Form S-3 (Registration No. 333-10665).
3.7 --Fifth Amendment to Certificate of Incorporation of the
company, dated June 17, 1997. Incorporated herein by
reference to Exhibit 4.6 to the company's Registration
Statement on Form S-3 (Registration No. 333-10665).
3.8 --Sixth Amendment to Certificate of Incorporation of the
company dated March 31, 1998. Incorporated herein by
reference to Exhibit 99.1 to the company's Report on Form 8-K
dated April 13, 1998.
3.9 --Seventh Amendment to Certificate of Incorporation of the
company dated March 31, 1998. Incorporated herein by
reference to Exhibit 99.2 to the company's Report on Form 8-K
dated April 13, 1998.
3.10 --Eighth Amendment to Certificate of Incorporation of the
company dated April 9, 1998. Incorporated herein by reference
to Exhibit 99.3 to the company's Report on Form 8-K dated
April 13, 1998.
4.1 --Certificate of Designation of the company's Series A, B and
C Preferred Stock, dated December 27, 1995. Incorporated
herein by reference to Exhibit 4.7 to the company's
Registration Statement on Form S-3 (Registration No.
333-10665).
4.2 --Certificate of Designation of the company's Series I
Preferred Stock.*
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------ -------
<S> <C>
4.3 --Certificate of Designation of the company's Series J
Preferred Stock.*
10.1 --1991 Incentive Stock Option Plan, dated August 14, 1991.
Incorporated herein by reference to Exhibit 10.10 to
Lasertechnics' Annual Report on Form 10-KSB for the year
ended December 31, 1991.
10.2 --Purchase of common stock and Convertible Note Agreement
between the company and J.P. Morgan Investment Corporation,
dated July 8, 1994. Incorporated herein by reference to
Exhibit 10.19 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1994.
10.3 --Amendment to the OEM License Agreement between the company
and Xerox Corporation, dated December 27, 1997. Incorporated
by reference to Exhibit 10.12 to the company's Annual Report
on Form 10-KSB for the year ended December 31, 1997.
10.4 --Note Purchase Agreement dated June 25, 1997, by and among
the company, J.P. Morgan Investment Corporation and
Wolfensohn Associates L.P. Incorporated by reference to
Exhibit 10.15 to the company's Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
10.5 --Intellectual Property Transfer Agreement dated January 8,
1998, by and between XL Vision, Inc. and the company.
Incorporated herein by reference to Exhibit 10.15 to the
company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
10.6 --Amendment to Notes and Note Purchase Agreement dated
December 31, 1997, by and among the company, Antiope Partners
L.L.C. and J.P. Morgan Investment Corporation. Incorporated
herein by reference to Exhibit 10.16 to Amendment No. 1 to
the company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
10.7 --Series H Preferred Stock Purchase Agreement dated December
29, 1997, by and among the company and Amphion Ventures L.P.
Incorporated herein by reference to Exhibit 10.17 to
Amendment No. 1 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
10.8 --Preferred Stock Purchase Agreement dated October 21, 1998
by and between the company and Amphion Ventures L.P.*
10.9 --Pledge Agreement dated August 18, 1997, by and among the
company, Antiope Partners L.L.C. and J.P. Morgan Investment
Corporation. Incorporated herein by reference to Exhibit
10.18 to Amendment No. 1 to the company's Annual Report on
Form 10-KSB for the year ended December 31, 1997.
</TABLE>
<PAGE> 50
EXHIBIT
NUMBER EXHIBIT
------- -------
10.10 --Form of Warrant to purchase shares of the company's common
stock issued to Antiope Partners L.L.C. and Amphion Ventures
L.P. Incorporated herein by reference to Exhibit 10.20 to
Amendment No. 1 to the company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
10.11 --Settlement Agreement dated as of April 21, 1998, by and
between the company and Xerox Corporation. Incorporated
herein by reference to Exhibit 10.21 to Amendment No. 1 to
the company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
10.12 --Note Payable Conversion Agreement dated December 31, 1998,
by and between the company and Amphion Ventures L.P.*
10.13 --Note Payable Conversion Agreement dated December 31, 1998,
by and between the company and Antiope Partners L.L.C.*
10.14 --Note Payable Conversion Agreement dated December 31, 1998,
by and between the company and J.P. Morgan Investment
Corporation.*
10.15 --Stock and Asset Purchase Agreement dated March 30, 1999, by
and between the company and Amphion Ventures L.P.*
21 --Subsidiaries of the company.*
23 --Consent of KPMG LLP.*
27.1 --Financial Data Schedule.*
27.2 --1997 Restated Financial Data Schedule*
27.3 --1996 Restated Financial Data Schedule*
--------------
*Filed herewith.
<PAGE> 1
EXHIBIT 4.2
CERTIFICATES OF DESIGNATIONS,
PREFERENCES, POWERS AND RIGHTS
OF
SERIES I PREFERRED STOCK
OF
AXCESS INC.
Pursuant to Section 151 of the
General Corporation Law
of the State of Delaware
AXCESS INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Company"), hereby certifies that,
pursuant to the authority contained in Article Fourth of its Certificate of
Incorporation, as amended, and in accordance with the provisions of Sections 103
and 151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution providing for the issuance of
Series I Preferred Stock:
RESOLVED, that a series of the class of authorized preferred stock of
the Company is hereby created and the Board of Directors hereby fixes the
designation and amount thereof, and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereon as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall have
a par value of $.01 per share and shall be designated as Series I Preferred
stock (the "Series I Preferred Stock") and the number of shares constituting the
Series I Preferred Stock shall be TWO THOUSAND FIVE HUNDRED (2,500). The Series
I Preferred stock shall have a stated value of Ten Thousand Dollars ($10,000)
per share (the "Original Series I Issue Price").
SECTION 2. RANK. The Series I Preferred stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series I Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock and Non-Voting Common Stock, each $.01 par value per share (the
"Common Stock"); (iii) prior to any class or series of capital stock of the
Company hereafter created not specifically ranking by its terms senior to or on
parity with the Series I Preferred Stock (collectively, with the Common Stock,
the "Junior Securities"); and (iv) on parity with the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series G Preferred Stock,
Series H Preferred Stock of the Company, and any class or series of capital
stock of the Company hereafter created specifically ranking by its terms on
parity with the series I Preferred stock (the "Parity Securities") in each case
as to distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (all such distributions being referred
to collectively as "Distributions").
-1-
<PAGE> 2
SECTION 3. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to Section 3(d), the holders of record of shares
of Series I Preferred stock (the "Holders"), in preference to the holders of
shares of capital stock ranking junior to the Series I Preferred Stock as to
dividends, shall be 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 of Directors, on the last day
of June and December in each year (each such date, a "Dividend Payment Date").
Each such dividend will be paid to the Holders as they appear on the stock
register of the Company on the record date therefor as shall be fixed by the
Board of Directors, which record date shall not be more than 25 days or less
than 10 days preceding the payment date thereof.
(b) The Company may, at its option, make any dividend payment
to Holders of Series I Preferred Stock in cash or in additional shares
(including fractional shares) of Series I Preferred Stock or in any combination
of cash and such shares. Each such dividend payment (or portion thereof) to be
paid in shares of Series I Preferred Stock shall be paid by the issuance and
delivery to such Holders of that number of additional shares (including any
fractional shares, if applicable) of Series I Preferred Stock as shall be equal
to the quotient obtained by dividing the aggregate dollar amount of such
dividend payment (or portion thereof) by the Original Series I Issue Price per
share. Dividends to be paid in additional shares of Series I Preferred Stock
shall be deemed to have been made when certificates representing such additional
shares of Series I Preferred Stock have been delivered to the record holders of
the Series I Preferred stock entitled to receive the same, in accordance with
the instructions of such holders designated in writing to the Company at least
two business days prior to any Dividend Payment Date. All shares of Series I
Preferred Stock paid as such dividends (the "Dividend Shares") shall be validly
issued, fully paid and non-assessable, shall be free and clear of preemptive
rights and liens, claims and encumbrances of any kind. Subject to the other
provisions of this Certificate of Designation, holders of shares of Series I
Preferred stock shall not be entitled to any dividend, whether payable in cash,
additional shares of Series I Preferred Stock, or other property, in excess of
full cumulative dividends as herein provided. No interest, or sum of money in
lieu of interest, shall be payable under this Certificate of Designation in
respect of any dividend payment or payments on the Series I Preferred Stock
which may be in arrears.
(c) So long as any Series I Preferred Stock remains
outstanding, the Company will not redeem, purchase or otherwise acquire any
Junior Securities; nor will the Company declare or pay any dividend or make any
distribution (in each case, whether in cash or securities or assets in kind)
upon any Junior Securities (other than stock dividends on Junior Securities,
payable in shares of, options, warrants or similar rights to acquire shares of,
the same class (and series, if applicable) of Junior Securities), or make any
sinking fund or other payment in respect of any of the foregoing if the Company
shall not have paid in full all accrued dividends on the Series I Preferred
Stock in accordance with Section 3(a) hereof.
(d) Anything contained herein to the contrary notwithstanding,
if at any time that any shares of Series I Preferred Stock are outstanding, the
closing bid price per share of the Common Stock on the Nasdaq Stock Market (or,
if the Common Stock is not then included in Nasdaq, but is listed on any
national securities exchange, on the principal national securities exchange on
which the Common Stock is then listed) remains above $20.00 per share (as
adjusted for any stock splits, reverse stock splits, stock
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<PAGE> 3
dividends or similar events after the date of this Certificate of Designation)
for twenty (20) consecutive trading days, then, commencing on such 20th trading
day, the cumulative dividend will not be payable; provided, however, that if the
closing bid price per share of the Common Stock remains below $20.00 for twenty
(20) consecutive trading days (as so adjusted), then the dividend will resume as
of such 20th day.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up
of the Company (each a "Liquidation Event"), either voluntary or involuntary,
the Holders of shares of Series I Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Certificate of Incorporation or any certificate of designation, and
prior in preference to any distribution to Junior Securities, and in parity with
any distribution to Parity Securities, an amount for each share of Series I
Preferred Stock then outstanding equal to the Original Series I Issue Price,
plus any and all accrued unpaid dividends. If upon the occurrence of such event,
and after payment in full of the preferential amounts with respect to the Senior
Securities, the assets and funds available to be distributed among the Holders
of the Series I Preferred stock and Parity Securities shall be insufficient to
permit the payment to such Holders of the full preferential amounts due to the
Holders of the Series I Preferred Stock and the Parity Securities, respectively,
then the entire assets and funds of the Company legally available for
distribution shall be distributed among the Holders of the Series I Preferred
Stock and the Parity Securities, pro rata, based on the respective liquidation
amounts to which each such series of stock is entitled by the Company's
Certificate of Incorporation and any certificate(s) of designation relating
thereto.
(b) Upon the completion of the distribution required by
subsection 4(a), if assets remain in this Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which any
person or entity acquires more than fifty percent (50%) of the voting power of
the Company (a "Change of Control") shall be deemed to be a Liquidation Event as
defined in section 4(a); provided further that (i) a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
publicly traded company or companies shall not be treated as a Liquidation Event
as defined in Section 4(a), but instead shall be treated pursuant to Section
5(d)(ii) hereof, and (ii) a consolidation, merger, acquisition, or other
business combination of the Company with or into any other non-publicly traded
company or companies shall be treated as a Liquidation Event as defined in
section 4(a). The Company shall not effect any transaction described in
subsection 4(c)(ii) unless it first gives thirty (30) business days prior notice
of such transaction (during which time the Holder shall be entitled to convert
its shares of Series I Preferred Stock into Common Stock). For purposes of this
section 4(c), neither the public offering, sale or distribution of shares of
stock (or assets) of the Company's Sandia Imaging Systems Corporation subsidiary
or the Lasertechnics Marking Corporation subsidiary shall be deemed to be a
Liquidation Event.
(d) In the event that, immediately prior to the closing of a
transaction described in section 4(c) which would constitute a Liquidation
Event, the cash distributions required by Section 4(a) have not been made, the
Company shall either: (i) cause such closing to be postponed until such cash
distributions have been made, or (ii) cancel such transaction, in which event
the rights of the Holders of Series I Preferred stock shall be the same as
existing immediately prior to such proposed transaction.
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SECTION 5. CONVERSION. The record Holders of this Series I Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. On the terms and subject to the
conditions set forth in this Certificate of Designation, each record Holder of
Series I Preferred stock shall be entitled to convert the shares of Series I
Preferred Stock held by such Holder, in whole at any time and in part from time
to time, into a number of fully-paid and non-assessable shares of voting Common
Stock of the Company equal to the quotient of (i) the aggregate Original Series
I Issue Price of the shares of Series I Preferred Stock being converted divided
by (ii) the Conversion Price as determined pursuant to this Section 5 (the
"Conversion Price"). The Conversion Price shall initially be FOUR DOLLARS
($4.00) per share of Series I Preferred Stock. The Conversion Price shall be
subject to adjustment from time to time as provided in Section 5(d).
(b) Mechanics of Conversion. Conversion of shares of Series I
Preferred Stock may be effected by written notice to the Company, and shall be
effective upon receipt of such notice by the Company, or as otherwise provided
in such notice, and delivery to the Company of (i) one or more certificates
representing the shares of Series I Preferred Stock being converted, (ii) a
certificate of guaranteed delivery of such certificates reasonably satisfactory
to the Company, or (iii) evidence of the loss, theft or destruction of such
certificates pursuant to Section 11 of this Certificate of Designation, together
with any indemnity or security reasonably requested by the Company pursuant to
such Section 11. Upon any conversion of shares of Series I Preferred Stock
pursuant to this Section 5, the Holder shall be deemed to be the record holder
of the shares of Common Stock into which shares of Series I Preferred Stock have
been converted and shall be entitled to receive duly executed certificates, in
proper form, representing such shares of voting Common Stock as soon as
practicable thereafter. Anything contained herein to the contrary
notwithstanding, if any conversion of shares of Series I Preferred Stock would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon such conversion, in the aggregate, shall
be rounded to the nearest whole number of shares (with one-half of a share
rounded up).
(c) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series I Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series I Preferred Stock. If at any time the number of authorized but unissued
shares of Common Stock (excluding for this purpose any authorized but unissued
shares of Common Stock that are properly reserved for some other purpose) shall
be insufficient to cause the conversion into Common Stock of all shares of
Series I Preferred Stock then outstanding, the Company will take such corporate
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(d) Adjustment to Conversion Rate.
(i) Adjustment to Conversion Price Due to Stock Split,
Stock Dividend, Etc. If, at any time that any shares of Series I Preferred Stock
remaining outstanding, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, or other similar event, the
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased.
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(ii) Adjustment Due to Merger, Consolidation, Etc. If,
at any time that any shares of Series I Preferred Stock remain outstanding,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Company shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Company or another entity, or there is a sale of all or substantially all the
Company's assets or there is a Change of Control not deemed to be a Liquidation
Event pursuant to section 4(c), then the Holders shall thereafter have the right
to receive upon conversion of shares of Series I Preferred Stock, upon the basis
and upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had such shares of Series I Preferred Stock been
converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series I Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Series I Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
subsection 5(d)(ii) unless (A) it first gives thirty (30) business days prior
notice of such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holders shall be
entitled to convert their shares of Series I Preferred Stock into Common Stock)
and (B) the resulting successor or acquiring entity (if not the Company) assumes
by written instrument the obligations of the Company under this Certificate of
Designation including this subsection 5(d)(ii).
(iii) Adjustment Due to Qualified Equity Financing. If
the Company consummates an equity financing with any third party at any time on
or before December 31, 1999, which equity financing raises at least $1,000,000
in cash (a "Qualified Equity Financing"), the Holder will have the
non-assignable right, exercisable by written notice to the Company given at any
time within thirty (30) days after the date of the closing of a Qualified Equity
Financing, to exchange the shares of Series I Preferred Stock, in whole or in
part, for shares of a new series of preferred stock of the Company (the
"Exchange Preferred"), on the following basis:
(A) If the securities issued in such Qualified
Equity Financing (the "New Securities") are convertible into voting or
non-voting Common Stock, the Exchange Preferred will be convertible into voting
Common Stock at a conversion price equal to the lesser of (x) the Conversion
Price then applicable under the Series I Preferred Stock and (y) the conversion
price then applicable under the New Securities.
(B) All other terms of the Exchange Preferred will
be economically equivalent to the terms of the New Securities, determined as if
the New Securities had been issued on the date hereof. The Exchange Preferred
will be on parity with the New Securities for all purposes, and will vote
together with the New Securities for all purposes, except as otherwise required
by law.
(C) If the Holder exchanges any Shares pursuant to
this paragraph 5(iii), it shall be entitled to any additional rights with
respect to the shares of Exchange Preferred (including, without limitation,
rights of first refusal or payment of attorneys' fees) as the purchasers of New
Securities shall be entitled to under the Qualified Equity Financing.
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<PAGE> 6
(D) The number of shares of Exchange Preferred
issuable to the Holder pursuant to any exchange of Shares hereunder will be the
number of shares of Exchange Preferred that the Holder could have purchased on
the date hereof for a purchase price equal to the aggregate purchase price
hereunder of the Shares to be exchanged therefor, payable in cash (determined on
a basis so that the cash purchase price of shares of Exchange Preferred and the
cash purchase price of the New Securities are economically equivalent).
(E) If the Holder exchanges any Shares pursuant to
this paragraph 5(iii), such exchange will not result in an increase in the
conversion price above $4.00 per share.
(F) If the Company does not consummate a
Qualified Equity Financing on or before December 31, 1999, the $4.00 conversion
price of the Preferred Stock shall be reset to not less than the greater of (i)
$1.00 or (ii) one-half of the average closing bid price per share of the
Company's Common Stock on the Nasdaq SmallCap Market (or if the 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 Common Stock is then
listed) during the last twenty (20) trading days of 1999.
SECTION 6. VOTING. The Holders shall be entitled to vote, together with
the holders of the Company's voting Common Stock, as a single class, on all
matters submitted to a vote of the stockholders of the Company, or as to which
the holders of the voting Common Stock shall otherwise be entitled to vote. In
all such matters, the Holders shall be entitled to cast, for each share of
Series I Preferred Stock held of record, a number of votes equal to the product
of (i) the number of votes that one share of voting Common Stock shall be
entitled to cast on such matter times (ii) the number of shares of voting Common
Stock into which one share of Series I Preferred Stock is convertible on the
record date for such vote. As used in this Section 6, all references to votes
and voting shall refer as well to action and actions by written consent.
SECTION 7. OPTIONAL REDEMPTION BY COMPANY. The Series I Preferred Stock
shall be subject to the optional redemption by the Company, in whole at any time
or in part from time to time, at a redemption price per share equal to the
Original Series I Issue Price, plus any and all accrued unpaid dividends
thereon. The Company shall give at least ten (10) days' prior written notice of
any redemption pursuant to this Section 7 to each Holder of shares of Series I
Preferred Stock to be redeemed. The Company's optional right of redemption is
subject to each Holder's right to convert all or any part of the shares to be
redeemed into Common Stock
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<PAGE> 7
pursuant to Section 5, provided that the Holder gives written notice of such
conversion to the Company in accordance with Section 5 within ten (10) business
days after the Company's notice of redemption. The Holders of Series I Preferred
Stock shall not be entitled to any mandatory redemption of their Shares without
the consent of the Company.
SECTION 8. MANDATORY CONVERSION BY COMPANY. Each share of Series I
Preferred Stock shall automatically convert into that number of fully-paid and
non-assessable shares of voting Common Stock of the Company equal to the
Original Series I Issue Price plus all accrued, but unpaid dividends thereon,
divided by the Conversion Price (subject to adjustment from time to time as
provided in Section 5(d)), upon the closing bid price per share of the Common
Stock on the Nasdaq SmallCap Market (or, if the Common Stock is not then
included in Nasdaq, but is listed on any national securities exchange, on the
principal national securities exchange on which the Common Stock is then listed)
having reached and remained at $10.00 per share or more for a period of ninety
(90) consecutive trading days.
SECTION 9. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Series I Preferred Stock shall be converted pursuant to Section 5
hereof or redeemed pursuant to Section 7 hereof, the shares so converted or
redeemed shall be canceled, shall return to the status of authorized but
unissued Preferred Stock of no designated series, and shall not thereafter be
issuable by the Company as Series I Preferred Stock.
SECTION 10. OTHER PREFERRED STOCK. Nothing contained herein shall be
construed to prevent the Board of Directors from authorizing the creation of, or
to prevent the Company from issuing shares of, one or more series of Preferred
Stock senior to, junior to or on parity with the Series I Preferred Stock as to
dividend, liquidation rights or otherwise.
