SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant
to Rule 14a-11(c) or Rule 14a-12
Lasergate Systems, 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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6
(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
<PAGE>
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
---------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
5) Total fee paid:
---------------------------------------------------------------
[ X ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------
3) Filing Party:
---------------------------------------------------------------
4) Date Filed:
---------------------------------------------------------------
-2-
<PAGE>
LASERGATE SYSTEMS, INC.
28050 U.S. 19 NORTH
CORPORATE SQUARE
SUITE 502
CLEARWATER, FLORIDA 34621
----------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 21, 1995
----------------------------------------
NOTICE IS HEREBY GIVEN that the 1995 Annual Meeting of
Shareholders (the "Meeting") of LASERGATE SYSTEMS, INC., a Florida corporation
(the "Company"), will be held on Thursday, December 21, 1995 at 2:00 P.M. at The
Summit ICOT Center, 13575 58th Street North, Clearwater, Florida, to consider
and act upon the following:
I. to elect five directors to a classified Board of Directors
of the Company, with two directors being elected for a term of one year, one
director being elected for a term of two years and two directors being elected
for a term of three years, and until their successors are duly elected and
qualified;
II. approval of an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock,
par value $.03 per share, from 5,000,000 to 20,000,000;
III. approval of amendments to the Company's 1994 Stock
Option Plan;
IV. approval of the grant of certain stock options to the
Chief Executive Officer; and
V. the transaction of such other business as may properly
come before the Meeting or any adjourments thereof.
Only shareholders of record of common stock, par value $.03
per share, of the Company at the close of business on November 13, 1995 are
entitled to receive notice of, to vote at and to attend the Meeting. At least 10
days prior to the Meeting, a complete list of the shareholders entitled to vote
will be available for inspection by any shareholder, for any purpose germane to
the Meeting, during ordinary business hours, at the offices of the Company,
28050 U.S. 19 North, Corporate Square, Suite 502, Clearwater, Florida 34621.
If you do not expect to be present, you are requested to
fill in, date and sign the enclosed Proxy, which is solicited by the Board of
Directors of the Company, and to mail it promptly
-1-
<PAGE>
in the enclosed envelope. In the event you decide to attend the Meeting in
person, you may, if you desire, revoke your Proxy and vote your shares in
person.
By Order of the Board of Directors,
Vickie L. Guth
Secretary
Dated: November 13, 1995
IMPORTANT
THE RETURN OF YOUR SIGNED PROXY AS PROMPTLY AS POSSIBLE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING. NO POSTAGE IS REQUIRED IF THE
PROXY IS RETURNED IN THE ENVELOPE ENCLOSED FOR YOUR CONVENIENCE AND MAILED IN
THE UNITED STATES.
-2-
<PAGE>
LASERGATE SYSTEMS, INC.
28050 U.S. 19 NORTH
CORPORATE SQUARE
SUITE 502
CLEARWATER, FLORIDA 34621
------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 21, 1995
------------------------------
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Lasergate Systems, Inc., a
Florida corporation (the "Company"), to be voted at the Annual Meeting of
Shareholders of the Company (the "Meeting") which will be held at The Summit
ICOT Center, 13575 58th Street North, Clearwater, Florida, on December 21,1995
at 2:00 P.M., local time, and any adjournment or adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders
and in this Proxy Statement. The approximate date on which this Proxy Statement
and accompanying Proxy will first be sent or given to shareholders is November
16, 1995.
A Proxy, in the accompanying form, which is properly executed,
duly returned to the Company and not revoked, will be voted in accordance with
the instructions contained therein and, in the absence of specific instructions,
will be voted in favor of all proposals and in accordance with the judgment of
the person or persons voting the proxies on any other matter that may be brought
before the Meeting. Each such Proxy granted may be revoked at any time
thereafter by writing to the Secretary of the Company prior to the Meeting, by
execution and delivery of a subsequent proxy or by attendance and voting in
person at the Meeting, except as to any matter or matters upon which, prior to
such revocation, a vote shall have been cast pursuant to the authority conferred
by such Proxy. The cost of soliciting proxies will be borne by the Company.
Following the mailing of the proxy materials, solicitation of proxies may be
made by officers and employees of the Company, or anyone acting on their behalf,
by mail, telephone, telegram or personal interview.
VOTING SECURITIES
Shareholders of record as of the close of business on November
13, 1995 (the "Record Date") will be entitled to notice of, and to vote at, the
Meeting or any adjournments thereof. On the Record Date, there were 3,132,027
outstanding shares of common stock, par value $.03 per share (the "Common
Stock"). Each holder of Common Stock is entitled to one vote for
-1-
<PAGE>
each share held by such holder. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum at the Meeting. Proxies submitted which contain abstentions
or broker non-votes will be deemed present at the Meeting in determining the
presence of a quorum.
Shares of Common Stock that are voted to abstain and shares
which are subject to broker non-votes with respect to any matter will not be
considered cast with respect to that matter.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
the beneficial ownership of shares of the Company's Common Stock by (i) each
person who is known by the Company to own more than 5% of the Common Stock, (ii)
each director and nominee, (iii) each current and former executive officer named
under the heading "Executive Compensation" below and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Name and Address of Ownership of Percent
Beneficial Owner Common Stock(1) of Class
- ------------------- ----------------- --------
<S> <C> <C>
Jacqueline E. Soechtig 125,000(2) 3.8%
c/o Lasergate Systems, Inc.
28050 U.S. 19 North
Corporate Square
Suite 502
Clearwater, FL 34621
Stewart L. Krug 25,000(3) --(7)
609 Court Street
Clearwater, FL 34616
Timothy Mahoney -- --
68 Cayman Place
Palm Beach Garden, FL 33418
Donald G. Turner 140,063(4) 4.5%
13841 Feather Sound Drive
Clearwater, FL 34616
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial
Name and Address of Ownership of Percent
Beneficial Owner Common Stock(1) of Class
- ------------------- --------------- --------
<S> <C> <C>
Frank W. Swacker -- --
c/o Lasergate Systems, Inc.
28050 U.S. 19 North
Corporate Square
Suite 502
Clearwater. FL 34616
Lawrence W. Umstadter -- --
7829 Fox Squirrel Circle
Lakeland, FL 33809
GIS Systems Limited Partnership 221,133(5) 6.8%
c/o GIS Management Company
5405 Cypress Center Drive
Suite 100
Tampa, FL 33609
All directors and 186,833(6) 5.7%
executive officers of
the Company as a group
(8 persons)
</TABLE>
- -------------------
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them.
(2) Represents shares issuable pursuant to options which will be exerci-
sable upon the approval of Proposal II below by shareholders.
(3) Represents shares issuable pursuant to options which will be exerci-
sable if Proposals II and III below are approved by shareholders.
(4) These shares are owned jointly with Margaret J. Turner, his wife.
-3-
<PAGE>
(5) Includes 111,800 shares which are issuable upon conversion of Series B
Preferred Stock ( "Preferred Stock" ), which GIS Systems Limited
Partnership pledged to the Company to secure its payment pursuant to a
promissory note payable to the Company. The holder has agreed not to
convert the Preferred Stock while it is so pledged.
(6) Includes 173,000 shares issuable pursuant to options which will be
exercisable upon the approval of Proposals II and III below by
shareholders.
(7) Less than 1%.
CHANGE IN CONTROL OF THE COMPANY DURING THE LAST FISCAL YEAR
On April 5, 1993, faced with the prospect of being unable to
perform its obligations under two major contracts for its products, the Company
entered into a series of agreements (the "Agreements") with Richard Friedman
pursuant to which it was able to secure $300,000 of funding (the "Loan"). Mr.
Friedman pledged collateral for the Loan to the First Commercial Bank of Tampa
which funded the Loan as a line of credit. The proceeds of the Loan allowed the
Company to deliver its products on a timely basis under the two separate
contracts. Under the terms of the Agreements, the Company committed to issuing
to Mr. Friedman shares of its Common Stock as an inducement for his securing the
Loan.
Because the Company was unable to secure financing to replace
Mr. Friedman's collateral for the Loan due in part to the untimely accident
which incapacitated its former President, Paul Gilfoyle, and in part to the
slower development of the market for its products, the Company became obligated
under the Agreements to issue to Mr. Friedman and/or his designees 833,333
shares of its Common Stock. Such shares, in the aggregate, gave Mr. Friedman and
his designees control over the majority of the issued and outstanding shares of
Common Stock of the Company and, therefore, the effective control over the
Company. The shares were issued on April 20, 1994 as follows:
<TABLE>
<S> <C>
Richard Friedman .................................................... 305,556
Jeffrey Markowitz ................................................... 305,556
Stewart L. Krug ..................................................... 83,333
Milton H. Barbarosh ................................................. 69,444
Edmond O'Donnell .................................................... 69,444
</TABLE>
Immediately prior to the issuance of these shares, Donald G. Turner, Margaret J.
Turner, his wife, and a corporation owned and controlled by them and their
children, owned approximately 42% of the issued and outstanding Common Stock of
the Company.
-4-
<PAGE>
Mr. Friedman currently owns 21,250 shares of the Company's
issued and outstanding Common Stock and his designees do not own any of the
Company's issued and outstanding Common Stock. However, Mr. Friedman and Mr.
Markowitz own, in the aggregate, 95,950 shares of non-voting, convertible
Series A Preferred Stock. The Series A Preferred Stock is only convertible upon
the authorization by the Company's shareholders of additional shares of Common
Stock. See Proposal II below. Additionally, Mr. Krug has an option to purchase
25,000 shares of the Company's Common Stock at an exercise price of $2.00 per
share.
ACTION TO BE TAKEN AT THE MEETING
I. ELECTION OF DIRECTORS
Three separate classes of directors will be elected at the
Meeting, the first will consist of two members, the second of one member, and
the third of two members, and they will be designated Class I, Class II and
Class III, respectively. The two directors nominated for Class I will serve for
a one-year term expiring at the 1996 Annual Meeting of Shareholders, the one
director nominated for Class II will serve for a two-year term expiring at the
1997 Annual Meeting of Shareholders and the two directors nominated for Class
III will serve for a three-year term expiring at the 1998 Annual Meeting of
Shareholders, and in each case, until their successors shall be duly elected and
qualified. At each annual meeting of shareholders subsequent to the Meeting, one
class of directors will be elected to succeed those directors in the class whose
terms then expire, for terms expiring at the third succeeding annual meeting of
shareholders. Unless otherwise specified, all proxies will be voted in favor of
the election of Jacqueline E. Soechtig, Stewart L. Krug, Timothy Mahoney, Frank
W. Swacker and Lawrence W. Umstadter as directors of the Company. All of the
nominees are currently directors of the Company whose terms as directors expire
at the Meeting.
The Board of Directors has no reason to expect that any of the
nominees will be unable to stand for election at the date of the Meeting. In the
event that a vacancy among the original nominees occurs prior to the Meeting,
the proxies will be voted for a substitute nominee or nominees, if any are named
by the Board of Directors, and for the remaining nominees.
-5-
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information about each
executive officer and director and nominee for director of the Company,
including the class in which they have been nominated.
<TABLE>
<CAPTION>
Year
First
Became Present Position
Name Age Director Class With the Company
- ---- --- -------- ----- ----------------
<S> <C> <C> <C> <C>
Jacqueline E. Soechtig 46 1994 III President, Chief
Executive Officer and
director
Stewart L. Krug 63 1994 I Director
Timothy Mahoney 37 1994 I Director
Frank W. Swacker 73 1995 III Director
Lawrence W. Umstadter 58 1995 II Director
Vickie L. Guth 47 -- -- Vice President -
Finance, Chief
Financial Officer,
Treasurer and
Secretary
William I. Fenner 39 -- -- Vice President and
Chief Operating
Officer
Fred R. Maglione 46 -- -- Vice President-
Sales and Marketing
James H. Moore, Jr. 53 -- -- Vice President-
Customer Services
and Assistant
Secretary
</TABLE>
-6-
<PAGE>
All directors hold office until their respective successors
are elected and duly qualified, or until death, resignation or removal. Officers
hold office until the meeting of the Board of Directors following each annual
meeting of shareholders and until their successors have been chosen and
qualified.
Jacqueline E. Soechtig has been a director of the Company and
the Company's President and Chief Executive Officer since October 31, 1994. From
September 1994 until immediately prior to her employment by the Company, Ms.
Soechtig was a consultant to the Company. During the ten-month period prior
thereto, Ms. Soechtig purchased and operated a restaurant in Clearwater, Florida
together with her spouse. From February 1992 through December 1993, Ms. Soechtig
was the President and Chief Executive Officer of Precision Systems, Inc.
("PSI"), a company engaged in the production and sales of voice and call
processing systems. Prior to her employment with PSI, Ms. Soechtig served as
vice president of business development for Sprint Corp. (May 1990 through
February 1992). She also held the position of vice president of MCI
Telecommunications Corporation where she served in various sales, marketing and
technical capacities from May 1984 through May 1990. Both Sprint and MCI are
engaged in the telecommunications industry. Additionally, from 1970 to 1983, Ms.
Soechtig was employed by International Business Machines Corp. in various
technical and sales positions.
Stewart L. Krug has been a member of the Board of Directors of
the Company since May 1, 1994 and from July 26, 1994 until October 31, 1994 he
served as the Company's interim President and Chief Executive Officer. From 1958
until assuming his duties as interim President and Chief Executive Officer of
the Company, Mr. Krug was engaged in the private practice of law, to which he
has since returned.
Timothy Mahoney has been a member of the Board of Directors of
the Company since May 1, 1994. He also was a consultant to the Company and as
such served as the Company's President and Chief Executive Officer from May 1,
1994 to July 26, 1994. From June 1991 through January 1994, Mr. Mahoney was
President of SyDOS, a division of SyQuest Technology, a manufacturer of
removable cartridge disk drives. From 1985 to 1991, Mr. Mahoney served as Vice
President of Marketing and Sales for Rodime PLC, a Scottish disk drive
manufacturer. Since July 1994, Mr. Mahoney has served as an independent
management consultant to various companies.
Frank W. Swacker has been a member of the Board of Directors
of the Company since May 3, 1995. Mr. Swacker has been engaged in the practice
of law for the past 46 years, more than the last five of such years in private
practice. Between 1968 and 1978, he was the International Counsel for
Allis-Chalmers Corporation in Milwaukee, Wisconsin. Mr. Swacker has also
published articles focusing on international foreign trade and the financial,
antitrust and cross- cultural aspects of transnational business. Additionally,
he has advised the United States House of Representatives on international trade
treaties and has served as Special Assistant Deputy Attorney General for the
State of New York. Since 1960, Mr. Swacker has been a member of the National
Panel of Arbitrators of the American Arbitration Association.
