<PAGE>
CAMELOT CORPORATION
PROXY
FOR THE HOLDERS OF COMMON SHARES
THIS PROXY IS SOLICITED ON BEHALF OF CAMELOT CORPORATION
ANNUAL MEETING TO BE HELD ON JANUARY 3, 1997 AT 10:00 A.M.
The undersigned shareholder of Camelot Corporation (the
"Company") hereby appoints Daniel Wettreich, or failing him,
Jeanette P. Fitzgerald as Attorneys and Proxies to vote all the
shares of the undersigned at said Annual Meeting of Stockholders
and at all adjournments thereof, hereby ratifying and confirming
all that said Attorney and Proxies may do or cause to be done by
virtue thereof. The above-named Attorneys and Proxies are
instructed to vote all the undersigned's shares as follows:
1. THE ELECTION OF DIRECTORS:
o For the Election of All Nominees Listed Below
(Except as Marked to the Contrary Below*)
o Withhold Authority to Vote for All Nominees Listed
Below
Daniel Wettreich, Jeanette Fitzgerald , Henry Gelender and Allan
Wolfe
*(Instruction: To withhold authority to vote for an individual
nominee, strike a line through that nominee's name above.)
2. RATIFY THE SELECTION OF AUDITORS FOR APRIL 30, 1997:
To ratify the appointment of Lane, Gorman & Trubitt, as
auditors for the fiscal year ended April 30, 1997.
AGAINST o FOR o ABSTAIN o
3. APPROVAL OF THE CREATION OF THE 1996 STOCK OPTION PLAN:
To approve the creation of the 1996 Stock Option Plan to
create a plan which incorporates the amended governing rules.
AGAINST o FOR o ABSTAIN o
4. APPROVAL OF THE AMENDMENT OF THE 1991 STOCK OPTION PLAN:
To approve the amendment of the 1991 Stock Option Plan for
all non-employee directors of the company.
AGAINST o FOR o ABSTAIN o
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1
AND FOR PROPOSAL 2, and 3.
Dated this _______ day of ______________, 1996
______________________________________________
Signature of Shareholder
______________________________________________
Signature of Shareholder
______________________________________________
Please Print Name
______________________________________________
Please Print Name
Please date and sign exactly as your name or names appear on your
stock certificate. Joint owners should each sign personally. If
signing in any fiduciary or representative capacity, give full
title as such and provide authorization. For shares held by a
corporation, please affix its corporate seal.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE>
CAMELOT CORPORATION
Camelot Place
17770 Preston Road
Dallas, Texas 75252
NOTICE OF MEETING OF SHAREHOLDERS
To be Held On January 3, 1997
Notice is hereby given that the Annual Meeting of
Shareholders of Camelot Corporation (the "Company") will be held
at The Dallas Marriott Quorum, 14901 N. Dallas Parkway, Dallas,
Texas 75240 on the 3rd of January 1997 at 10:00 a.m., local
time, for the following purposes:
(1) To elect four directors;
(2) To ratify the appointment of auditors for the fiscal
year ended April 30, 1997.
(3) To approve the creation of the 1996 Stock Option Plan.
(4) To approve the amendment of the 1991 Stock Option Plan.
(5) To transact such other business as may properly come
before the meeting or any adjournment(s) thereof.
The accompanying Proxy Statement contains information
regarding, and a more complete description of, the items of
business to be considered at the meeting.
Only shareholders of record at the close of business on
November 15, 1996 are entitled to notice of, and to vote at, the
Meeting of Shareholders and any adjournment(s) thereof.
You are cordially invited to attend the meeting, but if you
are unable to do so, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED SELF ADDRESSED ENVELOPE.
If you attend the meeting, you may vote in person if you wish,
whether or not you have returned the proxy. In any event, a
proxy may be revoked at any time before it is exercised.
By Order of the Board of Directors
Jeanette Fitzgerald
Corporate Secretary
Dallas, Texas
November 15, 1996
<PAGE>
CAMELOT CORPORATION
Camelot Place
17770 Preston Road
Dallas, Texas 75252
PROXY STATEMENT
for
ANNUAL MEETING OF SHAREHOLDERS
To be Held January 3, 1997
This Proxy Statement is sent to shareholders of Camelot
Corporation (the "Company"), in connection with the solicitation
of proxies by the Board of Directors of the Company for use at
the Annual Meeting of Shareholders of the Company to be held on
January 3, 1997 at 10:00 a.m., local time at The Dallas Marriott
Quorum, 14901 N. Dallas Parkway, Dallas, Texas 75240 and any
adjournment(s) thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders.