SECTION 11. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any certificates
representing shares of Series I Preferred Stock, and (in the case of loss, theft
or destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of the certificate(s), if mutilated, the
Company shall execute and deliver to the record Holder thereof new
certificate(s) of like tenor and date. However, the Company shall not be
obligated to re-issue such lost or stolen certificates if the Holder
contemporaneously requests the Company to convert such shares of Series I
Preferred Stock into shares of Common Stock.
SECTION 12. FRACTIONAL SHARES. In the event a Holder of Series I
Preferred Stock shall be entitled to receive a fractional interest in a share of
Series I Preferred Stock of less than one one-hundredth of one share, except as
otherwise provided herein, the Company shall either, in the sole discretion of
the Board of Directors, (a) round such fractional interest up to the next
one-hundredth of one whole share of Series I Preferred Stock or (b) deliver cash
in the amount of the fair market value (as determined by the Board of Directors
or in any manner prescribed by the Board of Directors) of such fractional
interest.
SECTION 13. PREEMPTIVE RIGHTS. The Holders of Series I Preferred Stock
are not entitled to any preemptive or subscription rights in respect of any
securities of the Company.
SECTION 14. COUNTERPARTS. This Certificate of Designation may be
executed on separate counterparts and shall be effective as of the date signed.
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IN WITNESS WHEREOF, AXCESS Inc. has caused this certificate to be signed by
its President and attested by its Secretary, as of the ___ day of March, 1999.
/s/ Harry S. Budow
----------------------------------------
Harry S. Budow, Chief Executive Officer
Attest:
/s/ Danny G. Hair
- - --------------------------------
Danny G. Hair, Secretary
-8-
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATION,
PREFERENCES, POWERS AND RIGHTS
OF
SERIES J PREFERRED STOCK
OF
AXCESS INC.
Pursuant to Section 151 of the
General Corporation Law
of the State of Delaware
AXCESS INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Company"), hereby certifies that,
pursuant to the authority contained in Article Fourth of its Certificate of
Incorporation, as amended, and in accordance with the provisions of Sections 103
and 151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution providing for the issuance of
Series J Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of
the Company is hereby created and the Board of Directors hereby fixes the
designation and amount thereof, and the voting powers, preferences, and
relative, participating, optional and other special rights of the shares of such
series, and the qualifications, limitations, or restrictions thereon as follows:
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall have
a par value of $.01 per share and shall be designated as Series J Preferred
Stock (the "Series J Preferred Stock") and the number of shares constituting the
Series J Preferred Stock shall be TWO THOUSAND FIVE HUNDRED (2,500). The Series
J Preferred Stock shall have a stated value of Ten Thousand Dollars ($10,000)
per share (the "Original Series J Issue Price").
SECTION 2. RANK. The Series J Preferred Stock shall rank: (i) junior to
any other class or series of capital stock of the Company hereafter created
specifically ranking by its terms senior to the Series J Preferred Stock
(collectively, the "Senior Securities"); (ii) prior to all of the Company's
Common Stock, $.01 par value per share ("Common Stock") and Non-Voting Common
Stock, $.01 par value per share (the "Non-Voting Common Stock"); (iii) prior to
any class or series of capital stock of the Company hereafter created not
specifically ranking by its terms senior to or on parity with the Series J
Preferred Stock (collectively, with the Common Stock and Non-Voting Common
Stock, the "Junior Securities"); and (iv) on parity with the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series G
Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock of
the Company and any class or series of capital stock of the Company hereafter
created specifically ranking by its terms on parity with the Series J Preferred
Stock (the "Parity Securities") in each case as to distributions of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
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<PAGE> 2
SECTION 3. DIVIDENDS AND DISTRIBUTIONS. (a) Subject to Section 3(d),
the holders of record of shares of Series J Preferred Stock (the "Holders"), in
preference to the holders of shares of capital stock ranking junior to the
Series J Preferred Stock as to dividends, shall be 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
of Directors, on the last day of June and December in each year (each such date,
a "Dividend Payment Date"). Each such dividend will be paid to the Holders as
they appear on the stock register of the Company on the record date therefor as
shall be fixed by the Board of Directors, which record date shall not be more
than 25 days or less than 10 days preceding the payment date thereof.
(b) The Company may, at its option, make any dividend payment
to Holders of Series J Preferred Stock in cash or in additional shares of Series
J Preferred Stock or in any combination of cash and such shares. Each such
dividend payment (or portion thereof) to be paid in shares of Series J Preferred
Stock shall be paid by the issuance and delivery to such Holders of that number
of additional shares of Series J Preferred Stock as shall be equal to the
quotient obtained by dividing the aggregate dollar amount of such dividend
payment (or portion thereof) by the Original Series J Issue Price per share.
Dividends to be paid in additional shares of Series J Preferred Stock shall be
deemed to have been made when certificates representing such additional shares
of Series J Preferred Stock have been delivered to the record holders of the
Series J Preferred Stock entitled to receive the same, in accordance with the
instructions of such holders designated in writing to the Company at least two
business days prior to any Dividend Payment Date. All shares of Series J
Preferred Stock paid as such dividends (the "Dividend Shares") shall be validly
issued, fully paid and non-assessable, shall be free and clear of preemptive
rights and liens, claims and encumbrances of any kind. Subject to the other
provisions of this Certificate of Designation, holders of shares of Series J
Preferred Stock shall not be entitled to any dividend, whether payable in cash,
additional shares of Series J Preferred Stock, or other property, in excess of
full cumulative dividends as herein provided. No interest, or sum of money in
lieu of interest, shall be payable under this Certificate of Designation in
respect of any dividend payment or payments on the Series J Preferred Stock
which may be in arrears.
(c) So long as any Series J Preferred Stock remains
outstanding, the Company will not redeem, purchase or otherwise acquire any
Junior Securities; nor will the Company declare or pay any dividend or make any
distribution (in each case, whether in cash or securities or assets in kind)
upon any Junior Securities (other than stock dividends on Junior Securities,
payable in shares of, options, warrants or similar rights to acquire shares of,
the same class (and series, if applicable) of Junior Securities), or make any
sinking fund or other payment in respect of any of the foregoing if the Company
shall not have paid in full all accrued dividends on the Series J Preferred
Stock in accordance with Section 3(a) hereof.
(d) Anything contained herein to the contrary notwithstanding,
if at any time that any shares of Series J Preferred Stock are outstanding, the
closing bid price per share of the Common Stock on the Nasdaq Stock Market (or,
if the Common Stock is not then included in Nasdaq, but is listed on any
national securities exchange, on the principal national securities exchange on
which the Common Stock is then listed) remains above $20.00 per share (as
adjusted for any stock splits, reverse stock splits, stock dividends or similar
events after the date of this Certificate of Designation) for twenty (20)
consecutive trading days, then, commencing on such 20th trading day, the
cumulative dividend will not be payable; provided, however, that if the closing
bid price per share of the Common Stock remains below $20.00 for twenty (20)
consecutive trading days (as so adjusted), then the dividend will resume as of
such 20th day.
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SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up
of the Company (each a "Liquidation Event"), either voluntary or involuntary,
the Holders of shares of Series J Preferred Stock shall be entitled to receive,
immediately after any distributions to Senior Securities required by the
Company's Certificate of Incorporation or any certificate of designation, and
prior in preference to any distribution to Junior Securities, and in parity with
any distribution to Parity Securities, an amount for each share of Series J
Preferred Stock then outstanding equal to the Original Series J Issue Price,
plus any and all accrued unpaid dividends. If upon the occurrence of such event,
and after payment in full of the preferential amounts with respect to the Senior
Securities, the assets and funds available to be distributed among the Holders
of the Series J Preferred Stock and Parity Securities shall be insufficient to
permit the payment to such Holders of the full preferential amounts due to the
Holders of the Series J Preferred Stock and the Parity Securities, respectively,
then the entire assets and funds of the Company legally available for
distribution shall be distributed among the Holders of the Series J Preferred
Stock and the Parity Securities, pro rata, based on the respective liquidation
amounts to which each such series of stock is entitled by the Company's
Certificate of Incorporation and any certificate(s) of designation relating
thereto.
(b) Upon the completion of the distribution required by
subsection 4(a), if assets remain in this Company, they shall be distributed to
holders of Junior Securities in accordance with the Company's Certificate of
Incorporation including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation by
the Company of a transaction or series of related transactions in which any
person or entity acquires more than fifty percent (50%) of the voting power of
the Company (a "Change of Control") shall be deemed to be a Liquidation Event as
defined in section 4(a); provided further that (i) a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
publicly traded company or companies shall not be treated as a Liquidation Event
as defined in Section 4(a), but instead shall be treated pursuant to Section
5(d)(ii) hereof, and (ii) a consolidation, merger, acquisition, or other
business combination of the Company with or into any other non-publicly traded
company or companies (except for a consolidation, merger, acquisition or other
business combination with one of its subsidiaries) shall be treated as a
Liquidation Event as defined in section 4(a). The Company shall not effect any
transaction described in subsection 4(c)(ii) (except for a consolidation,
merger, acquisition or other business combination with one of its subsidiaries)
unless it first gives thirty (30) business days prior notice of such transaction
(during which time the Holder shall be entitled to convert its shares of Series
J Preferred Stock into Non-Voting Common Stock). For purposes of this section
4(c), neither the public offering, sale or distribution of shares of stock (or
assets) of the Company's Sandia Imaging Systems Corporation subsidiary or the
Lasertechnics Marking Corporation subsidiary shall be deemed to be a Liquidation
Event.
(d) In the event that, immediately prior to or
contemporaneously with the closing of a transaction described in section 4(c)
which would constitute a Liquidation Event, the cash distributions required by
Section 4(a) have not been made, the Company shall either: (i) cause such
closing to be postponed until such cash distributions have been made, or (ii)
cancel such transaction, in which event the rights of the Holders of Series J
Preferred Stock shall be the same as existing immediately prior to such proposed
transaction.
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<PAGE> 4
SECTION 5. CONVERSION. The record Holders of this Series J Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. On the terms and subject to the
conditions set forth in this Certificate of Designation, each record Holder of
Series J Preferred Stock shall be entitled to convert the shares of Series J
Preferred Stock held by such Holder, in whole at any time and in part from time
to time, into a number of fully-paid and non-assessable shares of Non-Voting
Common Stock of the Company equal to the quotient of (i) the aggregate Original
Series J Issue Price of the shares of Series J Preferred Stock being converted
divided by (ii) the Conversion Price as determined pursuant to this Section 5
(the "Conversion Price"). The Conversion Price shall initially be FOUR DOLLARS
($4.00) per share of Series J Preferred Stock. The Conversion Price shall be
subject to adjustment from time to time as provided in Section 5(d).
(b) Mechanics of Conversion. Conversion of shares of Series J
Preferred Stock may be effected by written notice to the Company, and shall be
effective upon receipt of such notice by the Company, or as otherwise provided
in such notice, and delivery to the Company of (i) one or more certificates
representing the shares of Series J Preferred Stock being converted, (ii) a
certificate of guaranteed delivery of such certificates reasonably satisfactory
to the Company, or (iii) evidence of the loss, theft or destruction of such
certificates pursuant to Section 11 of this Certificate of Designation, together
with any indemnity or security reasonably requested by the Company pursuant to
such Section 11. Upon any conversion of shares of Series J Preferred Stock
pursuant to this Section 5, the Holder shall be deemed to be the record holder
of the shares of Non-Voting Common Stock into which shares of Series J Preferred
Stock have been converted and shall be entitled to receive duly executed
certificates, in proper form, representing such shares of Non-Voting Common
Stock as soon as practicable thereafter. Anything contained herein to the
contrary notwithstanding, if any conversion of shares of Series J Preferred
Stock would create a fractional share of Non-Voting Common Stock or a right to
acquire a fractional share of Non-Voting Common Stock, such fractional share
shall be disregarded and the number of shares of Non-Voting Common Stock
issuable upon such conversion, in the aggregate, shall be rounded to the nearest
whole number of shares (with one-half of a share rounded up).
(c) Reservation of Stock Issuable Upon Conversion. Other than
as set forth below, the Company shall at all times reserve and keep available
out of its authorized but unissued shares of Non-Voting Common Stock, solely for
the purpose of effecting the conversion of the Series J Preferred Stock, such
number of its shares of Non-Voting Common Stock as shall from time to time be
sufficient to effect the conversion of all then outstanding Series J Preferred
Stock. Notwithstanding the foregoing, if at any time the number of authorized
but unissued shares of Non-Voting Common Stock (excluding for this purpose any
authorized but unissued shares of Non-Voting Common Stock that are properly
reserved for some other purpose) shall be insufficient to cause the conversion
into Non-Voting Common Stock of all shares of Series J Preferred Stock then
outstanding, the Company will, when authorized by the Board of Directors, take
such corporate action as may be reasonably necessary to increase its authorized
but unissued shares of Non-Voting Common Stock to such number of shares as shall
be sufficient for such purpose.
(d) Adjustment to Conversion Rate.
(i) Adjustment to Conversion Price Due to Stock
Split, Stock Dividend, Etc. If, at any time that any shares of Series J
Preferred Stock remaining outstanding, the number of outstanding shares of
Non-Voting Common Stock is increased by a stock split, stock dividend, or other
similar event, the Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Non-Voting
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<PAGE> 5
Common Stock is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Conversion Price shall
be proportionately increased.
(ii) Adjustment Due to Merger, Consolidation, Etc. If,
at any time that any shares of Series J Preferred Stock remain outstanding,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of
Non-Voting Common Stock of the Company shall be changed into the same or a
different number of shares of the same or another class or classes of stock or
securities of the Company or another entity, or there is a sale of all or
substantially all the Company's assets or there is a Change of Control not
deemed to be a Liquidation Event pursuant to section 4(c), then the Holders
shall thereafter have the right to receive upon conversion of shares of Series J
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Non-Voting Common Stock immediately
theretofore issuable upon conversion, such stock, securities and/or other assets
which the Holder would have been entitled to receive in such transaction had
such shares of Series J Preferred Stock been converted immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holders of the Series J Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for the adjustment of the Conversion Price and of the number of
shares issuable upon conversion of the Series J Preferred Stock) shall
thereafter be applicable, as nearly as may be practicable in relation to any
securities thereafter deliverable upon the exercise hereof. The Company shall
not effect any transaction described in this subsection 5(d)(ii) unless (A) it
first gives thirty (30) business days prior notice of such merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event (during which time the Holders shall be entitled to convert their
shares of Series J Preferred Stock into Non-Voting Common Stock) and (B) the
resulting successor or acquiring entity (if not the Company) assumes by written
instrument the obligations of the Company under this Certificate of Designation
including this subsection 5(d)(ii).
(iii) Adjustment Due to Qualified Equity Financing. If
the Company consummates an equity financing with any third party at any time on
or before December 31, 1999, which equity financing raises at least $1,000,000
in cash (a "Qualified Equity Financing"), the Holder will have the
non-assignable right, exercisable by written notice to the Company given at any
time within thirty (30) days after the date of the closing of a Qualified Equity
Financing, to exchange the shares of Series J Preferred Stock, in whole or in
part, for shares of a new series of preferred stock of the Company (the
"Exchange Preferred"), on the following basis:
(A) If the securities issued in such Qualified
Equity Financing (the "New Securities") are convertible into voting or
non-voting Common Stock, the Exchange Preferred will be convertible into voting
Common Stock at a conversion price equal to the lesser of (x) the Conversion
Price then applicable under the Series J Preferred Stock and (y) the conversion
price then applicable under the New Securities.
(B) All other terms of the Exchange Preferred
will be economically equivalent to the terms of the New Securities, determined
as if the New Securities had been issued on the date hereof. The Exchange
Preferred will be on parity with the New Securities for all purposes, and will
vote together with the New Securities for all purposes, except as otherwise
required by law.
(C) If the Holder exchanges any Shares pursuant
to this paragraph 5(iii), it shall be entitled to any additional rights with
respect to the shares of Exchange Preferred (including,
-5-
<PAGE> 6
without limitation, rights of first refusal or payment of attorneys' fees) as
the purchasers of New Securities shall be entitled to under the Qualified Equity
Financing.
(D) The number of shares of Exchange Preferred
issuable to the Holder pursuant to any exchange of Shares hereunder will be the
number of shares of Exchange Preferred that the Holder could have purchased on
the date hereof for a purchase price equal to the aggregate purchase price
hereunder of the Shares to be exchanged therefor, payable in cash (determined on
a basis so that the cash purchase price of shares of Exchange Preferred and the
cash purchase price of the New Securities are economically equivalent).
(E) If the Holder exchanges any Shares pursuant
to this paragraph 5(iii), such exchange will not result in an increase in the
conversion price above $4.00 per share.
(F) If the Company does not consummate a
Qualified Equity Financing on or before December 31, 1999, the $4.00 conversion
price of the Preferred Stock shall be reset to not less than the greater of (i)
$1.00 or (ii) one-half of the closing bid price per share of the Company's
Common Stock on the Nasdaq SmallCap Market (or if the 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 Common Stock is then listed)
during the last twenty (20) trading days of 1999.
SECTION 6. VOTING. The Holders shall not be entitled to vote, either
together with the holders of the Company's voting Common Stock or voting
Preferred Stock, or as a single class, on any matter submitted to a vote of the
stockholders of the Company, or as to which the holders of the voting Common
Stock or voting Preferred Stock shall otherwise be entitled to vote. As used in
this Section 6, all references to votes and voting shall refer as well to action
and actions by written consent.
SECTION 7. OPTIONAL REDEMPTION BY COMPANY. The Series J Preferred Stock
shall be subject to optional redemption by the Company, in whole at any time or
in part from time to time, at a redemption price per share equal to the Original
Series J Issue Price, plus any and all accrued unpaid dividends thereon. The
Company shall give at least 10 days' prior written notice of any redemption
pursuant to this Section 7 to each Holder of shares of Series J Preferred Stock
to be redeemed. The Company's optional right of redemption is subject to each
Holder's right to convert all or any part of the shares to be redeemed into
Non-Voting Common Stock pursuant to Section 5, provided that the Holder gives
written notice of such conversion to the Company in accordance with Section 5
within ten (10) business days after the Company's notice of redemption. The
Holders of Series J Preferred Stock shall not be entitled to any mandatory
redemption of their Shares without the consent of the Company.
SECTION 8. MANDATORY CONVERSION BY COMPANY. Each share of Series J
Preferred Stock shall automatically convert into that number of fully-paid and
non-assessable shares of non-voting Common Stock of the Company equal to the
Original Series J Issue Price plus all accrued, but unpaid dividends thereon,
divided by the Conversion Price (subject to adjustment from time to time as
provided in Section 5(d)), upon the closing bid price per share of the Common
Stock on the Nasdaq SmallCap Market (or, if the Common Stock is not then
included in Nasdaq, but is listed on any national securities exchange, on the
principal national securities exchange on which the Common Stock is then listed)
having reached and remained at $10.00 per share or more for a period of ninety
(90) consecutive trading days.
-6-
<PAGE> 7
SECTION 9. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Series J Preferred Stock shall be converted pursuant to Section 5
hereof or redeemed pursuant to Section 7 hereof, the shares so converted or
redeemed shall be canceled, shall return to the status of authorized but
unissued Preferred Stock of no designated series, and shall not thereafter be
issuable by the Company as Series J Preferred Stock.
SECTION 10. OTHER PREFERRED STOCK. Nothing contained herein shall be
construed to prevent the Board of Directors from authorizing the creation of, or
to prevent the Company from issuing shares of, one or more series of Preferred
Stock senior to, junior to or on parity with the Series J Preferred Stock as to
dividend, liquidation rights or otherwise.
SECTION 11. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of any certificates
representing shares of Series J Preferred Stock, and (in the case of loss, theft
or destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of the certificate(s), if mutilated, the
Company shall execute and deliver to the record Holder thereof new
certificate(s) of like tenor and date. However, the Company shall not be
obligated to re-issue such lost or stolen certificates if the Holder
contemporaneously requests the Company to convert such shares of Series J
Preferred Stock into shares of Non-Voting Common Stock.
SECTION 12. FRACTIONAL SHARES. In the event a Holder of Series J
Preferred Stock shall be entitled to receive a fractional interest in a share of
Series J Preferred Stock of less than one one-hundredth of one share, except as
otherwise provided herein, the Company shall either, in the sole discretion of
the Board of Directors, (a) round such fractional interest up to the next
one-hundredth of one whole share of Series J Preferred Stock or (b) deliver cash
in the amount of the fair market value (as determined by the Board of Directors
or in any manner prescribed by the Board of Directors) of such fractional
interest.
SECTION 13. PREEMPTIVE RIGHTS. The Holders of Series J Preferred Stock
are not entitled to any preemptive or subscription rights in respect of any
securities of the Company.