-7-
<PAGE>
Lawrence W. Umstadter has been a member of the Board of
Directors of the Company since May 3, 1995. Since 1992, Mr. Umstadter has been a
partner of Projects International Inc., a business consulting group specializing
in the areas of agriculture, resource recovery and recycling. From 1985 until
1992, he was the President of Energy Development Associates, Inc., a provider of
consulting services to the resource recovery, co-generation and recycling
sectors, until it was acquired by Rome Polymers in 1992. Additionally, from 1990
until 1992, he was the President of Rivenite Corporation, a recycler of
post-consumer plastic until it was acquired by Mobil Chemical Company in 1992.
Vickie L. Guth has served as the Company's Vice
President--Finance, Chief Financial Officer and Treasurer since November 1993.
Since August 1, 1994, she has also served as the Company's Secretary and at
various times during 1994, she served as a director of the Company. From March
1989 through May 1993, she was Chief Financial Officer of Prime Technology,
Inc., a manufacturer of corrugated box-making machinery. In July 1993, Prime
Technology, Inc. filed for protection under Chapter 11 of the United States
Bankruptcy Code.
William I. Fenner has been the Company's Vice President of
Field Operations since September 1994. From June 1994 until September 1994, Mr.
Fenner was Vice President of Operations of The Answer Network and from March
1994 until June 1994 he was Director of Operations of VarTec Telecom. Both of
these companies are engaged in the telecommunications industry. From November
1992 until January 1994, Mr. Fenner was Vice President of Customer Operations of
Precision Systems, Inc., a company engaged in the production and sales of voice
and call processing systems. From December 1980 until October 1992, Mr. Fenner
was director of Operations of Sprint Corp., a company also engaged in the
telecommunications industry.
Fred R. Maglione, operating under a consulting agreement with
the Company, has been the Company's Vice President of Sales and Marketing since
February 1995. From 1980 to 1995, Mr. Maglione was the President of GIS Systems,
Ltd. ("GIS"). Substantially all of the assets of GIS, a company formerly engaged
in the production and sales of admission control and reserve seating systems,
were acquired by the Company in February 1995.
James H. Moore, Jr. has been the Company's Vice President of
Engineering and Operations since January 1995. From April 1993 to December 1994,
Mr. Moore was the Vice President of Internal Operations of Precision Systems,
Inc. From March 1962 to February 1993, he worked for General Motors Corporation
serving from March 1990 as Production Superintendent of its Arlington, Texas
assembly plant. While at General Motors, Mr. Moore had production management
responsibility and also served as a quality expert and consultant to various
General Motors plants throughout North America.
-8-
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company's executive officers and directors, and any
persons who own more than 10% of any class of the Company's equity securities,
to file certain reports relating to their ownership of such securities and
changes in such ownership with the Securities and Exchange Commission and to
furnish the Company with copies of such reports. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company,
all Section 16(a) filing requirements applicable to such officers, directors and
greater that 10% owners, during its last fiscal year, have been complied with
except that Jacqueline E. Soechtig was inadvertently late in filing a report
upon becoming an executive officer and director, Vickie L. Guth and David
Holewinski, a former director of the Company, were each inadvertently late in
filing one report with regard to one transaction, Stewart L. Krug was
inadvertently late in filing one report with regard to one transaction and
Timothy Mahoney was inadvertently late in filing two reports with regard to two
transactions.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
During the fiscal year ended December 31, 1994, the Board of
Directors of the Company held fourteen meetings and acted by unanimous written
consent on nine occasions. All of the directors attended at least 75% of the
aggregate number of meetings of the Board.
There is no standing audit, nominating or compensation
committee of the Board of Directors. The duties normally performed by such
committees have been assumed by the entire Board of Directors.
-9-
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------- ------------
Name and Principal Restricted
Position Year Salary Stock Awards
- ------------------ ---- ------ ------------
<S> <C> <C> <C>
Jacqueline E. Soechtig 1994 $54,347 ---
President and Chief
Executive Officer
Stewart L. Krug(1) 1994 --- ---
Former Chief
Executive Officer
Timothy Mahoney(1) 1994 $39,906 $57,000
Former Chief
Executive Officer
Donald Turner(1) 1994 $56,400 $53,574
Former Chief 1993 48,000 9,357
Executive Officer 1992 --- 23,400
</TABLE>
(1) During the course of the Company's 1994 fiscal year, each of Messrs.
Krug, Mahoney and Turner served at some point as the Company's chief
executive officer.
-10-
<PAGE>
The following table contains information concerning the only
options which were granted during the Company's 1994 fiscal year to the current
and former executive officers named in the Summary Compensation Table above:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date
- ---- ------- ----------- -------- --------
<S> <C> <C> <C> <C>
Jacqueline E. Soechtig 375,000 71.5% $2.00 10/30/05
Stewart L. Krug 25,000 4.8% $2.00 10/30/05
</TABLE>
No options were exercised during the last fiscal year by any
of the current and former executive officers named in the Summary Compensation
Table above. The following table contains information concerning the number and
value, at December 31, 1994, of the unexercised options held by each of such
individuals:
<TABLE>
<CAPTION>
OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR END VALUES
Number of Unexercised Value of Unexercised
Options Held at Fiscal In-the-Money Options
Year-End (Exercisable/ Held at Fiscal Year-End
Name Unexercisable) (Exercisable/Unexercisable)(1)
- ---- ---------------------- ------------------------------
<S> <C> <C>
Jacqueline E. Soechtig 125,000(2)/0 $1,421,875/0
Stewart L. Krug 25,000(3)/0 $284,375/0
- --------------------
</TABLE>
(1) Fair market value of underlying securities (the closing bid price of
the Company's Common Stock on the National Association of Securities
Dealers Automated Quotation System) at fiscal year end, minus the
exercise price.
(2) These options will be exercisable upon the approval of Proposal II
below by shareholders.
-11-
<PAGE>
(3) These options will be exercisable upon the approval of Proposals II and
III below by shareholders.
EMPLOYMENT CONTRACT
Jacqueline E. Soechtig, President and Chief Executive Officer
of the Company, is a party to an employment agreement with the Company under
which she is entitled to a base salary of $220,000 per annum. The agreement also
provides that for 1995 she may earn up to an additional 50% of her base salary
as incentive compensation upon the Company's achievement of certain financial
goals. The Agreement contemplates a new incentive compensation arrangement to be
addressed for the second and third years of the Agreement's term. Pursuant to
the agreement and as a signing bonus, Ms. Soechtig was paid $25,000 and was
granted stock options, the exercise of which is subject to shareholder approval
of Proposal II below, to purchase 125,000 shares of Common Stock exercisable for
ten years at an exercise price of $2.00 per share. The Agreement provides for an
additional grant of stock options to purchase 250,000 shares, which is subject
to shareholder approval of proposals II and IV below. These additional options
which are also exercisable for ten years at an exercise price of $2.00 per
share, vest as to 125,000 on October 31, 1995 and 125,000 on October 31, 1996.
Ms. Soechtig was granted certain registration rights with respect to the shares
of Common Stock underlying all of such options. The term of the agreement
commenced on October 31, 1994 and terminates on October 31, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 23, 1994, 158,333 shares were issued to Timothy
Mahoney, a director and former President and Chief Executive Officer of the
Company, in consideration of services rendered from January through April 1994
and as an inducement for him to serve as Chairman of the Board, President and
Chief Executive Officer. In addition, 10,000 shares were issued to Vickie L.
Guth, the Company's Vice President--Finance and Chief Financial Officer in
consideration of her consenting to the termination of a previously authorized
stock option.
The Company has granted each of Vickie L. Guth, William I.
Fenner and James H. Moore, Jr., each of which is an executive officer of the
Company, options to purchase 30,000 shares of the Company's Common Stock at an
exercise price of $2.00 per share. These options are subject to shareholder
approval of Proposals II and III below. The options have a term of ten years,
with 5,000 of such options being currently exercisable, an additional 5,000
becoming exercisable on January 1, 1996 and 10,000 becoming execisable on each
of January 1, 1997 and January 1, 1998.
The Company has also granted Stewart L. Krug an option to
purchase 25,000 shares of the Company's Common Stock at an exercise price of
$2.00 per share. This option is subject to shareholder approval of Proposals II
and III below. The option has a term of ten years and is currently exercisable
as to all of the shares subject thereto. Additionally, Mr. Krug was granted
certain registration rights with respect to the shares of Common Stock
underlying such options.
-12-
<PAGE>
II. AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED COMMON STOCK
On March 23, 1995, the Board of Directors adopted a resolution
approving a proposal to amend Article III of the Company's Articles of
Incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue from 5,000,000 to 20,000,000. The Board of Directors
determined that such amendment is advisable and directed that the proposed
amendment be considered at the Meeting.
PURPOSES AND EFFECTS OF INCREASING THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
The proposed amendment would increase the number of shares of
Common Stock which the Company is authorized to issue from 5,000,000 to
20,000,000. The additional 15,000,000 shares will be a part of the existing
class of Common Stock and, if and when issued, will have the same rights and
privileges as the shares of Common Stock presently issued and outstanding. Each
share of Common Stock entitles the holder to one vote. The holders of Common
Stock of the Company are not entitled to preemptive rights or cumulative voting.
The following summary of the terms of the increase in the
number of authorized shares of Common Stock does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the portion of the
proposed amendment to Article III of the Company's Articles of Incorporation
which is set forth under the heading "Proposed New Article III to the Company's
Articles of Incorporation" in Exhibit A to this Proxy Statement.
The Board of Directors believes that the adoption of the
proposed amendment is advantageous to the Company and its shareholders. The
Company currently contemplates reserving 276,000 shares of the additional Common
Stock which it is seeking to authorize pursuant to this proposal for issuance
upon the exercise of warrants owned by Sterling Foster & Co. ("Sterling
Foster"), the underwriter of the Company's October 1994 public offering of
securities. The warrants were issued to Sterling Foster as compensation for
acting as the underwriter in such public offering. Shares of Common Stock were
previously reserved for issuance upon exercise of such warrants and for the
exercise of securities issuable upon exercise of such warrants, however,
Sterling Foster consented to them not being reserved until the Company receives
the approval of its shareholders for this proposal. The Company also
contemplates reserving 125,000 of the additional shares for issuance upon
exercise of stock options granted as a signing bonus to Jacqueline E. Soechtig
pursuant to her employment agreement. Additionally, the Company will be
obligated to reserve 591,000 shares for issuance upon exercise of options which
either already have or which may be granted from time to time pursuant to the
Company's 1994 Stock Option Plan. Of such shares, 541,667 will only be reserved
upon shareholder approval of Proposal III below. Upon approval of Proposal
IV below by shareholders, the Company will also be obligated to reserve
-13-
<PAGE>
an additional 250,000 shares for future issuance to Jacqueline E. Soechtig upon
exercise of stock options granted pursuant to her employment agreement. Finally,
the Company will be obligated to reserve a sufficient number of shares of Common
Stock for issuance upon the possible conversion of the 95,950 outstanding shares
of Series A Preferred Stock issued to Richard Friedman and Jeffrey Markowitz and
any additional shares of Series A Preferred Stock issued as dividends in
accordance with its terms. Such shares of Series A Preferred Stock were issued
to Messrs. Friedman and Markowitz to extinguish debt owed to such individuals by
the Company which was incurred when such individuals made loans to the Company
for working capital purposes. The number of shares of Common Stock issuable upon
such potential conversion will be determined substantially in accordance with
the following formula: Each share of Series A Preferred Stock is convertible
into the number of shares of Common Stock equal to the greater of either (a) ten
divided by 70% of the average of the closing bid prices of the Common Stock for
the five trading days immediately preceding conversion; (b) ten divided by 70%
of the average of the closing bid prices of the Common Stock for the five
trading days of June 26, 1995 through June 30, 1995; or (c) ten divided by the
lowest price at which shares of Common Stock are sold to third party investors
during the period from July 1, 1995 to June 30, 1996. Based on the average
closing price of the Common Stock for the five trading days ended November 9,
1995 ($5.09), if at the time of a potential future conversion of all currently
outstanding shares of Series A Preferred Stock, under option (a) above the
Company would be required to issue 269,428 shares of Common Stock. If at the
time of a potential future conversion of all currently outstanding shares of
Series A Preferred Stock, option (b) above provides that the number of shares of
Common Stock which the Company would have to issue would be 240,590. Based on
the Company's private placements through the date of this Proxy Statement, if at
the time of a potential conversion of all currently outstanding shares of Series
A Preferred Stock, under option (c) above the Company would be required to issue
369,038 shares of Common Stock. However, there is no upper or lower limit as to
the number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock as the conversion ratio is based on the market price of the
Common Stock. If the market price falls and the number of shares issuable upon
conversion of the Series A Preferred Stock consequently increases, shareholders
could face substantial dilution.
Pursuant to an Asset Purchase Agreement dated as of January 1,
1995 (the "Agreement"), the Company acquired substantially all of the assets of
Globe Information Systems Ltd. ("GIS"). Reference is made to the Agreement,
which was filed as Exhibit 2.1 in the Company's Current Report on Form 8-K dated
February 15, 1995, which includes a more complete description of the
transaction. In connection with the Agreement, the Company has the option to
issue to GIS, in satisfaction of debt, 118,200 shares of Series B Preferred
Stock which will be convertible into shares of Common Stock. If the Company
issues such Series B Preferred Stock, it will be obligated to reserve an
additional 118,200 shares of Common Stock for conversion of the Series B
Preferred Stock. The Company has the further option on or before December 29,
1995 to issue 346,667 shares of Series C Preferred Stock which will be
convertible into shares of Common Stock to GIS in satisfaction of other debt
incurred pursuant to the Agreement. On or after December 30, 1995, but prior to
maturity of such debt on March 31, 1996, the Company has the option to issue a
-14-
<PAGE>
number of shares of Common Stock equal to 1,733,335 divided by the market price
of the Common Stock on the trading days prior to issuance in satisfaction of
such debt. Based on the average closing price of the Common Stock for the five
trading days ended November 9, 1995 ($5.09), the Company would be required to
issue 340,705 shares. Once the debt has matured on March 31, 1996, if the
Company defaults in payment, GIS has the right to require the issuance of
2,000,000 shares of Common Stock in full payment of the debt. The number of
shares of Common Stock into which the Series C Preferred Stock will be
convertible will be determined in accordance with a formula at the time of
issuance. Basically, the formula provides that the Series C Preferred Stock will
be convertible into one share of Common Stock for each share of Series C
preferred Stock if converted on or before March 31, 1996, resulting in the
issuance of 346,667 shares of Common Stock. After March 31, 1996, each share of
Series C Preferred Stock is convertible into the number of shares of Common
Stock equal to the quotient of (i) 1,733,335 divided by the market price of the
Company's Common Stock for the 5 trading days prior to the date of issuance and
(ii) the total number of outstanding shares of Series C Preferred Stock. There
is no upper or lower limit as to the number of shares of Common Stock issuable
upon conversion of the Series C Preferred Stock as the conversion price is based
on the market price of the Common Stock. If the market price falls and the
number of shares issuable upon conversion of the Series C Preferred Stock
consequently increases, shareholders could face substantial dilution. Based on
the average closing price of the Common Stock for the five trading days ended
November 9, 1995 ($5.09), if at the time of a potential future conversion of all
currently outstanding shares of Series C Preferred Stock, the Company would
issue 340,705 shares. The owner of the Series B and C Preferred Stock is GIS,
which is owned by Nicholas Flaskay, Fred Maglione and Ticket Associates, a
limited partnership owned by the family of Barry R. Jackson. A more complete
discussion of the GIS acquisition is contained both in the Company's Current
Report on Form 8-K dated February 15, 1995 and under the caption "Acquisition of
GIS" below. See Note 1 of the GIS pro forma financial statements on page PF-2 of
the Proxy Statement for a description of the rights of the holders of Series B
and C Preferred Stock.