Solicitation of proxies may be made in person or by mail,
telephone or telegraph by directors, officers, and regular
employees of the Company. The Company will also request banking
institutions, brokerage firms, custodians, nominees, and
fiduciaries to forward solicitation materials to the beneficial
owners of common stock of the Company held of record by such
persons, and the Company will reimburse the forwarding expenses.
The cost of solicitation of proxies will be paid by the Company.
This Proxy Statement and the enclosed proxy are first being sent
to shareholders of Camelot Corporation on or about November 16,
1996.
Pursuant to the Private Securities Litigation Reform Act of 1995
the Company, in addition to historical information, certain
information within this proxy statement contains forward looking
statements. These statements are subject to certain risks and
uncertainties that could cause actual results to differ
materially from those set forth including but not limited to
competition among employers for appropriate personnel, Camelot's
dependence on outside suppliers and the need to go to outside
consulting sources, the continued ability to create and /or
acquire products that customers will accept; the impact of
competition and changing competitors; the changing nature of
regulations and the manner in which they are interpreted; and
pricing pressures in addition to normal economic and world
factors beyond the control of the Company.
REVOCATION OF PROXIES
Any Shareholders returning the accompanying proxy may revoke
such proxy at any time prior to its exercise (a) by giving
written notice to the Corporate Secretary of the Company of such
revocation prior to its use, (b) by voting in person at the
meeting, or (c) by executing and filing with the Corporate
Secretary of the Company a later dated proxy.
OUTSTANDING STOCK AND CERTAIN SHAREHOLDERS
The voting securities of the Company are shares of its common
stock, $0.01 par value ("Common Stock"), each share of which
entitles the holder to one vote at the Annual Meeting of
Shareholders and any adjournment(s) thereof. At October 15, 1996
there were outstanding and entitled to vote 25,016,059 shares of
Common Stock. Only shareholders of record at the close of
business on November 15, 1996, are entitled to notice of, and to
vote at, the Annual Meeting of Shareholders and any
adjournment(s) thereof.
The following table sets forth as of October 15, 1996
information known to the management of the Company
<PAGE>
concerning the beneficial ownership of Common Stock by (a) each
person who is known by the Company to be the beneficial owner of
more than five percent of the shares of Common Stock outstanding,
(b) each director of the Company owning Common Stock, and (c) all
directors and officers of the Company as a group (8 persons).
<TABLE>
<S> <C> <C>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of
Class
Daniel Wettreich 14,514,665 <F1><F2><F3> 42.21%
17770 Preston Road
Dallas, Texas 75252
Jeanette P.Fitzgerald 200,000 <F4> *
17770 Preston Road
Dallas, Texas 75252
Allan Wolfe 65,000 <F5> *
Adams Building
Suite D5
172 Route 101
Bedford, New Hampshire 03110
Henry Gelender 240,500 <F6> *
7150 Greenville Avenue
Suite 600
Dallas, Texas 75231
Tom Watts 30,000 <F7> *
17770 Preston Road
Dallas, Texas 75252
David McCurley 50,000 <F8> *
17770 Preston Road
Dallas, Texas 75252
Katie Phillips 5,000 <F9> *
17770 Preston Road
Dallas, Texas 75252
Robert Gregory 10,000 <F10> *
17770 Preston Road
Dallas, Texas 75252
All Officers and Directors 15,047,165 <F1><F2><F3><F4> 45.6%
as a group (8 persons) <F5><F6><F7><F8>
<F9><F10>
* Under 0.1%
Zara Wettreich, 1,494,166 5.6%
Separate Property
17770 Preston Road
Dallas, Texas 75252
Forme Capital, Inc. 2,650,000 <F3> 9.9%
17770 Preston Road
Dallas, Texas 75252
</TABLE>
<PAGE>
[FN]
(1) 920,499 of these shares are in the name of Zara Wettreich
and Hermina, Inc. trustees of The Wettreich Heritage Trust
("Trust"), a Texas trust whose beneficiaries are the children of
Daniel Wettreich. 1,494,166 of these shares are owned by Zara
Wettreich the wife of Mr. Wettreich, as her separate property.