SECTION 14. COUNTERPARTS. This Certificate of Designation may be
executed on separate counterparts and shall be effective as of the date signed.
-7-
<PAGE> 8
IN WITNESS WHEREOF, AXCESS Inc. has caused this certificate to be
signed by its President and attested by its Secretary, as of the 10th day of
March, 1999.
AXCESS INC.
By: /s/ Harry S. Budow
----------------------------------------
Harry S. Budow, Chief Executive Officer
Attest:
/s/ Danny G. Hair
- - --------------------------------
Danny G. Hair, Secretary
-8-
<PAGE> 1
EXHIBIT 10.8
AXCESS INC.
3208 Commander Drive
Carrollton, Texas 75006
Amphion Ventures L.P. February 26, 1999
c/o Amphion Capital
590 Madison Avenue
32nd Floor
New York, New York 10022
Re: Preferred Stock Purchase Agreement
Ladies and Gentlemen:
On October 21, 1998, Amphion Ventures L.P., a Delaware limited
partnership (the "Purchaser"), committed to provide up to $6,300,000 of equity
financing to AXCESS Inc., a Delaware corporation (the "Company"), in connection
with the Company's 1998 plan of operations and to maintain the Company's
compliance with the net tangible asset requirement of the new Nasdaq listing
requirements (the "Commitment"). This letter sets forth the terms and conditions
on which the Company will issue and sell to Purchaser for an aggregate purchase
price of up to $6,300,000, payable as provided herein, shares of either its
Series G Voting Preferred Stock, Series H Non-Voting Preferred Stock or shares
of any new series of voting preferred stock or non-voting preferred stock of the
Company that may be authorized for issuance as of the date Purchaser advances
funds against the Commitment to the Company (collectively, the "Preferred
Stock"). Purchaser shall designate in writing to the Company what series of
preferred stock of the Company the Purchaser desires to purchase at the time it
advances funds against the Commitment to the Company. Although Amphion agreed to
make the Commitment to be effective as of October 21, 1998 (the "Effective
Date"), this letter sets forth in detail the terms on which the Purchaser agreed
to make the Commitment.
1. Advances; Purchase Price; Effectiveness. The Purchaser hereby agrees
to subscribe for and purchase from the Company, and the Company hereby agrees to
issue and sell to the Purchaser, up to $6,300,000 of shares of Preferred Stock
(the "Shares"). The purchase price for each Share shall be $10,000, payable in
cash. The purchase and sale of Shares hereunder shall be effective as of the
date the Company receives the purchase price for each Share from Purchaser
(subject to the filing of any Certificates of Designation of the Preferred Stock
in the office of the Secretary of State of the State of Delaware (the
"Certificates of Designation"), which filing may occur subsequently to the
Effective Date without effecting the rights and obligations of the parties
hereto).
<PAGE> 2
Amphion Ventures L.P.
February 26, 1999
Page 2
2. Purchase and Delivery of Shares. Upon its receipt of the purchase
price for each Share, the Company shall issue and sell to Purchaser the number
of Shares, the stated value of which shall be $10,000 per share (the "Original
Preferred Stock Issue Price"). On and as of the Effective Date, the Company
shall execute and deliver to the Purchaser a stock certificate in proper form
representing the Shares.
3. Conversion of Preferred Stock to Voting or Non-Voting Common Stock.
Purchaser hereby agrees that it shall not, without the prior written consent of
the Company, convert any shares of Preferred Stock, other than Series G
Preferred Stock, to shares of either voting or non-voting common stock of the
Company, $0.01 par value per share (the "Common Stock"), as the case may be,
issuable to Purchaser upon its conversion of any Shares until the Company
receives stockholder approval to issue more than twenty percent (20%) of the
Company's outstanding voting or non-voting Common Stock, as the case may be, at
a per share price potentially less than the per share market price of the Common
Stock on the date of issuance to holders of Preferred Stock. The Company hereby
agrees to submit such a proposal to its stockholders for approval at the
Company's 1999 annual meeting of stockholders.
4. Conversion of Non-Voting Common Stock to Voting Common Stock.
Purchaser hereby agrees that it shall not, without the prior written consent of
the Company, which consent will not be unreasonably withheld, convert any shares
of the Company's non-voting Common Stock issuable to Purchaser upon its
conversion of any Shares to voting Common Stock of the Company.
5. Right to Exchange Shares. If the Company consummates an equity
financing with any third party at any time on or before December 31, 1999, which
equity financing raises at least $1,000,000 in cash (a "Qualified Equity
Financing"), the Purchaser will have the non-assignable right, exercisable by
written notice to the Company given at any time within thirty (30) days after
the date of the closing of a Qualified Equity Financing, to exchange the Shares
in whole or in part, for shares (the "Exchange Shares") of a new series of
preferred stock of the Company (the "Exchange Preferred"), on the following
basis:
(a) If the securities issued in such Qualified Equity Financing
(the "New Securities") are convertible into voting or non-voting Common
Stock, the Exchange Preferred will be convertible into voting or
non-voting Common Stock, as the case may be, at a conversion price
equal to the lesser of (x) the conversion price then applicable under
the Preferred Stock and (y) the conversion price then applicable under
the New Securities.
(b) All other terms of the Exchange Preferred will be
economically equivalent to the terms of the New Securities, determined
as if the New Securities had been issued on the date hereof. The
Exchange Preferred will be on parity with the New Securities for all
<PAGE> 3
Amphion Ventures L.P.
February 26, 1999
Page 3
purposes, and will vote, if applicable, together with the New
Securities for all purposes, except as otherwise required by law.
(c) If the Purchaser exchanges any Shares pursuant to this
paragraph 5, it shall be entitled to any additional rights with respect
to the Exchange Shares (including, without limitation, rights of first
refusal or payment of attorneys' fees) as the purchasers of New
Securities shall be entitled to under the Qualified Equity Financing.
(d) The number of Exchange Shares issuable to the Purchaser
pursuant to any exchange of Shares hereunder will be the number of
shares of Exchange Preferred that the Purchaser could have purchased on
the date hereof for a purchase price equal to the aggregate purchase
price hereunder of the Shares to be exchanged therefor, payable in cash
(determined on a basis so that the cash purchase price of the Exchange
Shares and the cash purchase price of the New Securities are
economically equivalent).
(e) If the Purchaser exchanges any Shares pursuant to this
paragraph 5, such exchange will not result in an increase in the
conversion price above $4.00 per share (as adjusted for any stock
splits, reverse stock splits, stock dividends or similar events after
the date of the Certificates of Designations).
(f) If the Company does not consummate a Qualified Equity
Financing on or before December 31, 1999, the $4.00 conversion price of
the Preferred Stock shall be reset to not less than the greater of (i)
$1.00 or (ii) one-half of the average closing bid price per share of
the Company's common stock on the Nasdaq SmallCap Market (or if the
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 Common Stock is then listed) during the last
twenty (20) trading days of 1999 (the "Automatic Reset Right"). If the
automatic reset right is triggered, Purchaser hereby agrees to convert
or exchange a sufficient number of Shares to non-voting Common Stock
such that Purchaser shall not be deemed the beneficial owner of more
than fifty percent (50%) of the Company's voting Common Stock.
6. Mandatory Conversion of Preferred Stock. The Company shall have the
right to cause a mandatory conversion of the Preferred Stock into shares of the
Company's voting or non-voting Common Stock, as the case may be, if the closing
bid price of the 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 (the
"Mandatory Conversion Price"). The Company may exercise this mandatory
conversion right by providing written notice of the Company's election to
convert the Preferred Stock to Purchaser any time on or before the expiration of
thirty (30) days following the occurrence of the Mandatory Conversion Price.
<PAGE> 4
Amphion Ventures L.P.
February 26, 1999
Page 4
7. Securities Act Legend; Registration Rights.
7.1 The Shares will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"). Certificates representing the
Shares shall bear a restrictive legend substantially to the effect of the
following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAWS,
OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THEY MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THOSE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION
THEREFROM. ADDITIONAL RESTRICTIONS REGARDING THE TERMS UNDER
WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE CONVERTED
INTO VOTING OR NON-VOTING COMMON STOCK OF THE COMPANY ARE SET
FORTH IN THAT CERTAIN PREFERRED STOCK PURCHASE AGREEMENT BY AND
BETWEEN THE COMPANY AND THE HOLDER.
7.2 The Purchaser shall have the same registration rights with
regard to any shares of voting or non-voting Common Stock, as the case may be,
issuable upon conversion of the Shares as Amphion Ventures L.P. (formerly
Wolfensohn Associates L.P. was entitled to pursuant to the Stock Purchase
Agreement dated as of January 20, 1994 (the "Prior Agreement")), between the
Company and Amphion Ventures L.P. The Company shall have the same expense,
indemnification and other obligations to the Purchaser with respect to such
registration rights as the Company owed to Amphion Ventures L.P. under the Prior
Agreement. The Company and the Purchaser shall enter into a registration rights
agreement in customary form to confirm the registration rights provided for in
this paragraph, as soon as practicable after the date hereof.
8. Representations and Warranties by the Company. The Company hereby
represents and warrants to the Purchaser as follows:
8.1 The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the corporate power and authority to execute and deliver this agreement, to
issue the Shares on the basis described herein and otherwise to perform its
obligations under this agreement.
<PAGE> 5
Amphion Ventures L.P.
February 26, 1999
Page 5
8.2 The execution and delivery by the Company of this
Agreement, the issuance of the Shares, and the performance by the Company of its
obligations hereunder, have been duly authorized by all requisite corporate
action on the part of the Company (other than the filing of any Certificates of
Designation) and will not (i) violate any provision of law, statute, rule or
regulation or any order of any court or other agency of government, (ii)
conflict with or violate the Certificate of Incorporation or By-Laws of the
Company, in each case as amended, or (iii) violate, conflict with or constitute
(with due notice or lapse of time or both) a default under any indenture,
mortgage, lease, license, agreement or other contract or instrument or result in
the creation or imposition of any lien, charge or encumbrance of any nature upon
the properties or assets of the Company or any of its subsidiaries, in each case
if such violation, conflict, default, lien, charge or encumbrance would have a
material adverse effect on the Company.
8.3 This agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except to the extent the
enforceability hereof may be limited by applicable bankruptcy, moratorium or
similar laws affecting the rights of creditors generally.
8.4 Based in part upon the representations and warranties of
the Purchaser contained in this agreement, no registration or filing with, or
consent or approval of, or other action by, any federal, state or other
governmental department, commission, board, bureau, agency or instrumentality or
any third party is or will be necessary for the execution and delivery of this
agreement by the Company and the issuance of the Shares hereunder, other than
(x) the filing of any Certificates of Designation and (y) the filing of a notice
of sale on Form D with the Securities and Exchange Commission in accordance with
the rules and regulations thereof under the Securities Act.
8.5 Subject only to the filing of any Certificates of
Designation, the Shares are duly authorized, validly issued, fully paid and
non-assessable shares of Preferred Stock, and are not subject to any preemptive
rights.
8.6 Attached hereto as Exhibit A is a true copy of the
Certificates of Designation covering the Shares to be issued to Purchaser
hereunder. On the Effective Date, the Board of Directors of the Company approved
and adopted resolutions, in the form of the resolutions set forth in Exhibit A,
creating the Preferred Stock and directing the proper officers of the Company to
file the same with the office of the Secretary of State of the State of
Delaware, in accordance with the applicable provisions of the Delaware General
Corporation Law. The Company hereby covenants and agrees, for the benefit of the
Purchaser, that the Company will cause the Certificates of Designation to be
filed with the office of the Secretary of State of the State of Delaware, in
accordance with the applicable provisions of the Delaware General Corporation
Law, within ten (10) days after the date hereof.
<PAGE> 6
Amphion Ventures L.P.
February 26, 1999
Page 6
9. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
9.1 The Purchaser is acquiring the Shares for its own account,
for investment and not with a view to the distribution thereof within the
meaning of the Securities Act.
9.2 The Purchaser understands that the Shares have not been
registered under the Securities Act, by reason of their issuance by the Company
in transactions exempt from the registration requirements of the Securities Act,
and that the Shares must be held by the Purchaser indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration.
9.3 The Purchaser further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to it)
promulgated under the Act depends on the satisfaction of various conditions, and
that, if applicable, Rule 144 may afford the basis for sales only in limited
amounts, after compliance with the holding periods and other provisions thereof.
9.4 The Purchaser understands that its investment hereunder
involves substantial risks and represents and warrants that it has made such
independent examinations and investigations of the Company as it has deemed
necessary in making its investment decision, and the Purchaser further
represents and warrants that it has had sufficient access to the officers,
directors, books and records of the Company as it has deemed necessary to
conduct such examination and investigation and make such investment decision.
9.5 The Purchaser is able to bear the economic risk of the
investment contemplated by this agreement and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the investment contemplated by this agreement.
10. Reaffirmation of Representations and Warranties. The date Shares
are purchased shall constitute a reaffirmation of each and every one of the
representations and warranties of the Company set forth in Section 8 of this
agreement and those of the Purchaser set forth in Section 9 of this agreement as
if made as of each Effective Date, unless otherwise restated or corrected by
either the Purchaser or the Company, as the case may be.
11. Miscellaneous.
<PAGE> 7
Amphion Ventures L.P.
February 26, 1999
Page 7
11.1 This agreement constitutes our entire agreement with
respect to the subject matter hereof. This agreement may not be modified or
amended or any provision hereof waived except by an instrument in writing signed
by the Company and the Purchaser.
11.2 This agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. The rights of the Purchaser hereunder shall be assignable to any holder
of the Shares. Except as provided in the immediately preceding sentence, this
agreement and the rights of the Purchaser hereunder shall not be assignable, and
any purported assignment hereof or thereof shall be void.
11.3 This Agreement may be executed in any number of
counterparts and on separate counterparts, each of which shall be an original
instrument, but all of which together shall constitute a single agreement. One
or more signature pages from any counterpart of this Agreement may be attached
to any other counterpart of this Agreement without in any way changing the
effect thereof. This Agreement shall be effective when executed and delivered by
the Company and the Purchaser.
11.4 All notices, requests, demands, consents, waivers, or
other communications made hereunder to any party or holder of Shares shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by nationally-recognized overnight courier, facsimile or by first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below:
if to the Company, to:
AXCESS Inc.
3208 Commander Drive
Carrollton, TX 75006
Attention: Chief Financial Officer
with a copy to:
Sayles & Lidji, P.C.
4400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Brian M. Lidji, Esq.; and
<PAGE> 8
Amphion Ventures L.P.
February 26, 1999
Page 8
if to the Purchaser, to the Purchaser at its address
first set forth above,
or to such other address as the party to whom such communication is to be given
may have furnished to the other party in writing in accordance herewith. All
such notices, requests, demands, consents, waivers or other communications shall
be deemed to have been delivered (i) in the case of personal delivery, on the
date of delivery, (ii) if sent by facsimile, on the date sender receives a
confirmation confirming receipt, (iii) if sent by overnight courier, on the next
business day following the date sent and (iv) in the case of mailing, on the
third business day following such mailing.
11.5 All representations, warranties and agreements contained
herein shall survive the execution and delivery of this Agreement and the sale
of the Shares hereunder.
11.6 This agreement, and all rights, obligations and
liabilities hereunder, shall be construed according to the laws of the State of
New York applicable to contracts made and to be performed wholly therein. Any
judicial proceeding brought against the Company to enforce, or otherwise in
connection with, this agreement may be brought in any court of competent
jurisdiction in the City of New York, and, by execution and delivery of this
agreement, the Company (i) accepts, generally and unconditionally, the
nonexclusive jurisdiction of such courts and any related appellate court and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with this agreement and (ii) irrevocably waives any objection it may
now or hereafter have as to the venue of any such proceeding brought in such a
court or that such a court is an inconvenient forum.
*Intentionally Left Blank*
<PAGE> 9
Amphion Ventures L.P.
February 26, 1999
Page 9
If the foregoing correctly sets forth your understanding of our
agreement, please so indicate by signing and returning to the Company the
enclosed counterpart of this Agreement.
Very truly yours,
AXCESS INC.
By: /s/ Danny G. Hair
---------------------------------------
Danny G. Hair, Executive Vice President,
Chief Financial Officer and Secretary
The undersigned agrees with and
accepts the foregoing terms and provisions
as of the date first above written.
AMPHION VENTURES L.P.
By Amphion Partners L.L.C., its general partner
By: /s/ Richard C.E. Morgan
- - ------------------------------------------------
A Managing Member
<PAGE> 10
Amphion Ventures L.P.
February 26, 1999
Page 10
EXHIBIT A
PREFERRED STOCK DESIGNATIONS
<PAGE> 1
EXHIBIT 10.12
AXCESS INC.
3208 Commander Drive
Carrollton, Texas 75006
March 26, 1999
Amphion Ventures L.P.
c/o Amphion Capital
590 Madison Avenue
32nd Floor
New York, New York 10022
Re: Note Payable Conversion Agreement
Ladies and Gentlemen:
By letter dated December 21, 1998, from AXCESS Inc., a Delaware
corporation (the "Company") to Amphion Ventures L.P., a Delaware limited
partnership ("Amphion"), the Company confirmed Amphion's desire to: (a) convert
(i) one-half ($200,000) of the indebtedness (the "Converted Indebtedness") of
the Company to Amphion under the terms of that certain Note Purchase Agreement
dated June 25, 1997, as amended on December 29, 1997 (the "Note Purchase
Agreement") in the stated principal amount of $400,000 (the "Total
Indebtedness") plus (ii) all accrued, but unpaid interest thereon ($50,000)
through December 31, 1998, (the "Accrued Dividends") plus (iii) $100,000 of the
total amount of accrued interest due by the Company to Amphion under the terms
of that certain Promissory Note payable to Amphion in the stated principal
amount of $1,470,000 (the "Accrued Interest") into shares of a new Series I
Voting Preferred Stock of the Company (the "Series I Preferred Stock") or a new
Series J Non-Voting Preferred Stock (the "Series J Preferred Stock") of the
Company; and (b) extend the final maturity date of the balance of the Total
Indebtedness under the Note Purchase Agreement and the note issued thereunder to
December 31, 1999. Although Amphion agreed to convert the Converted
Indebtedness, Accrued Dividends and Accrued Interest to be effective as of
December 31, 1998 (the "Effective Date"), this letter sets forth in detail the
terms on which the Converted Indebtedness, Accrued Dividends and Accrued
Interest were to have been converted and shares of the Series I Preferred Stock
or Series J Preferred Stock, as the case may be, were to have been issued by the
Company to Amphion as of the Effective Date.
1. Series I Preferred Stock. The Certificate of Designation of Series I
Preferred Stock shall be on substantially the same terms as the Company's Series
G Preferred Stock, except that: (a) the conversion price of the Series I
Preferred Stock shall be $4.00 per share; (b) if the Company consummates an
equity financing of at least $1,000,000 with any third party (a "Qualified
Equity Financing") at any time on or before December 31, 1999, and the
securities issued by the Company in connection therewith are convertible into
voting common stock at a conversion price of less than $4.00 per share, the
conversion price of the Series I Preferred Stock shall be reset to such lower
conversion price; (c) if the Company does not consummate a Qualified Equity
Financing at any time on or before December 31, 1999, the $4.00 conversion price
shall 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;
and (d) the Company shall have the right to cause a mandatory conversion of the
Series I
<PAGE> 2
Amphion Ventures L.P.
March 26, 1999
Page 2
preferred Stock into shares of the Company's voting common stock if the closing
bid price of the Company's 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.
2. Series J Preferred Stock. The Certificate of Designation of Series J
Preferred Stock shall be on substantially the same terms as the Company's Series
H Preferred Stock, except that: (a) the conversion price of the Series J
Preferred Stock shall be $4.00 per share; (b) if the Company consummates a
Qualified Equity Financing at any time on or before December 31, 1999, and the
securities issued by the Company in connection therewith are convertible into
non-voting common stock at a conversion price of less than $4.00 per share, the
conversion price of the Series J Preferred Stock shall be reset to such lower
conversion price; (c) if the Company does not consummate a Qualified Equity
Financing at any time on or before December 31, 1999, the $4.00 conversion price
shall 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;
and (d) the Company shall have the right to cause a mandatory conversion of the
Series J preferred Stock into shares of the Company's non-voting common stock if
the closing bid price of the Company's 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.
