AXCESS INC/TX, DEF 14A, 2000-05-01

AXCESS INC/TX
DEF 14A, 2000-05-01
MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES

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SCHEDULE 14 INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement

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

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material under Rule 14a-11(c) or Rule 14a-12

AXCESS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:
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AXCESS INC.
3208 Commander Drive
Carrollton, Texas 75006
Telephone: (972) 407-6080
Telecopier: (972) 407-9085

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
AXCESS Inc. on Tuesday, June 6, 2000, at 9:00 a.m., central daylight time. The
meeting will be held at the Company's corporate headquarters, 3208 Commander
Drive, Carrollton, Texas 75006. The Company's Board of Directors and management
look forward to greeting those stockholders able to attend in person.

At the meeting, the Company's stockholders will be asked to consider and
elect six directors to serve until the next annual meeting of stockholders. The
Company's stockholders will also be asked:

1. To consider and vote on a proposal to elect Richard C.E. Morgan, Allan
Griebenow, Paul J. Coleman, Jr., Gregory W. Haskell, Robert J. Bertoldi and
David J. Illingworth as directors of the Company;

2. To ratify the selection of Ernst & Young LLP as the independent
auditor of the Company for the fiscal year ended December 31, 2000;

3. To consider and vote on a proposal to amend the Company's Certificate
of Incorporation to increase the number of authorized shares of the
Company's voting common stock from 12,000,000 to 50,000,000;

4. To consider and vote on a proposal to issue more than 20% of the
Company's outstanding voting common stock, at a per share price less than
the greater of the per share book or market value of the voting common
stock on the date of private placements, to holders of: (a) Series 1999
Preferred Stock upon the conversion of the Series 1999 Preferred Stock, (b)
Series 1999 Non-Voting Preferred Stock upon the conversion of the non-
voting common stock and (c) Series 2000 Non-Voting Preferred Stock upon the
conversion of the non-voting common stock;

5. To approve an amendment to the AXCESS Inc. 1991 Incentive Stock Option
Plan to increase the number of authorized shares issuable thereunder from
900,000 to 2,000,000; and

6. To transact such other business as may properly come before the annual
meeting or any adjournment or postponement thereof.

The Company's Board of Directors has unanimously approved each of the
proposals set forth above and urges you to vote in favor of each of the
proposals. Information about the business to be conducted at the meeting is set
forth in the accompanying Proxy Statement, which you are urged to read
carefully. During the meeting, I will review with you the affairs and progress
of the Company during the fiscal year ended December 31, 1999. Officers of the
Company will be present to respond to questions from stockholders.

The vote of every stockholder is important. The Board of Directors
appreciates and encourages stockholder participation in the Company's affairs.
Whether or not you plan to attend the meeting, please sign, date and return the
enclosed Proxy promptly in the envelope provided. Your shares will then be
presented at the meeting, and the Company will be able to avoid the expense of
further solicitation. If you attend the meeting, you may, at your discretion,
withdraw the Proxy and vote in person.
<PAGE>

On behalf of the Board of Directors, thank you for your cooperation and
continued support.

Sincerely,

/s/ RICHARD C.E. MORGAN

Richard C.E. Morgan
Chairman of the Board
<PAGE>

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 6, 2000

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

You are hereby notified that the Annual Meeting of the Stockholders of
AXCESS Inc. will be held at the Company's corporate headquarters, 3208 Commander
Drive, Carrollton, Texas, on June 6, 2000 at 9:00 a.m., central daylight time,
for the following purposes:

1. To consider and vote on a proposal to elect Richard C.E. Morgan, Allan
Griebenow, Paul J. Coleman, Jr., Gregory W. Haskell, Robert J. Bertoldi and
David J. Illingworth as directors of the Company;

2. To ratify the selection of Ernst & Young LLP as the independent
auditor of the Company for the fiscal year ended December 31, 2000;

5. To approve an amendment to the AXCESS Inc. 1991 Incentive Stock Option
Plan to increase the number of authorized shares issuable thereunder from
900,000 to 2,000,000 (the "Option Plan Proposal"); and

6. To transact such other business as may properly come before the annual
meeting or any adjournment or postponement thereof.

Only the stockholders of record at the close of business on April 28, 2000,
are entitled to notice of, and to vote at, the annual meeting or any adjournment
or postponement thereof. A complete list of stockholders entitled to vote at the
annual meeting will be available for examination at 3208 Commander Drive,
Carrollton, Texas 75006, for ten days prior to the annual meeting.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO
FILL OUT, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. PROXIES
FORWARDED BY OR FOR BROKERS OR FIDUCIARIES SHOULD BE RETURNED AS REQUESTED BY
THEM. THE PROMPT RETURN OF PROXIES WILL SAVE THE EXPENSE INVOLVED IN FURTHER
COMMUNICATION.

By Order of the Board of Directors,

/s/ James R. Craig

James R. Craig, Secretary
Carrollton, Texas
May 1, 2000
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 6, 2000

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

SOLICITATION

This Proxy Statement and accompanying form of Proxy are being mailed to
stockholders commencing on or about May 9, 2000, in connection with the
solicitation by the Board of Directors of AXCESS Inc. of proxies from the
holders of the following securities of the Company:

(a) Voting common stock, $0.01 par value per share (the "Voting Common
Stock");

(b) Non-Voting common stock, $0.01 par value per share (the "Non-Voting
Common Stock");

(d) Series B Convertible Preferred Stock,$0.01 par value per share (the
"Series B Preferred Stock");

(e) Series C Convertible Preferred Stock,$0.01 par value per share (the
"Series C Preferred Stock"); and

(f) Series I Convertible Preferred Stock, $0.01 par value per share (the
"Series I Preferred Stock"); and

(g) Series 1999 Convertible Preferred Stock, $0.01 par value per share
(the "Series 1999 Preferred Stock").

Such proxies are to be used at the annual meeting of stockholders of
the Company to be held at the Company's corporate headquarters, 3208 Commander
Drive, Carrollton, Texas 75006, on June 6, 2000 at 9:00 a.m., central daylight
time, as set forth in the accompanying Notice of Annual Meeting of Stockholders
and at any adjournment or postponement thereof, for the purposes set forth in
the notice. Management is not currently aware of any matters other than those
referenced in this Proxy Statement that will be presented for action at the
annual meeting.

RECORD DATE AND VOTING STOCK

The Annual Report to Stockholders, including the Form 10-KSB for the year
ended December 31, 1999, are being mailed to each stockholder entitled to vote
at the annual meeting with the mailing of this Proxy Statement. Holders of
record of the Company's Voting Common Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series I Preferred Stock and Series
1999 Preferred Stock at the close of business on Friday, April 28, 2000 (the
"Record Date") will be entitled to vote on each matter presented at the annual
meeting or any adjournments or postponements thereof. Holders of record of the
Company's Non-Voting Common Stock at the close of business on the Record Date
will be entitled to vote at the annual meeting with the Voting Common Stock,
voting together as a single class, only with respect to the Authorized Shares
Proposal.
<PAGE>

As of the Record Date, the Company's outstanding voting securities
consisted of 3,321,208 shares of Voting Common Stock, 57,692 shares of Series A
Preferred Stock, 52,817 shares of Series B Preferred Stock, 35,427 shares of
Series C Preferred Stock, 635 shares of Series I Preferred Stock and 129 shares
of Series 1999 Preferred Stock. Under the Company's Certificate of
Incorporation, as amended, each share of Voting Common Stock and each share of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
is entitled to one vote on each of the proposals specified in the notice of
annual meeting. Each share of Series I Preferred Stock and Series 1999
Preferred Stock is entitled to 2,500 votes and 4,000 votes, respectively, on
each of the proposals specified in the notice of meeting, representing one vote
for each share of Voting Common Stock into which a single share of Series I
Preferred Stock and Series 1999 Preferred Stock is convertible on the Record
Date.

Each share of the Company's Non-Voting Common Stock is entitled to one vote
on the Authorized Shares Proposal. As of the Record Date, there were 112,492
shares of Non-Voting Common Stock outstanding.

The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series I Preferred Stock and Series 1999 Preferred Stock are collectively
referred to as "the Voting Preferred Stock." The affirmative votes of the
majority of the outstanding voting power of the Voting Common Stock and Voting
Preferred Stock, voting together as a single class, is required to adopt each of
the proposals, except for the Authorized Shares Proposal. The affirmative votes
of the majority of the outstanding voting power of (a) the Voting Common Stock
and Non-Voting Common Stock, voting together as a single class, and (b) the
Voting Common Stock and Voting Preferred Stock, voting together as a single
class, are required to adopt the Authorized Shares Proposal.

Holders of the Company's Series J Preferred Stock, par value $0.01 per
share (the "Series J Preferred Stock"), Series 1999 Non-Voting Preferred Stock,
par value $0.01 per share (the "Series 1999 Non-Voting Preferred Stock") and
Series 2000 Non-Voting Preferred Stock, par value $0.01 per share (the "Series
2000 Non-Voting Preferred Stock"), are not entitled to vote on any of the
matters brought before the annual meeting or any adjournment or postponement
thereof.

The holders of a majority of the Voting Common Stock and the Voting
Preferred Stock, voting collectively as a single class and whether or not
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at the annual meeting. If a quorum is not present or
represented by proxy at the annual meeting, the stockholders entitled to vote at
the annual meeting, present in person or represented by proxy, shall have the
power to adjourn the meeting from time to time, without notice other than
announcement at the annual meeting, until a quorum shall be present or
represented by proxy. At such adjourned meeting at which a quorum shall be
presented or represented by proxy, any business may be transacted which might
have been transacted at the annual meeting as originally called. If the
adjournment is for more than 30 days, or, if after the adjournment a new record
date is set, a notice of adjourned meeting shall be given to each stockholder of
record entitled to vote at the annual meeting.