1,000,000 of these shares are owned by Wettreich Financial
Consultants, Inc. ("WFC"), a Texas company owned by the wife
and children of Mr. Wettreich. 650,000 of these shares are
owned by Forme Capital, Inc., ("Forme"), a Delaware company of
which Mr. Wettreich is a director and officer. Mr. Wettreich
has disclaimed any beneficial interest in the shares owned by his
wife, Trust, WFC, and Forme.
(2) Includes options to purchase 8,000,000 shares
granted to Daniel Wettreich, which options are not
exercised.
(3) Includes an option granted to Forme Capital,
Inc., a company affiliated with Mr. Wettreich, to
purchase 2,000,000 shares, which option is not
exercised.
(4) Includes options to purchase 140,000 shares
granted to Jeanette Fitzgerald, which options are not
exercised.
(5) Includes an option to purchase 55,000 shares
granted to Allan Wolfe, which option is not exercised.
(6) Includes an option to purchase 40,000 shares
granted to Henry Gelender, which option is not
exercised. 500 of these shares are as custodian for
Rachel Gelender UGMA.
(7) Includes an option to purchase 30,000 shares
granted to Tom Watts, which option is not exercised.
(8) Includes an option to purchase 50,000 shares
granted to David McCurley, which option is not
exercised.
(9) Includes options to purchase 20,000 shares granted
to Katie Phillips, which options are not exercised.
(10) Includes options to purchase 10,000 shares granted
to Robert Gregory, which options are not exercised.
[/FN]
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Company paid management fees of $44,000 in 1996 and
$286,000 in 1995 to Wettreich Financial Consultants, Inc.
("WFC"), a company affiliated with the President of the Company.
These management services consisted of the provision of the
services of the President and Corporate Secretary of Company.
The amount was determined by the time, effort, and skill required
to provide these services. The President and the Corporate
Secretary of Company were employees of WFC and during the fiscal
year ended April 1995, received no compensation from Company.
Company, through its previously wholly-owned subsidiary,
Stock Transfer Company of America, Inc., provided services during
the year ended April 1994, as a securities transfer agent to
companies affiliated with the President of Company. For the ten
months ended February 28, 1994, Company recognized sales of
approximately $1,243 to these affiliated companies. Services as
a security transfer agent to companies affiliated with Allan
Wolfe, director of Company were also provided. For the ten
months ended February 28, 1994, Company recognized sales of
approximately $1,807 to these affiliated companies. During the
years ended April 1995 and 1996, Stock Transfer Company of
America continued to provide stock transfer services to Company
and a total of $3,843 and $16,598 were paid by Company for these
services. In the opinion of the Board of Directors, the terms of
these transactions was as fair to the company as could have been
made with an unaffiliated party.
The Company leased 10,000 square feet of offices from Forme
Capital, Inc., a company affiliated with the President of the
Company. The lease is for a term of 5 years commencing September
1993 at $8 per square foot. Total rent paid during fiscal 1996
and 1995 was $80,000, respectively. The lease agreement and
transactions related thereto were approved by a vote of Company's
shareholders.
The Company received loans from Forme totaling $406,000 and
$470,000 in fiscal years 1995 and 1994, respectively. Payments
of $236,000 and $190,000 were made in fiscal years 1996 and 1995,
respectively. Forme converted the remaining balance of $450,000
to common stock during fiscal 1996. Total interest paid during
fiscal 1996 was $11,615 and 1995 was $35,961.
During fiscal 1996 and 1995, Company received dividend
payments from Forme Capital, Inc., Preferred Shares Series C in
the amount of $46,657 for 1996 and $46,657 for 1995.
On March 9, 1995, Company issued 15,000 common shares valued
at $22,500 to a company for a mailing list. The president of
that company was the wife of the president of Camelot
Distributing, Inc., one of Company's subsidiaries.
On January 17, 1996, the Company's disinterested directors
approved a secured loan to the Corporate Secretary in the amount
of $75,156. This loan bears interest at a rate 6% per annum.
On August 1, 1996, the Company's disinterested directors
approved a secured loan to the Corporate Secretary in the amount
of $14,000. This loan bears interest at a rate of 6% per annum
and has been substantially repaid as of October 21, 1996.
On September 25, 1996 the Company's disinterested directors
approved a secured loan to the President of the Company in the
amount of $1,800,000. This loan bears interest at a rate of 6%
per annum.