3. Conversion of Indebtedness;Issuance of Shares. Amphion hereby agrees
to convert the Converted Indebtedness, Accrued Dividends and Accrued Interest
into shares of either Series I Preferred Stock or Series J Preferred Stock, or
any combination thereof, and the Company hereby agrees to issue to Amphion
shares of either Series I Preferred Stock or Series J Preferred Stock, or any
combination thereof (the "Shares"). The conversion price for each Share shall be
$10,000 (the "Conversion Price") and the number of Shares to be issued shall be
determined by dividing the amount of the Indebtedness by the Conversion Price.
On and as of the Effective Date, the Converted Indebtedness, Accrued Dividends
and Accrued Interest shall automatically be converted and discharged in full and
Amphion shall be the due and valid holder of record of the Shares.
4. Conversion of Preferred Stock to Voting or Non-Voting Common Stock.
Amphion hereby agrees that it shall not, without the prior written consent of
the Company, convert any shares of the Series I Preferred Stock or the Series J
Preferred Stock to voting common stock or non-voting common stock of the
Company, as the case may be, issuable to Amphion upon its conversion of any
Shares until the Company receives stockholder approval to issue more than twenty
percent (20%) of the Company's outstanding common stock or non-voting common
stock, as the case may be, at a per share price potentially less than the per
share market price of the common stock on the date of issuance to holders of
Series I Preferred Stock or Series J Preferred Stock. The Company hereby agrees
to submit such a proposal to its stockholders for approval at the Company's 1999
annual meeting of stockholders.
5. Conversion of Non-Voting Common Stock to Voting Common Stock.
Amphion hereby agrees that it shall not, without the prior written consent of
the Company, convert any shares of the non-voting common stock of the Company
issuable to Amphion upon its conversion of any shares of Series J Preferred
Stock to voting Common Stock of the Company.
<PAGE> 3
Amphion Ventures L.P.
March 26, 1999
Page 3
6. Extension of Final Maturity Date. The Final Maturity Date (as such
term is defined in the Note Purchase Agreement) of the remaining Total
Indebtedness ($200,000) under the Note Purchase Agreement and the Senior
Promissory Note issued thereunder and payable to Amphion (the "Amphion Note") is
hereby extended to December 31, 1999, for all purposes of the Note Purchase
Agreement, the Amphion Note and the Pledge Agreement executed in connection
therewith. Further, the stated principal amount of the Amphion Note shall be
reduced to $200,000. Except to the extent modified and amended herein, the terms
and conditions of the Note Purchase Agreement, the Amphion Note and the Pledge
Agreement shall remain in full force and effect. All references in the Amphion
Note, the Pledge Agreement or any other instrument or agreement executed and
delivered in connection with the Note Purchase Agreement shall be deemed for all
purposes to refer to the Note Purchase Agreement as amended hereby.
7. Termination of Pledge Agreement. From and after the date hereof, the
Pledge Agreement dated June 25, 1997, by and among Amphion, Antiope Partners
L.L.C., the Company and J.P. Morgan Investment Corporation, which was executed
in connection with the Note Purchase Agreement to secure the Company's
obligations thereunder, shall be terminated and of no further force or effect as
of the date hereof and Amphion hereby releases any and all existing liens
granted in favor of Amphion to any and all of the securities pledged thereunder,
including, without limitation, the shares of Lasertechnics Marking Corporation.
Each party hereto from time to time hereafter at any other party's request and
without further consideration shall execute and deliver to such other party such
documents or instruments in addition to those delivered pursuant to this
Agreement as shall be reasonably requested to release more effectively the
collateral pledged and the liens granted under the Note Purchase Agreement.
8. Securities Act Legend; Registration Rights.
8.1 The Shares will not be registered under the Securities Act
of 1933, as amended (the "Securities Act"). Certificates representing the Shares
shall bear a restrictive legend substantially to the effect of the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAWS,
OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THEY MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THOSE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION
THEREFROM. ADDITIONAL RESTRICTIONS REGARDING THE TERMS UNDER
WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE CONVERTED
INTO VOTING OR NON-VOTING COMMON STOCK OF THE COMPANY, AS THE
CASE MAY BE, ARE SET FORTH IN THAT CERTAIN NOTE PAYABLE
CONVERSION AGREEMENT EFFECTIVE AS OF DECEMBER 31, 1998.
8.2 Amphion shall have substantially the same registration
rights with regard to any shares of voting common stock issuable upon conversion
of the Shares as Amphion (formerly Wolfensohn Associates L.P. was entitled to
pursuant to the Stock Purchase Agreement dated as of January 20, 1994 (the
"Prior Agreement")), between the Company and Amphion. The Company shall have the
same expense,
<PAGE> 4
Amphion Ventures L.P.
March 26, 1999
Page 4
indemnification and other obligations to Amphion with respect to such
registration rights as the Company owed to Amphion under the Prior Agreement.
The Company and Amphion shall enter into a registration rights agreement in
customary form to confirm the registration rights provided for in this
paragraph, as soon as practicable after the date hereof.
9. Representations and Warranties by the Company. The Company hereby
represents and warrants to Amphion as follows:
9.1 The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the corporate power and authority to execute and deliver this agreement, to
issue the Shares on the basis described herein and otherwise to perform its
obligations under this agreement.
9.2 The execution and delivery by the Company of this
Agreement, the issuance of the Shares, and the performance by the Company of its
obligations hereunder, have been duly authorized by all requisite corporate
action on the part of the Company and will not (a) violate any provision of law,
statute, rule or regulation or any order of any court or other agency of
government, (b) conflict with or violate the Certificate of Incorporation or
By-Laws of the Company, in each case as amended, or (c) violate, conflict with
or constitute (with due notice or lapse of time or both) a default under any
indenture, mortgage, lease, license, agreement or other contract or instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature upon the properties or assets of the Company or any of its
subsidiaries, in each case if such violation, conflict, default, lien, charge or
encumbrance would have a material adverse effect on the Company.
9.3 This agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except to the extent the
enforceability hereof may be limited by applicable bankruptcy, moratorium or
similar laws affecting the rights of creditors generally.
9.4 Based in part upon the representations and warranties of
Amphion contained in this agreement, no registration or filing with, or consent
or approval of, or other action by, any federal, state or other governmental
department, commission, board, bureau, agency or instrumentality or any third
party is or will be necessary for the execution and delivery of this agreement
by the Company and the issuance of the Shares hereunder, other than the filing
of a notice of sale on Form D with the Securities and Exchange Commission in
accordance with the rules and regulations thereof under the Securities Act.
9.5 The Shares are duly authorized, validly issued, fully paid
and non-assessable shares of Series I Preferred Stock or Series J Preferred
Stock, as the case may be, and are not subject to any preemptive rights.
9.6 The Company shall cause to be delivered to Amphion a true
copy of the Series I and Series J Certificate of Designations, both of which
were approved and adopted by the Board of Directors of the Company.
<PAGE> 5
Amphion Ventures L.P.
March 26, 1999
Page 5
10. Representations and Warranties of Amphion. Amphion hereby
represents and warrants to the Company as follows:
10.1 Amphion is acquiring the Shares for its own account, for
investment and not with a view to the distribution thereof within the meaning of
the Securities Act.
10.2 Amphion understands that the Shares have not been
registered under the Securities Act, by reason of their issuance by the Company
in transactions exempt from the registration requirements of the Securities Act,
and that the Shares must be held by Amphion indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration.
10.3 Amphion further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to it)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts, after compliance with the holding periods and other
provisions thereof.
10.4 Amphion understands that its investment hereunder
involves substantial risks and represents and warrants that it has made such
independent examinations and investigations of the Company as it has deemed
necessary in making its investment decision, and Amphion further represents and
warrants that it has had sufficient access to the officers, directors, books and
records of the Company as it has deemed necessary to conduct such examination
and investigation and make such investment decision.
10.5 Amphion is able to bear the economic risk of the
investment contemplated by this agreement and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the investment contemplated by this agreement.
11. Miscellaneous.
11.1 This agreement constitutes our entire agreement with
respect to the subject matter hereof. This agreement may not be modified or
amended or any provision hereof waived except by an instrument in writing signed
by the Company and Amphion.
11.2 This agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. The rights of Amphion hereunder shall be assignable to any holder of
the Shares. Except as provided in the immediately preceding sentence, this
agreement and the rights of Amphion hereunder shall not be assignable, and any
purported assignment hereof or thereof shall be void.
11.3 This Agreement may be executed in any number of
counterparts and on separate counterparts, each of which shall be an original
instrument, but all of which together shall constitute a single agreement. One
or more signature pages from any counterpart of this Agreement may be attached
to any other counterpart of this Agreement without in any way changing the
effect thereof. This Agreement shall be effective when executed and delivered by
the Company and Amphion.
<PAGE> 6
Amphion Ventures L.P.
March 26, 1999
Page 6
11.4 All notices, requests, demands, consents, waivers, or
other communications made hereunder to any party or holder of Shares shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by nationally-recognized overnight courier, facsimile or by first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below:
if to the Company, to:
AXCESS Inc.
3208 Commander Drive
Carrollton, TX 75006
Attention: Chief Financial Officer
with a copy to:
Sayles & Lidji, P.C.
4400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Michael R. Dorey, Esq.; and
if to Amphion, to Amphion at its address
first set forth above,
or to such other address as the party to whom such communication is to be given
may have furnished to the other party in writing in accordance herewith. All
such notices, requests, demands, consents, waivers or other communications shall
be deemed to have been delivered (a) in the case of personal delivery, on the
date of delivery, (b) if sent by facsimile, on the date sender receives a
confirmation confirming receipt, (c) if sent by overnight courier, on the next
business day following the date sent and (iv) in the case of mailing, on the
third business day following such mailing.
11.5 All representations, warranties and agreements contained
herein shall survive the execution and delivery of this Agreement and the sale
of the Shares hereunder.
11.6 This agreement, and all rights, obligations and
liabilities hereunder, shall be construed according to the laws of the State of
New York applicable to contracts made and to be performed wholly therein. Any
judicial proceeding brought against the Company to enforce, or otherwise in
connection with, this agreement may be brought in any court of competent
jurisdiction in the City of New York, and, by execution and delivery of this
agreement, the Company (i) accepts, generally and unconditionally, the
nonexclusive jurisdiction of such courts and any related appellate court and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with this agreement and (ii) irrevocably waives any objection it may
now or hereafter have as to the venue of any such proceeding brought in such a
court or that such a court is an inconvenient forum.
<PAGE> 7
Amphion Ventures L.P.
March 26, 1999
Page 7
If the foregoing correctly sets forth your understanding of our
agreement, please so indicate by signing and returning to the Company the
enclosed counterpart of this Agreement.
Very truly yours,
AXCESS INC.
By: /s/ Danny G. Hair
---------------------------------------
Danny G. Hair, Executive Vice President,
Chief Financial Officer and Secretary
The undersigned agrees with and
accepts the foregoing terms and provisions
as of the date first above written.
AMPHION VENTURES L.P.
By Amphion Partners L.L.C., its general partner
By: /s/ Richard C.E. Morgan
- - ------------------------------------------------
A Managing Member
<PAGE> 1
Exhibit 10.13
AXCESS INC.
3208 Commander Drive
Carrollton, Texas 75006
March 26, 1999
Antiope Partners L.L.C.
c/o Amphion Capital
590 Madison Avenue
32nd Floor
New York, New York 10022
Re: Note Payable Conversion Agreement
Ladies and Gentlemen:
By letter dated December 21, 1998, from AXCESS Inc., a Delaware
corporation (the "Company") to Antiope Partners L.L.C., a Delaware limited
liability company ("Antiope"), the Company confirmed Antiope's desire to: (a)
convert approximately one-half ($910,000) of the indebtedness (the "Converted
Indebtedness") of the Company to Antiope under the terms of that certain Note
Purchase Agreement dated June 25, 1997, as amended on December 29, 1997 (the
"Note Purchase Agreement") in the stated principal amount of $1,820,233 (the
"Total Indebtedness") plus all accrued, but unpaid interest thereon ($270,000)
through December 31, 1998, (the "Accrued Dividends") into shares of a new Series
I Voting Preferred Stock of the Company (the "Series I Preferred Stock") or a
new Series J Non-Voting Preferred Stock (the "Series J Preferred Stock") of the
Company; and (b) extend the final maturity date of the balance of the Total
Indebtedness under the Note Purchase Agreement and the note issued thereunder to
December 31, 1999. Although Antiope agreed to convert the Converted Indebtedness
and the Accrued Dividends to be effective as of December 31, 1998 (the
"Effective Date"), this letter sets forth in detail the terms on which the
Converted Indebtedness and the Accrued Dividends were to have been converted and
shares of the Series I Preferred Stock or Series J Preferred Stock, as the case
may be, were to have been issued by the Company to Antiope as of the Effective
Date.
1. Series I Preferred Stock. The Certificate of Designation of Series I
Preferred Stock shall be on substantially the same terms as the Company's Series
G Preferred Stock, except that: (a) the conversion price of the Series I
Preferred Stock shall be $4.00 per share; (b) if the Company consummates an
equity financing of at least $1,000,000 with any third party (a "Qualified
Equity Financing") at any time on or before December 31, 1999, and the
securities issued by the Company in connection therewith are convertible into
voting common stock at a conversion price of less than $4.00 per share, the
conversion price of the Series I Preferred Stock shall be reset to such lower
conversion price; (c) if the Company does not consummate a Qualified Equity
Financing at any time on or before December 31, 1999, the $4.00 conversion price
shall be automatically 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;
and (d) the Company shall have the right to cause a mandatory conversion of the
Series I preferred Stock into shares of the Company's voting common stock if the
closing bid price of the Company's
<PAGE> 2
Antiope Partners L.L.C.
March 26, 1999
Page 2
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.
2. Series J Preferred Stock. The Certificate of Designation of Series J
Preferred Stock shall be on substantially the same terms as the Company's Series
H Preferred Stock, except that: (a) the conversion price of the Series J
Preferred Stock shall be $4.00 per share; (b) if the Company consummates a
Qualified Equity Financing at any time on or before December 31, 1999, and the
securities issued by the Company in connection therewith are convertible into
non-voting common stock at a conversion price of less than $4.00 per share, the
conversion price of the Series J Preferred Stock shall be reset to such lower
conversion price; (c) if the Company does not consummate a Qualified Equity
Financing at any time on or before December 31, 1999, the $4.00 conversion price
shall 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;
and (d) the Company shall have the right to cause a mandatory conversion of the
Series J preferred Stock into shares of the Company's non-voting common stock if
the closing bid price of the Company's 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.
3. Conversion of Indebtedness;Issuance of Shares. Antiope hereby agrees
to convert the Converted Indebtedness and the Accrued Dividends into shares of
either Series I Preferred Stock or Series J Preferred Stock, or any combination
thereof, and the Company hereby agrees to issue to Antiope shares of either
Series I Preferred Stock or Series J Preferred Stock, or any combination thereof
(the "Shares"). The conversion price for each Share shall be $10,000 (the
"Conversion Price") and the number of Shares to be issued shall be determined by
dividing the sum of the Converted Indebtedness and the Accrued Dividends by the
Conversion Price. On and as of the Effective Date, the Converted Indebtedness
and the Accrued Dividends shall automatically be converted and discharged in
full and Antiope shall be the due and valid holder of record of the Shares.
4. Conversion of Preferred Stock to Voting or Non-Voting Common Stock.
Antiope hereby agrees that it shall not, without the prior written consent of
the Company, convert any shares of the Series I Preferred Stock or the Series J
Preferred Stock to voting common stock or non-voting common stock of the
Company, as the case may be, issuable to Antiope upon its conversion of any
Shares until the Company receives stockholder approval to issue more than twenty
percent (20%) of the Company's outstanding common stock or non-voting common
stock, as the case may be, at a per share price potentially less than the per
share market price of the common stock on the date of issuance to holders of
Series I Preferred Stock or Series J Preferred Stock. The Company hereby agrees
to submit such a proposal to its stockholders for approval at the Company's 1999
annual meeting of stockholders.
5. Conversion of Non-Voting Common Stock to Voting Common Stock.
Antiope hereby agrees that it shall not, without the prior written consent of
the Company, convert any shares of the non-voting common stock of the Company
issuable to Antiope upon its conversion of any shares of Series J Preferred
Stock to voting Common Stock of the Company.
<PAGE> 3
Antiope Partners L.L.C.
March 26, 1999
Page 3
6. Extension of Final Maturity Date. The Final Maturity Date (as such
term is defined in the Note Purchase Agreement) of the remaining Total
Indebtedness ($910,233) under the Note Purchase Agreement and the Senior
Promissory Note issued thereunder and payable to Antiope (the "Antiope Note") is
hereby extended to December 31, 1999, for all purposes of the Note Purchase
Agreement, the Antiope Note and the Pledge Agreement executed in connection
therewith. Further, the stated principal amount of the Antiope Note shall be
reduced to $910,233. Except to the extent modified and amended herein, the terms
and conditions of the Note Purchase Agreement, the Antiope Note and the Pledge
Agreement shall remain in full force and effect. All references in the Antiope
Note, the Pledge Agreement or any other instrument or agreement executed and
delivered in connection with the Note Purchase Agreement shall be deemed for all
purposes to refer to the Note Purchase Agreement as amended hereby.
7. Termination of Pledge Agreement. From and after the date hereof, the
Pledge Agreement dated June 25, 1997, by and among Antiope, Amphion Ventures
L.P., the Company and J.P. Morgan Investment Corporation, which was executed in
connection with the Note Purchase Agreement to secure the Company's obligations
thereunder, shall be terminated and of no further force or effect as of the date
hereof and Antiope hereby releases any and all existing liens granted in favor
of Antiope to any and all of the securities pledged thereunder, including,
without limitation, the shares of Lasertechnics Marking Corporation. Each party
hereto from time to time hereafter at any other party's request and without
further consideration shall execute and deliver to such other party such
documents or instruments in addition to those delivered pursuant to this
Agreement as shall be reasonably requested to release more effectively the
collateral pledged and the liens granted under the Note Purchase Agreement.
8. Securities Act Legend; Registration Rights.
8.1 The Shares will not be registered under the Securities Act
of 1933, as amended (the "Securities Act"). Certificates representing the Shares
shall bear a restrictive legend substantially to the effect of the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAWS,
OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THEY MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THOSE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION
THEREFROM. ADDITIONAL RESTRICTIONS REGARDING THE TERMS UNDER
WHICH THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE CONVERTED
INTO VOTING OR NON-VOTING COMMON STOCK OF THE COMPANY, AS THE
CASE MAY BE, ARE SET FORTH IN THAT CERTAIN NOTE PAYABLE
CONVERSION AGREEMENT EFFECTIVE AS OF DECEMBER 31, 1998.
8.2 Antiope shall have substantially the same registration
rights with regard to any shares of voting common stock issuable upon conversion
of the Shares as Amphion Ventures L.P. (formerly Wolfensohn Associates L.P. was
entitled to pursuant to the Stock Purchase Agreement dated as of January 20,
1994 (the "Prior Agreement")), between the Company and Amphion Ventures L.P..
The Company shall
<PAGE> 4
Antiope Partners L.L.C.
March 26, 1999
Page 4
have the same expense, indemnification and other obligations to Antiope with
respect to such registration rights as the Company owed to Amphion Ventures L.P.
under the Prior Agreement. The Company and Antiope shall enter into a
registration rights agreement in customary form to confirm the registration
rights provided for in this paragraph, as soon as practicable after the date
hereof.
9. Representations and Warranties by the Company. The Company hereby
represents and warrants to Antiope as follows:
9.1 The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the corporate power and authority to execute and deliver this agreement, to
issue the Shares on the basis described herein and otherwise to perform its
obligations under this agreement.
9.2 The execution and delivery by the Company of this
Agreement, the issuance of the Shares, and the performance by the Company of its
obligations hereunder, have been duly authorized by all requisite corporate
action on the part of the Company and will not (a) violate any provision of law,
statute, rule or regulation or any order of any court or other agency of
government, (b) conflict with or violate the Certificate of Incorporation or
By-Laws of the Company, in each case as amended, or (c) violate, conflict with
or constitute (with due notice or lapse of time or both) a default under any
indenture, mortgage, lease, license, agreement or other contract or instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature upon the properties or assets of the Company or any of its
subsidiaries, in each case if such violation, conflict, default, lien, charge or
encumbrance would have a material adverse effect on the Company.
9.3 This agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except to the extent the
enforceability hereof may be limited by applicable bankruptcy, moratorium or
similar laws affecting the rights of creditors generally.
9.4 Based in part upon the representations and warranties of
Antiope contained in this agreement, no registration or filing with, or consent
or approval of, or other action by, any federal, state or other governmental
department, commission, board, bureau, agency or instrumentality or any third
party is or will be necessary for the execution and delivery of this agreement
by the Company and the issuance of the Shares hereunder, other than the filing
of a notice of sale on Form D with the Securities and Exchange Commission in
accordance with the rules and regulations thereof under the Securities Act.