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

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

2
<PAGE>

All duly executed proxies received prior to the annual meeting will be
voted in accordance with the choices specified thereon. As to any matter for
which no choice has been specified in a duly executed proxy, the shares of stock
represented thereby will be voted (a) FOR the election as directors of the
nominees listed herein, (b) FOR the ratification of Ernst & Young LLP as the
independent auditor of the Company for the period ended December 31, 2000, (c)
FOR approval of the Authorized Shares Proposal, (d) FOR approval of the
Preferred Stock Proposal, (e) FOR approval of the Option Plan Proposal and (f)
in the discretion of the persons named in the Proxy in connection with any other
business that may properly come before the annual meeting. A stockholder giving
a Proxy may revoke it at any time before it is voted at the annual meeting by
filing with the Secretary of the Company an instrument revoking it, by
delivering a duly executed Proxy bearing a later date or by appearing at the
annual meeting and voting in person.

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

3
<PAGE>

OWNERSHIP OF COMMON STOCK BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of shares of each class of stock
beneficially owned as of April 1, 2000, by each person known by the Company to
be the beneficial owner of more than 5% of the Company's Voting Common Stock as
of April 1, 2000:

<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage Percentage of
Beneficial Owner Title of Class Beneficial Owner of Class Voting Power
- --------------------------- -------------------------------------- -------------------- ----------- --------------
<S> <C> <C> <C> <C>
Amphion Investors (1) Voting Common Stock 862,312 (2) 19.5% 8.6%
590 Madison Avenue Series A Preferred Stock 57,692 100.0% 1.0%
New York, NY 10021 Series B Preferred Stock 52,816 100.0% *
Series C Preferred Stock 25,492 72.0% *
Series I Preferred Stock 539 79.6% 23.8%
Series J Preferred Stock 1,909 99.4% n/a
Series 2000 Non-Voting Preferred Stock 847 100.0% n/a

PV Proceeds Holdings, Inc. Voting Common Stock 500,000 (3) 11.3% n/a
3208 Commander Dr. Series 1999 Preferred Stock 129 100.0% 9.1%
Carrollton, TX 75006

XL Vision, Inc. Voting Common Stock 300,000 6.8% 5.3%
10305 102nd Terrace
Sebastian, FL 32958

J. P. Morgan Voting Common Stock 283,170 (4) 6.4% 4.7%
Investment Corporation Series I Preferred Stock 75 11.0% 3.3%
60 Wall Street
New York, NY 10260
</TABLE>
___________________
* Less than 1%.

(1) Includes shares beneficially owned by each of Amphion Ventures L.P., a
Delaware limited partnership ("Amphion Ventures"), Amphion Partners L.L.C.,
a Delaware limited liability company ("Amphion Partners"), Antiope Partners
L.L.C., a Delaware limited liability company ("Antiope Partners"), Amphion
Investments L.L.C., a Delaware limited liability company ("Amphion
Investments"), Richard C.E. Morgan, a U.S. citizen ("Mr. Morgan"), Mr.
Robert J. Bertoldi, a British citizen ("Mr. Bertoldi"), and incuVest
L.L.C., a Delaware limited liability company ("incuVest"), (collectively,
for the sole purpose of identification in this Proxy Statement, the
"Amphion Investors"). Each of the Amphion Investors disclaims that it holds
any securities of the Company as a group, within the meaning of any
applicable securities law or regulation. Amphion Partners is the sole
general partner of Amphion Ventures. Messrs. Morgan and Bertoldi are the
managing members of Amphion Partners, Antiope Partners and Amphion
Investments and the controlling executives of incuVest.

The following table sets forth the number of shares beneficially owned by
certain of the Amphion Investors:
<TABLE>
<CAPTION> Total of
Amphion Amphion Amphion Antiope Amphion
Title of Class Ventures Partners Investments Partners incuVest Investors
- --------------------------------------------------- -------- -------- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Voting Common Stock 697,153 28,125 10,000 127,034 - 862,312
Series A Preferred Stock 57,692 - - - - 57,692
Series B Preferred Stock 52,816 - - - - 52,816
Series C Preferred Stock 25,492 - - - - 25,492
Series I Preferred Stock 484 - - 55 - 539
</TABLE>

4
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Series J Preferred Stock 1,708 - - 201 - 1,909
Series 2000 Non-Voting Preferred Stock 347 - - - 500 847
</TABLE>

(2) Includes 376,244 shares that the Amphion Investors have the right to
acquire pursuant to warrants and options that are exercisable.

(3) All 500,000 shares represent shares that PV Proceeds Holdings, Inc. has the
right to acquire pursuant to warrants that are exercisable within 60 days.

(4) Includes 16,000 shares that J.P. Morgan Investment Corporation ("JPMIC")
has the right to acquire pursuant to warrants that are exercisable within
60 days.

The following table sets forth the number of shares of each class of stock
beneficially owned as of April 1, 2000 by each director and director nominee who
beneficially owns Voting Common Stock and the executive officers of the Company,
and all of the Company's directors and executive officers as a group. The
business address of each director and executive officer is c/o AXCESS Inc., 3208
Commander Drive, Carrollton, Texas 75006:

<TABLE>
<CAPTION>
Name of Amount and Nature Percentage Percentage of
Beneficial Owner Title of Class of Beneficial Owner of Class Voting Power
- ------------------------------- -------------------------------------- -------------------- ----------- --------------

<S> <C> <C> <C> <C> <C>
Richard C. E. Morgan Voting Common Stock 1,046,275 (1) 23.7% 11.5%
Series A Preferred Stock 57,692 100.0% 1.0%
Series B Preferred Stock 52,816 100.0% *
Series C Preferred Stock 25,492 72.0% *
Series I Preferred Stock 539 79.6% 23.8%
Series J Preferred Stock 1,909 99.4% n/a
Series 2000 Non-Voting Preferred Stock 847 100.0% n/a

Robert J. Bertoldi Voting Common Stock 862,312 (2) 19.53% 9.5%
Series A Preferred Stock 57,692 100.0% 1.0%
Series B Preferred Stock 52,816 100.0% *
Series C Preferred Stock 25,492 72.0% *
Series I Preferred Stock 539 79.6% 23.8%
Series J Preferred Stock 1,909 99.4% n/a
Series 2000 Non-Voting Preferred Stock 847 100.0% n/a

Allan Griebenow Voting Common Stock 7,670 * *
Richard M. Clarke Voting Common Stock 41,750 (3) * *
Paul J. Coleman, Jr. Voting Common Stock 28,090 (4) * *
C. Seth Cunningham Voting Common Stock 30,750 (5) * *
Gregory W. Haskell Voting Common Stock 17,500 (6) * *
Harry Budow Voting Common Stock 77,200 (7)(8) * *
James R. Craig Voting Common Stock * * *
Michael Uremovich Voting Common Stock * * *
Danny G. Hair Voting Common Stock * (8) * *
David J. Illingworth Voting Common Stock 300,000 (9) 6.8% 5.3%

All Directors, Director Voting Common Stock 1,249,235 25.2% 12.3%
Nominees and Series A Preferred Stock 57,692 100.0% 1.0%
Executive Officers as Series B Preferred Stock 52,816 100.0% 0.9%
a group (12 individuals) Series C Preferred Stock 25,492 72.0% 0.4%
Series I Preferred Stock 539 79.6% 23.8%
Series J Preferred Stock 1,909 99.4% n/a
Series 2000 Non-Voting Preferred Stock 847 100.0% n/a
</TABLE>
___________________
* Less than 1%.

5
<PAGE>

(1) Includes 179,463 shares held directly, 3,000 shares that Mr. Morgan has the
right to acquire pursuant to options that are exercisable within 60 days,
486,068 shares held by entities within the Amphion Investors (defined in
Note 1 above) and 376,244 shares that entities within the Amphion Investors
have the right to acquire pursuant to options and warrants that are
exercisable within 60 days. Also includes 1,500 shares held by Mr. Morgan's
daughter, for which he disclaims beneficial ownership. As detailed in Note
1 above, Mr. Morgan disclaims beneficial ownership of all shares
beneficially owned by entities within the Amphion Investors.

(2) Includes 486,068 shares held by entities within the Amphion Investors
(defined in Note 1 above) and 376,244 shares that entities within the
Amphion Investors have the right to acquire pursuant to options and
warrants that are exercisable within 60 days. As detailed in Note 1 above,
Mr. Bertoldi disclaims beneficial ownership of all shares beneficially
owned by entities within the Amphion Investors.

(3) Includes 28,500 shares that Mr. Clarke has the right to acquire pursuant to
options that are exercisable within 60 days.

(4) Includes 28,000 shares that Mr. Coleman has the right to acquire pursuant
to options that are exercisable within 60 days.

(5) Includes 28,000 shares that Mr. Cunningham has the right to acquire
pursuant to options that are exercisable within 60 days.

(6) All 17,500 shares represent shares that Mr. Haskell has the right to
acquire pursuant to options that are exercisable within 60 days.

(7) All 77,200 shares represent shares that Mr. Budow has the right to acquire
pursuant to options that are exercisable within 60 days.

(8) Messrs. Budow and Hair resigned from the Company in June 1999 and September
1999, respectively.

(9) All 300,000 shares are owned by XL Vision, Inc., of which Mr. Illingworth
is the President and Chief Operating Officer.

MANAGEMENT OF THE COMPANY

The Board elects executive officers annually at its first meeting
following the annual meeting of stockholders. The following table sets forth, as
of April 1, 2000, (a) the names of the current directors, the director nominees,
and the executive officers of the Company, (b) their respective ages and (c)
their respective positions within the Company.