In addition, during October 1995, the Company completed a
private placement of 208,600 shares of non-transferable, convertible Series D
Preferred Stock to seven investors primarily for use by the Company for working
capital. The Company will be obligated to reserve a sufficient number of shares
of Common Stock for issuance upon the conversion of the Series D Preferred Stock
upon approval of the proposed amendment. The number of shares of Common Stock
issuable upon such conversion will be determined substantially in accordance
with the following formula: Upon approval of the amendment to the Company's
Articles of Incorporation, each share of Series D Preferred Stock is convertible
at the holder's option at the rate (the "Conversion Rate") of one share of
Common Stock for each Conversion Factor Dollar Amount (as hereinafter defined)
of Liquidation Value (as hereinafter defined) represented by the shares of
Series D Preferred Stock being converted. The per share Liquidation Value of the
Series D Preferred Stock is equal to the sum of (i) $10 per share, and (ii) an
amount equal to any accrued and unpaid dividends on such share subject to
reduction if thereafter paid. The Conversion Factor Dollar Amount shall be (i)
65% of the average of the closing bid price of the Company's Common Stock
-15-
<PAGE>
as quoted on NASDAQ for five trading days immediately preceding conversion or,
(ii) if not quoted on NASDAQ, 65% of the average current market price of the
Common Stock in accordance with a valuation method therein defined for the five
trading days immediately preceding conversion; provided, however, that the
Conversion Factor Dollar Amount shall not be less than $1.00. In accordance with
the formula, one of the investors has converted the 28,600 shares of Series D
Preferred Stock purchased by him into 110,000 shares of Common Stock. Upon a
potential future conversion of all the remaining outstanding shares of Series D
Preferred Stock the greatest number of shares of Common Stock which the Company
would have to issue would be 1,800,000. If the market price falls and the number
of shares issuable upon conversion of the Series D Preferred Stock consequently
increases, shareholders could face substantial dilution.
If the issuances described above are made, the current
shareholders of the Company will experience a dilutive effect on their voting
rights and, depending upon the consideration received for such issuances, their
shareholders' equity in the Company.
Besides the issuances discussed above, the Company has no
current plans, understandings or agreements involving the issuance of any of the
Common Stock proposed to be authorized. The Company is, however, considering
raising additional funds and may do so through the private or public sale of its
Common Stock. The proposed amendment will provide additional authorized shares
of Common Stock that could be used from time to time, without further action or
authorization by the shareholders (except as may be required by law or by any
stock exchange on which the Company's securities may then be listed), for
corporate purposes which the Board of Directors may deem desirable, including,
without limitation, such private or public financings, acquisitions, stock
splits, stock dividends or other distributions, stock grants, stock options and
employee benefit plans.
The authority of the Board of Directors to issue Common Stock
could also potentially be used to discourage attempts by others to obtain
control of the Company through merger, tender offer, proxy contest or otherwise
by making such attempts more difficult or costly to achieve.
If the proposed amendment is adopted and without giving effect
to the potential conversion of the shares of Series A or Series D Preferred
Stock discussed above, there will be 15,013,906 authorized shares of Common
Stock that are not outstanding or reserved for issuance, 1,347,300 of which will
be immediately reserved for issuance as set forth above. As of the Record Date,
the Company had 3,132,027 shares of Common Stock issued and 1,854,067 shares of
Common Stock reserved for issuance upon the exercise of certain options and
warrants.
-16-
<PAGE>
ACQUISITION OF GIS
THE AGREEMENT
On February 15, 1995, the Company purchased substantially all
of the assets of Globe Information Systems Ltd. ("GIS") effective as of January
1, 1995. The Company engaged in the transaction to expand its product line with
complementary products, enhance the Company's products by integrating them with
software owned or licensed by GIS, acquire the GIS marketing network and acquire
GIS's backlog. The purchase price for the acquisition was determined through
negotiations by the parties and was valued at approximately $3,700,000. The
Company's management deemed this amount to be fair consideration based upon the
1994 revenues of GIS which were approximately equal to the value of the purchase
price, the expected revenues of GIS and the sophistication and market potential
of its products. The total purchase price paid for GIS of approximately
$3,700,000 was allocated based on the fair value of net tangible assets
acquired, with the excess allocated to identifiable intangible components based
on their individual estimated fair values and to goodwill. See Note 1 of the
Notes to Unaudited Condensed Pro Forma Combined Balance Sheet at December 31,
1994 on page PF-2 of this Proxy Statement for a further discussion of the
purchase price for GIS. The fair value of net tangible assets acquired
(inventory, prepaid expenses/other current assets and fixed assets) approximated
$200,000. The estimated fair value of systems and software costs of $1,200,000
was based on the estimated replacement costs of the sophisticated products. The
estimated fair value of customer list/support contracts of $300,000 was based on
the expected earnings which could be generated from future sales to existing
customers and renewals of existing support contracts. The remainder of the
purchase price was allocated to goodwill. The purchase price consisted of
109,333 shares of the Company's Common Stock, 111,800 shares of the Company's
Series B Preferred Stock (which is convertible into Common Stock), the Company's
promissory note in the principal amount of $591,000 (which may be paid by the
issuance by the Company of 118,200 shares of Series B Preferred Stock, which
will be convertible into Common Stock) and the Company's promissory note in the
principal amount of $1,733,335 (which may be paid by the issuance by the Company
of 346,667 shares of the Company's Series C Preferred Stock, which will be
convertible into Common Stock). In addition, the Company agreed to assume
certain liabilities of GIS and loaned GIS $559,000. The 109,333 shares of Common
Stock issued to GIS have been pledged by GIS to the Company until March 31, 1996
in order to secure GIS' obligations to indemnify the Company from any losses
sustained as the result of any misrepresentations made by GIS in connection with
the transaction. The 111,800 shares of Series B Preferred Stock issued to GIS
have also been pledged to the Company in order to secure GIS' repayment of the
$559,000 loaned to GIS by the Company. The issuance of the 109,333 shares of
Common Stock has caused a dilutive effect on the voting rights and shareholders'
equity of the current shareholders of the Company. Additionally, should the
shareholders vote to approve Proposal II above (authorizing additional shares of
Common Stock), the current shareholders of the Company may experience a further,
more significant dilutive effect on their voting rights and shareholders' equity
should GIS convert shares of Series B and C Preferred Stock which the Company
either has issued or intends to issue pursuant to the Agreement. Holders of
-17-
<PAGE>
the Series B and C Preferred Stock would receive $5.00 per share, plus accrued
and unpaid dividends (the "Liquidation Value"), prior to any distribution to
holders of Common Stock in the event of a dissolution or liquidation of the
Company. In addition, if the Company initiates and approves any event requiring
approval of holders of the Series B or Series C Preferred Stock where such
approval is not obtained, such holder may require the Company to redeem the
shares for cash of Series B or Series C Preferred Stock owned by such holder at
a redemption price equal to the Liquidation Value. Holders of Series B and
Series C Preferred Stock have 30 days from receipt of notice from the Company of
the redemption option to deliver a request to the Company that such shares of
Series B or Series C Preferred Stock be redeemed within 10 business days.
In connection with the Agreement, Fred Maglione and Nicholas
Flaskay, both formerly associated with GIS, have agreed to serve as consultants
to the Company for terms beginning February 1, 1995 and expiring on January 31,
1996 and August 1, 1995, respectively. Mr. Maglione is being paid a consulting
fee at the rate of $11,051 per month and Mr. Flaskay, $1,666 per month.
A more complete description of the transaction is contained in
the Company's Current Report on Form 8-K dated February 15, 1995. Additionally,
the following discussion highlights the products acquired by the Company
pursuant to the transaction as well as the historical financial results of GIS,
both significant factors in the Company's determination of the purchase price
for the acquisition.
The following table sets forth the (a) pro forma combined
stockholder's equity and capitalization of the Company and GIS as of December
31, 1994, (b) additional pro forma adjustments (discussed below) related to the
redemption of an aggregate of $2,324,335 of promissory notes payable, with
conversion features, into 118,200 shares of Series B preferred stock and 346,667
shares of Series C preferred Stock and (c) the as adjusted pro forma combined
stockholder's equity and capitalization giving effect to the conversion of an
aggregate of $2,234,335 of promissory notes payable. The Company believes that
the promissory notes will not be sold, but rather converted into Series B and C
Preferred Stock. The Company expects to issue such shares of Series B Preferred
Stock on or prior to March 31, 1996. Additionally, the Company expects to issue
such shares of Series C Preferred Stock based on the market price for the
Company's Common Stock at any time during the period from December 30, 1995
through March 30, 1996.
-18-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
(Unaudited)
Combined Additional
Lasergate pro forma Pro Forma
Delta & GIS(a) adjustments as adjusted
------------- ----------- -----------
<S> <C> <C> <C>
Long-term liabilities:
Notes payable, related party $ 200,000 $ - $ 200,000
Other long-term liabilities 31,690 - 31,690
Obligations to issue common
stock and common stock options 450,000 - 450,000
Common stock subject to put options 210,000 - 210,000
Promissory notes payable (591,000) (i)
(with conversion features) 2,324,335 (1,733,335)(ii) -
Stockholders' equity (deficit):
10,400(ii)
Preferred stock 4,445 3,546 (i) 18,391
Common Stock 90,692 - 90,692
587,454 (i)
Additional paid-in-capital 10,576,260 1,722,935(ii) 12,886,649
Common stock subject to put (210,000) - (210,000)
options
Note receivable (559,000) - (559,000)
Accumulated deficit (7,578,574) - (7,578,574)
----------- ---------- ----------
Total stockholders' equity $ 2,323,823 $2,324,335 $4,648,158
=========== ========== ==========
Total capitalization $ 5,539,848 $ - $5,539,848
=========== ========== ==========
</TABLE>
Pro forma adjustments:
- ---------------------
(a) Included elsewhere in this Proxy Statement. See page PF-1.
(i) Redemption of $591,000 non-interest bearing promissory note by issuance of
118,200 shares of Series B preferred stock ($.03 par value) at $5 per
share.
-19-
<PAGE>
(ii) Redemption of $1,733,335 non-interest bearing promissory note by issuance
of 346,667 shares of Series C preferred stock ($.03 par value) at $5 per
share.
BACKGROUND OF GIS
GIS, which currently maintains an administrative address at 5405
Cypress Center Drive, Suite 100, Tampa, FL 33609, was formerly engaged in the
business of design, integration, installation and sale of admission control and
revenue accounting computer systems and software for the entertainment industry.
The products which GIS marketed and which the Company now offers to its
customers as a result of the acquisition are primarily software-oriented and
include products in the areas of general admission ticketing, reserve seating
and facilities management.
The admission ticketing product, which is marketed by the Company
under the name Admits Gold, provides general admission ticketing for facilities,
enabling facilities to offer a wide variety of ticket types and to easily change
the value of a ticket-type to enhance the facility's attendance and revenues.
For example, the system can print tickets both with and without bar codes, with
applications ranging from simple entry fees to timed admission and tickets of
decrementing value. The computer program is installed on a personal computer
with a MS-DOS operating system and is particularly well-suited for use by the
specific accounting requirements of movie theaters.
The reserve seating product, which is marketed by the Company under
the name Select-a-Seat, controls reserve seating as well as general admission
ticket sales. Select-a-Seat can be purchased with the capability of taking
telephone and mail order reservations, group reservations, remote outlet sales
and season subscription sales. These capabilities make it particularly
well-suited for concerts, sporting arenas and theaters.
The Facilities Management System is designed to manage functions and
events for public or private facilities. This system tracks room and resource
usage and availability and also generates client contracts and billing
statements. The system can be used by any organizations that book space or
schedule activities, including multi-purpose arenas, theaters, convention
centers, hotels, meeting planners, universities, recreation centers and museums.
TAX EFFECTS OF TRANSACTION
The transaction was treated for income tax and accounting purposes
as a taxable purchase of a group of assets and liabilities constituting a trade
or business and, as a result of the transaction, there has been no material
differences in the rights of the Company's shareholders other than the dilutive
effect resulting from the issuance and potential future issuances to GIS of
shares of the Company's Common Stock. The consideration paid for the assets is
allocated based on their fair market values pursuant to Section 1060 of the
Internal Revenue Code. Since the notes payable to GIS are non-interest bearing,
interest will be required to be imputed for income tax purposes. The Company
will recognize an interest expense and the sellers will recognize interest
income during
-20-
<PAGE>
the period which the notes are outstanding. For purposes of the tax allocation
of consideration among the acquired assets, the notes have been discounted
assuming that they will be repaid at their respective due dates.
BACKGROUND OF THE ACQUISITION
Unsolicited, in late November 1994, Mr. Nicholas Flaskay, Chief
Executive Officer and principal of GIS, requested a meeting with Ms. Jacqueline
E. Soechtig, the Company's Chief Executive Officer. At a meeting held on
November 21, 1994 between Mr. Flaskay and Ms. Soechtig, Mr. Flaskay expressed an
interest in selling the assets of GIS to the Company. Noting the synergies
between the two companies, he asked that, should the Company be interested in
acquiring GIS, the process be speedy and confidential so as not to disrupt the
momentum of sales and product development activities.
On December 2, 1994, Ms. Soechtig visited GIS, accompanied by Ms.