9.5 The Shares are duly authorized, validly issued, fully paid
and non-assessable shares of Series I Preferred Stock or Series J Preferred
Stock, as the case may be, and are not subject to any preemptive rights.
9.6 The Company shall cause to be delivered to Antiope a true
copy of the Series I and Series J Certificate of Designations, both of which
were approved and adopted by the Board of Directors of the Company.
<PAGE> 5
Antiope Partners L.L.C.
March 26, 1999
Page 5
10. Representations and Warranties of Antiope. Antiope hereby
represents and warrants to the Company as follows:
10.1 Antiope is acquiring the Shares for its own account, for
investment and not with a view to the distribution thereof within the meaning of
the Securities Act.
10.2 Antiope understands that the Shares have not been
registered under the Securities Act, by reason of their issuance by the Company
in transactions exempt from the registration requirements of the Securities Act,
and that the Shares must be held by Antiope indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration.
10.3 Antiope further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to it)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts, after compliance with the holding periods and other
provisions thereof.
10.4 Antiope understands that its investment hereunder
involves substantial risks and represents and warrants that it has made such
independent examinations and investigations of the Company as it has deemed
necessary in making its investment decision, and Antiope further represents and
warrants that it has had sufficient access to the officers, directors, books and
records of the Company as it has deemed necessary to conduct such examination
and investigation and make such investment decision.
10.5 Antiope is able to bear the economic risk of the
investment contemplated by this agreement and has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the investment contemplated by this agreement.
11. Miscellaneous.
11.1 This agreement constitutes our entire agreement with
respect to the subject matter hereof. This agreement may not be modified or
amended or any provision hereof waived except by an instrument in writing signed
by the Company and Antiope.
11.2 This agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. The rights of Antiope hereunder shall be assignable to any holder of
the Shares. Except as provided in the immediately preceding sentence, this
agreement and the rights of Antiope hereunder shall not be assignable, and any
purported assignment hereof or thereof shall be void.
11.3 This Agreement may be executed in any number of
counterparts and on separate counterparts, each of which shall be an original
instrument, but all of which together shall constitute a single agreement. One
or more signature pages from any counterpart of this Agreement may be attached
to any other counterpart of this Agreement without in any way changing the
effect thereof. This Agreement shall be effective when executed and delivered by
the Company and Antiope.
<PAGE> 6
Antiope Partners L.L.C.
March 26, 1999
Page 6
11.4 All notices, requests, demands, consents, waivers, or
other communications made hereunder to any party or holder of Shares shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by nationally-recognized overnight courier, facsimile or by first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below:
if to the Company, to:
AXCESS Inc.
3208 Commander Drive
Carrollton, TX 75006
Attention: Chief Financial Officer
with a copy to:
Sayles & Lidji, P.C.
4400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Michael R. Dorey, Esq.; and
if to Antiope, to Antiope at its address
first set forth above,
or to such other address as the party to whom such communication is to be given
may have furnished to the other party in writing in accordance herewith. All
such notices, requests, demands, consents, waivers or other communications shall
be deemed to have been delivered (a) in the case of personal delivery, on the
date of delivery, (b) if sent by facsimile, on the date sender receives a
confirmation confirming receipt, (c) if sent by overnight courier, on the next
business day following the date sent and (iv) in the case of mailing, on the
third business day following such mailing.
11.5 All representations, warranties and agreements contained
herein shall survive the execution and delivery of this Agreement and the sale
of the Shares hereunder.
11.6 This agreement, and all rights, obligations and
liabilities hereunder, shall be construed according to the laws of the State of
New York applicable to contracts made and to be performed wholly therein. Any
judicial proceeding brought against the Company to enforce, or otherwise in
connection with, this agreement may be brought in any court of competent
jurisdiction in the City of New York, and, by execution and delivery of this
agreement, the Company (i) accepts, generally and unconditionally, the
nonexclusive jurisdiction of such courts and any related appellate court and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with this agreement and (ii) irrevocably waives any objection it may
now or hereafter have as to the venue of any such proceeding brought in such a
court or that such a court is an inconvenient forum.
<PAGE> 7
Antiope Partners L.L.C.
March 26, 1999
Page 7
If the foregoing correctly sets forth your understanding of our
agreement, please so indicate by signing and returning to the Company the
enclosed counterpart of this Agreement.
Very truly yours,
AXCESS INC.
By: /s/ Danny G. Hair
---------------------------------------
Danny G. Hair, Executive Vice President,
Chief Financial Officer and Secretary
The undersigned agrees with and
accepts the foregoing terms and provisions
as of the date first above written.
AMPHION VENTURES L.P.
By Amphion Partners L.L.C., its general partner
By: /s/ Richard C.E. Morgan
- - ------------------------------------------------
A Managing Member
<PAGE> 1
Exhibit 10.14
AXCESS INC.
3208 Commander Drive
Carrollton, Texas 75006
March 26, 1999
J.P. Morgan Investment Corporation
60 Wall Street
New York, New York 10260
Re: Note Payable Conversion Agreement
Ladies and Gentlemen:
By letter dated December 21, 1998, from AXCESS Inc., a Delaware
corporation (the "Company") to J. P. Morgan Investment Corporation, a Delaware
corporation ("JPMIC"), the Company confirmed JPMIC's desire to: (a) convert
one-half ($400,000) of the indebtedness (the "Converted Indebtedness") of the
Company to JPMIC under the terms of that certain Note Purchase Agreement dated
June 25, 1997, as amended on December 29, 1997 (the "Note Purchase Agreement"),
in the stated principal amount of $800,000 (the "Total Indebtedness") plus all
accrued, but unpaid interest thereon ($100,000) through December 31, 1998, (the
"Accrued Dividends") into shares of a new Series I Voting Preferred Stock of the
Company (the "Series I Preferred Stock"); and (b) extend the final maturity date
of the balance of the Total Indebtedness under the Note Purchase Agreement and
the note issued thereunder to December 31, 1999. Although JPMIC agreed to
convert the Converted Indebtedness and the Accrued Dividends to be effective as
of December 31, 1998 (the "Effective Date"), this letter sets forth in detail
the terms on which the Converted Indebtedness and the Accrued Dividends were to
have been converted and shares of the Series I Preferred Stock were to have been
issued by the Company to JPMIC as of the Effective Date.
1. Series I Preferred Stock. The Certificate of Designation of Series I
Preferred Stock shall be on substantially the same terms as the Company's Series
G Preferred Stock, except that: (a) the conversion price of the Series I
Preferred Stock shall be $4.00 per share; (b) if the Company consummates an
equity financing of at least $1,000,000 with any third party (a "Qualified
Equity Financing") at any time on or before December 31, 1999, and the
securities issued by the Company in connection therewith are convertible into
voting common stock at a conversion price of less than $4.00 per share, the
conversion price of the Series I Preferred Stock shall be reset to such lower
conversion price; (c) if the Company does not consummate a Qualified Equity
Financing at any time on or before December 31, 1999, the $4.00 conversion price
shall 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;
and (d) the Company shall have the right to cause a mandatory conversion of the
Series I preferred Stock into shares of the Company's voting common stock if the
closing bid price of the Company's 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.
2. Conversion of Indebtedness;Issuance of Shares. JPMIC hereby agrees
to convert the Converted Indebtedness and the Accrued Dividends into shares of
Series I Preferred Stock and the Company hereby agrees to issue to JPMIC shares
of Series I Preferred Stock (the "Shares"). The conversion price for
<PAGE> 2
J.P. Morgan Investment Corporation
March 26, 1999
Page 2
each Share shall be $10,000 (the "Conversion Price") and the number of Shares to
be issued shall be determined by dividing the sum of the Converted Indebtedness
and the Accrued Dividends by the Conversion Price (50 Shares). On and as of the
Effective Date, the Converted Indebtedness and the Accrued Dividends shall
automatically be converted and discharged in full and JPMIC shall be the due and
valid holder of record of 50 Shares.
3. Extension of Final Maturity Date. The Final Maturity Date (as such
term is defined in the Note Purchase Agreement) of the remaining Total
Indebtedness ($400,000) under the Note Purchase Agreement and the Senior
Promissory Note issued thereunder and payable to JPMIC (the "JPMIC Note") is
hereby extended to December 31, 1999, for all purposes of the Note Purchase
Agreement and the JPMIC Note executed in connection therewith. Further, the
stated principal amount of the JPMIC Note shall be reduced to $400,000. Except
to the extent modified and amended herein, the terms and conditions of the Note
Purchase Agreement and the JPMIC Note shall remain in full force and effect. All
references in the JPMIC Note shall be deemed for all purposes to refer to the
Note Purchase Agreement as amended hereby.
4. Termination of Pledge Agreement. From and after the date hereof, the
Pledge Agreement dated June 25, 1997, by and among Amphion Ventures L.P.,
Antiope Partners L.L.C., the Company and JPMIC, which was executed in connection
with the Note Purchase Agreement to secure the Company's obligations thereunder,
shall be terminated and of no further force or effect as of the date hereof and
JPMIC hereby releases any and all existing liens granted in favor of JPMIC to
any and all of the securities pledged thereunder, including, without limitation,
the shares of Lasertechnics Marking Corporation. Each party hereto from time to
time hereafter at any other party's request and without further consideration
shall execute and deliver to such other party such documents or instruments in
addition to those delivered pursuant to this Agreement as shall be reasonably
requested to release more effectively the collateral pledged and the liens
granted under the Note Purchase Agreement.
5. Securities Act Legend; Registration Rights.
5.1 The Shares will not be registered under the Securities Act
of 1933, as amended (the "Securities Act"). Certificates representing the Shares
shall bear a restrictive legend substantially to the effect of the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAWS,
OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THEY MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THOSE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION
THEREFROM.
5.2 JPMIC shall have substantially the same registration
rights with regard to any shares of voting common stock issuable upon conversion
of the Shares as Amphion Ventures L.P. (formerly Wolfensohn Associates L.P. was
entitled to pursuant to the Stock Purchase Agreement dated as of January 20,
1994 (the "Prior Agreement")), between the Company and Amphion Ventures L.P. The
Company shall
<PAGE> 3
J.P. Morgan Investment Corporation
March 26, 1999
Page 3
have the same expense, indemnification and other obligations to JMPIC with
respect to such registration rights as the Company owed to Amphion Ventures L.P.
under the Prior Agreement. The Company and JPMIC shall enter into a registration
rights agreement in customary form to confirm the registration rights provided
for in this paragraph, as soon as practicable after the date hereof.
6. Representations and Warranties by the Company. The Company hereby
represents and warrants to JPMIC as follows:
6.1 The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the corporate power and authority to execute and deliver this agreement, to
issue the Shares on the basis described herein and otherwise to perform its
obligations under this agreement.
6.2 The execution and delivery by the Company of this
Agreement, the issuance of the Shares, and the performance by the Company of its
obligations hereunder, have been duly authorized by all requisite corporate
action on the part of the Company and will not (a) violate any provision of law,
statute, rule or regulation or any order of any court or other agency of
government, (b) conflict with or violate the Certificate of Incorporation or
By-Laws of the Company, in each case as amended, or (c) violate, conflict with
or constitute (with due notice or lapse of time or both) a default under any
indenture, mortgage, lease, license, agreement or other contract or instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature upon the properties or assets of the Company or any of its
subsidiaries, in each case if such violation, conflict, default, lien, charge or
encumbrance would have a material adverse effect on the Company.
6.3 This agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except to the extent the
enforceability hereof may be limited by applicable bankruptcy, moratorium or
similar laws affecting the rights of creditors generally.
6.4 Based in part upon the representations and warranties of
JPMIC contained in this agreement, no registration or filing with, or consent or
approval of, or other action by, any federal, state or other governmental
department, commission, board, bureau, agency or instrumentality or any third
party is or will be necessary for the execution and delivery of this agreement
by the Company and the issuance of the Shares hereunder, other than the filing
of a notice of sale on Form D with the Securities and Exchange Commission in
accordance with the rules and regulations thereof under the Securities Act.
6.5 The Shares are duly authorized, validly issued, fully paid
and non-assessable shares of Series I Preferred Stock and are not subject to any
preemptive rights.
6.6 The Company shall cause to be delivered to JPMIC a true
copy of the Series I Certificate of Designation, which was approved and adopted
by the Board of Directors of the Company.
<PAGE> 4
J.P. Morgan Investment Corporation
March 26, 1999
Page 4
7. Representations and Warranties of JPMIC. JPMIC hereby represents and
warrants to the Company as follows:
7.1 JPMIC is acquiring the Shares for its own account, for
investment and not with a view to the distribution thereof within the meaning of
the Securities Act.
7.2 JPMIC understands that the Shares have not been registered
under the Securities Act, by reason of their issuance by the Company in
transactions exempt from the registration requirements of the Securities Act,
and that the Shares must be held by JPMIC indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration.
7.3 JPMIC further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to it)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts, after compliance with the holding periods and other
provisions thereof.
7.4 JPMIC understands that its investment hereunder involves
substantial risks and represents and warrants that it has made such independent
examinations and investigations of the Company as it has deemed necessary in
making its investment decision, and JPMIC further represents and warrants that
it has had sufficient access to the officers, directors, books and records of
the Company as it has deemed necessary to conduct such examination and
investigation and make such investment decision.
7.5 JPMIC is able to bear the economic risk of the investment
contemplated by this agreement and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investment contemplated by this agreement.
8. Miscellaneous.
8.1 This agreement constitutes our entire agreement with
respect to the subject matter hereof. This agreement may not be modified or
amended or any provision hereof waived except by an instrument in writing signed
by the Company and JPMIC.
8.2 This agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. The rights of JPMIC hereunder shall be assignable to any holder of the
Shares. Except as provided in the immediately preceding sentence, this agreement
and the rights of JPMIC hereunder shall not be assignable, and any purported
assignment hereof or thereof shall be void.
8.3 This Agreement may be executed in any number of
counterparts and on separate counterparts, each of which shall be an original
instrument, but all of which together shall constitute a single agreement. One
or more signature pages from any counterpart of this Agreement may be attached
to any other counterpart of this Agreement without in any way changing the
effect thereof. This Agreement shall be effective when executed and delivered by
the Company and JPMIC.
<PAGE> 5
J.P. Morgan Investment Corporation
March 26, 1999
Page 5
8.4 All notices, requests, demands, consents, waivers, or
other communications made hereunder to any party or holder of Shares shall be in
writing and shall be deemed to have been duly given if delivered personally or
sent by nationally-recognized overnight courier, facsimile or by first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below:
if to the Company, to:
AXCESS Inc.
3208 Commander Drive
Carrollton, Texas 75006
Attention: Chief Financial Officer
with a copy to:
Sayles & Lidji, P.C.
4400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Michael R. Dorey, Esq.; and
if to JPMIC, to JPMIC at its address
first set forth above,
or to such other address as the party to whom such communication is to be given
may have furnished to the other party in writing in accordance herewith. All
such notices, requests, demands, consents, waivers or other communications shall
be deemed to have been delivered (a) in the case of personal delivery, on the
date of delivery, (b) if sent by facsimile, on the date sender receives a
confirmation confirming receipt, (c) if sent by overnight courier, on the next
business day following the date sent and (iv) in the case of mailing, on the
third business day following such mailing.
8.5 All representations, warranties and agreements contained
herein shall survive the execution and delivery of this Agreement and the sale
of the Shares hereunder.
8.6 This agreement, and all rights, obligations and
liabilities hereunder, shall be construed according to the laws of the State of
New York applicable to contracts made and to be performed wholly therein. Any
judicial proceeding brought against the Company to enforce, or otherwise in
connection with, this agreement may be brought in any court of competent
jurisdiction in the City of New York, and, by execution and delivery of this
agreement, the Company (i) accepts, generally and unconditionally, the
nonexclusive jurisdiction of such courts and any related appellate court and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with this agreement and (ii) irrevocably waives any objection it may
now or hereafter have as to the venue of any such proceeding brought in such a
court or that such a court is an inconvenient forum.
<PAGE> 6
J.P. Morgan Investment Corporation
March 26, 1999
Page 6
If the foregoing correctly sets forth your understanding of our
agreement, please so indicate by signing and returning to the Company the
enclosed counterpart of this Agreement.
Very truly yours,
AXCESS INC.
By: /s/ Danny G. Hair
---------------------------------------
Danny G. Hair, Executive Vice President,
Chief Financial Officer and Secretary
The undersigned agrees with and
accepts the foregoing terms and provisions
as of the date first above written.
J.P. MORGAN INVESTMENT CORPORATION
By: /s/
- - ----------------------------------
<PAGE> 1
EXHIBIT 10.15
================================================================================
STOCK AND ASSET PURCHASE AGREEMENT
By and Among
Amphion Ventures, L.P.
and
Antiope Partners LLC
(each a "Buyer" and collectively, the "Buyers")
and
Axcess, Inc.
("Seller")
March 30, 1999
================================================================================
<PAGE> 2
STOCK AND ASSET PURCHASE AGREEMENT
INDEX
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. SALE OF SHARES AND ASSETS; PURCHASE PRICE ......................................................... 1
1.01 Transfer of LMC Shares............................................................................. 1
1.02 Sale of Axcess Assets.............................................................................. 1
1.03 Purchase Price..................................................................................... 4
1.04 Closing............................................................................................ 5
1.05 Further Assurances................................................................................. 5
1.06 Transfer Taxes..................................................................................... 5
1.07 No Assumption; Allocation of Purchase Price........................................................ 5
1.08 Transfer of LMC Shares and Axcess Assets........................................................... 5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER....................................................... 6
2.01 Making of Representations and Warranties........................................................... 6
2.02 Organization and Qualifications of the Seller and LMC.............................................. 6
2.03 Capital Stock of LMC; Beneficial Ownership......................................................... 6
2.04 Authority.......................................................................................... 7
2.05 Real and Personal Property......................................................................... 8
2.06 Financial Statements............................................................................... 9
2.07 Taxes.............................................................................................. 10
2.08 Absence of Certain Changes......................................................................... 11
2.09 Ordinary Course.................................................................................... 12
2.10 Banking Relations.................................................................................. 12
2.11 Intellectual Property.............................................................................. 13
2.12 Contracts.......................................................................................... 14
2.13 Litigation......................................................................................... 15
2.14 Compliance with Laws............................................................................... 16
2.15 Employee Benefit Programs.......................................................................... 16
2.16 Environmental Matters.............................................................................. 18
2.17 List of Directors and Officers..................................................................... 19
2.18 Transfer of Shares................................................................................. 19
2.19 Assignment of Rights............................................................................... 19
SECTION 3. COVENANTS OF SELLER................................................................................ 19
3.01 Consents........................................................................................... 19
3.02 Consummation of Agreement.......................................................................... 20
3.03 Confidentiality.................................................................................... 20
3.04 No Transfer of Securities.......................................................................... 20
</TABLE>
i
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYERS........................................................... 20
4.01 Making of Representations and Warranties........................................................... 20
4.02 Organization and Qualifications of Each Buyer...................................................... 21
4.03 Authority of Buyers................................................................................ 21
4.04 Litigation......................................................................................... 21
4.05 Finder's Fee....................................................................................... 22
4.06 Financial Statements............................................................................... 22
4.07 Restrictions on Transfer of Shares................................................................. 22
4.08 Legends............................................................................................ 22
SECTION 5. COVENANTS OF BUYERS................................................................................ 23
5.01 Making of Covenants and Agreements................................................................. 23
5.02 Confidentiality.................................................................................... 23
5.03 Consents........................................................................................... 23
5.04 Consummation of Agreement.......................................................................... 23
5.05 Tax Returns........................................................................................ 24
SECTION 6. CONDITIONS......................................................................................... 24
6.01 Conditions to the Obligations of Buyers............................................................ 24
6.02 Conditions to Obligations of the Seller............................................................ 26
SECTION 7. SURVIVAL........................................................................................... 27
7.01 Survival of Warranties............................................................................. 27
7.02 Limitation on Liability of Seller.................................................................. 27
7.03 Limitation on Liability of Buyer................................................................... 28
SECTION 8. MISCELLANEOUS...................................................................................... 28
8.01 Fees and Expenses.................................................................................. 28
8.02 Governing Law...................................................................................... 28
8.03 Notices............................................................................................ 29
8.04 Entire Agreement................................................................................... 29
8.05 Assignability; Binding Effect...................................................................... 30
8.06 Captions........................................................................................... 30
8.07 Execution in Counterparts.......................................................................... 30
8.08 Amendments......................................................................................... 30
8.09 Consent to Jurisdiction............................................................................ 30
</TABLE>
ii
<PAGE> 5
STOCK AND ASSET PURCHASE AGREEMENT
AGREEMENT entered into as of March 30, 1999 by and among Amphion
Ventures, L.P. ("Amphion"), a Delaware limited partnership, Antiope Partners LLC
("Antiope"), a Delaware limited liability company (each a "Buyer" and
collectively, the "Buyers"), and Axcess, Inc., a Delaware corporation
("Seller").