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard C. E. Morgan 55 Chairman of the Board of Directors and
Director Nominee (1)(3)(4)
Allan Griebenow 47 Director, President and Chief Executive
Officer and Director Nominee (1)
James R. Craig 40 Vice President, Secretary and Chief
Financial Officer
Mike Uremovich 46 Vice President, Sales
C. Seth Cunningham 44 Director (2)
Richard M. Clarke 68 Director (2)
Paul J. Coleman, Jr. 68 Director and Director Nominee (2)(3)(4)
Gregory W. Haskell 43 Director and Director Nominee (3)
Robert J. Bertoldi 46 Director Nominee
David J. Illingworth 46 Director Nominee
</TABLE>

(1) Executive Committee

6
<PAGE>

(2) Audit Committee
(3) Compensation Committee
(4) Stock Option Committee

RICHARD C.E. MORGAN has served as a director and Chairman of the Board of
the Company since 1985. In November 1999, Mr. Morgan co-founded incuVest and
since then, has served as its Chairman and Chief Executive Officer. In 1995, Mr.
Morgan co-founded Amphion Capital Management L.L.C., a private equity and
venture capital firm, and since then has served as one of its Managing Partners.
From 1986 to 1998, Mr. Morgan was the Managing General Partner of Wolfensohn
Partners L.P., the predecessor to Amphion Capital Management. Mr. Morgan
currently serves as Chairman of Quidel Corp., a publicly traded company that
manufactures and distributes rapid diagnostic tests. In addition, Mr. Morgan
serves on the Board of Directors of the following publicly traded companies:
Celgene Corp., which develops and markets biotechnology products; ChromaVision
Medical Systems, Inc., which develops an autorated cellular imaging system; and
Indigo N.V., which is in the digital printing systems industry. Mr. Morgan is
also a director of several private and non-profit companies, including Orbis
International, Inc., a non-profit organization dedicated to fighting blindness
worldwide.

ALLAN GRIEBENOW has served as a director, President and Chief Executive
Officer of the Company since July 1999. He founded Prism Video, Inc. in 1994 and
was Chief Executive Officer of Prism Video, Inc. from 1994 to July 1999. Mr.
Griebenow spent the past 20 years in the telecommunications and advanced
applications. He started his career in 1979 as a Presidential Management Intern
with NASA, and holds a B.S. in Business Administration from the University of
Maryland and an MBA from San Francisco State University.

JAMES R. CRAIG has served as Vice President, Secretary and Chief Financial
Officer of the Company since August 1999. He was a co-founder and chief
financial officer of CashNet Financial Group, Inc. in 1998. From 1996 to 1998
Mr. Craig was Vice President, Division Controller with Firstplus Financial, Inc.
He was chief operating officer and chief financial officer of South Orient
Railroad Company, Ltd. from 1992 to 1996. Mr. Craig has public accounting
experience with Deloitte and Touche and holds a B.S. in accounting and computer
science from Oklahoma State University.

MIKE UREMOVICH has served as Vice President of Sales & Marketing of the
Company since July 1999. He was Vice President Sales & Marketing of Prism
Video, Inc. from 1997 until 1999, when the Company acquired Prism Video, Inc.'s
digital video technology. From 1992 to 1996 Mr. Uremovich held positions of
Regional Sales Manager, Director of Sales, and Vice President, Sales & Marketing
for Computrac, Inc. and for Amtech, both Dallas-based technology companies. Mr.
Uremovich earned his B.S. in business administration and marketing from the
University of Texas at Dallas.

C. SETH CUNNINGHAM has served as a director of the Company since 1994. Since
the middle of 1996, he has been a private equity investor. Mr. Cunningham was a
managing director of J.P. Morgan from 1991 to the middle of 1996. From 1985 to
the middle of 1996, he worked with and was a founding member of J.P. Morgan
Capital Corporation, which makes worldwide private equity investments for J.P.
Morgan's own account. From 1979 to 1985, Mr. Cunningham was employed by J.P.
Morgan in other positions.

RICHARD M. CLARKE has served as a director of the Company since 1988. Since
1992, he has been the chairman of Yankelovich Partners, Inc., a market research
firm. Mr. Clarke is also the president, chief executive officer and a director
of Nash Engineering Company. From 1990 to 1993, he was the chairman and chief
executive officer of Akzo America Inc., a diversified international chemical and
health care corporation.

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

GREGORY W. HASKELL has served as a director of the Company since 1998. Since
1999, he has been a managing director of Internet Capital Group, Inc. From 1995
to 1999, Mr. Haskell was the President and Chief Operating Officer of XL Vision,
Inc. From 1993 to 1995, Mr. Haskell served in various executive management
positions at XL Vision, Inc.

ROBERT J. BERTOLDI is a director nominee of the Company. In November 1999,
Mr. Bertoldi co-founded incuVest and since then, has served as its President. In
1995, Mr. Bertoldi co-founded Amphion Capital Management L.L.C., a private
equity and venture capital firm, and since then has served as one of its
Managing Partners. In August 1997, Mr. Bertoldi co-founded Amphion Ventures
L.P., an early stage technology and life sciences fund, and since then, has
served as its Co-Manager. From 1988 to 1997, Mr. Bertoldi was chief financial
officer of James D. Wolfensohn, Inc., an investment bank headed by James D.
Wolfensohn and Paul Volcker. From 1982 to 1988, Mr. Bertoldi was the chief
financial officer of Hambro America, the U.S. venture capital subsidiary of
Hambros Bank, a British merchant bank. Mr. Bertoldi also serves on the Board of
Directors of many privately held companies.

7
<PAGE>

DAVID J. ILLINGWORTH is a director nominee of the Company. Since January
2000, Mr. Illingworth has been the President and Chief Operating Officer of XL
Vision, Inc. Since April 1998, Mr. Illingworth has been the Chairman of the
Board of VidaMed, Inc., a developer and marketer of medical device products.
Since August 1999, he has also been the Executive Chairman. From April 1998 to
August 1999, he was also the President and Chief Executive Officer of VidaMed,
Inc. From September 1996 to March 1998, Mr. Illingworth was the Executive Vice
President and President of the Home Care Business of Nellcor Puritan Bennett, a
provider of products and services for respiratory-impaired persons. From January
1993 to September 1996, he was the Vice President - Field Operations, Marketing
and Service of Nellcor Puritan Bennett.

BOARD MEETINGS AND COMMITTEES OF THE BOARD

The Board of Directors had seven meetings during the fiscal year ended
December 31, 1999. During the fiscal year ended December 31, 1999, all of the
Company's incumbent directors attended at least 75 percent of (a) the total
number of meetings of the Board and (b) the total number of meetings held by all
committees of the Board on which he served.

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

EXECUTIVE COMMITTEE. The Executive Committee has the authority to exercise
substantially all of the powers of the Board in the management and business
affairs of the Company, except it does not have the authority to declare
dividends, authorize the issuance of shares of the Company's common stock,
modify the Company's Certificate of Incorporation or its Bylaws, adopt any
agreement of merger or consolidation or recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Company's assets or the
dissolution of the Company. Meetings of the Board are held periodically each
year and special meetings are held from time to time. As a consequence, the
occasions on which this committee is required to take action are limited. The
members of this committee are Messrs. Morgan and Griebenow. The committee did
not meet during 1999.

AUDIT COMMITTEE. The Audit Committee is responsible for reviewing the
Company's accounting and financial practices and policies and the scope and
results of the Company's audit. The Audit Committee is also responsible for
recommending the selection of the Company's independent public accountants. This
committee is presently comprised of Messrs. Clarke, Coleman and Cunningham. The
committee met on one occasion during 1999.

COMPENSATION COMMITTEE. The Compensation Committee reviews the compensation
of executive officers, except members of the committee, and makes
recommendations to the Board regarding executive compensation. This committee is
presently comprised of Messrs. Morgan, Coleman and Haskell. The committee did
not meet during 1999.

STOCK OPTION COMMITTEE. The Stock Option Committee administers the Company's
existing stock option plan. This committee is presently comprised of Messrs.
Coleman and Morgan. The committee met on three occasions during 1999.

8
<PAGE>

COMPENSATION OF THE COMPANY'S DIRECTORS

The current policy of the Company is to pay each director who is not
employed by the Company and who does not beneficially own more than 5% of the
shares of common stock outstanding the compensation set forth in the Director
Compensation Plan. Under the Director Compensation Plan, each eligible director
receives an annual grant of 5,000 options to acquire common stock at an exercise
price equal to the fair market value per share of the common stock at the time
the option is granted (the "Annual Grant"). The Annual Grant customarily takes
place shortly after each annual meeting of the Company's stockholders. All new
Board members receive 7,500 options to acquire common stock at an exercise price
equal to the fair market value per share of the common stock on the date the
Board member is approved by the directors. All new Board members will also be
eligible to receive the Annual Grant. The Company has temporarily suspended
paying any cash to eligible directors for preparing and attending meetings of
directors and committees until the Company reports quarterly net earnings. Once
the Company has reported net earnings for a fiscal quarter, the Company will
reconsider paying additional cash consideration to eligible directors. While
directors do not receive additional compensation for attending meetings, the
Company pays ordinary and necessary out-of-pocket expenses for directors to
attend Board and committee meetings. Directors who are officers or employees of
the Company receive no fees for service on the Board or committees thereof.

REPORT OF COMPENSATION COMMITTEE ON ANNUAL EXECUTIVE COMPENSATION

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

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

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

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

9
<PAGE>

EXECUTIVE COMPENSATION

The following table summarizes the compensation earned by the Company's
present and former Chief Executive Officer and its two other most highly
compensated executive officers (whose annualized compensation exceeded
$100,000), collectively, the "Named Executive Officers," for services rendered
in all capacities to the Company during the fiscal years ended December 31,
1999, 1998 and 1997.