Vickie L. Guth, Chief Financial Officer of the Company, Mr. Kenneth Van Ness,
Vice President-Sales of the Company, and Mr. William Fenner, Vice
President-Operations of the Company. During an all-day meeting, Mr. Flaskay, Mr.
Pat Perkins, and Mr. Fred Maglione (the executive management and principals of
GIS) gave a presentation during which they described GIS, its products and its
financial history. They also presented financial projections in which they
identified duplicated expenses that could be eliminated if the operations of GIS
and the Company were combined.
As a result of the meeting, the Company's management agreed that,
pending product evaluation and financial due diligence, the acquisition would
significantly benefit the Company. GIS had shown revenue growth of 22%, 18% and
35% in 1992, 1993, and 1994, respectively. It was anticipated that the synergies
of the company's products and the ability to consolidate costs, particularly in
the administrative and marketing areas, would lead to accelerated growth. Ms.
Soechtig then consulted with members of the Board of Directors of the Company
(the "Board"), who had extensive experience in acquisitions, and contacted the
underwriter of the Company's recent secondary public offering, whose consent to
the acquisition was required under the terms of the Underwriting Agreement
relating to the offering. Management of the Company then decided to pursue a
letter of intent to acquire GIS, subject to due diligence and negotiations of
price and transaction structure.
During the next several weeks, the Company conducted its due diligence
review. Ms. Soechtig and Mr. Fenner interviewed over twenty GIS customers to
assess their satisfaction with GIS products and services. Ms. Guth reviewed
financial, legal and personnel information pertaining to GIS. A team of the
Company's technical personnel reviewed the products and interviewed GIS
technical and support personnel.
Simultaneously, numerous discussions and meetings were held to
establish the price and material terms of a purchase agreement. The Company
submitted a draft of the letter of intent to GIS on December 22, 1994 which
included an outline of a structure whereby the Company would
-21-
<PAGE>
purchase substantially all of the assets of GIS for a purchase price of
approximately $3,700,000, consisting of cash, convertible Preferred Stock and
the assumption of certain specific liabilities. The letter of intent included a
termination date of January 15, 1995 and a no-shop provision, to protect the
Company from other bidders. Both parties agreed to make their best efforts to
consummate the acquisition by January 1, 1995, even if the closing documentation
process extended beyond that date.
Ms. Soechtig and Ms. Guth, along with the Company's outside counsel,
continued to negotiate with the principals and attorneys of GIS. The purchase
agreement was not concluded by January 15, 1995, and the original letter of
intent expired. Both parties, however, continued to negotiate in good faith, the
primary issue being the structure of the transaction, particularly the amount of
cash that would be provided to GIS in the form of a promissory note. Ms.
Soechtig continued to discuss these issues and various other options with
members of the Board. The Board formally reviewed the status of the negotiations
in a telephone meeting held on January 27, 1995 and continued on January 30,
1995. A second telephonic Board meeting was held on February 6, 1995, after
which the Company entered into a new letter of intent and placed in escrow a
non-refundable, good faith deposit. Negotiations continued as to the structure
of the transaction. On February 15, 1995, a telephone meeting of the Board of
Directors was held to approve the final terms and conditions of the purchase
agreement. The transaction was closed on February 15, effective as of January 1,
1995. The effective date of January 1, 1995 was chosen by the Company and GIS as
stated in the purchase agreement and exhibits thereto as effective control of
the assets and assumption of certain stated liabilities passed to the Company as
of that date. In addition, there was no adjustment to the purchase price for
activity occurring subsequent to January 1, 1995. The Company paid GIS a
management fee for operation of the business on behalf of the Company from
January 1, 1995 through February 15, 1995.
In determining the $3,700,000 purchase price for the assets of GIS,
the Company primarily considered the following factors:
* immediate increase in revenue based on existing GIS customer base
upgrades, enhancements, support fees.
* immediate increase in revenue based on GIS Select-A-Seat
(reserved seating) product sales opportunities.
* immediate increase in revenue based on goodwill from GIS customer
base - over 150 referenceable accounts. o immediate increase in
revenue based on trained sales and support personnel.
* cost and time to develop a reserved seating product.
The purchase price was negotiated at arms length with GIS. In
determining the price, the two principal areas considered were the value of the
above-listed items to the Company and the structure of the transaction, which
permitted the Company to acquire the GIS assets with a minimum outlay
-22-
<PAGE>
of cash. In the negotiations, GIS initially requested that the purchase price to
be paid 2/3 in cash and 1/3 in Common Stock. In addition, based on studies
reviewed which indicated that software companies are generally sold at a price
of 150% of revenues, GIS also asked for a purchase price of $5,000,000 (1994
revenues). Extensive negotiations resulted in a final purchase price of
$3,700,000 (100% of 1994 revenues plus a premium for structuring the transaction
with part of the purchase price paid in equity rather than cash).
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION FOR GIS
RESULTS OF OPERATIONS: 1994 COMPARED TO 1993
GIS revenue increased 29.2% from $2,637,145 in 1993 to $3,406,734 in
1994. Revenue consisted primarily of equipment sales and installations
("Equipment") as well as license and royalty income ("License"), maintenance
contracts ("Maintenance"), and rental and other income ("Other"). Equipment
revenue increased 28.9% from $1,645,391 in 1993 to $2,121,426 in 1994. The
increase in Equipment revenue primarily resulted from the fact that GIS's
customers during 1994 required relatively large system networks for their
ticketing sales systems. License revenue increased 58.3% from $436,410 in 1993
to $690,655 in 1994. The increase in license revenue largely resulted from the
relatively large system networks installed in 1994 as compared to 1993.
Maintenance revenue increased 38.3% from $288,080 in 1993 to $398,472 in 1994.
This increase is the result of the larger customer base in 1994 as compared to
1993. Other revenue decreased 26.6% from $267,264 in 1993 to $196,181 in 1994,
primarily because two large rental customers reduced their usage of the system
in 1994 and, in addition, several five-year rental contracts expired in 1994.
The overall increase in revenues was also partially the result of additions to
the direct sales staff and increased marketing activities. The Company believes
that the additional sales and marketing activities in 1994, coupled with the
expanded customer base, particularly in the area of large system networks, will
lead to revenue growth in equipment sales in future years. Two significant
customers represented 11.7% and 13.7% of revenue, respectively.
GIS net profit increased 348.6% from $15,124 in 1993 to $67,838 in
1994. Production costs decreased from 62.6% of revenue (excluding Other) in
1993 to 58.0% of revenue (excluding Other) in 1994. The relative decrease in
production costs was primarily the result of the fact that GIS was able to
purchase the components for the relatively larger systems installed during 1994
at higher discounts from its vendors. Selling, general and administrative
expenses ("SG&A") in 1994 increased by approximately $413,000 or 45.3% from 1993
SG&A expenses. Included in SG&A is a management fee expense for various
management and administrative services performed by the GIS general partner of
$519,750 in 1994 and $484,500 in 1993. The Company expects that the majority of
this fee expense will not be incurred in future periods as the services formerly
provided by the GIS general partner have been assumed by the Company's
management. The increase in SG&A, which includes the management fees, was caused
by increased personnel expenses of $94,000, increased bad debt expense of
$123,000, attributable primarily to a dispute with one
-23-
<PAGE>
customer, increased legal expenses of $47,000, attributable primarily to a
settlement agreement with one of its partners, and increased travel and
entertainment of $45,000, primarily attributable to increased selling
activities. Of these expenses, the Company anticipates that only expenses
related to travel and entertainment will be continuing expenses incurred by the
Company in the continuation of GIS' operations. All other SG&A expenses
cumulatively increased $104,000.
CAPITAL RESOURCES
During 1993 and 1994, GIS operations were primarily funded through
advances by partners and through cash provided by operating activities. The
Company expects that cash provided by the operating activities of the GIS
operations acquired by the Company will substantially fund the Company's
continuation of such operations.
FINANCIAL STATEMENTS
The unaudited condensed pro forma combined balance sheet of the
Company and its subsidiaries as of December 31, 1994 and the related unaudited
condensed pro forma combined statement of operations for the year then ended,
giving pro forma effect to the acquisition of GIS as of that date, are included
below in this Proxy Statement on Pages PF-1 to PF-15. The balance sheet of GIS
as of December 31, 1994 and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1994 and 1993 are
included below in this Proxy Statement on Pages F-1 to F-12.
If the shareholders vote against this proposal, the Company will not
be able to sell any additional shares of its Common Stock and, therefore, will
most likely not be able to raise additional capital necessary to fund its
operating plan which intends to increase revenue by promoting and marketing the
restructured Company and its new product line. The Company would be forced to
fund its operations at low levels of expenditures from revenues generated and
seek alternative, potentially more expensive funding, such as debt or the sale
of additional shares of preferred stock. In the interim, the Company may be
forced to effect cost reductions primarily in the areas of personnel and
marketing. The Company would also be unable to convert its promissory notes
(discussed under the caption "The Agreement" above) into Common Stock and,
therefore, there can be no assurance that the Company would be able to meet its
obligations under such promissory notes. Additionally, as a result of the
approval of the Board of Directors and the expectation of shareholder approval,
the Company recognized $450,000 of compensation expense in 1994 for the 125,000
options granted to Jacqueline E. Soechtig as a signing bonus and the 25,000
options granted to Stewart L. Krug for service rendered as President/CEO.
Additionally, in the first quarter of 1995, the Company recognized compensation
expense of $138,750 for the pro rata value of the 125,000 options granted to
Jacqueline E. Soechtig that will vest in October 1995, and the 5,000 options
granted to each of three executives in March 1995. In the event of a no vote,
there will not be sufficient shares available for the exercise of these options
and the compensation expense will be reversed.
-24-
<PAGE>
The Board of Directors recommends that shareholders vote FOR this proposal.
III. APPROVAL OF AMENDMENTS TO THE STOCK OPTION PLAN
On March 23, 1995, the Board of Directors adopted, subject to
shareholder approval at the Meeting, amendments (the "Amendments") to the
Company's 1994 Stock Option Plan (as amended in the manner discussed below, the
"1994 Plan"). The Amendments to the 1994 Plan are designed to:
(i) Enhance the current plan's ability to provide
incentive to employees (including directors and officers who are employees) of
the Company and its subsidiaries by increasing the aggregate number of shares
which may be granted under the 1994 Plan from 58,333 shares to 600,000 shares.
(ii) Limit the number of shares that may be
subject to options granted to any one optionee in any fiscal year to 200,000,
subject to the 1994 Plan's anti-dilution provisions. Currently, there is no such
limit under the 1994 Plan. Placing this limit is a permissible method for
options which may be granted in the future under the 1994 Plan to be considered
"performance based compensation" under Section 162(m) of the Internal Revenue
Code of 1986 (the "Code"), ensuring the deductibility of any compensation
expense arising from the exercise of options granted with an exercise price
equal to or greater than the fair market value of the Common Stock on the date
of grant. Section 162(m) of the Code precludes a public company from taking a
federal income tax deduction for annual compensation in excess of $1,000,000
paid to its chief executive officer or any of its four other most highly
compensated executive officers. Certain "performance based compensation" is
excluded from the deduction limitation.
(iii) Allow non-qualified stock options granted
pursuant to the 1994 Plan to employees and consultants to have an exercise price
no less than 25% of the fair market value of the underlying shares of Common
Stock on the date of such grant.
(iv) Provide that upon the initial election and
upon each re-election of an outside director to serve a term as a director of
the Company, such director will be granted an option to purchase 5,000 shares of
Common Stock for each year of such term, with 5,000 of such options to vest at
the beginning of each year of such term provided that the director continues to
serve in such capacity at the time of the scheduled vesting.
The following is a description of the 1994 Plan which
incorporates the Amendments:
-25-
<PAGE>
SHARES SUBJECT TO THE 1994 PLAN
The maximum number of shares as to which options may be
granted under the 1994 Plan (subject to adjustment as described below) is
600,000 shares of the Company's Common Stock. The closing bid price of the
Company's Common Stock on the National Association of Securities Dealers
Automated Quotation System on November 9, 1995 was $4.75. Any shares subject to
an option which for any reason expires, is canceled, terminates unexercised or
otherwise ceases to be exercisable will again be available for grant under the
1994 Plan.
ADMINISTRATION
The 1994 Plan is to be administered by a committee (the
"Committee") which is required to consist of at least two members of the Board
of Directors, each of whom is a "disinterested person" within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "1934 Act").
ELIGIBILITY
All employees (including officers and directors who are
employees), consultants (who are neither employees nor directors) and outside
directors (who receive an automatic grant upon their initial election and each
re-election) of the Company or any of its subsidiaries are eligible to receive
options under the 1994 Plan.
OPTION GRANTS
Options may be granted by the Committee to eligible employees
or consultants in such numbers and at such times as the Committee shall
determine. Additionally, upon the initial election and upon each re-election of
an outside director to serve a term as a director of the Company, such director
will automatically be granted an option to purchase 5,000 shares of Common Stock
for each year of such term with such options to vest at the beginning of each
year of such term provided that the director continues to serve in such capacity
at the time of the scheduled vesting.
OPTION CONTRACTS
Each grant of an option will be evidenced by a written
contract between the Company and the employee, consultant or outside director
receiving the grant, containing such terms and conditions not inconsistent with
the 1994 Plan as may be determined by the Committee (the "Contract").
-26-
<PAGE>
TERMS AND CONDITIONS OF OPTIONS
The options granted under the 1994 Plan will be subject to,
among other things, the following terms and conditions:
(a) Options may be granted for terms determined by the
Committee, provided, however, that the term of an incentive stock option may not
exceed 10 years (5 years if the option holder owns (or is deemed to own) stock
possessing more than 10% of the voting power of the Company).
(b) The exercise price for each option granted will be
determined by the Committee, provided, however, that the exercise price of an
incentive stock option may not be less than the fair market value of the Common
Stock on the date of grant (110% in the case of an incentive stock option
granted to an optionee who owns (or is deemed to own) more than 10% of the
voting power of the Company). With respect to non-qualified stock options
granted to employees and consultants, the exercise price may not be less than
25% of the fair market value on the date of grant. The exercise price of options
is payable in full upon exercise or, if the Contract permits, in installments.
Payment of the exercise price of an option may be made in cash, certified check,
shares of Common Stock or any combination thereof, depending on the terms of the
Contract.
(c) Options may not be transferred other than by will or by
the laws of descent and distribution, and may be exercised during the option
holder's lifetime only by him or his legal representatives.
(d) With respect to options granted to employees, if the
employment of such employee is terminated for any reason other than death or a
permanent and total disability, the option may be exercised, to the extent
exercisable by the holder at the time of termination of employment, within three
months thereafter, but in no event after expiration of the term of the option.