W I T N E S S E T H
WHEREAS, the Seller is the record and beneficial owner of all of the
issued and outstanding capital stock of Lasertechnics Marking Corporation(TM)
("LMC"), a Delaware corporation, which consists entirely of an aggregate of ten
(10) shares of common stock, $.01 par value per share and two million six
hundred thousand (2,600,000) shares of preferred stock, $.01 par value per share
(the "LMC Shares");
WHEREAS, subject to the terms and conditions set forth herein, the
Seller desires to sell all of the LMC Shares to the Buyers, and each Buyer
desires to acquire all of the LMC Shares set forth opposite its name on Exhibit
A hereto; and
WHEREAS, subject to the terms and conditions hereof, Seller desires to
sell, transfer and assign to the Buyers and the Buyers desire to purchase from
Seller, certain of its properties and assets described herein.
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF SHARES AND ASSETS; PURCHASE PRICE.
1.01 Transfer of LMC Shares. At the Closing (as hereinafter defined),
the Seller shall deliver or cause to be delivered to each Buyer certificates
representing the LMC Shares to be purchased by such Buyer. Such stock
certificates shall be duly endorsed in blank for transfer or shall be presented
with stock powers duly executed in blank, with such signature guarantees and
such other documents as may be reasonably required by such Buyer to effect a
valid transfer of such LMC Shares by the Seller, free and clear of any and all
liens, encumbrances, charges or claims.
1.02 Sale of Axcess Assets. Upon the terms and subject to the
conditions set forth in this Agreement, Seller agrees to sell, assign, transfer
and deliver to the Buyers, and the Buyers agree to purchase from Seller, all
right, title and interest in and to the following assets of Seller (the "Axcess
Assets"):
(a) Rights and Interests to DataGlyph Technology. All of
Seller's nonexclusive rights and interests to the DataGlyph Technology which
Seller has obtained from
<PAGE> 6
Xerox, Inc. ("Xerox") and which shall have been assigned to the Buyers
substantially in the form of assignment acceptable to the parties; and
(b) Rights and Interests to CombiReader Technology. All of
Seller's rights and interests to the CombiReader Technology which the Seller has
the option to license from XL Vision, Inc. ("XL Vision") and which shall have
been assigned to the Buyers substantially in the form agreed upon by the
parties.
1.03 Purchase Price. In reliance upon the representations and
warranties of the Seller contained herein and made at the Closing and subject to
satisfaction of all of the conditions contained herein the Buyers shall pay to
Seller at the Closing (as defined below) an amount equal to $7,000,000 (the
"Purchase Price") in the following form:
(a) By delivery of evidence of the payment and satisfaction of
the debt of Seller in the amount of $910,000 due to Antiope and of $1,090,000
due to Amphion; and
(b) By delivery of $500,000 in cash; and
(c) By delivery of a Demand Note of Amphion in the principal
amount of $500,000, bearing interest at 6%, and payable upon demand by Seller in
accordance with the terms of the Demand Note in substantially the form agreed
upon by the parties (the "Demand Note"); and
(d) By delivery of a Term Note of Amphion in the principal
amount of $4,000,000, bearing interest at 8%, and payable quarterly; maturing
March 31, 2002 (unless Amphion's term is extended to 2004, in which case the
maturity will by extended to 2004), and requiring principal payments of $300,000
quarterly commencing March 31, 2001; and secured by the Axcess Assets and the
LMC Shares in accordance with the terms of the Term Note in substantially the
form agreed upon by the parties (the "Term Note"); and
(e) By transferring to Seller transferrable warrants to
purchase 430,000 shares of the Common Stock, no par value, of Quantrad Sensor,
Inc. ("Quantrad") in accordance with the terms of the Warrant in substantially
the form agreed upon by the parties (the "Quantrad Warrants") and containing, in
any event, customary registration rights; and
(f) By granting to Seller under the terms of the Quantrad
Warrants the option to exchange the Quantrad Warrants referred to above for 20%
of the Net Profits (as defined below) received by the Buyers or Quantrad, as the
case may be, if the Buyers sell directly or indirectly all the outstanding stock
or substantially all the assets of LMC prior to March 31, 2002, except for the
immediate resale to Quantrad. "Net Profits" for this purpose will mean the
excess of (a) the total consideration received, including all liabilities
assumed, less all transaction costs and taxes due in respect of the sale, less
(b) the sum of (i) $4,000,000, plus (ii) any amounts invested in LMC by Amphion
after March 31, 1999. This
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right will terminate upon the earlier of (i) an initial public offering of the
common stock of LMC or its parent company, or (ii) a sale of all of the
outstanding stock or substantially all the assets of LMC or its parent company.
The Buyers shall give the Seller 10 days notice prior to the occurrence of (ii)
above and Seller shall have the opportunity to exercise such right provided
Seller gives notice of its intention to exercise such right at least 3 days
prior to the occurrence of such sale.
1.04 Closing. The parties acknowledge and agree that, subject to
satisfaction of the conditions to closing set forth in Section 6 hereto, the
execution of this Agreement on the date first set forth above represents the
binding obligation of the parties hereto to consummate the transaction
contemplated by this Agreement. The closing of the purchase and sale of the LMC
Shares and the Axcess Assets provided for in this Agreement (the "Closing")
shall take place at the offices of Goodwin, Procter & Hoar LLP commencing at
such time and date as may be mutually agreed upon by the parties (the "Closing
Date").
1.05 Further Assurances. The Seller from time to time after the
Closing at the request of either Buyer and without further consideration shall
execute and deliver further instruments of transfer and assignment and take such
other action as such Buyer may reasonably require to more effectively transfer
and assign to, and vest in, such Buyer the LMC Shares, the Axcess Assets and all
rights thereto, and to fully implement the provisions of this Agreement.
1.06 Transfer Taxes. All sales and transfer taxes, fees and duties, if
any, under applicable law incurred in connection with the sale and transfer of
the LMC Shares and Axcess Assets pursuant to this Agreement will be borne and
paid by the Seller, and the Seller shall promptly reimburse LMC and each Buyer
for any such tax, fee or duty which any of them is required to pay under
applicable law.
1.07 No Assumption; Allocation of Purchase Price. Neither Buyer is
assuming and shall not pay or be liable for any liability or obligation of
Seller of any kind or nature, known, unknown, contingent or otherwise. At or
prior to the Closing, each Buyer and Seller shall agree on the allocation of the
Purchase Price, which allocation shall be set forth on Schedule 1.07. Such
allocation shall be made in accordance with (i) the respective fair market
values of the LMC Shares and the Axcess Assets being purchased and sold and (ii)
the provisions of Section 1060 of the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder, and shall be binding upon each Buyer
and Seller for all purposes (including financial accounting purposes, financial
and regulatory reporting purposes and tax purposes). Each Buyer and Seller
further agrees to file its Federal income tax returns and its other tax returns
reflecting such allocation, Form 8594 and any other reports required by Section
1060 of the Code, in accordance with said allocation.
1.08 Transfer of LMC Shares and Axcess Assets. At the Closing, Seller
shall deliver or cause to be delivered to each Buyer good and sufficient
instruments of transfer
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transferring to such Buyer title to all of the LMC Shares purchased by such
Buyer and Axcess Assets, as applicable, including without limitation,
assignments of the Xerox and XL Vision agreements, together with any required
consents to assignment. Such instruments of transfer (a) shall be in the form
which is usual and customary for transferring the type of property involved
under the laws of the jurisdictions applicable to such transfers, (b) shall be
in form and substance reasonably satisfactory to such Buyer and its counsel, (c)
shall effectively vest in the Buyers good and marketable title to all of the
Axcess Assets free and clear of all Encumbrances (as defined in Section 2.05
hereof), and (d) where applicable, shall be accompanied by evidence of the
discharge of all Encumbrances against the Axcess Assets.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
2.01 Making of Representations and Warranties. As a material
inducement to each Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, the Seller hereby makes to the Buyers the
representations and warranties contained in this Section 2. The Seller shall not
have any right of indemnity or contribution from LMC with respect to the breach
of any representation or warranty hereunder.
2.02 Organization and Qualifications of the Seller and LMC. Except as
set forth on Schedule 2.02, each of Seller and LMC is a corporation duly
organized, validly existing and in good standing under the laws of Delaware,
with full corporate power and authority to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is currently conducted or proposed to be
conducted. The copies of each of Seller and LMC's Articles of Incorporation, as
amended to date, and of each of Seller and LMC's by-laws, as amended to date,
and which shall be delivered at or prior to April 30, 1999 to counsel for the
Buyers, are complete and correct, and no amendments thereto are pending. Each of
Seller and LMC is duly qualified to do business as a foreign corporation in each
jurisdiction where the nature of its properties or the conduct of its business
makes its qualification so necessary, except where the failure to be so
qualified would not have a material adverse effect on the business, assets,
properties, results of operations, condition (financial or otherwise) or
prospects (a "Material Adverse Effect") of Seller and LMC.
2.03 Capital Stock of LMC; Beneficial Ownership.
(a) The authorized capital stock of LMC consists of 5,000,000
shares of voting common stock, $.01 par value per share (the "Voting Common
Stock"), 2,000,000 shares of non-voting common stock, $.01 par value per share
(the "Non-voting Common Stock") and 3,000,000 shares of preferred stock, $.01
par value per share (the "Preferred Stock") of which 10 shares of Voting Common
Stock, no shares of Non-voting Common Stock and 2,600,000 shares of Preferred
Stock are duly and validly issued, outstanding, fully paid and nonassessable and
of which 4,999,990 shares of Voting Common Stock, 2,000,000 shares
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of Non-voting Common Stock and 400,000 shares of Preferred Stock are authorized
but unissued. Except as set forth in Schedule 2.03, there are no outstanding
options, warrants, rights, commitments, preemptive rights or agreements of any
kind for the issuance or sale of, or outstanding securities convertible into,
any additional shares of capital stock of any class of LMC. No capital stock of
LMC has been issued in violation of any federal or state law. Except as set
forth in Schedule 2.03, there are no voting trusts, voting agreements, proxies
or other agreements, instruments or undertakings with respect to the voting of
the LMC Shares to which either LMC or the Seller is a party.
(b) Except as set forth in Schedule 2.03, the Seller owns
beneficially and of record all of the issued and outstanding LMC Shares free and
clear of any and all Encumbrances.
2.04 Authority. Seller has full right, authority and power to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by Seller pursuant to this Agreement and to carry out the
transactions contemplated hereby and thereby. The execution, delivery and
performance by Seller of this Agreement and each such other agreement, document
and instrument has been duly authorized by all necessary action of Seller and no
other action on the part of Seller is required in connection therewith.
This Agreement and each agreement, document and instrument contemplated
hereby to which Seller is a party constitute, or when executed and delivered by
Seller will constitute, valid and binding obligations of Seller enforceable
against Seller in accordance with their terms, except as limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights and (ii) general
principles of equity that restrict the availability of equitable remedies. The
execution, delivery and performance by Seller of this Agreement and each such
agreement, document and instrument:
(A) does not and will not violate any provision of the
Certificate of Incorporation or by-laws or any similar organizational documents
of Seller;
(B) except as set forth in Schedule 2.04, does not and will
not violate any federal, state or local laws applicable to Seller or require
Seller to obtain any approval, consent or waiver of, or make any filing with,
any person or entity (governmental or otherwise) that has not been obtained or
made; and
(C) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of any indenture or loan or credit agreement or any other agreement,
contract, instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award to which Seller
is a party or by which the property of Seller is bound or affected, except as
set forth on Schedule 2.04, or result in the creation or imposition of any
mortgage, pledge,
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lien, security interest or other charge or encumbrance on Seller's assets or on
the capital stock of Seller, except as specifically set forth on Schedule 2.04.
2.05 Real and Personal Property.
(a) Real Property. To the Seller's knowledge after due
inquiry, all of the real property leased by LMC is identified in Schedule
2.05(a) (herein referred to as the "Leased Real Property").
(i) Title. Except as set forth in Schedule 2.05(a), LMC
has enforceable leasehold interests in the Leased Real Property of LMC, free and
clear of all easements, covenants, restrictions, leases, mortgages, liens,
assessments, claims, rights, judgments, encroachments, pledges, conditional sale
agreements, security interests, encumbrances, or other matters affecting title
(collectively, "Encumbrances"), except minor imperfections, if any, which are
not substantial in amount, do not detract from the value of the leasehold
interests or impair the operations of LMC and have arisen only in the ordinary
course of business.
(ii) Status of Leases. To the Seller's knowledge after due
inquiry, all leases of Leased Real Property are identified in Schedule 2.05(a),
and true and complete copies thereof which shall be delivered at or prior to
April 30, 1999 to each Buyer. Each of said leases has been executed by LMC and,
to the Seller's knowledge, is in full force and effect. To the Seller's
knowledge after due inquiry, LMC is not in default under any of said leases or
has received any notice thereof, nor has any event occurred which, with notice
or the passage of time, or both, would give rise to such a default. After giving
effect to the transactions contemplated by this Agreement, to the Seller's
knowledge, each of said leases will be fully enforceable by LMC which is a party
thereto against the other party thereto.
(iii) Consents. Except as set forth in Schedule 2.05(a),
no approval is required with respect to the transactions contemplated by this
Agreement from the other parties to any lease of the Leased Real Property and to
the extent that any such approval is required, LMC will obtain or complete them
before the Closing.
(iv) Condition of the Leased Real Property. To the
knowledge of the Seller, there are no material defects in the physical condition
of any land, buildings or improvements constituting part of the Leased Real
Property, including, without limitation, structural elements, mechanical
systems, parking and loading areas, and all such buildings and improvements are
in good operating condition and repair and have been well maintained.
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(v) Compliance with the Law. To the knowledge of the
Seller, LMC has not received any notice from any governmental authority of any
violation of any law, ordinance, regulation, license, permit or authorization
issued with respect to any Leased Real Property that has not been heretofore
corrected, and no such violation exists which could have a Material Adverse
Effect on the operation or value of any Leased Real Property. To the knowledge
of the Seller, all improvements located on or constituting part of the Leased
Real Property and their use and operation by LMC were and are now in compliance
in all material respects with all applicable laws, ordinances, regulations,
licenses, permits and authorizations, except as set forth in Schedule 2.05(a).
To the knowledge of the Seller, no approval or consent to the transactions
contemplated by this Agreement is required of any governmental authority with
jurisdiction over any aspect of the Leased Real Property or its use or
operations, except where the failure to obtain such approval or consent would
not have a Material Adverse Effect on the operation or value of the Leased Real
Property.
(b) Personal Property. To the Seller's knowledge after due
inquiry, a complete description of the machinery and equipment of LMC is
contained in Schedule 2.05(b). Except as specifically disclosed in said
Schedule, the Base Balance Sheet (as hereinafter defined), the balance sheet of
LMC as of December 31, 1998 securing specific liabilities (with respect to which
no default exists) or minor imperfections of title and Encumbrances, if any,
which are not substantial in amount, do not detract from the value of the
personal property subject thereto or impair the operations of LMC and have
arisen only in the ordinary course of business, LMC has good and marketable
title to all of its personal property. To the Seller's knowledge after due
inquiry, the Base Balance Sheet reflects all personal property of LMC. Except as
otherwise specified in Schedule 2.05(b), all leasehold improvements,
furnishings, machinery and equipment of LMC are in good repair, have been well
maintained and substantially comply with all applicable laws, ordinances and
regulations, and such machinery and equipment is in good working order ordinary
wear excepted; and Seller has no knowledge of any pending or threatened change
of any such law, ordinance or regulation which could have a Material Adverse
Effect on LMC or its business.
2.06 Financial Statements.
(a) Seller shall deliver at or prior to April 30, 1999 to the
Buyers the following financial statements and which shall be attached hereto as
Schedule 2.06:
(i) Unconsolidated unaudited balance sheets of LMC as of
December 31, 1996, 1997 and 1998 and statements of income
and retained earnings and statements of cash flows for the
three (3) years then ended, which statements were included
in the Seller's consolidated financial statements audited
by Seller's independent public accountants. The balance
sheet of LMC as of December 31, 1998 is referred to herein
as the "Base Balance Sheet."
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(ii) Unaudited balance sheet of LMC as of February 28,
1999 and statements of income and retained earnings and
statements of cash flows for the two-month period then
ended, certified by LMC's Controller.
The financial statements described in (i) and (ii) above, have been
prepared in accordance with GAAP applied consistently during the periods covered
thereby, are complete and correct in all material respects and present fairly in
all material respects the financial condition of LMC at the dates of said
statements and the results of operations for the periods covered thereby.
(b) To the knowledge of Seller after due inquiry, LMC does not
have as of the date of the Base Balance Sheet any liabilities of any nature,
whether accrued, absolute, contingent or otherwise, asserted, known or unknown
(including, without limitation, liabilities as guarantor or otherwise with
respect to obligations of others, liabilities for taxes due or then accrued or
to become due, or contingent liabilities relating to activities of LMC or the
conduct of its business prior to the date of the Base Balance Sheet, except (i)
liabilities stated or adequately reserved against on the Base Balance Sheet or
the notes thereto, (ii) liabilities reflected in Schedules furnished to the
Buyers hereunder as of the date hereof, or (iii) immaterial liabilities incurred
in the ordinary course of business, as applicable, in existence as of the date
of the Base Balance Sheet which are not required to be reflected in the Base
Balance Sheet or the notes thereto under GAAP.
(c) As of the date hereof and as of the Closing, LMC does not
have nor will have to Seller's knowledge, any liabilities of any nature, whether
accrued, absolute, contingent or otherwise, asserted, known (including, without
limitation, liabilities as guarantor or otherwise with respect to obligations of
others, liabilities for taxes due or then accrued or to become due, or
contingent or potential liabilities relating to activities of LMC or the conduct
of its business prior to the date hereof or the Closing, as the case may be),
except liabilities (i) stated or adequately reserved against on the Base Balance
Sheet or the notes thereto, (ii) reflected in Schedules furnished to the Buyers
hereunder on the date hereof, or (iii) incurred after the date of the Base
Balance Sheet in the ordinary course of business consistent with the terms of
this Agreement.
2.07 Taxes.
(a) Except as set forth on Schedule 2.07, to the knowledge of
the Seller, LMC has paid or caused to be paid all federal, state, local, foreign
and other taxes, including, without limitation, income taxes, estimated taxes,
capital gains taxes, alternative minimum taxes, excise taxes, sales taxes, goods
and services taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively,
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"Taxes"), required to be paid by it through the date hereof whether disputed or
not. To the knowledge of the Seller, all Taxes and other assessments and levies
LMC is required to withhold or collect have been withheld and collected and have
been paid over to the proper governmental authorities within the time required
by applicable law.
2.08 Absence of Certain Changes. To the knowledge of the Seller and
except as disclosed in Schedule 2.08, since the date of the Base Balance Sheet
there has not been:
(a) Any change in the financial condition, properties, assets,
liabilities, business or operations of LMC, which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had a Material Adverse Effect on LMC;
(b) Any contingent liability incurred by LMC as guarantor or
otherwise with respect to the obligations of others or any cancellation of any
material debt or claim owing to, or waiver of any material right of, LMC;
(c) Any Encumbrance placed on any of the properties of LMC
which remains in existence on the date hereof or will remain on the Closing
Date;
(d) Any obligation or liability of any nature, whether
accrued, absolute, contingent or otherwise, asserted, known (including, without
limitation, liabilities for Taxes due or to become due or contingent liabilities
relating to products or services provided by LMC or the conduct of the business
of LMC since the date of the Base Balance Sheet), incurred by LMC other than
obligations and liabilities incurred in the ordinary course of business
consistent with the terms of this Agreement (it being understood that product or
service liability claims shall not be deemed to be incurred in the ordinary
course of business);
(e) Any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of LMC other than in the ordinary course of business;
(f) Any damage, destruction or loss, whether or not covered by
insurance, which has had a Material Adverse Effect on LMC;
(g) Any declaration, setting aside or payment of any dividend
by LMC, or the making of any other distribution in respect of the capital stock,
or other ownership interests, of LMC, or any direct or indirect redemption,
purchase or other acquisition by LMC of its own capital stock, or other
ownership interests;
(h) Any labor trouble or claim of unfair labor practices
involving LMC, any change in the compensation payable or to become payable by
LMC to any of its officers, employees, agents or independent contractors other
than normal merit increases in accordance
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with its usual practices, or any bonus payment or arrangement made to or with
any of such officers, employees, agents or independent contractors;
(i) Any change with respect to the officers or management of
LMC;
(j) Any payment or discharge of a material lien or liability
of LMC which was not shown on the Base Balance Sheet or incurred in the ordinary
course of business thereafter;
(k) Any obligation or liability incurred by LMC to any of its
officers, directors, stockholders or employees, or any loans or advances made by
LMC to any of its officers, directors, stockholders or employees, except normal
compensation and expense allowances payable to officers or employees;
(l) Any change in accounting methods or practices, credit
practices or collection policies used by LMC;
(m) Any other transaction entered into by LMC other than
transactions in the ordinary course of business;
(n) Any waiver of any valuable right of, or cancellation of
any debt or claim held by, LMC; or
(o) Any agreement or understanding whether in writing or
otherwise, for LMC to take any of the actions specified in paragraphs (a)
through (o) above.