<TABLE>
<CAPTION>
Summary Compensation Table

Long-Term
Annual Compensation Compensation
-------------------------------------------- -------------
Securities
Underlying All Other
Name and Principal Positions Year Salary Bonus Options Compensation
- -------------------------------------- ------ --------------------- -------------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Richard C. E. Morgan (1) 1999 $ - $ - - $ -
Chairman of the Board 1998 $ - $ - - $ -
1997 $ 60,000 $ - - $40,000

Allan Griebenow (2) 1999 $ 99,165 $29,563 450,000 $ 2,292
President and Chief
Executive Officer

James R. Craig (3) 1999 $ 64,615 $ 9,375 150,000 $ -
Vice President, Secretary
and Chief Financial Officer

Michael Uremovich (4) 1999 $ 60,207 $22,442 150,000 $ 548
Vice President of Sales

Harry Budow (5) 1999 $167,249 $18,750 - $ 4,371
President and Chief 1998 $206,000 $36,000 200,000 $ -
Executive Officer 1997 $ 87,500 $22,498 - $ -

Danny G. Hair (6) 1999 $166,076 $28,957 - $ 4,876
Vice President, Secretary 1998 $158,000 $73,000 150,000 $ -
and Chief Financial Officer
</TABLE>
__________________
(1) Served as the Chief Executive Officer of the Company from 1997 to April
1998 and did not receive any compensation in 1998.

(2) Represents compensation earned from July 1999, when Mr. Griebenow joined
the Company.

(3) Represents compensation earned from August 1999, when Mr. Craig joined the
Company.

(4) Represents compensation earned from July 1999, when Mr. Uremovich joined
the Company.

(5) Resigned from the Company in June 1999.

(6) Resigned from the Company in September 1999.

10
<PAGE>

OPTION GRANTS IN 1999 TO THE COMPANY'S EXECUTIVE OFFICERS

The following table provides information regarding the stock options granted
by the Company to Named Executive Officers in the year ended December 31, 1999.
Other than those persons listed in the following table, the Company did not
grant any stock options to any other Named Executive Officers.

<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------------
Realizable Value at
% of Assumed Annual Rates of Price
Total Options Appreciation for
Options Granted to Exercise or Expiration Option Term (1)
Name Granted Employees Base Price Date 5% 10%
- --------------------------- ------- ------------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>

Allan Griebenow 450,000 43% $2.50 07/15/2009 707,506 1,792,960
James R. Craig 150,000 14% $2.75 08/15/2009 259,419 657,419
Michael Uremovich 150,000 14% $2.50 07/15/2009 235,835 597,653
</TABLE>
____________________

(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, of the Company's stock price.

AGGREGATE OPTION EXERCISES IN 1999 BY THE COMPANY'S EXECUTIVE OFFICERS

The following table provides information as to options exercised, if any, by
each of the Named Executive Officers in 1999 and the value of options held by
those officers at year-end measured in terms of the last reported sale price for
the shares of the Company's Voting Common Stock on December 31, 1999 ($5.50 as
reported on NASDAQ).

11
<PAGE>

Aggregate Option Exercises in 1999 and Year End Option Values

Number of Securities
Underlying Unexercised Value of Unexercised
Options at December 31, in-the-Money Options
1999 at December 31, 1999
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. E. Morgan - $ - 3,000 - $ 8,900 $ -
Allan Griebenow - $ - 450,000 450,000 $ - $ 1,350,000
James R. Craig - $ - 150,000 150,000 $ - $ 412,500
Michael Unremovich - $ - 150,000 150,000 $ - $ 450,000
Harry S. Budow - $ - 100,000 - $ 250,000 $ -
Danny G. Hair 37,500 $ 87,781 - - $ - $ -
</TABLE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SERIES 2000 NON-VOTING PREFERRED STOCK PRIVATE PLACEMENT. On March 31,
2000, the Company sold $5,000,000 of its Series 2000 Non-Voting Preferred Stock
to incuVest, a member of the Amphion Investors, in a private equity placement.
The Company issued 500 shares of its Series 2000 Non-Voting Preferred Stock,
which has a stated value of $10,000 per share and is convertible into Non-Voting
Common Stock based on a conversion price of $3.50 per non-voting common share.

SALE OF LASERTECHNICS MARKETING CORPORATION. On April 30, 1999, the Company
completed the sale of its Lasertechnics Marketing Corporation ("LMC") subsidiary
to affiliates of Amphion Capital Management ("Amphion"), 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 received $500,000 in cash, $2,000,000 in debt cancellation, a
$4,000,000 note receivable due March 2002 (or 2004 under certain conditions), a
$500,000 demand note receivable and a warrant to purchase equity in the Amphion-
controlled enterprise to which Amphion transferred these business and assets,
with an exercise price of $2.50 per share, representing approximately 8% of that
enterprise. If LMC is subsequently sold prior to March 31, 2002 by the Amphion-
controlled enterprise, the Company has the option to exchange its warrant for an
amount payable in cash equal to 20% of the net profits received by the
Amphion-controlled enterprise from such sale, where "net profits" is defined as
the excess of (a) the total consideration that the Amphion-controlled
enterprise receives from such sale, 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 that Amphion Ventures or its affiliates
invested in LMC after March 31, 1999.

DEBT CONVERSION BY MAJOR STOCKHOLDER. On September 30, 1999, the Company
signed a 10% convertible note maturing September 30, 2002 under which the
Company could borrow up to $6,000,000 from Amphion Ventures, a principal
stockholder of the Company. The note holder may convert all or any portion of
the indebtedness into Series 1999 Non-Voting Preferred Stock of the Company.
Initial note proceeds totaling $3,787,275 were used to pay off a series of
demand notes, including accrued interest, owed to the Amphion Investors. In
consideration for the financing arrangement, the Company issued at closing a
warrant to acquire 180,362 shares of the Company's Non-Voting Common Stock at an
exercise price of $2.10 per share. The Company may be required to issue
additional warrants covering up to an aggregate of 533,923 shares of Non-Voting
Common Stock based on the outstanding balance of the convertible notes on each
of the first two anniversary dates.

Under the terms of the 10% Convertible Note dated September 30, 1999, the
Company borrowed $5,986,395. On December 31, 1999, Amphion Ventures elected to
convert $3,323,423 of these borrowings into 332 shares of Series 2000 Non-Voting
Preferred Stock.

12
<PAGE>

PAYMENT OF DIVIDENDS ON PREFERRED STOCK. The holders of the Series A, B
and C Preferred Stock are entitled to receive dividends on each such share held
by a holder at the annual rate of 10% of the original issue price of each such
share payable in arrears, at the end of each quarter. Series I, J and 1999
Voting 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 payable in arrears, semi annually. Dividends on these six series of
preferred stock are payable in cash or additional shares of preferred stock, at
the option of the Company or the holders of the preferred stock, as the case may
be. During 1999 the Company issued 12 shares of Series I Preferred Stock, 168
shares of Series J Preferred Stock and 4 shares of Series 1999 Preferred Stock
as payment for all accrued and unpaid dividends.

RESIGNATION OF INDEPENDENT AUDITORS

KPMG LLP resigned as the Company's independent auditor on October 13, 1999.
At a meeting held on October 19, 1999, the Audit Committee of the Company's
Board of Directors approved the engagement of Ernst & Young LLP as its
independent auditor for the fiscal year ended December 31, 1999, to replace the
firm of KPMG LLP.

The audit reports of KPMG LLP on the Company's financial statements for the
past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles, except for a statement in the audit reports that KPMG LLP
believed the Company's recurring losses from operations and resulting continued
dependence upon access to additional external financing raised substantial doubt
about the Company's ability to continue as a going concern. In connection with
the audits of the Company's financial statements for each of the two fiscal
years ended December 31, 1998 and December 31, 1997, and the subsequent interim
period through October 12, 1999, there were no disagreements with KPMG LLP on
any matter of accounting principles or practices, financial statement
disclosures, or auditing scope procedure which, if not resolved to the
satisfaction of KPMG LLP, would have caused KPMG LLP to make reference to the
subject matter in its reports.

A copy of the disclosures made herein has been provided to KPMG LLP. The
response of KPMG LLP, indicating agreement with the disclosures, is attached as
an exhibit to the Company's annual report and is hereby incorporated by
reference herein.

13
<PAGE>

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED SHARES

The authorized capital stock of the Company consists of (a) 12,000,000
shares of Voting Common Stock, (b) 2,250,000 shares of Non-Voting Common Stock,
and (c) 7,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), issuable in series.

As of April 1, 2000, a total of 3,321,208 shares of Voting Common Stock and
112,492 shares of Non-Voting Common Stock were issued and outstanding. As of
April 1, 2000, a total of 149,509 shares of Preferred Stock were issued and
outstanding as follows: (i) 57,692 shares of Series A Preferred Stock; (ii)
52,817 shares of Series B Preferred Stock; (iii) 35,427 shares of Series C
Preferred Stock; (iv) 677 shares of Series I Preferred Stock;(v) 1,920 shares of
Series J Preferred Stock; (vi) 129 shares of Series 1999 Voting Preferred Stock
and (vii) 847 shares of Series 2000 Non-Voting Preferred Stock. All outstanding
shares of the Company's Voting Common Stock, Non-Voting Common Stock and
Preferred Stock are fully paid and nonassessable. None of the shares of Voting
Common Stock, Non-Voting Common Stock or Preferred Stock has preemptive rights.