However, if such employment was terminated either for cause or without the
consent of the Company, such option shall terminate immediately. In the case of
the death of the optionee while employed (or within three months after
termination of employment or within one year after termination of employment by
reason of disability), his executor, administrator or other legal representative
or beneficiary may exercise the option, to the extent exercisable on the date of
death, within one year after such date, but in no event after the expiration of
the term of the option. An optionee whose employment was terminated by
disability may exercise his option, to the extent exercisable at the time of
such termination, within one year thereafter, but not after the expiration of
the term of the option.
(e) With respect to options granted to consultants, such
options may be exercised at any time during their term and shall not be affected
by a change in the optionee's relationship with the Company or its Subsidiaries.
-27-
<PAGE>
(f) With respect to options granted to outside directors, such
options will be immediately exercisable, will have a term of ten years, will
have an exercise price equal to 85% of the fair market value of the Common Stock
on the date of the grant and, once vested, will not be affected by a change in
the optionee's relationship with the Company or its Subsidiaries.
(g) The Company may withhold cash and/or shares of Common
stock having an aggregate value equal to the amount which the Company determines
is necessary to meet its obligation to withhold federal, state and local taxes
incurred by reason of the grant or exercise of an option, its disposition or the
disposition of shares acquired upon the exercise of the option. Alternatively,
the Company may require the holder to pay the Company such amount, in cash,
promptly upon demand.
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
Appropriate adjustments shall be made in the number and kind
of shares available under the 1994 Plan, in the number and kind of shares
subject to each outstanding option, in the maximum number and kind of shares
that may be granted to any employee in any one calendar year and in the exercise
prices of such options in the event of any change in the Common Stock by reason
of any stock dividend, recapitalization, merger in which the Company is the
surviving corporation, split-up, combination or exchange of shares or the like.
In the event of the Company's (a) liquidation or dissolution,
(b) merger in which the Company is not the surviving corporation or
consolidation or (c) any other capital reorganization in which more than 50% of
the Company's Common Stock are exchanged, any outstanding options shall
terminate, unless otherwise provided in the transaction.
DURATION AND AMENDMENT OF THE AMENDED PLAN
No option may be granted pursuant to the 1994 Plan after
February 4, 2004. The Board of Directors may at any time suspend, terminate or
amend the Amended Plan, provided, however, that, without the approval of the
Company's shareholders, no amendment may be made which would (a) increase the
maximum number of shares available for the grant of options (except the
anti-dilution adjustments described above), (b) otherwise materially increase
the benefits accruing to participants under the 1994 Plan or (c) change the
eligibility requirements for individuals who may receive options.
FEDERAL INCOME TAX TREATMENT
The following is a general summary of the federal income tax
consequences under current tax law of incentive and non-qualified stock options.
It does not purport to cover all of the special rules or the state or local
income or other tax consequences inherent in the ownership and exercise of stock
options and the ownership and disposition of the underlying shares.
-28-
<PAGE>
An optionee will not recognize taxable income for federal
income tax purposes upon the grant of an incentive stock option or a
non-qualified stock option.
In the case of an incentive stock option, no taxable income is
recognized upon exercise of the option. If the optionee disposes of the shares
acquired pursuant to the exercise of an incentive stock option more than two
years after the date of grant and more than one year after the transfer of the
shares to him, the optionee will recognize long-term capital gain or loss and
the Company will not be entitled to a deduction. However, if the optionee
disposes of such shares within the required holding period, a portion of his
gain will be treated as ordinary income and the Company will generally be
entitled to deduct such amount.
Upon the exercise of a non-qualified stock option, the
optionee recognizes ordinary income in an amount equal to the excess, if any, of
the fair market value of the shares acquired on the date of exercise over the
exercise price thereof, and the Company is generally entitled to a deduction for
such amount on the date of exercise. If the optionee later sells shares acquired
pursuant to the non-qualified stock option, he will recognize long-term or
short-term capital gain or loss, depending on the period during which he held
his shares.
In addition to the federal income tax consequences described
above, an optionee may be subject to the alternative minimum tax, which is
payable to the extent it exceeds the optionee's regular tax. For this purpose,
upon the exercise of an incentive stock option, the excess of the fair market
value of the shares over the exercise price therefor is an adjustment which
increases alternative minimum taxable income. In addition, the optionee's basis
in such shares is increased by such amount for purposes of computing the gain or
loss on the disposition of the shares for alternative minimum tax purposes. If
an optionee is required to pay an alternative minimum tax, the amount of such
tax which is attributable to deferral preferences (including the incentive stock
option adjustment) is allowed as a credit against the optionee's regular tax
liability in subsequent years. To the extent the credit is not used, it is
carried forward.
GRANTS UNDER THE 1994 PLAN
Stewart L. Krug, a director and former Chief Executive Officer
of the Company, has been granted an option, upon the approval of this Proposal
by shareholders, to purchase 25,000 shares. The executive officers of the
Company as a group have been granted options to purchase 98,000 shares, all of
which are subject to shareholder approval of this Proposal and Proposal II
above. The non-employee directors who are elected at the Meeting will be granted
options, upon approval of this Proposal by shareholders, to purchase 5,000
shares for each year of their respective terms. Additionally, the employees and
certain consultants of the Company have been granted options to purchase an
aggregate of 29,000 shares. The exercise prices for all of such options ranges
from $1.00 to $13.00.
-29-
<PAGE>
If the shareholders vote against this proposal, there can be
no assurance that the Company will be able to retain the services of its current
key employees and directors or recruit employees with the skills necessary to
maintain and expand the Company's operations.
The Board of Directors recommends that shareholders vote FOR
this proposal.
IV. APPROVAL OF GRANT OF OPTIONS TO THE CHIEF EXECUTIVE OFFICER
On March 7, 1995, the Board of Directors, with Ms. Jacqueline
E. Soechtig abstaining from the vote, authorized the grant of non-qualified
stock options to Ms. Soechtig, in connection with the approval of her employment
agreement, under which she has agreed to serve the Company as its President and
Chief Executive Officer for a term of three years. The employment agreement is
described above under the caption "Executive Compensation Employment Contract."
The options entitle Ms. Soechtig to purchase up to 375,000 shares of the
Company's Common Stock at an exercise price of $2.00 per share. Of such options,
125,000 were granted as a signing bonus and are currently exercisable subject to
the approval by Shareholders of Proposal II above and the remaining 250,000
options (the "Proposal Grants") are subject to the approval by shareholders of
both this Proposal and Proposal II above.
The Proposal Grants will be for a term of ten years, with
125,000 of such options vesting and becoming exercisable on each of October 31,
1995 and October 31, 1996. However, in the event that Ms. Soechtig's employment
with the Company is terminated "for cause" (as such term is defined in the
employment agreement), all unvested options will be forfeited. Notwithstanding
the foregoing, in the event Ms. Soechtig's employment is terminated "without
cause" or a termination upon a "Change of Control" of the company (as such terms
are defined in the employment agreement), all unvested options will immediately
vest and become exercisable.
The option exercise price may be paid in cash, by check or by
any other form of consideration permitted by law. Additionally, Ms. Soechtig was
granted certain registration rights with respect to the shares of Common Stock
underlying such options.
In the event that the number of outstanding shares of Common
Stock is increased or decreased or changed into a different number or kind of
shares or securities by reason of any merger, share exchange, consolidation,
reorganization, recapitalization, reclassification, stock split, combination of
shares, exchange of shares, stock dividend or other distribution payable in
capital stock, or other increase or decrease in such shares effected without
receipt of consideration by the Company, an adjustment will be made to the
remaining outstanding options so that the proportional interest of Ms. Soechtig
after such an event will be, to the extent practicable, the same as before the
event.
-30-
<PAGE>
The tax consequences to the Company and to the optionee with
respect to these options are the same as those described under the caption
"Approval of Amendments to the Stock Option Plan" above with respect to
non-qualified stock options.
If the shareholders vote against this proposal, the Company
may not be able to fulfill the obligations pursuant to the employment contract
with Ms. Soechtig and, therefore, there can be no assurance that Ms. Soechtig
would continue to serve as the Company's Chief Executive Officer.
The Board of Directors recommends that shareholders vote FOR
this proposal.
VOTING REQUIREMENTS
Directors are elected by a plurality of the votes cast at the
Meeting (Proposal I). The affirmative vote of a majority of the votes cast at
the Meeting will be required to approve the amendment to the Company's Articles
of Incorporation increasing the number of authorized shares of Common Stock to
20,000,000 (Proposal II), the amendments to the Company's 1994 Stock Option Plan
(Proposal III) and the grant of options to the Chief Executive Officer (Proposal
IV). Abstentions and broker non-votes with respect to any matter are not
considered cast with respect to that matter.
ACCOUNTANTS
On May 25, 1993, the Company's Board of Directors approved the
dismissal of W.R. Garrett, CPA, P.A. as its independent public accountant.
There were no disagreements with W.R. Garrett on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which disagreements, if not resolved to the satisfaction of
W.R. Garrett, would have caused W.R. Garrett to make reference in connection
with its report concerning the Registrant's financial statements to the subject
matter of the disagreements.
On May 25, 1993, the Company's Board of Directors approved the
engagement of Grant Thornton LLP to be the Company's independent public
accountants for its fiscal year ended December 31, 1993. Grant Thornton LLP has
subsequently audited the books of the Company for the past two fiscal years, and
it is expected that Grant Thornton LLP will act in that capacity for the fiscal
year ending December 31, 1995. A representative of Grant Thornton LLP is
expected to be present at the Meeting with the opportunity to make a statement
and to be available to respond to appropriate questions from shareholders.
-31-
<PAGE>
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 1996
Annual Meeting of Shareholders must be received by the Company for inclusion in
its proxy materials by July 19, 1996.
INCORPORATION BY REFERENCE
The Company hereby incorporates into this Proxy Statement the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1994, as amended, the information contained in the portions of the Company's
1994 Annual Report to Shareholders required to be furnished in accordance with
Items 101(b), 201, 303 and 304 of Regulation S-B and the Company's Current
Report on Form 8-K dated February 15, 1995, as amended, related to the
acquisition of GIS, the Company's Report on Form 8-K dated December 22, 1994, as
amended, related to the acquisition of Delta, the Company's Report on Form 10-Q
for the quarter ended March 31, 1995 and the Company's Report on Form 10-Q for
the quarter ended June 30, 1995.
ADDITIONAL INFORMATION
The cost of solicitation of Proxies, including the cost of
reimbursing banks, brokers and other nominees for forwarding proxy solicitation
material to the beneficial owners of shares held of record by them and seeking
instructions from such beneficial owners, will be borne by the Company. The
Company has engaged McCormick & Pryor, Ltd. ("McCormick") to solicit proxies and
has agreed to pay McCormick a fee of $3,000 plus their accountable expenses in
connection with this solicitation. Proxies may be also solicited without extra
compensation by certain officers and regular employees of the Company. Proxies
may be solicited by mail, and if determined to be necessary, by telephone,
telegraph or personal interview.
-32-
<PAGE>
OTHER MATTERS
The Board of Directors does not intend to bring before the
Meeting any matters other than those specifically described above and knows of
no matters other than the foregoing to come before the Meeting. If any other
matters or motions properly come before the Meeting, it is the intention of the
persons named in the accompanying Proxy to vote such Proxy in accordance with
their judgment on such matters or motions, including any matters dealing with
the conduct of the Meeting.
By Order of the Board of Directors,
Vickie L. Guth
Secretary
November 13, 1995
-33-
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
COMBINED BALANCE SHEET
December 31, 1994
The following unaudited condensed pro forma combined balance sheet is based on
the individual audited balance sheet of Lasergate Systems, Inc. and Subsidiaries
(Lasergate) as of December 31, 1994 as contained in Form 10-KSB filed for the
year then ended and the audited balance sheet of GIS Systems Limited Partnership
as of December 31, 1994, and has been prepared to reflect the acquisition of GIS
by Lasergate after giving effect to the pro forma adjustments described in Note
2 as if the acquisition had occurred on December 31, 1994. In the opinion of
management, all adjustments have been made that are necessary to present fairly
the pro forma information. This statement should be read in conjunction with the
aforementioned Lasergate 10-KSB, as recently filed, and the GIS financial
statements and notes thereto, the latter included in the previously filed Form
8-K dated February 15, 1995.
<TABLE>
<CAPTION>
As of December 31, 1994
Historical Pro Forma (unaudited)
------------------------- -----------------------------
Adjustments
Lasergate GIS (Note 2) Combined
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $1,589,837 $ - $(559,000)(d)(a) $1,030,837
Accounts receivable, net 152,529 243,671 (243,671)(b) 152,529
Other current assets 241,628 127,645 (21,211)(b) 348,062
--------- ---------- --------- ----------
Total current assets 1,983,994 371,316 (823,882) 1,531,428
--------- ---------- --------- ----------
Property and equipment, net 96,993 87,581 184,574
(1,191,122)(b)
Systems and software costs, net 529,558 1,191,122 1,200,000 (c) 1,729,558
Goodwill, net 536,919 - 2,083,113 (c) 2,620,032
300,000 (c)
Other assets, net 331,367 15,357 (15,357)(b) 631,367
--------- ---------- --------- ----------
$3,478,831 $1,665,376 $1,552,752 $6,696,959
========= ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)/PARTNERS' CAPITAL
Current liabilities:
Notes payable $ - $ 175,960 $ (175,960)(b) -
82,744 (a)
Accounts payable, trade 530,260 433,905 (433,905)(b) 613,004
Accrued expenses 393,169 217,678 (217,678)(b) 393,169
(44,339)(b)
Other current liabilities 136,910 44,339 14,028 (a) 150,938
--------- ---------- --------- ----------
Total current liabilities 1,060,339 871,882 (775,110) 1,157,111
--------- ---------- --------- ----------
Notes payable, related party 200,000 - 200,000
Deferred revenue - 272,836 (272,836)(b) -
(30,353)(b) -
Other long-term liabilities - 30,353 31,690 (a) 31,690
Obligations to issue common stock
and common stock options 450,000 - 450,000
Common stock subject to put options 210,000 - 210,000
Promissory notes payable (with
conversion features) - - 2,324,335 (a) 2,324,335
Stockholders' equity (deficit):
Preferred stock 1,091 - 3,354 (a) 4,445
Common stock 87,412 - 3,280 (a) 90,692
Additional paid-in capital 9,258,563 - 1,317,697 (a) 10,576,260
Less: Common stock subject to put
options ( 210,000) - (210,000)
Note receivable, stockholder - - (559,000)(d)(a) (559,000)
Accumulated deficit (7,578,574) - - (7,578,574)
--------- ---------- --------- ----------
1,558,492 - 765,331 2,323,823
--------- ---------- --------- ----------
Partners' capital - 490,305 (490,305)(b) -
--------- ---------- --------- ----------
$3,478,831 $1,665,376 $ 1,552,752 $6,696,959
========= ========== ========== ==========
</TABLE>
PF-1
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED BALANCE SHEET
December 31, 1994
NOTE 1 - ACQUISITION
On February 15, 1995, Lasergate purchased substantially all of the assets of GIS
Systems Limited Partnership, a company previously engaged in the business of
design, integration, installation and sale of admission control and revenue
accounting computer systems and software for the entertainment industry. The
transaction was effective as of January 1, 1995 as control of the assets and
assumption of certain stated liabiltities passed to the Company as of that date.