2.09 Ordinary Course. Since the date of the Base Balance Sheet, the
Seller and LMC have each conducted its business only in the ordinary course and
consistently with prior practices.
2.10 Banking Relations. To the knowledge of the Seller, all
arrangements which LMC has with any banking institution are completely and
accurately described in Schedule 2.10, indicating with respect to each of such
arrangements the type of arrangements maintained (such as checking account,
borrowing arrangements, safe deposit box, etc.) and the person or persons
authorized in respect thereof.
2.11 Intellectual Property.
(a) Except as described in Schedule 2.11, LMC and Seller each
have exclusive ownership of, or a license to use, all patent, copyright, trade
secret, trademark, or other proprietary rights (collectively, "Intellectual
Property") used or to be used in their respective businesses as presently
conducted or contemplated. All of the rights of LMC and Seller in such
Intellectual Property are freely transferable. There are no claims or demands of
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any other person pertaining to any of such Intellectual Property and no
proceedings have been instituted, or are pending or threatened, which challenge
the rights of Seller in respect thereof. To the knowledge of Seller, and except
as described in Schedule 2.11, LMC has the right to use, free and clear of
claims or rights of other persons, all customer lists, designs, manufacturing or
other processes, computer software, systems, data compilations, research results
and other information required for or incident to its products or its business
as presently conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to either Seller or LMC, pertaining to the business of LMC, are listed
in Schedule 2.11. All of such patents, patent applications, trademark
registrations, trademark applications and registered copyrights have been duly
registered in, filed in or issued by the United States Patent and Trademark
Office or such other applicable governmental office or authority under the
jurisdiction of which the relevant company conducts business, as the case may
be, and have been properly maintained and renewed in accordance with all
applicable provisions of applicable law and administrative regulations.
(c) All licenses or other agreements under which either LMC or
Seller is granted rights in Intellectual Property, pertaining to the business of
LMC, are listed in Schedule 2.11. All said licenses or other agreements are in
full force and effect, there is no material default by any party thereto, and,
except as set forth in Schedule 2.11, all of the rights of each company
thereunder will continue in full force and effect upon consummation of the
transactions contemplated hereby. To the knowledge of the Seller, the licensors
under said licenses and other agreements have and had all requisite power and
authority to grant the rights purported to be conferred thereby. True and
complete copies of all such licenses or other agreements, and any amendments
thereto, shall be provided at or prior to April 30, 1999 to the Buyers.
(d) All licenses or other agreements under which either LMC or
Seller has granted rights to others in Intellectual Property, with respect to
the business of LMC, owned or licensed by either company are listed in Schedule
2.11. All of said licenses or other agreements are in full force and effect and,
to the knowledge of the Seller, there is no material default by any party
thereto, and, except as set forth in Schedule 2.11, all of the rights of each
company thereunder will continue in full force and effect upon consummation of
the transactions contemplated hereby. True and complete copies of all such
licenses or other agreements, and any amendments thereto, shall be provided at
or prior to April 30, 1999 to the Buyers.
(e) Each of LMC and Seller has taken all steps required in
accordance with sound business practice to establish and preserve its ownership
of all material Intellectual Property rights with respect to its products,
services and technology, with respect to the business of LMC. Except as set
forth on Schedule 2.11, the Seller has not made any valuable
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non-public information of Seller available to any person other than its
employees, except pursuant to written agreements requiring the recipients to
maintain the confidentiality of such information and appropriately restricting
the use thereof. Seller has no knowledge of any infringement by others of any
material Intellectual Property rights, with respect to the business of LMC.
(f) To Seller's knowledge after due inquiry, the present and
contemplated business, activities, products and services of LMC does not
infringe any Intellectual Property of any other person. To Seller's knowledge
after due inquiry, no proceeding charging LMC with infringement of any adversely
held Intellectual Property has been filed or is threatened to be filed. To the
knowledge of Seller, there exists no unexpired patent or patent application
which includes claims that would be infringed by or otherwise adversely affect
the products, activities or business of LMC. To Seller's knowledge after due
inquiry, LMC is not making unauthorized use of any confidential information or
trade secrets of any person, including, without limitation, any former employer
of any past or present employee of LMC. Except as set forth in Schedule 2.11, to
the best of Seller's knowledge, none of LMC's employees have any agreements or
arrangements with any persons other than LMC related to confidential information
or trade secrets of such persons or restricting any such employee's ability to
engage in business activities of any nature. The activities of its employees on
behalf of LMC do not violate any such agreements or arrangements known to
Seller.
2.12 Contracts. Except for contracts, commitments, plans, agreements
and licenses described in Schedule 2.12 (true and complete copies of which shall
be delivered at or prior to April 30, 1999 to the Buyers), LMC, to the knowledge
of Seller, is not a party to or subject to:
(a) Any plan or contract providing for bonuses, pensions,
options, stock purchases, deferred compensation, retirement payments, profit
sharing, collective bargaining or the like, or any contract or agreement with
any labor union;
(b) Any employment contract, consulting contract or contract
for services which is not terminable within thirty (30) days by LMC without
liability for any penalty or severance payment;
(c) Any contract or agreement for the purchase of any
commodity, material or equipment except purchase orders in the ordinary course
for less than $10,000 each, such orders not exceeding $50,000 in the aggregate;
(d) Any other contracts or agreements creating any obligations
of LMC of $10,000 or more with respect to any such contract or agreement not
specifically disclosed elsewhere under this Agreement;
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(e) Any contract or agreement providing for the purchase of
all or substantially all of its requirements of a particular product from a
supplier; (f)ab Any contract or agreement which by its terms does not terminate
or is not terminable without penalty by LMC or its successor within one (1) year
after the date hereof;
(g) Any contract or agreement for the sale or lease of its
products not made in the ordinary course of business;
(h) Any contract with any sales agent or distributor of
products of LMC;
(i) Any contract containing covenants limiting the freedom of
LMC to compete in any line of business or with any person or entity;
(j) Any contract or agreement for the purchase of any fixed
asset for a price in excess of $10,000, whether or not such purchase is in the
ordinary course of business;
(k) Any license agreement (as licensor or licensee);
(l) Any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money;
(m) Any contract or agreement with any officer, employee,
director or stockholder of LMC or with any persons or organizations controlled
by or affiliated with any of them; or
(n) Any contract, agreement or understanding whether in
writing or otherwise for LMC to take any of the actions specified in paragraphs
(a) through (m) above.
To the knowledge of Seller, LMC is not in default under any such
contracts, commitments, plans, agreements or licenses described in said Schedule
or has any knowledge of conditions or facts which, with notice or the passage of
time, or both, would constitute a default.
2.13 Litigation. Schedule 2.13 lists all currently pending litigation
and governmental or administrative proceedings or investigations to which LMC is
a party. To the knowledge of Seller, except for matters described in Schedule
2.13, there is no litigation or governmental or administrative proceeding or
investigation pending which may have, either individually or in the aggregate, a
Material Adverse Effect on LMC, or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement. With respect to
each matter set forth therein, Schedule 2.13 sets forth a description of the
matter, the forum (if any) in which it is being conducted, the parties thereto
and the type and amount of relief sought.
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2.14 Compliance with Laws. Except as set forth in Schedule 2.14, to
the knowledge of Seller, LMC is in compliance in all material respects with all
applicable statutes, ordinances, orders, judgments, decrees, rules and
regulations promulgated by any federal, state, municipal or foreign entity,
agency, court or other governmental authority applicable to it or to the conduct
of its business, and to the knowledge of Seller, LMC has not received notice of
a violation or alleged violation of any such statute, ordinance, order, rule or
regulation, except where the failure to be in such compliance would not have,
either individually or in the aggregate, a Material Adverse Effect on LMC, and
LMC has not , to the knowledge of Seller, received notice of a material
violation or alleged material violation of any such statute, ordinance, order,
rule or regulation.
2.15 Employee Benefit Programs. To the knowledge of Seller after due
inquiry, Schedule 2.15 lists every Employee Program (as defined below) that has
been maintained (as defined below) by LMC at any time during the three-year
period ending on the Closing Date.
(a) To the knowledge of Seller after due inquiry, each
Employee Program which has ever been maintained by LMC and which has at any time
been intended to qualify under Section 401(a) or 501(c)(9) of the Internal
Revenue Code of 1986, as amended (the "Code) has received a favorable
determination or approval letter from the Internal Revenue Service (the "IRS")
regarding its qualification under such Section and has, in fact, been qualified
under the applicable section of the Code from the effective date of such
Employee Program through and including the Closing (or, if earlier, the date
that all of such Employee Program's assets were distributed). No event or
omission has occurred which would cause any such Employee Program to lose its
qualification under the applicable Code section.
(b) Seller has no knowledge of or has reason to know, of any
failure of any party to comply with any laws applicable to the Employee Programs
that have been maintained by LMC. With respect to any Employee Program ever
maintained by LMC, to Seller's knowledge, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly, in any taxes, penalties or
other liability to LMC or to either Buyer. No litigation, arbitration,
governmental administrative proceeding (or investigation) or other proceeding
(other than those relating to routine claims for benefits) is pending or
threatened with respect to any such Employee Program. To the knowledge of Seller
after due inquiry, no Employee Program has any material unfunded or underfunded
obligation to provide benefits to any past, current or future participant
therein.
(c) To the knowledge of Seller after due inquiry, neither LMC
nor any Affiliate (as defined below) (i) has ever maintained any Employee
Program which has been subject to Title IV of ERISA (including, but not limited
to, any Multiemployer Plan (as
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defined below)) or (ii) has ever provided health care or any other non-pension
benefits to any employees after their employment is terminated (other than as
required by Part 6 of Subtitle B of Title I of ERISA) or has ever promised to
provide such post-termination benefits.
(d) With respect to each Employee Program maintained by LMC
within the three (3) years preceding the Closing, complete and correct copies of
the following documents (if applicable to such Employee Program) which shall be
delivered at or prior to April 30, 1999 to the Buyers: (i) all documents
embodying or governing such Employee Program, and any funding medium for the
Employee Program (including, without limitation, trust agreements), as they may
have been amended; (ii) the most recent IRS determination or approval letter
with respect to such Employee Program under Code Section 401 or 501(c)(9), and
any applications for determination or approval subsequently filed with the IRS;
(iii) the three (3) most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; (v) any insurance
policy (including any fiduciary liability insurance policy) related to such
Employee Program; (vi) any documents evidencing any loan to an Employee Program
that is a leveraged employee stock ownership plan; and (vii) all other materials
reasonably necessary for the Buyers to perform any of its responsibilities with
respect to any Employee Program subsequent to the Closing (including, without
limitation, health care continuation requirements).
(e) For purposes of this Section:
(i) "Employee Program" means (A) all employee benefit
plans within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(4)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; and (B) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, deferred compensation agreements,
supplemental income arrangements, vacation plans, and all other employee benefit
plans, agreements and arrangements not described in (A) above. In the case of an
Employee Program funded through an organization described in Code Section
501(c)(9), each reference to such Employee Program shall include a reference to
such organization.
(ii) An entity "maintains" an Employee Program if such
entity sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by agreement or
under applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise covers
employees of such entity, or their spouses, dependents or beneficiaries.
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(iii) An entity is an "Affiliate" of a company if it would
have ever been considered a single employer with such company or any of its
subsidiaries under ERISA Section 4001(b) or part of the same "controlled group"
as such company for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
2.16 Environmental Matters.
(a) Except as set forth in Schedule 2.16, to the knowledge of
Seller, (i) LMC has never generated, transported, used, stored, treated,
disposed of or managed any Hazardous Waste (as defined below); (ii) no Hazardous
Material (as defined below) has ever been spilled, released or disposed of at
any site presently or formerly owned, operated, leased or used by LMC, or has
ever been located in the soil or groundwater at any such site; (iii) no
Hazardous Material has ever been transported from any site presently or formerly
owned, operated, leased or used by LMC for treatment, storage or disposal at any
other place; (iv) LMC does not presently own, operate, lease or use, nor has it
previously owned, operated, leased or used any site on which underground storage
tanks are or were located; and (v) no lien has ever been imposed by any
governmental agency on any property, facility, machinery or equipment owned,
operated, leased or used by LMC in connection with the presence of any Hazardous
Material.
(b) Except as set forth in Schedule 2.16, to the knowledge of
Seller, (i) LMC has no material liability under, nor has it ever violated, any
Environmental Law (as defined below); (ii) any property owned, operated, leased
or used by LMC, and any facilities and operations thereon, are presently in
compliance with all applicable Environmental Laws; (iii) LMC has never entered
into or been subject to any judgment, consent decree, compliance order or
administrative order with respect to any environmental or health and safety
matter or received any request for information, notice, demand letter,
administrative inquiry or formal or informal complaint or claim with respect to
any environmental or health and safety matter or the enforcement of any
Environmental Law; and (iv) LMC has no reason to believe that any of the items
enumerated in clause (iii) of this Subsection will be forthcoming.
(c) Except as set forth in Schedule 2.16, to the knowledge of
Seller, no site owned, operated, leased or used by LMC contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls (PCBs) or equipment
containing PCBs, or any urea formaldehyde foam insulation.
(d) Seller shall provide at or prior to April 30, 1999 to the
Buyers copies of all documents, records, and information available to it
concerning any environmental or health and safety matter relevant to LMC,
whether generated by LMC or others, including, without
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limitation, environmental audits, environmental risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans and reports, correspondence, permits, licenses, approvals,
consents and other authorizations related to environmental or health and safety
matters issued by any governmental agency.
(e) For purposes of this Section 2.16, (i) "Hazardous
Material" shall mean and include any hazardous waste, hazardous material,
hazardous substance, petroleum product, oil, toxic substance, pollutant,
contaminant or other substance which may pose a threat to the environment or to
human health or safety, as defined or regulated under any Environmental Law;
(ii) "Hazardous Waste" shall mean and include any hazardous waste as defined or
regulated under any Environmental Law; and (iii) "Environmental Law" shall mean
any environmental or health and safety-related law, regulation, rule, ordinance
or by-law at the foreign, federal, state or local level, whether existing as of
the date hereof, previously enforced or subsequently enacted.
2.17 List of Directors and Officers. Schedule 2.17 contains a true and
complete list of all current directors and officers of LMC. In addition,
Schedule 2.17 contains a list of all managers, employees and consultants of LMC
who, individually, have received or are scheduled to receive compensation from
LMC for the year ending December 31, 1999, in excess of $50,000. In each case,
such Schedule includes the current job title and aggregate annual compensation
of each such individual.
2.18 Transfer of Shares. No holder of stock of LMC has at any time
transferred any of such stock to any employee of LMC, which transfer constituted
or could be viewed as compensation for services rendered to LMC or Seller by
said employee.
2.19 Assignment of Rights. On or before the Closing Date, Seller will
have obtained all consents and assignments to the DataGlyph and CombiReader
Technology licenses referred to in Section 1.02 hereof from Xerox and XL Vision
in form and substance reasonably satisfactory to the Buyers.
SECTION 3. COVENANTS OF SELLER.
3.01 Consents. Prior to the Closing Date, Seller shall obtain all
authorizations, waivers, consents and permits, in form and substance reasonably
satisfactory to the Buyers, from all third parties, including, without
limitation, applicable governmental authorities, regulatory agencies, lessors,
lenders and contract parties, required to permit the continuation of the
business of each of Seller and LMC and the consummation of the transactions
contemplated by this Agreement, and to avoid any breach, default, termination,
acceleration or modification of any material agreement, contract, lease or
permit as a result of, or in connection with, the execution and performance of
this Agreement.
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3.02 Consummation of Agreement . Seller shall use its or his best
efforts to perform and fulfill all conditions and obligations on their parts to
be performed and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be fully carried out. To this
end, Seller will obtain prior to the Closing all necessary authorizations or
approvals of its stockholders and board of directors.
3.03 Confidentiality . Seller agrees that, unless and until the Closing
has been consummated, Seller, its officers, directors, agents and
representatives will hold in strict confidence, and will not use, any
confidential or proprietary data or information obtained from either Buyer with
respect to its business or financial condition except for the purpose of
evaluating, negotiating and completing the transactions contemplated hereby.
Information generally known in either Buyer's industry or which has been
disclosed to Seller by third parties which have a right to do so shall not be
deemed confidential or proprietary information for purposes of this Agreement.
If the transactions contemplated by this Agreement are not consummated, Seller
will return to each Buyer (or certify that they have destroyed) all copies of
such data and information, including, but not limited to, financial information,
customer lists, business and corporate records, worksheets, test reports, tax
returns, lists, memoranda and other documents prepared by or made available to
Seller in connection with the transactions. Notwithstanding the foregoing,
Seller shall be permitted to disclose such information about either Buyer and
the transactions contemplated hereby as may be legally required, and otherwise
reasonably necessary, in the preparation, completion, filing and distribution of
such reports, filings and other documents required by the Securities Act or the
Exchange Act.
3.04 No Transfer of Securities . Unless and until this Agreement shall
have been terminated in accordance with its terms, the Seller shall not directly
or indirectly exchange, deliver, assign, pledge, encumber or otherwise transfer
or dispose of any of the capital stock of LMC (including any options in respect
thereof), nor shall the Seller directly or indirectly grant any right of any
kind to acquire, dispose of, vote or otherwise control in any manner any such
securities.
3.05 Delivery of Schedules. At or prior to April 30, 1999, Seller shall
have delivered to each Buyer all Schedules required herein and such Schedules
shall have been in a form satisfactory to such Buyer.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYERS.
4.01 Making of Representations and Warranties. As a material
inducement to the Seller to enter into this Agreement and consummate the
transactions contemplated hereby, each Buyer hereby makes the representations
and warranties below, as to itself and not with respect to the other Buyer, to
the Seller contained in this Section 4.
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4.02 Organization and Qualifications of Each Buyer.
(a) Amphion has been duly organized and is validly existing as
a limited partnership under the laws of the State of Delaware, with full power
to own or lease its properties and to conduct its business as such business is
now conducted. Amphion is not in material violation of any provision of its
charter documents. Amphion is not required to be qualified to do business as a
foreign limited partnership in any jurisdiction.
(b) Antiope has been duly formed and is validly existing as a
limited liability company under the laws of the State of Delaware, with all
requisite limited liability company power and authority to own or lease its
properties and to conduct its business as such business in now conducted.
Antiope is not in violation of any term of certificate of formation or limited
liability company operating agreement. Antiope is not required to be qualified
to do business in any other jurisdiction.
4.03 Authority of Buyers. Each Buyer has full right, authority and
power to enter into this Agreement and each agreement, document and instrument
to be executed and delivered by such Buyer pursuant to this Agreement and to
carry out the transactions contemplated hereby and thereby. The execution,
delivery and performance by each Buyer of this Agreement and each such other
agreement, document and instrument have been duly authorized by all necessary
corporate action of such Buyer and no other action on the part of such Buyer is
required in connection therewith. This Agreement and each other agreement,
document and instrument constitute, or when executed and delivered will
constitute, valid and binding obligations of each Buyer enforceable in
accordance with their terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights and (ii) general principles of equity
that restrict the availability of equitable remedies. The execution, delivery
and performance by each Buyer of this Agreement and each such agreement,
document and instrument:
(A) does not and will not violate any provision of the charter
documents of either Buyer; and
(B) does not and will not violate any federal, state or local laws
applicable to such Buyer or require such Buyer to obtain any approval, consent
or waiver of, or make any filing with, any person or entity (governmental or
otherwise) which has not been obtained or made.
4.04 Litigation. There is no litigation pending or, to each Buyer's
knowledge, threatened against such Buyer which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
4.05 Finders Fee. Neither Buyer has incurred or become liable for any
broker's commission or finder's fee which would be payable by the Seller or LMC
relating to or in connection with the transactions contemplated by this
Agreement.