VOTING COMMON STOCK AND NON-VOTING COMMON STOCK

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

Regulated Stockholders are entitled to convert shares of Voting Common
Stock into shares of Non-Voting Common Stock. The term "Regulated Stockholder"
means (a) the stockholder ("the SBIC Stockholder") that purchased shares of
Voting Common Stock pursuant to a Voting Common Stock and Convertible Note
Purchase Agreement dated July 8, 1994 (the "Purchase Agreement"), between such
stockholder and the Company, (b) any stockholder that is subject to the
provisions of Regulation Y of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 225) or any successor to such regulation ("Regulation
Y"), and that holds shares of Voting Common Stock or Non-Voting Common Stock
originally issued pursuant to the Purchase Agreement or upon conversion of the
Convertible Note issued thereunder, or shares issued upon conversion(s) of such
shares, so long as such stockholder shall hold any such shares of Voting Common
Stock or Non-Voting Common Stock or shares issued upon conversions(s) of such
shares, (c) any Affiliate (as defined below) of any such Regulated Stockholder
specified in clause (a) of (b) above that is a transferee of any shares of
Voting Common Stock or Non-Voting Common Stock of the Corporation, so long as
such Affiliate shall hold any such shares of Voting Common Stock or Non-Voting
Common Stock or shares issued upon conversion(s) of such shares and (d) any
individual, partnership, joint venture, corporation, association, trust, or any
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof (a "Person") (i) to which any such
Regulated Stockholder specified in clause (a) or (b) above or any of its
Affiliates has transferred such shares, so long as such transferee shall hold,
and only with respect to, any shares transferred by such Regulated Stockholder
or Affiliate or any shares issued upon conversion(s) of such shares, and (ii)
which transferee is, or any Affiliate of which is, subject to the provisions of
Regulation Y. The term "Affiliate" means with respect to any Person or any other
Person directly or indirectly controlling, controlled by or under common control
with such Person. For the purpose of this definition, the term "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the

14
<PAGE>

direction of the management and policies of such Person; whether through the
ownership of voting securities or by contract or otherwise.

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

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

The holders of Voting Common Stock and Non-Voting Common Stock are entitled
to receive ratably such dividends, if any, as are declared by the Company's
Board of Directors out of funds legally available for that purpose, subject to
the rights of holders of Preferred Stock. In the event of the Company's
liquidation, dissolution or winding up, the holders of Voting Common Stock and
Non-Voting Common Stock would be entitled to share ratably in all assets of the
Company available for distribution to holders of the Voting Common Stock and
Non-Voting Common Stock, subject to the preferential rights of holders, if any,
of shares of Preferred Stock. See "Description of Capital Stock--Preferred
Stock" below.

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

Amphion Ventures, the holder of 1,747 shares of Series J Preferred Stock,
has agreed not to convert any shares of Non-Voting Common Stock it may acquire
upon conversion of shares of the Series J Preferred Stock to Voting Common Stock
unless it receives the prior written consent of the Company.

15
<PAGE>

PREFERRED STOCK

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

SERIES 1999 PREFERRED STOCK. The Board of Directors has designated 2,500
shares of the Preferred Stock as Series 1999 Preferred Stock, par value $.01 per
share. Each share of Series 1999 Preferred Stock has a stated value of $10,000
(the "Original Series 1999 Issue Price") and is convertible into Voting Common
Stock at any time, at the option of the holder, at a conversion rate equal to
the Original Series 1999 Issue Price divided by the conversion price of the
Series 1999 Preferred Stock, as in effect from time to time. Such conversion
price shall initially be $2.50 per share of Voting Common Stock, subject to
anti-dilution adjustments (the "Series 1999 Conversion Price"). Holders of
shares of Series 1999 Preferred Stock are entitled to vote on all matters
brought before the Company's stockholders as if such shares of Series 1999
Preferred Stock had been converted into shares of Voting Common Stock, in
addition to any class voting rights provided by law.

Subject to the prior preferences and other rights of any class or series of
the Company's capital stock ranking prior to the Series 1999 Preferred Stock,
and in preference to the holders of shares of capital stock ranking junior to
the Series 1999 Preferred Stock as to dividends, the holders of Series 1999
Preferred Stock are entitled to receive dividends on each share of Series 1999
Preferred Stock held of record at the annual rate of 8% of the Original Series
1999 Issue Price, payable semi-annually, to the extent of funds legally
available therefor. Such dividends shall be cumulative, shall accrue on each
share on a daily basis (calculated on the basis of a 360-day year, whether or
not earned or declared, from the date of original issue of such shares) and
shall be payable in arrears, when, as and if declared by the Board, in cash or
additional shares of Series 1999 Preferred Stock, or any combination thereof, as
determined from time to time by the Company in its sole discretion. If at any
time that any shares of Series 1999 Preferred Stock are outstanding, the closing
bid price per share of the Voting Common Stock on The NASDAQ SmallCap Market
(or, if the Voting Common Stock is not then included in NASDAQ, but is listed on
any national securities exchange, on the principal national securities exchange
on which the Voting Common Stock is then listed) remains above $7.50 per share
for 20 consecutive trading days, then, commencing on such 20th trading day, the
cumulative dividend will not be payable; provided, however, that if the closing
bid price per share of the Voting Common Stock remains below $7.50 for 20
consecutive trading days, then the dividend will resume as of such 20th day.

Upon dissolution, liquidation or winding up of the Company, holders of the
Series 1999 Preferred Stock will be entitled, after payment of preferential
amounts on any securities ranking senior to the Series 1999 Preferred Stock, to
receive from the assets of the Company available for distribution to
stockholders an amount in cash, per share, equal to the Original Series 1999
Issue Price, plus any and all accrued unpaid dividends attributable to such
share at the time of such dissolution, liquidation or winding up of the Company.
The Series 1999 Preferred Stock ranks senior to the Voting Common Stock and Non-
Voting Common Stock as to any such distributions and on an equal basis with the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock the Series I Preferred Stock and the Series J Preferred Stock.

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The Series 1999 Preferred Stock is subject to optional redemption at any
time by the Company, in whole or in part, at a redemption price per share equal
to the Original Series 1999 Issue Price plus any accrued unpaid dividends
thereon. The Company's optional right of redemption is subject to each Series
1999 Preferred Stock holder's right to convert such Series 1999 Preferred Stock
into Voting Common Stock within 10 business days after the Company's notice of
redemption.

The shares of common stock which PV Proceeds Holdings, Inc. may acquire upon
conversion of the Series 1999 Preferred Stock are subject to a three-year lockup
from the date of the closing, which may be reduced to two years upon the
occurrence of certain events. PV Proceeds Holdings, Inc. agreed not to convert
the Series 1999 Preferred Stock until the Company obtains stockholder approval
to issue the common stock.

The Series 1999 Preferred Stock is also subject to the mandatory conversion
by the Company into shares of the Company's Voting Common Stock if (a) the
closing bid price of the Company's common stock on the NASDAQ SmallCap Market is
at least $7.50 per share for a period of at least twenty (20) consecutive
trading days and (b) the average trading volume of the common stock on the
NASDAQ SmallCap Market remains at least 50,000 shares per day as measured by
NASDAQ during the same twenty (20) consecutive trading days. If the Series 1999
Preferred Stock is converted by the Company pursuant to this mandatory
conversion right, then the three-year lockup referred to in the preceding
paragraph will expire as of the date of any such mandatory conversion.

SERIES 1999 NON-VOTING PREFERRED STOCK. The Board of Directors has
designated 2,500 shares of the Preferred Stock as Series 1999 Non-Voting
Preferred Stock, par value $.01 per share. Each share of Series 1999 Non-Voting
Preferred Stock has a stated value of $10,000 (the "Original Series 1999 Non-
Voting Issue Price") and is convertible into Non-Voting Common Stock at any
time, at the option of the holder, at a conversion rate equal to the Original
Series 1999 Non-Voting Issue Price divided by the conversion price of the Series
1999 Non-Voting Preferred Stock, as in effect from time to time. Such conversion
price shall initially be $3.00 per share of Non-Voting Common Stock, subject to
anti-dilution adjustments (the "Series 1999 Non-Voting Conversion Price").
Holders of shares of Series 1999 Non-Voting Preferred Stock are not entitled to
vote on any matter brought before the Company's stockholders, or as to which the
holders of the Voting Common Stock are otherwise entitled to vote.

Subject to the prior preferences and other rights of any class or series of
the Company's capital stock ranking prior to the Series 1999 Non-Voting
Preferred Stock, and in preference to the holders of shares of capital stock
ranking junior to the Series 1999 Non-Voting Preferred Stock as to dividends,
the holders of Series 1999 Non-Voting Preferred Stock are entitled to receive
dividends on each share of Series 1999 Non-Voting Preferred Stock held of record
at the annual rate of 8% of the Original Series 1999 Non-Voting Issue Price,
payable semi-annually, to the extent of funds legally available therefor. Such
dividends shall be cumulative, shall accrue on each share on a daily basis
(calculated on the basis of a 360-day year, whether or not earned or declared,
from the date of original issue of such shares) and shall be payable in arrears,
when, as and if declared by the Board, in cash or additional shares of Series
1999 Non-Voting Preferred Stock, or any combination thereof, as determined from
time to time by the Company in its sole discretion. If at any time that any
shares of Series 1999 Non-Voting Preferred Stock are outstanding, the closing
bid price per share of the Voting Common Stock on The NASDAQ SmallCap Market
(or, if the Voting Common Stock is not then included in NASDAQ, but is listed on
any national securities exchange, on the principal national securities exchange
on which the Voting Common Stock is then listed) remains above $7.50 per share
for 20 consecutive trading days, then, commencing on such 20th trading day, the
cumulative dividend will not be payable; provided, however, that if the closing
bid price per share of the Voting Common Stock remains below $7.50 for 20
consecutive trading days, then the dividend will resume as of such 20th day.

Upon dissolution, liquidation or winding up of the Company, holders of the
Series 1999 Non-Voting Preferred Stock will be entitled, after payment of
preferential amounts on any securities ranking senior to the Series 1999 Non-
Voting Preferred Stock, to receive from the assets of the Company available for
distribution to stockholders an amount in cash, per share, equal to the Original
Series 1999 Non-Voting Issue Price, plus any

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<PAGE>

and all accrued unpaid dividends attributable to such share at the time of such
dissolution, liquidation or winding up of the Company. The Series 1999 Non-
Voting Preferred Stock ranks senior to the Voting Common Stock and Non-Voting
Common Stock as to any such distributions and on an equal basis with the Series
A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock
the Series I Preferred Stock and the Series J Preferred Stock.