Additionally, there was no adjustment to the purchase price for activity
occurring subsequent to January 1, 1995. The Company paid GIS a management fee
for operation of the business on behalf of the Company for the period from
January 1, 1995 through February 15, 1995, the closing date of the transaction.
The purchase price for the acquisition is valued at $3,700,000 and was based
upon the Seller's expected revenues and the competitiveness of the Seller's
products. The purchase price consists of (a) 109,333 shares of the Registrant's
Common Stock, subject to an agreement whereby such shares may not be sold until
March 31, 1996, (b) 111,800 shares of the Registrant's Series B Preferred Stock
(which, although convertible into Common Stock, the Seller has agreed not to
convert while the Series B Preferred Stock is pledged to the registrant as
described below), (c) the Registrant's unsecured, non-interest bearing
promissory note in the principal amount of $591,000, which is payable at the
Registrant's option at or prior to March 31, 1996, in cash or by the issuance of
118,200 shares of the Registrant's Series B Preferred Stock, and (d) the
Registrant's unsecured, non-interest bearing promissory note in the principal
amount of $1,733,335, which shall be payable at the Registrant's option (i) in
cash at or prior to March 31, 1996, (ii) if on or before December 29, 1995, by
the issuance of 346,667 shares of the Registrant's Series C Preferred Stock
(which would be convertible into shares of Common Stock) or (iii) if on or after
December 30, 1995 but prior to March 31, 1996, by the issuance to the Seller, of
that number of shares of the Registrant's Common Stock which is equal to the
quotient of 1,733,335 divided by the market price of the Registrant's Common
Stock at the time of such issuance. In addition, the Registrant has agreed to
assume certain liabilities of the Seller and has loaned the Seller $559,000
which has been evidenced by Seller's promissory note due March 31, 1996 which is
secured by the pledge to the Registrant of the 111,800 shares of Series B
Preferred Stock referenced in item (b) above (see Note 2(d)). Provided the
Registrant has either repaid or purchased its promissory note in the principal
amount of $591,000, the Registrant has an assignable option any time prior to
March 31, 1996 to purchase from the Seller all of the 111,800 pledged shares of
Series B Preferred Stock at a price of $5.00 per share. The 109,333 shares of
Common Stock being issued to the Seller are also being pledged by the Seller to
the Registrant until March 31, 1996 to secure the seller's obligations to
indemnify the Registrant from any losses sustained as the result of any
misrepresentation made by the Seller or other obligations of the Seller in
connection with the transaction. The Registrant has agreed to certain
registration rights with respect to the Common Stock being issued or which may
be issued to the Seller in accordance with items (a) and (d) above.
The Company's Series B and Series C Preferred Stock have the same rights with
respect to dividends, voting, liquidation and redemption. The holders of Series
B or Series C Preferred Stock are entitled to receive dividends when, as and if
declared by the Board of Directors, out of legally available funds payable in
cash, stock or otherwise. The holders of the Company's Series A, B and C
Preferred Stock do not have voting rights as common shareholders and are only
entitled to vote separately as a series on matters submitted to common
shareholders on matters which require a separate class vote as mandated by
applicable law.
PF-2
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED BALANCE SHEET - Continued
December 31, 1994
In the event of any liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, holders of Series B or Series C
Preferred Stock will be entitled to receive, prior to any distribution to the
holders of Common Stock, the sum of $5.00 per share plus an amount equal to any
accrued and unpaid dividends. If the net assets available for distribution to
the Company's shareholders is insufficient to permit the payment in full of the
liquidation preference owed to holders of Preferred Stock, the entire assets of
the Company shall be distributed ratably among the holders of Series A, Series B
and Series C Preferred Stock. In addition, if the Company initiates or approves
any event requiring approval of holders of the Series B or Series C Preferred
Stock where such approval is not obtained, such holder may require the Company
to redeem the shares for cash of Series B or Series C Preferred Stock owned by
such holder at a redemption price equal to the Liquidation Value. Holders of
Series B and Series C Preferred Stock have 30 days from receipt of notice from
the Company of the redemption option to deliver a request to the Company that
such shares of Series B or Series C Preferred Stock be redeemed within 10
business days. The only circumstance which allows for mandatory redemption of
Series B or Series C Preferred Stock, is the failure of the Company to obtain
written consent of such preferred stockholders prior to taking certain actions
which would materially impact their rights and, therefore, management believes
that these actions are solely within the control of the Company.
With respect to Conversion Rights and Transferability, Series B Preferred Stock
shall not be transferable except as a block to one transferee and shall be
convertible at the holder's option on or before March 31, 1996, and
automatically thereafter into one share of fully paid and non-assessable Common
Stock for each share of Preferred Stock. Series C Preferred Stock shall not be
transferable except as a block to one transferee and shall be convertible at the
holder's option on or before March 31, 1996, into one share of fully paid and
non-assessable Common Stock for each share of Preferred Stock, and after March
31, 1996, shall automatically convert to the number of shares of Common Stock
equal to the quotient of (i) $1,733,335 divided by the Current Market Price and
(ii) the total number of outstanding Series C Preferred Shares.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) A summary of the purchase price for the acquisition described in Note 1 is
as follows:
<TABLE>
<CAPTION>
<S> <C>
109,333 shares of common stock, par value $.03 per share $765,331
========
111,800 shares of Series B Preferred Stock, par value
$.03 per share $559,000
========
Promissory notes payable, unsecured, non-interest bearing: $591,000
1,733,335
---------
$2,324,335
=========
Liabilities assumed:
Current $14,028
Long-term 31,690
------
$45,718
======
Direct acquisition costs incurred (principally
legal and accounting) $82,744
======
</TABLE>
PF-3
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED PRO FORMA
COMBINED BALANCE SHEET - Continued
December 31, 1994
(b) Reflects adjustment to eliminate assets and liabilities of GIS not acquired
by Lasergate and systems and software costs which will be recorded in (c)
as part of the acquisition, along with the balance in partners' capital
immediately prior to the acquisition.
(c) The total purchase price of GIS was allocated based on fair value of net
tangible assets acquired with the excess allocated to identifiable
intangible components based on their individual estimated fair values, and
the remainder was allocated to goodwill.
<TABLE>
Net tangible assets acquired consist of:
<S> <C>
Inventory $ 85,962
Prepaid expenses and
other current assets 20,472
Fixed assets 87,581
---------
$ 194,015
=========
</TABLE>
<TABLE>
<CAPTION>
Estimated Amortization
Intangible assets components consist of: useful life Method
----------- ----------
<S> <C> <C> <C>
Systems and software costs 1,200,000 6 years Straight line
Customer list and support contracts 300,000 6 years Straight line
Goodwill 2,083,113 20 years Straight line
---------
3,583,113
---------
$3,777,128
=========
</TABLE>
(d) The loan of $559,000 to GIS evidenced by a promissory note is secured by
111,800 shares of Lasergate's Series B preferred stock and is due March 31,
1996. The sellers have the option of returning preferred stock if the assignable
call provision of $5.00 per share is not exercised. Accordingly, the note
receivable is presented as a reduction of stockholders' equity.
(e) For income tax purposes, the transaction is treated as taxable purchase of a
group of assets and liabilities constituting a trade or business. Accordingly,
the consideration paid for the assets is allocated based on their fair market
values pursuant to IRC Section 1060.
The book and tax bases of the net assets acquired resulted in no net
deferred taxes being recorded.
PF-4
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
The following unaudited condensed combined pro forma financial statement of
operations is based on the individual audited statement of operations of
Lasergate Systems, Inc. and Subsidiaries (Lasergate) as contained in Form 10-KSB
for the year ended December 31, 1994, the individual audited statement of income
of GIS Limited Partnership (GIS) for the year ended December 31, 1994, and
derived from the audited financial statements of Delta Information Systems, Inc.
(Delta) for the year ended September 30, 1994 conformed (on an unaudited basis)
to Lasergate's accounting period (see Note 6), as if the acquisitions had
occurred on January 1, 1994. In the opinion of management, all adjustments have
been made that are necessary to present fairly the pro forma information.
Unaudited condensed pro forma combined statement of operations are presented for
informational purposes only and do not purport to be indicative of the results
of operations that actually would have resulted if the acquisitions were
consummated at January 1, 1994. This statement should be read in conjunction
with the aforementioned Lasergate Form 10-KSB, as recently filed, the GIS
financial statements and notes thereto as contained in Form 8-K filed on
February 15, 1995, and the Delta financial statements and notes thereto as
contained in Form 8-K/A filed on March 7, 1995.
Since the Proxy herein relates in part to the GIS acquisition, which results in
the Company needing to increase its number of authorized shares of common stock
as further discussed in the Proxy, but does not relate to the Delta acquisition,
the following notes to the pro forma combined statement of operations have been
presented such that those related to the GIS acquisition appear first as Notes 1
and 2 and those related to the Delta acquisition appear second as Notes 3
through 6.
PF-5
<PAGE>
<TABLE>
<CAPTION>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
Historical Pro Forma Historical Pro Forma
----------------------- ------------------------- ---------- -------------------------
Combined Combined
Lasergate Delta Adjustments Lasergate & GIS Adjustments Lasergate,
(Note A) (Note 3) (Note 4) Delta (Note 1) (Note 2) Delta & GIS
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,066,470 $ 734,466 $ - $1,800,936 $3,406,734 $ - $5,207,670
---------- ---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of revenues
(excluding items
shown separately below) 914,838 385,994 - 1,300,832 1,800,674 (18,117)(b) 3,083,389
Selling, general and 145,400 (i) (487,961)(b)
administrative expenses 2,128,602 505,698 (344,435)(ii) 2,435,265 1,365,663 131,557 (a) 3,620,040
17,516 (c)
158,000 (e)
Systems and software development (128,003)(c)
costs, including amortization 345,379 - - 345,379 132,659 200,000 (c) 550,035
Amortization of intangibles,
excluding software costs - - 159,345(iii) 159,345 - 154,156 (c) 313,501
---------- ---------- ---------- ---------- ---------- ---------- ----------
3,388,819 891,692 (39,690) 4,240,821 3,298,996 27,148 7,566,965
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) (2,322,349) (157,226) 39,690 (2,439,885) 107,738 (27,148) (2,359,295)
Interest expense 80,035 860 - 80,895 39,900 (39,900)(d) 80,895
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes (2,402,384) (158,086) 39,690 (2,520,780) 67,838 12,752 (2,440,190)
Income taxes (benefit) - (33,022) 33,022 - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $(2,402,384) $(125,064) $ 6,668 $(2,520,780) $ 67,838 $ 12,752 $(2,440,190)
========== ========== ========== ========== ========== ========== ==========
Net loss per common share $ (1.62) NA NA $ (1.50) NA NA $ (1.37)
========== ========== ==========
Weighted average common shares
outstanding 1,487,246 NA NA 1,678,155 NA NA 1,787,488
========== ========== ==========
</TABLE>
PF-6
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
NOTE A - Presentation of Lasergate historical statement of operations
herein separately reports systems and software development costs,
principally research and development, previously included in
selling, general and administrative expenses.
NOTES RELATED TO THE GIS ACQUISITION
NOTE 1 - Certain reclassifications have been made to the GIS statement
of operations to conform to the Lasergate statement of
operations, consisting of:
- Revenues combined into one category.
- Cost of equipment sales and installation, cost of license,royalty
and maintenance revenues and cost of rental revenues combined
into one category and presented as cost of revenues (net of
systems and software amortization).
- Research and development presented as systems and software
development costs.
- Other combined into selling, general and administrative.
- Interest expense presented separately (reduction of selling,
general and administrative).
NOTE 2 - Reflects adjustments for the consummation of the acquisition as
if it had occurred at January 1, 1994, as follows:
(a) Consulting agreements entered into between Lasergate
and two (2) former GIS employees, effective February
1, 1995. One former GIS employee is to receive
$11,051 per month for the period from February 1,
1995 through January 31, 1996 and the other former
GIS employee is to receive $1,666 per month for the
period from February 1, 1995 through August 1, 1995.
Salaries and benefits previously paid to these
individuals have been eliminated in (b).
(b) Reduction in GIS selling, general and administrative
expenses, related to a management fee allocation by a
related entity which is not part of the acquisition.
The reduction consists principally of the following
expense categories:
<TABLE>
<S> <C>
Payroll and related (i) $381,890
Other (including $48,285 of depreciation
expense - see (c)) 106,071
-------
Total 487,961
=======
</TABLE>
PF-7
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
NOTE 2 - Continued
(i) Relates to payroll and related expenses principally for
accounting and management personnel allocated by the
management company. The accounting personnel remained with
the management company and were not part of the acquisition.
The two management personnel entered into employment
contracts as discussed at (a) above. The existing Lasergate
structure sufficiently absorbs the responsibilities
associated with such accounting personnel (i.e., no
incremental expense). The remaining GIS employees were
transferred over to Lasergate.
(c) Depreciation is based on the fair value of tangible assets
acquired, using Lasergate's estimated useful life, as
follows:
<TABLE>
<CAPTION>
Estimated
Allocation Useful Life Depreciation
---------- ----------- ------------
<S> <C> <C> <C>
Fixed assets $ 87,581 5 years $ 17,516
======== ========
</TABLE>
Depreciation expense of $48,285 previously recorded by GIS
has been eliminated (see (b)).
Amortization is based on the allocation of the purchase
price to identifiable intangible components and using
Lasergate's useful lives:
<TABLE>
<CAPTION>
Estimated
Allocation Useful Life Amortization
---------- ----------- ------------
<S> <C> <C> <C>
Systems and software costs $1,200,000 6 years $200,000
========= =======
Customer list and support contracts 300,000 6 years 50,000
Goodwill 2,083,113 20 years 104,156
--------- -------
$2,383,113 $154,156
========= =======
</TABLE>
Amortization expense of $128,003 previously recorded by GIS
has been eliminated.