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4.06 Financial Statements.
(a) Each Buyer shall deliver to Seller at or prior to April
30, 1999 balance sheets of such Buyer as of December 31, 1998 and statements of
income and retained earnings and statements of cash flows for the year then
ended, which statements are audited by such Buyer's independent public
accountants and copies of which are set forth on Schedule 4.06.
The financial statements described in (i) and (ii) above have been
prepared in accordance with GAAP applied consistently during the periods covered
thereby, are complete and correct in all material respects and present fairly in
all material respects the financial condition of each Buyer at the dates of said
statements and the results of operations for the periods covered thereby.
4.07 Restrictions on Transfer of Shares. Each Buyer represents to
Seller that it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks contemplated by
this Agreement and making an informed investment decision with respect thereto.
Each Buyer represents that it is an "accredited investor" as such term is
defined in Rule 501 under the Securities Act of 1933, as amended (the
"Securities Act"). Each Buyer represents to Seller that it is purchasing the LMC
Shares for its own account, for investment only and not with a view to, or any
present intention of, effecting a distribution of such securities or any part
thereof except pursuant to a registration or an available exemption under
applicable law. Such Buyer acknowledges that the LMC Shares have not been
registered under the Securities Act or the securities laws of any state or other
jurisdiction and cannot be disposed of unless they are subsequently registered
under the Securities Act and any applicable state laws or exemption from such
registration is available.
4.08 Legends. Each certificate representing the LMC Shares may be
endorsed with the following legends (or any legends substantially to the same
effect):
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM; and
(b) Any other legends required by applicable state securities
laws.
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SECTION 5. COVENANTS OF BUYERS.
5.01 Making of Covenants and Agreements. Each Buyer hereby makes the
covenants and agreements set forth in this Section 5.
5.02 Confidentiality. Each Buyer agrees that, unless and until the
Closing has been consummated, such Buyer and its officers, members, partners,
agents and representatives will hold in strict confidence, and will not use, any
confidential or proprietary data or information obtained from Seller and LMC
with respect to the business or financial condition of Seller and LMC except for
the purpose of evaluating, negotiating and completing the transactions
contemplated hereby. Information generally known in the industries of Seller and
LMC or which has been disclosed to either Buyer by third parties which have a
right to do so shall not be deemed confidential or proprietary information for
purposes of this Agreement. If the transactions contemplated by this Agreement
are not consummated, each Buyer will return to Seller (or certify that it has
destroyed) all copies of such data and information, including, but not limited
to, financial information, customer lists, business and corporate records,
worksheets, test reports, tax returns, lists, memoranda and other documents
prepared by or made available to such Buyer in connection with the transactions.
Notwithstanding the foregoing, each Buyer shall be permitted to disclose such
information about LMC or Seller and the transactions contemplated hereby as may
be legally required, and otherwise reasonably necessary, in the preparation,
completion, filing and distribution of such reports, filings and other documents
required by the Securities Act or the Exchange Act.
5.03 Consents. Each Buyer shall make all filings with and notifications
of governmental authorities, regulatory agencies and other entities required to
be made by such Buyer in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby; and such
Buyer shall obtain all authorizations, waivers, consents and permits, from all
third parties, including, without limitation, applicable governmental
authorities, regulatory agencies, lessors, lenders and contract parties,
required to permit the consummation of the transactions contemplated by this
Agreement, and to avoid any breach, default, termination, acceleration or
modification of any material agreement, contract, lease or permit as a result
of, or in connection with, the execution and performance of this Agreement.
5.04 Consummation of Agreement. Each Buyer shall use its best efforts
to perform and fulfill all conditions and obligations on its part to be
performed and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
5.05 Tax Returns. Each Buyer shall cooperate with Seller to permit
Seller in accordance with applicable law to promptly prepare and file on or
before the due date or any extension thereof all federal, state and local tax
returns required to be filed by Seller with respect to taxable periods ending on
or before the Closing.
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SECTION 6. CONDITIONS.
6.01 Conditions to the Obligations of Buyers. The obligation of each
Buyer to consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing, of the following
conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects (except for such representations and
warranties that are qualified by their terms as to knowledge or materiality,
which representations and warranties as so qualified shall be true in all
respects) as of the date of this Agreement and as of the Closing Date as though
made on and as of the Closing; and Seller shall, on or before the Closing, have
performed all of their obligations hereunder which by the terms hereof are to be
performed on or before the Closing.
(b) No Material Change. There shall have been no change in the
financial condition, prospects, properties, assets, liabilities, business or
operations of LMC since the date hereof which has resulted in or is reasonably
likely to result in a Material Adverse Effect on LMC, whether or not in the
ordinary course of business.
(c) Certificate from Officers. The Seller shall have delivered
to each Buyer a certificate signed by Seller's President dated as of the Closing
Date to the effect that the statements set forth in paragraphs (a), (b) and (c)
above are true and correct.
(d) Approval of Buyers' Counsel. All actions, proceedings,
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar LLP, as
counsel for Buyers, and such counsel shall have received on behalf of each Buyer
such other certificates, opinions and documents in form satisfactory to such
counsel, as such Buyer may reasonably require from the Seller to evidence
compliance with the terms and conditions hereof as of the Closing and the
correctness as of the Closing of the representations and warranties of the
Seller and the fulfillment of their respective covenants.
(e) Opinion of Counsel. On the Closing Date, the Buyers shall
have received from Sayles and Lidji, P.C., counsel for the Seller, an opinion as
of said date, in substantially the form acceptable to the parties.
(f) No Litigation. There shall have been no determination by
either Buyer, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state, foreign or
other governmental authority of litigation, proceedings or other action against
such Buyer or LMC.
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(g) Consents. Each of LMC and Seller shall have made all
filings with and notifications of governmental authorities, regulatory agencies
and other entities required to be made by each of them in connection with the
execution and delivery of this Agreement, the performance of the transactions
contemplated hereby and the continued operation of the business of LMC by the
Buyers subsequent to the Closing. Seller, LMC and each Buyer shall have received
all authorizations, waivers, consents and permits, in form and substance
reasonably satisfactory to such Buyer, from all third parties, including,
without limitation, the landlord of LMC's facility in Albuquerque, New Mexico,
J.P. Morgan ("Morgan") in connection with the Note granted to Morgan by Seller
(the "Morgan Note"), Xerox in connection with the assignment of the DataGlyph
Technology license and XL Vision in connection with the assignment of the
CombiReader Technology license, applicable governmental authorities, regulatory
agencies, lessors, lenders and contract parties, required to permit the
continuation of the business of LMC and the use of the Axcess Assets and the
consummation of the transactions contemplated by this Agreement, and to avoid a
breach, default, termination, acceleration or modification of any indenture,
loan or credit agreement or any other material agreement, contract, instrument,
mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award as a result of, or in connection
with, the execution and performance of this Agreement.
(h) Employee Programs. LMC shall have taken all steps
necessary under the relevant documents and applicable law to maintain the
qualification of each Employee Program of LMC identified in Schedule 2.16
notwithstanding the purchase of the LMC Shares by each Buyer.
(i) Resignations. LMC shall have delivered to each Buyer
resignations (in their respective capacities as directors and officers, but not
as employees) of all of the directors of LMC and of such officers of LMC as may
be requested by such Buyer at least five (5) days prior to the Closing, such
resignations to be effective at the Closing.
(j) Releases. LMC shall have delivered to each Buyer general
releases signed by the Seller, as the sole stockholder of LMC, and by each
officer and director of LMC of all claims which any of them have against LMC and
such Buyer in substantially the form acceptable to the parties.
(k) Release of Liens. All Encumbrances on the assets of LMC
and the Axcess Assets shall have been terminated and released and each Buyer
shall have received UCC-3 termination statements and such other documents
evidencing such terminations including, but not limited to, the release of liens
which Morgan holds on the LMC Shares and the release of liens which Seller and
Antiope hold on the Axcess Assets.
(l) Asset Transfer. Seller shall have delivered to each Buyer
the assignment, and other instruments of transfer and assignment substantially
in accordance with
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the provisions hereof, transferring to such Buyer all of Seller's right, title
and interest in and to the Axcess Assets, free and clear of all Encumbrances.
(m) Delivery of Schedules. On or before April 30, 1999, each
Buyer shall have received from Seller all Schedules required herein in a form
satisfactory to such Buyer.
6.02 Conditions to Obligations of the Seller. The obligations of the
Seller to consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment, prior to or at the Closing, of the following
conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
representations and warranties of each Buyer contained in this Agreement shall
be true and correct in all material respects as though made on and as of the
Closing Date. Each Buyer shall, on or before the Closing, have performed all of
its obligations hereunder which by the terms hereof are to be performed on or
before the Closing. Each Buyer shall have delivered to the Seller a certificate
of the President or any Vice President of such Buyer dated the Closing Date to
such effect.
(b) Approval of the Seller's Counsel. All actions,
proceedings, instruments and documents required to carry out this Agreement and
the transactions contemplated hereby and all related legal matters contemplated
by this Agreement shall have been approved by Sayles and Lidji, P.C., as counsel
for the Seller, and such counsel shall have received on behalf of the Seller
such other certificates, opinions and documents in form satisfactory to such
counsel, as the Seller may reasonably require from each Buyer to evidence
compliance with the terms and conditions hereof as of the Closing and the
correctness as of the Closing of the representations and warranties of such
Buyer and the fulfillment of its covenants.
(c) No Litigation. There shall have been no determination by
the Seller, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state, foreign or
other governmental authority of litigation, proceedings or other action against
either Buyer.
(d) Accounting Treatment. The accounting treatment of the
transaction described herein shall be satisfactory to the Seller.
(e) Security Agreement. Amphion shall grant to the Seller a
security interest in the Axcess Assets in a form of Security Agreement
substantially acceptable to the parties.
(f) Pledge Agreement. Each Buyer shall grant to the Seller a
lien on all of the outstanding LMC Shares acquired by such Buyer in a form of
Pledge Agreement substantially acceptable to the parties. (g)ab Repayment of
Debt. Antiope shall provide evidence to Seller of the payment and satisfaction
of the debt of Seller in the amount of $910,000 due to Antiope and Amphion shall
provide evidence to Seller of the payment and satisfaction of the debt of Seller
in the amount of $1,090,000 due to Amphion.
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(h) Demand Note, Term Note and Warrants. Amphion shall deliver
to the Seller a Demand Note, a Term Note and the Quantrad Warrants in accordance
with the terms of Section 1.02 hereof.
(i) Resignation of Director. At or prior to the Closing Date,
Eugene A. Bourque shall resign as a member of the Board of Directors of the
Seller.
(j) Financial Statements of Buyers. At or prior to the Closing
Date, each Buyer shall have delivered to the Seller the financial statements
referred to in Section 4.06 hereto.
SECTION 7. SURVIVAL
7.01 Survival of Warranties . Each of the representations, warranties,
agreements, covenants and obligations herein or in any Schedule, Exhibit,
Certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive until December 31,
1999, regardless of any investigation and shall not merge in the performance of
any obligation by either party hereto. For purposes of this Section 7 "Damages"
shall mean (i) any and all damages, losses, deficiencies or liabilities
("Losses") caused by, resulting or arising from or otherwise relating to any
failure of any representation or warranty of the Seller or either Buyer
contained herein to be true when made and as at the Closing Date; and (ii) any
and all actions, suits, proceedings, claims, liabilities, demands, assessments,
judgments, reasonable costs and expenses, including reasonable attorneys' fees,
incident to any of the foregoing or such indemnification (all together "Costs";
Costs and Losses together shall hereinafter be referred to as "Damages").
7.02 Limitation on Liability of Seller. The liability of Seller to
Buyer for breach of the representations, warranties, agreements, covenants and
obligations herein or in any Schedule, Exhibit, Certificate or financial
statement delivered by any party to the other party incident to the transactions
contemplated hereby (a "Breach") shall be subject to the following:
(a) No Damages shall be recoverable by the Buyers for a
Breach, and no claim therefor shall be asserted for any purpose whatsoever
hereunder, unless the amount of the Damages equals at least $100,000 in the
aggregate and then only to the extent such Damages exceed $100,000 in the
aggregate.
27
<PAGE> 30
(b) The aggregate amount of Damages recoverable by the Buyers
for a Breach in the aggregate shall be limited to $7,000,000.
7.03 Limitation on Liability of Buyer. The liability of Buyer to Seller
for a Breach (as defined above) shall be subject to the following:
(a) No Damages shall be recoverable by Seller for a Breach,
and no claim therefor shall be asserted for any purpose whatsoever hereunder,
unless the amount of the Damages equals at least $100,000 in the aggregate and
then only to the extent such Damages exceed $100,000 in the aggregate.
(b) The aggregate amount of Damages recoverable by Seller for
a Breach in the aggregate shall be limited to $7,000,000.
SECTION 8. MISCELLANEOUS.
8.01 Fees and Expenses. Each Buyer shall pay its own expenses and
costs associated with the preparation of this Agreement and the consummation of
the transactions contemplated hereby. Seller shall pay all of its fees and
expenses and all fees and expenses of LMC in connection with the preparation of
this Agreement and the consummation of the transactions contemplated hereby, and
no expenses of Seller or LMC relating in any way to the transactions
contemplated hereby, including, without limitation, legal, accounting or other
professional expenses and any broker's commission or finder's fee, shall be
charged to, paid by or reflected in any account of LMC or either Buyer.
8.02 Governing Law. This Agreement shall be construed under and
governed by the internal laws of the State of Delaware without regard to its
conflict of laws provisions.
8.03 Notices. Any notice, request, demand or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail, upon the sooner of the date on which
receipt is acknowledged or the expiration of three (3) days after deposit in
United States post office facilities properly addressed with postage prepaid.
All notices to a party will be sent to the addresses set forth below or to such
other address or person as such party may designate by notice to each other
party hereunder:
28
<PAGE> 31
TO BUYERS: Amphion Ventures, L.P.
Antiope Partners LLC
590 Madison Avenue
New York, NY 10022
Fax: (212) 849-8171
Attn: Richard C. E. Morgan,
Managing Partner
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Fax: (617) 523-1231
Attn: David F. Dietz, P.C.
TO SELLER Axcess, Inc.
3208 Commander Drive
Carrollton, TX 75006
Fax: (972) 407-9085
Attn: Chief Executive Officer
With a copy to: Sayles and Lidji, P.C.
4400 Renaissance Tower
1201 Elm Street
Dallas, TX 75270
Fax: (214) 939-8787
Attn: Michael R. Dorey, Esq.
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
8.04 Entire Agreement. This Agreement, including the Schedules and
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings, including the term sheet between
each Buyer and Seller.
8.05 Assignability; Binding Effect. This Agreement shall only be
assignable by each Buyer, whether in whole or in part, to an entity controlling,
controlled by or under common control with such Buyer upon written notice to the
Seller, and such assignment shall not relieve such Buyer of any liability
hereunder. This Agreement may not be assigned by Seller without the prior
written consent of each Buyer. This Agreement shall be binding upon and
29
<PAGE> 32
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
8.06 Captions. The captions in this Agreement are for convenience only
and shall not affect the construction or interpretation of any term or provision
hereof.
8.07 Execution in Counterparts. For the convenience of the parties and
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
8.08 Amendments. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each Buyer and Seller, or in the case of
a waiver, the party waiving compliance.
8.09 Consent to Jurisdiction. Each of the parties hereby consents to
personal jurisdiction, service of process and venue in the federal or state
courts of State of Delaware for any claim, suit or proceeding arising under this
Agreement, or in the case of a third-party claim subject to indemnification
hereunder, in the court where such claim is brought.
[End of Text]
30
<PAGE> 33
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
AMPHION VENTURES, L.P.
By: AMPHION PARTNERS LLC,
its General Partner
By: /s/ RICHARD C.E. MORGAN
-------------------------------------
Name: Richard C.E. Morgan
Title: Managing Member
ANTIOPE PARTNERS LLC
By: /s/ RICHARD C.E. MORGAN
-------------------------------------
Name: Richard C.E. Morgan
Title: Managing Member
AXCESS, INC.
By: /s/ DANNY G. HAIR
-------------------------------------
Name: Danny G. Hair
Title: Chief Financial Officer
<PAGE> 34
List of Exhibits and Schedules
Exhibits
Exhibit A - Allocation of LMC Shares
Schedules
Schedule 1.07 Allocation of Purchase Price
Schedule 2.02 Organization of Seller and LMC
Schedule 2.03 Capitalization of LMC
Schedule 2.04 Authority
Schedule 2.05(a) Leased Real Property
Schedule 2.05(b) Personal Property
Schedule 2.06 Financial Statements of LMC
Schedule 2.07 Taxes
Schedule 2.08 Absence of Certain Changes
Schedule 2.10 Banking Relations
Schedule 2.11 Intellectual Property
Schedule 2.12 Contracts
Schedule 2.13 Litigation
Schedule 2.14 Approvals; Consents
Schedule 2.15 Employee Benefits
Schedule 2.16 Environmental Matters
Schedule 2.17 Directors and Officers
Schedule 4.06 Financial Statements of Buyers
<PAGE> 1
EXHIBIT 21
AXCESS INC.
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Names of Subsidiaries State of Incorporation
--------------------- ----------------------
<S> <C>
Sandia Imaging Systems Corporation Delaware
Lasertechnics Marking Corporation Delaware
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
AXCESS Inc.:
We consent to incorporation by reference in the registration statements Nos.
33-42214 and 33-98160 on Form S-8 and No. 333-10665 on Form S-3 of AXCESS Inc.
of our report dated March 19, 1999, relating to the consolidated balance sheets
of AXCESS Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998,
which report appears in the December 31, 1998, annual report on Form 10-KSB.
Our report dated March 19, 1999 contains an explanatory paragraph that states
that the company's recurring losses from operations and resulting continued
dependence upon access to additional external financing raise substantial doubt
about the company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/KPMG LLP
Dallas, Texas
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1998 and the Consolidated Statement
of Income for the Year Ended December 31, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,575,429
<SECURITIES> 0
<RECEIVABLES> 30,987
<ALLOWANCES> 0
<INVENTORY> 256,216
<CURRENT-ASSETS> 3,053,342
<PP&E> 1,186,648
<DEPRECIATION> 612,149
<TOTAL-ASSETS> 9,071,348
<CURRENT-LIABILITIES> 4,991,063
<BONDS> 0
0
27,179,880
<COMMON> 29,919
<OTHER-SE> (25,134,719)
<TOTAL-LIABILITY-AND-EQUITY> 9,071,348
<SALES> 43,146
<TOTAL-REVENUES> 43,146
<CGS> 4,299
<TOTAL-COSTS> 8,738,140<F1>
<OTHER-EXPENSES> 570,936<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 532,798
<INCOME-PRETAX> (9,210,228)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,210,228)
<DISCONTINUED> (6,248,828)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,459,056)
<EPS-PRIMARY> (6.32)
<EPS-DILUTED> (6.32)
<FN>
<F1>Net loss applicable to Common Stock (16,959,478)
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1998 and the Consolidated Statement
of Income for the Year Ended December 31, 1998 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,102,341
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,415,259
<PP&E> 1,637,785
<DEPRECIATION> (903,154)
<TOTAL-ASSETS> 12,327,202
<CURRENT-LIABILITIES> 9,318,000
<BONDS> 0
0
11,967,233
<COMMON> 24,443
<OTHER-SE> (9,522,373)
<TOTAL-LIABILITY-AND-EQUITY> 12,327,202
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 3,250,383<F1>
<OTHER-EXPENSES> 1,743,533<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,742,543
<INCOME-PRETAX> (4,993,916)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,993,916)
<DISCONTINUED> (7,826,525)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,820,441)
<EPS-PRIMARY> (6.22)
<EPS-DILUTED> (6.22)
<FN>
<F1>Net loss applicable to Common Stock (13,892,830)
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 945,968
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,213,951
<PP&E> 1,660,374
<DEPRECIATION> (931,906)
<TOTAL-ASSETS> 14,881,511
<CURRENT-LIABILITIES> 3,475,376
<BONDS> 0
0
10,119,194
<COMMON> 29,692
<OTHER-SE> (2,532,887)
<TOTAL-LIABILITY-AND-EQUITY> 14,881,511
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,983,734<F1>
<OTHER-EXPENSES> 1,485,695<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,582,621
<INCOME-PRETAX> (4,469,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,469,429)
<DISCONTINUED> (6,929,566)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,398,995)
<EPS-PRIMARY> (7.73)
<EPS-DILUTED> (7.73)
<FN>
<F1>NET LOSS APPLICABLE TO COMMON STOCK (13,264,110)
</FN>
</TABLE>