The Series 1999 Non-Voting Preferred Stock is subject to optional redemption
at any time by the Company, in whole or in part, at a redemption price per share
equal to the Original Series 1999 Non-Voting Issue Price plus any accrued unpaid
dividends thereon. The Company's optional right of redemption is subject to
each Series 1999 Non-Voting Preferred Stock holder's right to convert such
Series 1999 Non-Voting Preferred Stock into Non-Voting Common Stock within 10
business days after the Company's notice of redemption.

The holders of Series 1999 Non-Voting Preferred Stock agreed not to convert
the Series 1999 Non-Voting Preferred Stock until the Company obtains stockholder
approval to issue the Non-Voting Common Stock.

The Series 1999 Non-Voting Preferred Stock is also subject to the mandatory
conversion by the Company into shares of the Company's Non-Voting Common Stock
if (a) the closing bid price of the Company's common stock on the NASDAQ
SmallCap Market is at least $7.50 per share for a period of at least twenty (20)
consecutive trading days and (b) the average trading volume of the common stock
on the NASDAQ SmallCap Market remains at least 50,000 shares per day as measured
by NASDAQ during the same twenty (20) consecutive trading days.

SERIES 2000 NON-VOTING PREFERRED STOCK. The Board of Directors has
designated 2,500 shares of the Preferred Stock as Series 2000 Non-Voting
Preferred Stock, par value $.01 per share. Each share of Series 2000 Non-Voting
Preferred Stock has a stated value of $10,000 (the "Original Series 2000 Non-
Voting Issue Price") and is convertible into Non-Voting Common Stock at any
time, at the option of the holder, at a conversion rate equal to the Original
Series 2000 Non-Voting Issue Price divided by the conversion price of the Series
2000 Non-Voting Preferred Stock, as in effect from time to time. Such conversion
price shall initially be $3.50 per share of Non-Voting Common Stock, subject to
anti-dilution adjustments (the "Series 2000 Non-Voting Conversion Price").
Holders of shares of Series 2000 Non-Voting Preferred Stock are not entitled to
vote on any matter brought before the Company's stockholders, or as to which the
holders of the Voting Common Stock are otherwise entitled to vote.

Subject to the prior preferences and other rights of any class or series of
the Company's capital stock ranking prior to the Series 2000 Non-Voting
Preferred Stock, and in preference to the holders of shares of capital stock
ranking junior to the Series 2000 Non-Voting Preferred Stock as to dividends,
the holders of Series 2000 Non-Voting Preferred Stock are entitled to receive
dividends on each share of Series 2000 Non-Voting Preferred Stock held of record
at the annual rate of 8% of the Original Series 2000 Non-Voting Issue Price,
payable semi-annually, to the extent of funds legally available therefor. Such
dividends shall be cumulative, shall accrue on each share on a daily basis
(calculated on the basis of a 360-day year, whether or not earned or declared,
from the date of original issue of such shares) and shall be payable in arrears,
when, as and if declared by the Board, in cash or additional shares of Series
2000 Non-Voting Preferred Stock, or any combination thereof, as determined from
time to time by the Company in its sole discretion. If at any time that any
shares of Series 2000 Non-Voting Preferred Stock are outstanding, the closing
bid price per share of the Voting Common Stock on The NASDAQ SmallCap Market
(or, if the Voting Common Stock is not then included in NASDAQ, but is listed on
any national securities exchange, on the principal national securities exchange
on which the Voting Common Stock is then listed) remains above $7.50 per share
for 20 consecutive trading days, then, commencing on such 20th trading day, the
cumulative dividend will not be payable; provided, however, that if the closing
bid price per share of the Voting Common Stock remains below $7.50 for 20
consecutive trading days, then the dividend will resume as of such 20th day.

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<PAGE>

Upon dissolution, liquidation or winding up of the Company, holders of the
Series 2000 Non-Voting Preferred Stock will be entitled, after payment of
preferential amounts on any securities ranking senior to the Series 2000 Non-
Voting Preferred Stock, to receive from the assets of the Company available for
distribution to stockholders an amount in cash, per share, equal to the Original
Series 2000 Non-Voting Issue Price, plus any and all accrued unpaid dividends
attributable to such share at the time of such dissolution, liquidation or
winding up of the Company. The Series 2000 Non-Voting Preferred Stock ranks
senior to the Voting Common Stock and Non-Voting Common Stock as to any such
distributions and on an equal basis with the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock the Series I Preferred
Stock and the Series J Preferred Stock.

The Series 2000 Non-Voting Preferred Stock is subject to optional redemption
at any time by the Company, in whole or in part, at a redemption price per share
equal to the Original Series 2000 Non-Voting Issue Price plus any accrued unpaid
dividends thereon. The Company's optional right of redemption is subject to
each Series 2000 Non-Voting Preferred Stock holder's right to convert such
Series 2000 Non-Voting Preferred Stock into Non-Voting Common Stock within 10
business days after the Company's notice of redemption.

The holders of Series 2000 Non-Voting Preferred Stock agreed not to convert
the Series 2000 Non-Voting Preferred Stock until the Company obtains stockholder
approval to issue the Non-Voting Common Stock.

The Series 2000 Non-Voting Preferred Stock is also subject to the mandatory
conversion by the Company into shares of the Company's Non-Voting Common Stock
if (a) the closing bid price of the Company's common stock on the NASDAQ
SmallCap Market is at least $7.50 per share for a period of at least twenty (20)
consecutive trading days and (b) the average trading volume of the common stock
on the NASDAQ SmallCap Market remains at least 50,000 shares per day as measured
by NASDAQ during the same twenty (20) consecutive trading days.

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<PAGE>

MATTERS TO BE BROUGHT BEFORE THE MEETING

PROPOSAL 1. Election of Directors

Six persons currently serve on the Board and are expected to continue to
serve until the annual meeting. Unless contrary instructions are set forth in
the Proxy, it is intended that the persons named in the Proxy will vote all
shares of stock represented by the Proxy for the election as directors of
Messrs. Richard C.E. Morgan, Allan Griebenow, Paul J. Coleman, Jr., Gregory W.
Haskell, Robert J. Bertoldi and David J. Illingworth. The six directors elected
at the annual meeting will each serve for a term expiring on the date of the
annual meeting in 2001. Directors of the Company are elected annually and hold
office until their successors have been elected and qualified or their earlier
resignation or removal. Should any nominee become unavailable for election, the
Board of Directors of the Company may designate another nominee, in which case
the persons acting under duly executed proxies will vote for the election of the
replacement nominee, although management is not aware of any circumstances
likely to render any nominee unavailable for election. Election of directors
will be by a plurality of the votes cast. A stockholder may, in the manner set
forth in the enclosed Proxy card, instruct the proxy holder not to vote that
stockholder's shares of stock for one or more of the named nominees. The proxies
solicited hereby cannot be voted for a number of persons greater than the number
of nominees named herein. The Certificate of Incorporation of the Company, as
amended to date, does not permit cumulative voting.

REQUIRED AFFIRMATIVE VOTE

A plurality of the votes of the holders of the outstanding shares of Voting
Common Stock and Voting Preferred Stock of the Company, voting together as a
single class, represented at a meeting at which a quorum is present may elect
directors. For information regarding the nominees for directors of the Company
see "Management of the Company."

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

PROPOSAL 2. Ratification of Selection of Independent Auditor

The Board of Directors has approved and recommends the appointment of Ernst
& Young LLP, certified public accountants to serve as independent auditor for
the Company for the fiscal year ended December 31, 2000. Approval of the
appointment of the accountants is being sought in order to give stockholders the
opportunity to express their opinion on the matter. Should approval not be
obtained, the Board of Directors would expect to reconsider the appointment.

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

REQUIRED AFFIRMATIVE VOTE

The affirmative vote of a majority of the outstanding voting power of the
Voting Common Stock and Voting Preferred Stock, voting together as a single
class, which are represented and entitled to vote at the annual meeting is
required to ratify Ernst & Young LLP as independent auditor for the Company.

THE BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE RATIFICATION OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITOR OF THE COMPANY.

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<PAGE>

PROPOSAL 3. Approval of the Authorized Shares Proposal

The Authorized Shares Proposal provides for the amendment of the Certificate
of Incorporation of the Company to increase the number of authorized shares of
the Company's Voting Common Stock from 12,000,000 to 50,000,000.

The Company's authorized capital stock currently consists of 12,000,000
shares of Voting Common Stock and, as of the Record Date, there were issued and
outstanding 3,321,208 shares of Voting Common Stock. Additionally, there are
currently issued and outstanding options, warrants, Preferred Stock or Non-
Voting Common Stock that, upon their conversion, exercise or exchange, as the
case may be, would call for the issuance of an additional 13,409,200 of Voting
Common Stock.

Subject to stockholder approval, the Authorized Shares Proposal will be
effected by the filing of an amendment to the Certificate of Incorporation of
the Company, substantially in the form of Appendix A. The change in the number
of authorized shares of Voting Common Stock as provided in the Authorized Shares
Proposal will be effective immediately upon the filing of such amendment to the
Certificate of Incorporation with the Secretary of State of the State of
Delaware.

REASONS FOR THE AUTHORIZED SHARES PROPOSAL

Prior to giving effect to the Authorized Shares Proposal, the Company does
not have a sufficient number of authorized but unissued shares of Voting Common
Stock to reserve the full number of such shares required to be issued upon the
conversion, exercise or exchange of all outstanding securities of the Company
that by their terms are convertible into, or exercisable or exchangeable for
shares of Voting Common Stock. Accordingly, the Company has agreed with certain
holders of such securities that (a) the Company will use its best efforts to
increase the number of authorized, but unissued shares to permit such
reservation in full and (b) such holders will waive their rights to require such
reservation, to the extent of such deficiency until the second business day
after approval of the Authorized Shares Proposal.