PF-8
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
NOTE 2 - Continued
(d) Elimination of interest expense related to debt which was
not assumed.
(e) Incremental costs of the Company associated with the
acquisition are as follows:
Payroll & related (i) $128,000
Relocation costs (ii) 30,000
-------
$158,000
=======
(i) Principally related to training and integration of
products and customers from GIS into the Company.
Also includes an estimate of $10,000 for severance
costs.
(ii) Costs associated with the Company's plan to
relocate its office and headquarters subsequent to
the acquisition.
(f) For income tax purposes, the transaction is treated as a
taxable purchase of a group of assets and liabilities
constituting a trade or business. Accordingly, the
consideration paid for the assets is allocated based on
their fair market values pursuant of IRC Section 1060.
The book and tax bases of the net assets acquired resulted in no
deferred taxes being recorded.
At December 31, 1994, Lasergate has a net operating loss (NOL)
carryforward of approximately $6,100,000 for income tax purposes.
A net deferred tax benefit has been determined, based on the
difference between the financial reporting and income tax bases
of assets and liabilities (including the acquired assets and
liabilities discussed above) as measured by the enacted tax rate
which will be in effect when these differences are realized.
Lasergate cannot reasonably predict when it can utilize the NOL
carryforward and, therefore, has recognized an equivalent
valuation allowance against the deferred tax benefit (i.e., no
income tax asset or liability presented).
PF-9
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
NOTES RELATED TO THE DELTA ACQUISITION
NOTE 3 - (i) Reflects Delta statement of income converted from Canadian
dollars to U.S. dollars based on the average exchange rate
for the period.
(ii) The accounting records make it impractical to reasonably
identify all research and development expenses which are
included in selling, general and administrative expenses and
to separately classify the amount as system and software
development.
NOTE 4 - Reflects adjustments for the consummation of the acquisition as
if it had occurred at January 1, 1994, as follows:
(i) Consulting agreements entered into between Lasergate and two
(2) former Delta employees.
(ii) Reduction in Delta selling, general and administrative
expenses, principally salaries, benefits and rent which
would not have been incurred subsequent to the acquisition
due to the elimination of duplicate and/or redundant costs.
(iii)Incremental amortization based upon the allocation of the
total purchase price and amortization periods as follows:
<TABLE>
<CAPTION>
Preliminary
Estimated Incremental
Allocation Useful Life Amortization
---------- ----------- ------------
<S> <C> <C> <C>
Computer $ 500,000 6 years $ 83,333
software
Non-competition 85,000 3 years 28,333
agreement
Customer list 125,000 6 years 20,833
and support
contracts
Goodwill 536,919 20 years 26,846
--------- -------
$1,246,919 $159,345
========= =======
</TABLE>
(iv)(1) Reflects adjustment necessary for presentation of
combined statement of operations. There is no income
tax expense or benefit on a combined basis (see Note
4(iv)(2)).
PF-10
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
(iv)(2) Delta is a corporation organized under the laws of
Ontario, Canada. For Canadian income tax purposes,
the acquisition is treated as a taxable purchase of
Delta stock which results in a carryover basis in its
assets and liabilities. Accordingly, the potential
tax benefits associated with the allocation of the
purchase price discussed in Note 4(iii) above will
not be realized for Canadian income tax purposes.
Management's tentative assessment of the tax posture of the
transaction is that the difference between financial reporting
and Canadian tax bases of the assets and liabilities is
permanent in nature. Accordingly, no deferred taxes have been
provided.
For U.S. income tax purposes, Lasergate will elect under
Internal Revenue Code 338 to treat the transaction as a deemed
purchase of assets for an amount equal to their fair market
value. This will result in a step-up of the assets and
liabilities of Delta to fair market value. After the step-up
under Section 338, no difference between financial reporting
and U.S. income tax bases of the assets and liabilities will
exist.
At September 30, 1994, Lasergate has a net operating loss
(NOL) carryforward of approximately $5,000,000 for U.S. income
tax purposes. A deferred tax benefit has been determined based
on the difference between the financial reporting and tax
bases of assets and liabilities as measured by the enacted tax
rate which will be in effect when these differences are
realized. Neither Lasergate nor Delta can reasonably predict
when they can utilize the NOL carryforward and, therefore, an
equivalent valuation allowance has been recognized against the
deferred tax benefit (i.e., no income tax provision
presented).
NOTE 5 - Lasergate's public offering, which closed October 25, 1994, for
the sale of 920,000 units (each consisting of one share of common
stock and two warrants, each to purchase one share of common
stock) has been reflected in the computation of weighted average
shares outstanding to the extent of the $500,000 of cash utilized
in the acquisition of Delta ($500,000 cash / $5.50 per unit
offering price equals 90,909 shares accounted for as being issued
and outstanding as of the beginning of the period). The
computation of weighted average shares outstanding also reflects
the 100,000 shares issued in connection with the Delta
acquisition as being issued and outstanding as of the beginning
of the period.
PF-11
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO INTERIM UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
NOTE 6 - Delta Statements of Operations
<TABLE>
<CAPTION>
Historical (U. S. $)
---------------------------------------------------------------------------------------------------------
Activity
October 1, January 1,
September 30, 1994 - 1994 -
September 30, Conforming 1994, December 21, December 21,
1994(a) Adjustments(b) as conformed 1994(c) 1994(d)
------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $778,274 $(499,836) $278,438 $456,028 $734,466
Costs and expenses:
Cost of goods sold 346,273 (200,973) 145,300 240,694 385,994
Selling, general and
administrative
expenses 412,865 (118,848) 294,017 211,681 505,698
--------- ---------- --------- -------- --------
759,138 (319,821) 439,317 452,375 891,692
--------- ---------- --------- -------- --------
Operating income (loss) 19,136 (180,015) (160,879) 3,653 (157,226)
Interest expense - - - 860 860
--------- ---------- --------- -------- --------
Income (loss) before income
taxes 19,136 (180,015) (160,879) 2,793 (158,086)
Income tax loss (benefit) 4,260 (37,282) (33,022) - 33,022
--------- ---------- --------- -------- --------
Net income (loss) $14,876 $(142,733) $(127,857) $ 2,793 $(125,064)
========= ========== ========= ======== ========
</TABLE>
(a) Reflects Delta audited statement of operations for the year ended
September 30, 1994, converted from Canadian dollars to U.S. dollars
based on the average exchange rate for the period.
(b) Reflects adjustments necessary to conform the Delta statement of
operations for the year ended September 30, 1994 to Lasergate's
accounting period (nine months ended September 30, 1994). These
adjustments have been derived from the unaudited financial information
for Delta.
(c) Represents unaudited statement of operations for the period from
October 1, 1994 through December 21, 1994, the final day of business
activity prior to the acquisition of Delta by Lasergate.
(d) Since operations were insignificant from December 22, 1994 through
December 31, 1994 (post acquisition period), these amounts also
represent the period January 1, 1994 through December 31, 1994 results
of operations.
PF-12
<PAGE>
[LETTERHEAD OF AIDMAN, PISER & COMPANY, P.A.]
Independent Auditors' Report
----------------------------
Partners
GIS Systems Limited Partnership
Tampa, Florida
We have audited the accompanying balance sheet of GIS Systems
Limited Partnership as of December 31, 1994 and the related statements of
operations, partners' capital and cash flows for the years ending December 31,
1994 and 1993. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of GIS Systems
Limited Partnership as of December 31, 1994 and the results of its operations
and its cash flows for the years ending December 31, 1994 and 1993, in
conformity with generally accepted accounting principles.
/s/ Aidman, Piser & Company, P.A.
AIDMAN, PISER & COMPANY, P.A.
January 21, 1995
Tampa, Florida
F-1
<PAGE>
<TABLE>
<CAPTION>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1994
ASSETS
<S> <C>
Current assets:
Accounts receivable, net of $125,245 allowance for
doubtful accounts $ 243,671
Inventory 85,962
Prepaid expenses and other current assets 20,472
Due from general partner (Note 6) 21,211
Total current assets 371,316
Fixed assets, net (Note 3) 87,581
Computer software costs, net of $443,434 accumulated
amortization 1,191,122
Other assets 15,357
---------
$1,665,376
=========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current portion of obligation under operating lease
assignment agreement (Note 5) $ 44,339
Accounts payable 433,905
Accrued expenses and other liabilities 217,678
Note payable, former partner (Note 6) 75,620
Note payable, partner (Note 4) 100,340
---------
Total current liabilities 871,882
Obligation under operating lease assignment agreement, less
current portion (Note 5) 30,353
Deferred revenue
272,936
---------
Total liabilities 1,175,071
Partners' capital 490,305
---------
</TABLE>
$1,665,376
=========
See notes to financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
1994 1993
---- ----
Revenues:
<S> <C> <C>
Equipment sales and installation $2,121,426 $1,645,391
License and royalty fees 690,655 436,410
Maintenance contracts 398,472 288,080
Rental income 116,688 194,196
Other 79,493 73,068
--------- ---------
3,406,734 2,637,145
--------- ---------
Costs and expenses:
Cost of equipment sales and installation 1,644,585 1,340,755
Cost of license, royalties and maintenance
revenues 223,552 143,569
Cost of rental revenues 60,540 120,713
Research and development 4,656 9,829
Selling, general and administrative expenses 1,324,413 911,666
Other 81,150 95,489
--------- ---------
3,338,896 2,622,021
--------- ---------
Net income 67,838 15,124
========= =========
</TABLE>
See notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Balances, January 1, 1993 $ 2,006 $ 198,594 $ 200,600
Net income 151 14,973 15,124
--------- --------- --------
Balances, December 31, 1993 2,157 213,567 215,724
Net income 679 67,159 67,838
Capital contributions 4,156 411,455 415,611
Capital contribution in connection with
redemption of partnership
interest (Note 6) 111 11,021 11,132
Distributions to partner (220,000) - (220,000)
--------- --------- --------
Balances, December 31, 1994 ($212,897) $ 703,202 $ 490,305
========= ========= ========
</TABLE>
See notes to financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
1994 1993
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 67,838 $ 15,124
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 66,402 108,398
Amortization of computer software 128,003 102,049
costs
Provision for doubtful accounts 131,663 9,002
(Increase) decrease in assets:
Accounts receivable (152,756) 26,016
Inventory (45,119) (24,727)
Prepaid expenses and other 18,170 591
assets
Increase (decrease) in liabilities:
Accounts payable 270,270 51,839
Accrued expenses and other 62,039 117,680
liabilities
Deferred revenue 73,470 60,569
Accrued interest, partners (5,379) 46,632
Operating lease assignment (90,647) (159,626)
--------- ---------
Total adjustments 456,116 338,423
--------- ---------
Net cash provided by operating 523,954 353,547
activities --------- ---------
Cash flows from investing activities:
Acquisition of fixed assets (39,084) (37,476)
Computer software costs incurred (580,513) (237,627)
Net cash used in investing activities (619,597) (275,103)
--------- ---------
</TABLE>
(Continued)
F-5
<PAGE>
<TABLE>
<CAPTION>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
1994 1993
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds (repayments) of advances from
general partner 141,062 (72,469)
Advances by partners 554,661 200,000
Repayments of partner advances (379,000) (200,000)
Principal payment under capital lease
obligations (1,080) (5,975)
Distributions to partners (220,000) -
---------
Net cash provided by (used in)
financing activities 95,643 (78,444)
--------- ---------
Net increase (decrease) in cash - -
Cash, beginning of year - -
--------- ---------
Cash, end of year - -
========= =========
Supplemental disclosure of cash flow information:
Cash paid during year for interest $ 26,046 $ 52,761
========= =========
Non-cash financing activity:
During 1994, the partners contributed $426,743 to the partnership
through cancellation of a similar amount of notes payable
to such partners.
</TABLE>
See notes to financial statements
F-6
<PAGE>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
1. ORGANIZATION AND OPERATIONS:
GIS Limited Partnership (the "Partnership"), a Florida limited
partnership, was formed on March 24, 1988.
The Partnership is engaged in the development and sale or lease of
specialized computer systems for use automated ticketing systems.
Software provided by the Partnership includes purchased software
and internally developed programs. Sales of the internally
developed programs are generally associated with major hardware and
software systems. Systems sales during 1994 and 1993 range from
complex customized systems to simple canned programs. The
Partnership has historically leased software systems with
contingent rentals based on ticket sales. These leases were sold,
with recourse provisions, to unrelated parties in prior years.
Leased systems, other than the impact of the recourse provisions of
the above referenced leases, are no longer part of the operations
of the Partnership (see Note 2).
The Partnership operates primarily in the United States and its
customers are geographically disbursed throughout the country.
Accounts receivable from any single customer at December 31, 1994
are not significant and, as such, management does not believe there
is any significant concentration of credit risk as of that date.
The Partnership has, however, made sales to certain customers
during 1994 and 1993, which individually exceeded 10 percent of
total revenues. Approximate revenues derived from each of these
significant customers were as follows:
1994 1993
---- ----
Customer I $ - $ 310,000
======== ========
Customer 2 $ 399,000 $ -
======== ========
Customer 3 $ 467,000 $ -
======== ========
F-7
<PAGE>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue recognition:
-------------------
Computer system sales:
Computer system equipment and software sales are recognized when delivered
(installed), accepted by the customer and collectibility is probable. The
installation is not considered complete until all system defects are
resolved. At that point there are only insignificant future obligations to
provide post-contract customer support. As such, the Partnership defers a
portion of the revenue and recognizes revenue associated with post-contract
customer support ratably over the service period. Future product
enhancements or extended customer support are not provided as part of the
sale. System maintenance agreements are recognized on the straight-line
method over the period of the agreement. Software license revenues are
recognized at the time of delivery of the software since the Partnership
has no further obligation under the agreements after that date.
Computer system leases:
In prior years, certain systems were leased to customers with lease
payments based on future event ticket sales, i.e. contingent rentals. Such
leases were accounted for as operating leases and revenues were recognized
based on ticket sales at the time tickets were purchased. Again, in prior
years, the Partnership sold/assigned its rights under these operating
leases to an unrelated third party in exchange for cash. The assignment
agreements contained certain recourse provisions; therefore the Partnership
accounted for the transactions as borrowings and has continued to recognize
rental income with respect to amounts paid by the Partnership's former
customer to the assignee and cost of such rental income with respect to
depreciation and interest expense associated with the transactions. These
amounts are reported as Rental income ($116,688, 1994; $194,196, 1993) and
Cost of rental revenues ($60,540, 1994; $120,713, 1993) in the accompanying
Statements of Operations.