ELECTION OF DIRECTORS
The Company's Bylaws provide for a Board of Directors consisting
of at least three directors. The persons named in the enclosed
form of Proxy will vote the shares represented by such Proxy for
the election of the four nominees for directors named below. If
at the time of the meeting, any of these nominees shall have
become unavailable for any reason, which event is not expected to
occur, the persons entitled to vote the Proxy will vote for such
substitute nominee or nominees, if any, as they determine in
their discretion. If elected, the nominees for director will
hold office until the next annual meeting of shareholders, or
until their successors are elected and qualified. The executive
officers of the Company are elected annually at the first meeting
of the Company's Board of Directors held after each annual
meeting of shareholders. Each executive officer will hold office
until their successor is elected and qualified or until their
death or resignation or until they shall have been removed in the
manner provided by the Company's Bylaws. The nominees for
directors and officers, each of whom has consented to serve if
elected, are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Name Age Position Period Served Term
Expires
Daniel Wettreich 45 Chairman and September 16, 1988 Next
Chief Executive Annual
Officer,President, Meeting
Director
Jeanette P. 35 Vice President and September 16, 1988 Next
Fitzgerald General Counsel, Annual
Secretary, Meeting
Director
Allan S. Wolfe 65 Director May 24, 1993 Next
Annual
Meeting
Henry Gelender 49 Director December 1, 1995 Next
Annual
Meeting
</TABLE>
Daniel Wettreich
Daniel Wettreich is Chairman and Chief Executive Officer,
President and Director of the Company since September 1988. He
is also a Director and Officer of all its subsidiaries<F1>.
Since 1981, he has been the President and Director of Wettreich
Financial Consultants, Inc., a financial consulting company.
Since August 1996, he has been Director and Chief Executive
Officer of Meteor Technology plc, a UK public company, and since
May 1996 its subsidiary, DigiPhone Europe, Ltd., a United Kingdom
based distributor of software in Europe. Additionally, he
currently holds directors positions in the following public
companies: Forme Capital, Inc., a real estate company and Danzar
Investment Group, Inc., Malex, Inc., Adina, Inc., and Tussik,
Inc. which are dormant companies seeking merger opportunities.
In July 1993, he was appointed Director of Goldstar Video
Corporation<F2> following an investment by the Company. From
January 1985 to February 1988 he was a founding director of
Phoenix Network, Inc., a telecommunications company listed on
the American Stock Exchange. Mr. Wettreich was an executive
with two London, England merchant banks in the mid 1970's.
Subsequently he was owner/manager of a private distribution
company, and thereafter Chief Financial Officer of a $60 million
retailer listed on the London Stock Exchange. Mr. Wettreich has
been an officer and director of Hermina, Inc., the corporate
trustee of The Wettreich Heritage Trust since June 1981. Mr.
Wettreich has a Bachelor of Arts in Business Administration from
the University of Westminster, London, England.
Jeanette P. Fitzgerald
Jeanette Fitzgerald is Vice President and General Counsel,
Corporate Secretary and a Director of the Company since September
1988. She is a director and secretary of the Company's
subsidiaries<F1>. She is a member of the State Bar of Texas and
the Business Law section. Since August 1996, she has been a
Director of Meteor Technology plc, a UK public company and since
May 1996 its subsidiary DigiPhone Europe, Ltd., a United Kingdom
based distributor of software in Europe. She is also the
Corporate Secretary and Director of Wettreich Financial
Consultants, Inc., and of Malex, Inc., Adina, Inc., Tussik, Inc.
and Danzar Investment Group, Inc., which are public companies.
In July 1993, she was appointed Director of Goldstar Video
Corporation<F2> following an investment by the Company. Previous
to these positions, from 1987 to 1988 she worked as a staff
attorney and in the compliance department at H.D. Vest, Inc., a
holding company with subsidiaries including a securities
brokerage firm. She graduated from Texas Tech University School
of Law receiving both a Doctorate of Jurisprudence and a Masters
of Business Administration in May 1986, and from the University
of Michigan with a Bachelors of Business Administration in
December 1982.
Allan S. Wolfe
Allan S. Wolfe has been a Director of the Company since May,
1993. He is Chairman and President of Database Technologies,
Inc., a public company providing database software to the
insurance industry from May 1986 to the present. He is also,
since 1984, a director and Chief Executive Officer of Pathfinder
Data Group ("PDG"), a database company. A subsidiary of PDG,
Pathfinder Database, Inc., filed for protection from creditors
under Chapter 11 and has since been converted to Chapter 7.