The Company currently intends to seek additional financing through the
possible public or private sale of its securities. The availability of
authorized but unissued shares of Voting Common Stock would permit the Company
to issue Voting Common Stock or convertible securities in connection with any
such financing, if the Board of Directors determines that such issuance is in
the best interests of the Company and its stockholders. The Company has not
determined how many of its authorized but unissued shares it intends to issue
for any of the above purposes, if any, or when, if ever, it intends to issue
such shares. The Board of Directors does not intend to solicit stockholder
authorization for the issuance of any additional shares of Voting Common Stock
unless required by applicable law or the requirements of NASDAQ.

CERTAIN POSSIBLE EFFECTS ON AUTHORIZED BUT UNISSUED SHARES

The Company's existing stockholders do not have any preemptive rights under
the Certificate of Incorporation of the Company or otherwise to purchase any
shares of Voting Common Stock that may from time to time be issued by the
Company. It is possible that shares of Voting Common Stock may be issued at a
time and under circumstances that may dilute the voting power of existing
stockholders, increase or decrease earnings per share and/or increase or
decrease the book value per share of the shares then outstanding. The
Authorized Shares Proposal would increase the number of shares of Voting Common
Stock authorized following effectiveness of the Authorized Shares Proposal.

The ability of the Board of Directors to issue additional shares of Voting
Common Stock without further stockholder approval could have the effect of
discouraging any possible unsolicited efforts to acquire control of the Company.
However, the Authorized Shares Proposal is not intended as an anti-takeover
device, and no specific anti-takeover measures are currently being contemplated
by the Board of Directors. Management is not

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<PAGE>

aware of any third party that may currently intend to accumulate the Company's
Voting Common Stock or to obtain control of the Company.

REQUIRED AFFIRMATIVE VOTE

The affirmative vote of a majority of the outstanding voting power of the
Voting Common Stock and Voting Preferred Stock, voting together as a single
class; and the Voting Common Stock and Non-Voting Common Stock, voting together
as a single class, is required to adopt the Authorized Shares Proposal.

THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSAL IS IN THE BEST INTEREST OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE AUTHORIZED SHARES PROPOSAL.

PROPOSAL 4. Authorization to issue more than 20% of the Company's
outstanding voting common stock, at a per share price less than the greater of
the per share book or market value of the voting common stock on the date of
private placements, to holders of: (a) Series 1999 Preferred Stock upon the
conversion of the Series 1999 Preferred Stock, (b) Series 1999 Non-Voting
Preferred Stock upon the conversion of the Non-Voting Common Stock and (c)
Series 2000 Non-Voting Preferred Stock upon the conversion of the Non-Voting
Common Stock.

NASDAQ LISTING REQUIREMENTS

In February 1998, new listing requirements for continued listing on the
NASDAQ SmallCap Market became effective. In particular, the listing
requirements require that a company currently included on NASDAQ meet each of
the following standards to maintain its continued listing: (i) either (A) net
tangible assets (defined as total assets, minus goodwill, minus total
liabilities) of $2 million, (B) total market capitalization of $35 million, or
(C) net income (in the last fiscal year or in two of the last three fiscal
years) of $500,000; (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 stockholders; and (vi)
compliance with certain corporate governance requirements (the "NASDAQ Listing
Requirements"). The Company is currently in compliance with the NASDAQ Listing
Requirements. Although management believes the Company will be able to preserve
the listing of the Voting Common Stock on the NASDAQ SmallCap Market, there can
be no assurance that the Company will be able to do so.

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

The Company entered into three private placement transactions in 1999 to
fund its operations and maintain its NASDAQ listing under the NASDAQ Listing
Requirements. In connection with these three transactions, the Company signed a
note convertible into Series 1999 Non-Voting Preferred Stock and issued Series
1999 Preferred Stock and Series 2000 Non-Voting Preferred Stock. These three
series of preferred stock have fixed conversion prices that were less than the
greater of the per share book or market value of the Voting Common Stock on the
date of issuance. The conversion prices of the preferred stock were discounted
from the market value of the Voting Common Stock to reflect (i) that the
preferred stock is less liquid than the Voting Common Stock, (ii) the limited
trading volume of the Voting Common Stock on NASDAQ and (iii) that the shares of
Voting Common Stock into which the preferred stock would be convertible would
not be freely tradeable without the Company's filing of a registration
statement.

One of the corporate governance requirements of the NASDAQ Listing
Requirements provides that stockholder approval is required of a plan or
arrangement to issue common stock (or securities convertible into or exercisable
common stock) equal to 20% or more of the common stock, or 20% or more of the
voting power, outstanding before the issuance, for less than the greater of book
or market value of the common stock.

Although the preferred stock issued pursuant to the three private placement
transactions may be convertible into less 20% of the common stock, or less than
20% of the voting power of the Company, the holders of the preferred stock
issued in the three transactions agreed not to convert their shares of preferred
stock until such time as the Company's stockholders have approved this fourth
proposal.

SERIES 1999 PREFERRED STOCK. There are currently issued and outstanding
129 shares of Series 1999 Preferred Stock. PV Proceeds Holdings, Inc. currently
holds all of the shares of Series 1999 Preferred Stock outstanding. These
shares were issued to PV Proceeds

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<PAGE>

Holdings, Inc. in connection with the Company's acquisition in July 1999 of
substantially all of the assets of PV Proceeds Holdings, Inc. If PV Proceeds
Holdings, Inc. elected to convert all 129 shares of Series 1999 Preferred Stock
to Voting Common Stock, the result would be the issuance of 516,600 shares of
Voting Common Stock. If the holders of the Series 1999 Preferred Stock already
issued elect to convert all of their shares of the Series 1999 Preferred Stock
into Voting Common Stock, then such holders would receive approximately 9.10% of
the outstanding Voting Common Stock and voting power, and approximately 4.0% of
the fully-diluted equity of the Company as of April 28, 1999.

The conversion price of the Series 1999 Preferred Stock is $2.50 per share
and was less than the greater of the book or market value of the Voting Common
Stock on the date of this private placement. The NASDAQ Listing Requirements
require the Company to receive the consent of its stockholders to issue more
than 20% of its Voting Common Stock at a per share price less than the greater
of the book or market value of the Voting Common Stock on the date of such
private placement. Although the holders of the shares of issued Series 1999
Preferred Stock would receive 9.10% of the outstanding Voting Common Stock and
voting power, which is less than the 20% NASDAQ threshold for stockholder
approval, PV Proceeds Holdings, Inc. has agreed not to convert its shares of
Series 1999 Preferred Stock to Voting Common Stock until such time as the
Company's stockholders have approved this proposal.

SERIES 1999 NON-VOTING PREFERRED STOCK. There are currently no shares
issued and outstanding of Series 1999 Non-Voting Preferred Stock. On September
30, 1999, the Company signed a 10% convertible note maturing September 30, 2002
(the "Amphion Convertible Note"), under which the Company can borrow up to
$6,000,000 from Amphion Ventures. The Company has borrowed $5,986,395 under the
Amphion Convertible Note. Amphion Ventures may convert all or any portion of
this indebtedness into Series 1999 Non-Voting Preferred Stock. On December 31,
1999, Amphion Ventures elected to convert $3,323,423 of borrowings under the
Amphion Convertible Note into 332 shares of Series 2000 Non-Voting Preferred
Stock.

If Amphion Ventures were to elect to (a) convert the remaining indebtedness
under the Amphion Convertible Note into 266 shares of Series 1999 Non-Voting
Preferred Stock, (b) convert all 266 shares of Series 1999 Non-Voting Preferred
Stock to Non-Voting Common Stock and (c) convert all shares of Non-Voting Common
Stock to Voting Common Stock, the result would be the issuance of 1,268,084
shares of Voting Common Stock. If the holders of the Series 1999 Non-Voting
Preferred Stock already issued elect to convert (a) all of their shares of the
Series 1999 Non-Voting Preferred Stock into Non-Voting Common Stock, and (b) all
Non-Voting Common Stock into Voting Common Stock, such holders would be eligible
to receive approximately 13.4% of the outstanding Voting Common Stock and voting
power, and approximately 7.5% of the fully-diluted equity of the Company as of
April 28, 1999.

The conversion price of the Series 1999 Non-Voting Preferred Stock is $3.00
per share and was less than the greater of the book or market value of the
Voting Common Stock on the date of this private placement. The NASDAQ Listing
Requirements require the Company to receive the consent of its stockholders to
issue more than 20% of its Voting Common Stock at a per share price less than
the greater of the book or market value of the Voting Common Stock on the date
of such private placement. Although the holders of the shares of issued Series
1999 Non-Voting Preferred Stock would receive 13.4% of the outstanding Voting
Common Stock and voting power, which is less than the 20% NASDAQ threshold for
stockholder approval, Amphion

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<PAGE>

Ventures has agreed not to convert their shares of
Series 1999 Non-Voting Preferred Stock to Non-Voting Common Stock until such
time as the Company's stockholders have approved this proposal. Further,
Amphion Ventures has agreed not to convert any shares of Non-Voting Common Stock
into Voting Common Stock without having received the prior written consent of
the Company.

SERIES 2000 NON-VOTING PREFERRED STOCK. There are currently issued and
outstanding 847 shares of Series 2000 Non-Voting Preferred Stock. Amphion
Ventures currently holds 347 shares of Series 2000 Non-Voting Preferred Stock.
These shares were issued to Amphion Ventures in connection with the equity
commitments and subscriptions for preferred stock by Amphion Ventures as
described in the preceding paragraph. incuVest currently holds 500 shares of
Series 2000 Non-Voting Preferred Stock. These shares were issued to incuVest in
connection with a private placement in March 2000. See also "Transactions with
Management and Related Parties -- Equity Investments by Major Stockholders."
The Company was dependent on these equity commitments during 1999 and 2000 to
fund its operations and maintain its NASDAQ listing under the NASDAQ Listing
Requirements.