F-8
<PAGE>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Inventory:
---------
Inventory consists primarily of computer equipment and is recorded at the
lower of cost or market, with cost determined on a specific identification
basis.
Fixed assets:
------------
Fixed assets are recorded at their historical cost. Depreciation is
provided on the straight-line method over the estimated economic useful
lives of the assets.
Software development costs:
--------------------------
Certain software development costs are capitalized. Capitalization of
software development costs begins upon the establishment of technological
feasibility. Costs incurred prior to the establishment of technological
feasibility are research and development expenses and charged to expense in
the period incurred. On an annual basis, management evaluates
recoverability of unamortized software development costs based on
comparisons of such costs to estimated future gross product revenues, net
of maintenance, customer support and disposal costs. Net capitalized
product costs which exceed the net realizable value of such products are
written off. There were no write-offs in 1994 or 1993.
Capitalized computer software costs are amortized on a product-by-product
basis over the estimated economic useful life of the respective software
product on a straight-line basis as such amortization exceeds that computed
using the ratio that current gross revenues for a product bear to the total
of current and anticipated future gross revenues for that product.
Estimated useful lives of such products, generally eight years, are
determined based on actual sales experience and product life expectancy.
Based on the nature of the software products, which are industry specific,
major technological changes are infrequent. Amortization of computer
software costs aggregated $128,003 and $102,049 in 1994 and 1993,
respectively, and is included in Costs of license, royalty and maintenance
revenues in the accompanying Statements of Operations.
F-9
<PAGE>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Income taxes:
------------
There is no provision or benefit for income taxes recorded in the
Partnership's financial statements because, as a partnership, the tax
effect of its activities accrues to the partners.
Cash management system:
----------------------
The Partnership's cash management system provides for reimbursement of
certain disbursement accounts to the general partner on a daily basis since
the general partner maintains the master cash account and holds those funds
for investment purposes (see Note 6). As a result, checks issued but not
yet presented to the bank for collection are not considered reductions of
cash.
3. FIXED ASSETS:
Fixed assets consist of the following at December 31, 1994:
Computer equipment $ 323,529
Furniture and fixtures 26,023
---------
349,552
Less accumulated depreciation 261,971
---------
$ 87,581
=========
4. NOTE PAYABLE, PARTNER:
Note payable, partner represents advances received by the Partnership.
During the years ended December 31, 1994 and 1993, the note consisted of
periodic advances from several partners, with interest at 12 percent during
1993 and rates ranging from 6 to 8 percent during 1994. At December 31,
1994, the balance consisted of advances from a single partner, bearing
interest at 8 percent, and due on demand. During 1994, the partners
canceled notes and accrued interest thereon aggregating $426,743. This has
been accounted for as a capital contribution to the partnership. Total
interest expense associated with these notes approximated $5,400 and
$39,900 during 1994 and 1993, respectively.
F-10
<PAGE>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
5. OBLIGATION UNDER OPERATING LEASE ASSIGNMENT AGREEMENT:
The Partnership's obligation under the one remaining operating lease
assignment agreement (see Note 2) is due through October 1996 and is
payable from the proceeds of lease payments assigned by the partnership.
Such payments have been discounted at 12 percent and are guaranteed by the
Partnership. The cost and accumulated depreciation thereon of property
associated with this leasing transaction was $103,619.
6. Related party transactions:
Effective January 1, 1994, the Partnership entered into a settlement
agreement with one of its partners (the "Partner") and agreed to reacquire
the Partner's 18.17 percent interest in the Partnership and repay a portion
of certain notes which were payable to the Partner. The total Partnership
obligation under the settlement agreement was approximately $11,100 less
than the Partnership's debt to the Partner on December 31, 1993. The
differential between the debt and the settlement payable has been accounted
for as a capital contribution in the accompanying 1994 financial
statements. The settlement obligation to the partner of approximately
$73,000 is included in note payable, former partner in the accompanying
1994 balance sheet. The non-interest bearing note has been discounted at 6
percent. The note is payable in two installments, $45,000 in February 1995,
and $35,000 in August 1995. Imputed interest amortized and included in
interest expense in the accompanying statement of operations for 1994
approximated $2,600.
The Partnership's general partner performs various management services for
the Partnership. Management fee expense to the general partner for 1994 and
1993 was $519,750 and $484,500, respectively.
The Partnership generated revenues of $129,330 and $78,800 in 1994 and
1993, respectively, from sales to an enterprise that is related to the
Partnership through partial common control.
The Partnership incurred approximately $39,900 and $5,400 of interest
expense on notes payable to partners during 1994 and 1993, respectively.
F-11
<PAGE>
GIS SYSTEMS LIMITED PARTNERSHIP
A FLORIDA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDING
DECEMBER 31, 1994 AND 1993
6. RELATED PARTY TRANSACTIONS: (Continued)
The Partnership participates in a cash management program with its general
partner whereby the Partnership's cash account balances are transferred to
the general partner ("swept") on a daily basis and invested on the
Partnership's behalf in overnight repurchase agreements. Likewise, when
checks are presented for payment on the Partnership's account, funds are
transferred from the general partner cash management account to cover those
checks. Due from general partner in the accompanying balance sheet
primarily reflects excess funds advanced to the general partner under this
cash management program. The general partner charges interest to
participants who have a deficit balance in the cash management program
based on the daily overnight repurchase agreement interest rate. Interest
income is allocated to the participants based on their respective daily
balance in the cash management program. The Partnership received net
interest income of approximately $5,500 and $2,100 during 1994 and 1993,
respectively, at interest rates ranging from approximately 2 to 5 percent.
7. EMPLOYEE BENEFIT PLAN:
During 1994, the Partnership was a member of a group of businesses under
common control who sponsor a cash or deferred profit sharing plan.
Participation in the plan is available to substantially all eligible
employees. Partnership contributions to this plan are based on a percentage
of the employees' contribution, up to a certain level, as determined by the
Partnership. The cost of this plan to the Partnership during 1994 was less
than $500.
F-12
<PAGE>
EXHIBIT A
PROPOSED NEW ARTICLE III TO THE COMPANY'S
ARTICLES OF INCORPORATION
ARTICLE III
The total number of shares of all classes of stock which the
Corporation has authority to issue is Twenty Two Million (22,000,000),
consisting of Twenty Million (20,000,000) shares of Common Stock, par value $.03
per share ("Common Stock"), and Two Million (2,000,000) shares of Preferred
Stock, par value $.03 per share (the "Preferred Stock"). All or any part of the
Common Stock may be paid for in cash, in property, in formulas, copyrights,
patents, trade names, equipment, or in labor or services at a fair valuation to
be fixed by the incorporators or by the Board of Directors at a meeting called
for said purpose. All stock when issued shall be non-assessable. The
stockholders of the Corporation shall not, solely by virtue of being
stockholders, have preemptive rights to acquire the Corporation's stock,
including unissued or treasury shares of the Corporation or securities of the
Corporation convertible into or carrying a right to subscribe to or acquire
shares of the Corporation's stock. The Preferred Stock shall be issuable in
series with such designations, terms, limitations and relative rights and
preferences as may be fixed from time to time by the Board of Directors.
The designations, terms, limitations and relative rights and
preferences of the shares of Common Stock and Preferred Stock (unless otherwise
fixed by the Board of Directors) are as follows:
(a)COMMON STOCK
1. DIVIDENDS. Subject to the prior and superior right of the
Preferred Stock, the holders of outstanding shares of Common Stock ("Common
Stock Holders") shall be entitled to receive dividends as, when and in the
amount declared by the Board of Directors, out of any funds legally available
therefor.
2. LIQUIDATION, DISSOLUTION AND WINDING UP. Subject to the prior
and superior right of the Preferred Stock, in the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or involuntary, the Common Stock Holders shall be entitled to receive, out of
the net assets of the Corporation, after payment or provision for payment of the
debts and other liabilities of the Corporation, that portion of the remaining
funds to be distributed. Such funds shall be paid to the Common Stock Holders on
the basis of the number of shares of Common Stock held by each of them. Neither
the consolidation nor merger of the Corporation into or with any other
corporation nor the sale or transfer by the Corporation of all or any part of
its assets shall be deemed a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of the provisions of this Section
(a)(2).
3. VOTING. Shares of Common Stock shall entitle the holder
thereof to one vote for each share held with respect to all matters voted on
by the stockholders of the Corporation.
A-1
<PAGE>
4. REVERSE STOCK SPLIT. Effective 12:01 a.m. on June 23, 1994,
each twelve (12) shares of Common Stock then issued shall be automatically
reclassified into one share of Common Stock of the Corporation. There shall be
no fractional shares issued. In lieu thereof, each fraction of a share that
would otherwise be issued to holders of record thereof shall be entitled to
receive scrip upon the request of such holders. At such time as any shareholder
has sufficient scrip equal to a full share, such scrip may be exchanged with the
Company for a full share.
(b)PREFERRED STOCK
1. SERIES. The shares of Preferred Stock may be divided into and
issued in one or more series, and each series shall be so designated so as to
distinguish the shares thereof from the shares of all other series. All shares
of Preferred Stock shall be identical except in respect of particulars which may
be fixed by the Board of Directors as hereinafter provided pursuant to authority
which is hereby expressly vested in the Board of Directors. Each share of a
series shall be identical in all respects with all other shares of such series,
except as to the date from which dividends thereon shall be cumulative on any
series as to which dividends are cumulative. Shares of Preferred Stock of any
series which have been retired in any manner, including shares redeemed or
reacquired by the Corporation and shares which have been converted into or
exchanged for shares of any other class, or any series of the same or any other
class shall have the status of authorized but unissued shares of Preferred Stock
and may be reissued as shares of the series of which they were originally a part
or may be issued as shares of a new series or any other series of the same
class.
2. PROVISIONS. Before any shares of Preferred Stock of any series
shall be issued, the Board of Directors, pursuant to authority hereby expressly
vested in it, shall fix by resolution or resolutions the following provisions in
respect of the shares of each such series so far as the same are not
inconsistent with the provisions of this Article III applicable to all series of
Preferred Stock:
(a) the distinctive designations of such series and
the number of shares which shall constitute such series, which number may
be increased (except where otherwise provided by the Board of Directors in
creating such series) or decreased (but not below the number of shares thereof
then outstanding) from time to time by like action of the Board of Directors;
(b) the annual rate or amount of dividends, if any,
payable on shares of such series (which dividends would be payable in preference
to any dividends on Common Stock), whether such dividends shall be cumulative
or non-cumulative and the conditions upon which and/or the dates when such
dividends shall be payable;
(c) whether the shares of such series shall be
redeemable and, if so, the terms and conditions of such redemption, including
the time or times when and the price or prices at which shares of such series
may be redeemed;
(d) the amount, if any, payable on shares of such
series in the event of liquidation, dissolution or winding up of the affairs of
the Corporation;
(e) whether the shares of such series shall be
convertible into or exchangeable for shares of any other class, or any series
of the same or any other class, and, if so, the terms and conditions thereof,
including the date or dates when such shares shall be convertible into or
exchangeable for shares of any other class, or any series of the same or any
other class, the
A-2
<PAGE>
price or prices or the rate or rates at which shares such series shall be so
convertible or exchangeable, and the adjustments which shall be made, and the
circumstances in which such adjustments shall be made, in such conversion or
exchange prices or rates; and
(f) whether such series shall have any voting rights
in addition to those prescribed by law and, if so, the terms and conditions of
exercise of voting rights; and
(g) any other preferences and relative, participating,
optional or other special rights, and any qualifications, limitations and
restrictions thereof.
A-3
<PAGE>
LASERGATE SYSTEMS, INC.
ANNUAL MEETING OF SHAREHOLDERS -December 21, 1995
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints, as proxies for the
undersigned Jacqueline E. Soechtig and Vickie L. Guth and each of them, with
full power of substitution, to vote all shares of Common Stock of the
undersigned in Lasergate Systems, Inc. (the "Company") at the Annual Meeting of
Shareholders of the Company to be held at The Summit ICOT Center, 13575 58th
Street North, Clearwater, Florida on December 21, 1995, at 2:00 o'clock P.M.,
local time (the receipt of Notice of which meeting and the Proxy Statement
accompanying the same being hereby acknowledged by the undersigned), or at any
adjournments thereof, upon the matters described in the Notice of Meeting and
Proxy Statement and upon such other business as may properly come before such
meeting or any adjournments thereof, hereby revoking any proxies heretofore
given.
EACH PROPERLY EXECUTED PROXY WILL BE VOTED IN ACCORDANCE WITH
THE SPECIFICATIONS MADE ON THE REVERSE SIDE HEREOF. IF NO SPECIFICATIONS ARE
MADE, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR" THE LISTED
NOMINEES, "FOR" THE APPROVAL OF THE AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK, "FOR" THE
APPROVAL OF THE AMENDMENTS TO THE COMPANY'S 1994 STOCK OPTION PLAN AND "FOR" THE
APPROVAL OF THE GRANT OF STOCK OPTIONS TO THE CHIEF EXECUTIVE OFFICER.
I. Election of Directors:
FOR ALL NOMINEES [ ]
(Jacqueline E. Soechtig, Stewart L. Krug,
Timothy Mahoney, Frank W. Swacker and
Lawrence W. Umstadter)
WITHHOLD AUTHORITY
to vote for all nominees [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE)
II. Approval of an amendment to the Company's Articles of
Incorporation increasing the number of shares of Common Stock
from 5,000,000 shares to 20,000,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
III. Approval of an amendment to the Company's 1994 Stock Option Plan to:
(a) increase the number of shares which may be granted under the
plan to 600,000;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
(b) limit the number of shares that may be subject to options
granted to any one employee in any fiscal year to 200,000 to
comply with Section 162(m) of the Internal
Revenue Code;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(c) allow non-qualified stock options to be granted with an
exercise price no less than 25% of the fair market value of
the Common Stock on the date of grant;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(d) provide that upon the initial election and upon each
re-election as a director, outside directors will receive an
automatic grant of 5,000 stock options for each year of the
term in which they will serve.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
IV. Approval of the grant of options to the Chief Executive Officer.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the Meeting.
NOTE: PLEASE DATE AND SIGN YOUR NAME OR NAMES EXACTLY AS SET
FORTH HEREON. IF SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE INDICATE THE
CAPACITY IN WHICH YOU ARE ACTING. PROXIES BY CORPORATIONS
SHOULD BE SIGNED BY A DULY AUTHORIZED OFFICER AND SHOULD
BEAR THE CORPORATE SEAL.
Dated: _________________________________ , 1995
____________________________
Signature of Shareholder(s)
____________________________
Print Name(s)
PLEASE SIGN AND RETURN THE PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