Henry Gelender
Dr. Henry Gelender has been a Director of the Company since
December, 1995. He is President of Cornea Associates of Texas,
PA, one of the leading cornea transplant surgery centers in the
country. He is Vice Chairman of the Department of Ophthalmology
at Presbyterian Hospital in Dallas, Texas since 1994, and is
Clinical Associate Professor of Ophthalmology at the University
of Texas, Southwestern Medical School in Dallas since 1983. He
received his medical degree from the University of Health
Sciences at the Chicago Medical School in Chicago, Illinois in
1973, and has a BA in Zoology from the University of California.
[FN]
(1) A subsidiary, Camelot Entertainment, Inc., filed Chapter 7
liquidation in January 1995.
(2) Goldstar Video filed for protection from creditors pursuant
to Chapter 11 in October 1993, and has converted to a liquidation
proceeding.
[/FN]
DIRECTORS MEETING
During the fiscal year ending April 30, 1996, the Company had
fifteen (15) directors meetings, thirteen (13) of which
consisted of consent of directors minutes signed by all
directors. The consent minutes reflect decisions reached by all
of the directors following discussions among the directors. The
audit committee consisted of Daniel Wettreich, Alan Wolfe and
Henry Gelender. Company has no standing nominating or
compensation committee.
MANAGEMENT REMUNERATION
The following table lists all cash compensation exceeding
$100,000 paid to Company's executive officers for services
rendered in all capacities during the fiscal year ended April 30,
1996. No bonuses were granted to any officer, nor was any
compensation deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C>
Annual Compensation Long-Term
Compensation
Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restr-
Name and Other icted Options/ LTIP All
Principal Year Salary Bonus Annual Stock Other
Position Compen- Award(s) SARs Pay- Compen-
sation outs sation
Daniel 1994 - - - - - - $<F1>
Wettreich 1995 - - - - 1,000,000 - $<F1>
Chairman and 1996 $208,333 - - - 1,000,000 - $<F1>
CEO<F1>
Jeanette P. 1994 - - - - - - $<F1>
Fitzgerald 1995 - - - - 175,000 - $<F1>
Vice 1996 N/A - - - N/A - $<F1>
President,
General
Counsel and
Secretary<F1>
</TABLE>
[FN]
(1) Daniel Wettreich and Jeanette Fitzgerald, Directors and
Officers of Company, were employees of a company affiliated with
Mr. Wettreich, which company provided the Company with management
services until July 1995 and was paid $44,000, $286,000 and
$290,500 for the years ended April 30, 1996, 1995 and 1994
respectively. In July 1995, Mr. Wettreich and Ms. Fitzgerald
became employees of Company and Mr. Wettreich entered into an
employment contract with Company.
[/FN]
Directors of the Company receive no salary for their
services as such, but are reimbursed for reasonable expenses
incurred in attending meetings of the Board of Directors.
Company has no compensatory plans or arrangements whereby
any executive officer would receive payments from the Company or
a third party upon his resignation, retirement or termination of
employment, or from a change in control of Company or a change in
the officer's responsibilities following a change in control
other than Mr. Wettreich. Under the newly proposed 1996 Stock
Option Plan or under the Company's 1991 Outside Directors Stock
Option Plan options granted under these plans contain provisions
pursuant to which the unvested portions of outstanding options
become immediately exercisable and fully vested upon a merger of
the Company in which the Company's stockholders do not retain,
directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company or its successor, if
the successor corporation fails to assume the outstanding options
or substitute options for the successor corporation's stock to
replace the outstanding options. The outstanding options will
terminate to the extent they are not exercised as of consummation
of the merger, or assumed or substituted for by the successor
corporation.