If Amphion Ventures and incuVest were to elect to (a) convert all 847
shares of Series 2000 Non-Voting Preferred Stock to Non-Voting Common Stock and
(b) convert all shares of Non-Voting Common Stock to Voting Common Stock, the
result would be the issuance of 2,420,000 shares of Voting Common Stock. If the
holders of the Series 2000 Non-Voting Preferred Stock already issued elect to
convert (a) all of their shares of the Series 2000 Non-Voting Preferred Stock
into Non-Voting Common Stock, and (b) all Non-Voting Common Stock into Voting
Common Stock, then such holders would be eligible to receive approximately 25.5%
of the outstanding Voting Common Stock and voting power, and approximately
14.35% of the fully-diluted equity of the Company as of April 28, 2000.

The conversion price of the Series 2000 Non-Voting Preferred Stock is $3.50
per share and was less than the greater of the book or market value of the
Voting Common Stock on the date of the private placements involving the Series
2000 Non-Voting Preferred Stock. The NASDAQ Listing Requirements require the
Company to receive the consent of its stockholders to issue more than 20% of its
Voting Common Stock at a per share price less than the greater of the book or
market value of the Voting Common Stock on the date of such private placements.
Amphion Ventures and incuVest have agreed not to convert their shares of Series
2000 Non-Voting Preferred Stock to Non-Voting Common Stock until such time as
the Company's stockholders have approved this proposal. Further, Amphion
Ventures and incuVest have agreed not to convert any shares of Non-Voting Common
Stock into Voting Common Stock without having received the prior written consent
of the Company.

For a description of the material terms of the Series 1999 Preferred Stock,
Series 1999 Non-Voting Preferred Stock, and Series 2000 Non-Voting Preferred
Stock, see "Description of Capital Stock -- Preferred Stock."

REQUIRED AFFIRMATIVE VOTE

The affirmative vote of a majority of the outstanding voting power of the
Voting Common Stock and Voting Preferred Stock, voting together as a single
class, is required to adopt the issuance of shares of Voting Common Stock to
holders of Series 1999 Non-Voting Preferred Stock, Series 1999 Non-Voting
Preferred Stock and Series 2000 Non-Voting Preferred Stock under the
circumstances described in this proposal.

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<PAGE>

THE BOARD OF DIRECTORS BELIEVES THAT THIS PROPOSAL IS IN THE BEST INTEREST
OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDER VOTE FOR
THE ISSUANCE OF MORE THAN 20% OF THE OUTSTANDING VOTING COMMON STOCK AT A PER
SHARE PRICE LESS THAN THE PER SHARE MARKET PRICE OF THE VOTING COMMON STOCK ON
THE DATE OF PRIVATE PLACEMENTS TO HOLDERS OF (A) SERIES 1999 PREFERRED STOCK
UPON CONVERSION OF THE SERIES 1999 PREFERRED STOCK, (B) SERIES 1999 NON-VOTING
PREFERRED STOCK UPON THE CONVERSION OF THE NON-VOTING COMMON STOCK AND (C)
SERIES 2000 NON-VOTING PREFERRED STOCK UPON THE CONVERSION OF THE NON-VOTING
COMMON STOCK.

DEADLINE FOR STOCKHOLDER PROPOSALS

Proposals of stockholders intended to be presented at the Company's 2001
annual meeting, and otherwise eligible, must be received by the Company no later
than January 1, 2001, to be included in the Company's proxy material and form of
Proxy relating to that meeting. The mailing address of the Company for
submission of any such proposal is given on the first page of this Proxy
Statement.

GENERAL

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under Section 16(a) of the Securities Exchange Act of 1934 as amended (the
"Securities Exchange Act"), directors, certain officers and beneficial owners of
10% or more of the Company's Voting Common

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Stock are required from time to time to file with the SEC reports on Forms 3, 4
or 5, relating principally to transactions in Company securities by such
persons. Based solely upon a review of Forms 3, 4 and 5 submitted to the Company
during and with respect to 1999, all of these individuals or entities timely
filed their respective Forms 3, 4 or 5 required by Section 16(a) of the
Securities Exchange Act during 1999.

COUNTING OF VOTES

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

OTHER BUSINESS

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

ANNUAL REPORT

A copy of the Company's 2000 Annual Report to Stockholders, including the
Form 10-KSB for the year ended December 31, 1999, which contains audited
financial statements, accompanies this Proxy Statement. Upon written request to
Investor Relations, AXCESS Inc., 3208 Commander Drive, Carrollton, Texas 75006,
the Company will provide, without charge, copies of its annual report to the SEC
on Form 10-KSB.

DOCUMENTS INCORPORATED BY REFERENCE

The Annual Report on Form 10-KSB for the year ended December 31, 1999 is
incorporated herein by reference and is deemed to be a part of this Proxy
Statement, except for information superseded by information in this Proxy
Statement.

By Order of the Board of Directors,

/s/ James R. Craig

James R. Craig, Secretary

May 1, 2000

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APPENDIX A

[FORM OF]

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AXCESS INC.

AXCESS Inc. (the "Corporation"), a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify:

FIRST: That the Board of Directors of the Corporation duly adopted
resolutions setting forth the following amendment to the Certificate of
Incorporation of the Corporation (the "Amendment"), declaring the Amendment to
be advisable and calling for the submission of the proposed Amendment to the
stockholders of the Corporation for consideration thereof. The resolution
setting forth the proposed Amendment is as follows:

RESOLVED, that Article FOURTH, paragraphs (a) and (c)(C)(4) of the
Certificate of Incorporation are hereby amended to read in their entirety as
follows:

"FOURTH: (a) The total number of shares of capital stock that the
Corporation shall have authority to issue is 59,250,000, consisting of
50,000,000 shares of Common Stock, par value $0.01 per share ("Common
Stock"), 2,250,000 shares of Non-Voting Common Stock, par value $0.01 per
share ("Non-Voting Common Stock" and together with the Common Stock,
"Common Shares") and 7,000,000 shares of preferred stock, par value $0.01
per share ("Preferred Stock").

(c)(C)(4) In addition to any affirmative vote required by law or by this
Certificate of Incorporation, the affirmative vote or written consent of
the holders of not less than a majority of the then outstanding shares of
both classes of Common Shares, voting together as a single class, shall be
required for any increase, reduction or other change in the authorized
number of shares of any class of Common Shares. The affirmative vote or
written consent specified in the preceding sentence shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage vote may be specified, by law, by the Bylaws of the Corporation
or otherwise."

SECOND: That thereafter, pursuant to a resolution of the Board of
Directors, an annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the DGCL, at
which meeting the necessary number of shares as required by statute were voted
in favor of the Amendment.

THIRD: That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the DGCL.

FOURTH: That the Amendment shall be effective on the date this Certificate
of Amendment is filed and accepted by the Secretary of State of the State of
Delaware.

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<PAGE>

IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by Allan Griebenow, its President and Chief Executive Officer, and attested by
James R. Craig, its Secretary, this ___ day of June, 2000.

AXCESS INC.

By:________________________________________________
Allan Griebenow, President and Chief Executive Officer

ATTEST:

____________________________
James R. Craig, Secretary

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APPENDIX B

AMENDMENT NO. 1
TO THE
AXCESS INC.
1991 INCENTIVE STOCK OPTION PLAN

The name of the plan is the AXCESS INC. 1991 INCENTIVE STOCK OPTION PLAN
(the "Incentive Stock Option Plan"). The Incentive Stock Option Plan was adopted
by the Board of Directors of AXCESS, INC., a Delaware corporation (the
"Company"), effective as of May 29, 1991. This Amendment No. 1 to the Incentive
Stock Option Plan (the "Amendment") was adopted by the Board of Directors of the
Company on April __, 2000.

Section 1. The Amendment amends and restates Section 4 of the Incentive
Stock Option Plan in its entirety as follows:

4. Allotment of Shares

A maximum of 2,000,000 authorized but unissued shares of the common
stock of the Company (par value $.01) will be allotted to the Plan, subject
to the required approval by the stockholders. The Committee may, in its
discretion, use treasury shares in lieu of authorized but unissued shares
for the options. To the extent this is done, the number of authorized but
unissued shares to be used for the Plan will be reduced.

Shares covered by options which lapse or have been terminated during
the duration of this Plan may be reallocated by the Committee.

Section 2. The remaining provisions of the Plan are not modified or
changed by this Amendment.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed
as of April __, 2000 by its duly authorized representative.

AXCESS, INC.

By:______________________________________
Name: Allan Griebenow
Title: President and Chief Executive Officer

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APPENDIX C

PROXY
AXCESS INC.

SOLICITED ON BEHALF OF THE COMPANY AND APPROVED BY THE BOARD OF DIRECTORS

The undersigned hereby constitutes and appoints Richard C.E. Morgan and
Allan Griebenow, and each of them, as attorneys-in-fact and proxies of the
undersigned, with full power of substitution, for and in the name, place, and
stead of the undersigned, to appear at the 2000 Annual Meeting of Stockholders
of AXCESS Inc. to be held on the 6th day of June, 2000 (pursuant to the Notice
of Annual Meeting dated May 2000, and accompanying Proxy Statement), and at any
postponement or adjournment thereof, and to vote all of the shares of AXCESS
Inc. that the undersigned is entitled to vote with all the powers and authority
the undersigned would possess if personally present in accordance with the
following instructions.

When properly executed, this Proxy will be voted in the manner directed
herein by the undersigned Stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5.

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1. ELECTION OF DIRECTORS
FOR all nominees WITHHOLD
Listed to the right AUTHORITY
(except as marked to vote for all
to the contrary) nominees listed
to the right.

[ ] [ ]

2. RATIFICATION OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITOR OF THE COMPANY.