On July 1, 1995, Company entered into an employment contract
with Mr. Wettreich whereby he was employed as Chairman, Chief
Executive Officer and President of the Company for a period of
ten years at an annual salary of $250,000 and a cash bonus equal
to 5% of the Company's annual profits before taxation. In the
event of Mr. Wettreich's death during the term of the agreement,
Company will pay annual death benefits of $250,000 for a period
of four years. Mr. Wettreich may terminate his employment after
the date of a change in control of the Company. A change in
control is defined as any person other than Mr. Wettreich or his
family interests becomes beneficial owner, directly or indirectly
of common stock of the Company representing 30% or more of the
Company's issued and outstanding common stock or if the Incumbent
Board as defined, ceases to constitute a majority of the board of
directors. If Mr. Wettreich terminates his employment after a
change of control in the company, he shall be paid (i) the base
salary and any bonuses payable to him under the agreement or (ii)
an amount equal to the product of the annual base salary and
bonus paid to Mr. Wettreich during the year preceding the
termination date multiplied by five whichever of (i) or (ii) is
more. In the circumstances whereby Mr. Wettreich terminates his
employment for good reason, as defined, he will receive payments
in accordance with the payments received if termination occurs
after a change of control of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors, and persons who
beneficially own more than 10% of the Company's Common Stock to
file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission ("SEC").
Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms filed by such
person.
Based solely on the Company's review of such forms furnished to
the Company and written representations from certain reporting
persons, the Company believe that all filing requirements
applicable to the Company's executive officers, director, and
more than 10% stockholders were complied with.
SHAREHOLDER PROPOSALS
According to Rule 14a-8 promulgated under the Securities
Exchange Act of 1934, a shareholder may require that certain
proposals suggested by the shareholders be voted upon at a
shareholders meeting. Information concerning such proposal may
be submitted to the Company for inclusion in the Company's Proxy
Statement. Such proposals must be submitted to the Company
before July 19, 1997 for consideration at the 1997 shareholders
meeting.
MANAGEMENT PROPOSAL I
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
The following resolution will be offered by Management
pursuant to the Board of Directors resolutions at the meeting:
RESOLVED, that the appointment by the Board of Directors of
Lane, Gorman & Trubitt, as independent auditors of the Company
for the year ending April 30, 1997 is hereby approved.
It is not intended that a representative of Land Gorman &
Trubitt will be present at the meeting or be available for
questions. Lane Gorman and Trubitt have conducted the audit on
the Company since the 1994 fiscal year.
During the previous two years, there were no disagreements
between the Company and the auditors regarding a policy or
disclosure.
Neither this accountant nor any accountant for the past two
years has rendered an audit opinion containing an adverse opinion
or a disclaimer of opinion or were any of the opinions qualified
or modified as to uncertainty, audit scope or accounting
principles.
MANAGEMENT PROPOSAL II
APPROVAL OF THE CREATION OF THE 1996 STOCK OPTION PLAN
The following resolution will be offered by Management pursuant
to the Board of Directors resolutions at the meeting:
"RESOLVED, that the creation of the 1996 Stock Option Plan by
the Board of Directors of the Company is hereby approved."
The board desires to establish options with vesting periods and
create an administrator consisting of non-employee directors.
The Board of Directors approved the adoption of the 1996 Stock
Option Plan (the "Option Plan") in October of 1996. As of
October 15, 1996, the maximum number of shares granted pursuant
to the Option Plan is 7,397,000, of which options to purchase no
shares were outstanding. The Board of Directors determined to
issue option in the same amounts as the outstanding options and
employees have tendered all options granted under the 1991 Stock
Option Plan and the Company has canceled them. The options
granted in lieu of those tendered by employees immediately
vested. The new plan, subject to shareholder approval has
8,000,000 shares of common stock that may be issued under the
Option Plan, subject to adjustments for stock splits or other
changes in the Company capital structure.
The Board of Directors believes that approval of the
establishment of the 1996 Option Plan is in the best interests of
the Company and its stockholders because it is important to be
able to reward employees and provide them an incentive to make
the Company succeed. Further, the ability to grant stock options
is an important factor in attracting, motivating and retaining
qualified personnel essential to the success of the Company.
Consequently, the Company grants options to each employee and
each employee is eligible for an additional annual grant, based
on his or her performance. The Company estimates that it will
have sufficient shares reserved for issuance to make anticipated
stock option issuances for the next year.
The following summary of the Option Plan is qualified in its
entirety by the specific language of the Option Plan, a copy of
which is available to any stockholder upon request.
General The Option Plan provides for the grant to employees
of incentive stock options within the meaning of section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and
the grant to employees and consultants of nonstatutory stock
options. A maximum of 8,000,000 authorized but unissued shares
or treasury shares of the Common Stock of the Company may be
issued upon the exercise of options granted pursuant to the
Option Plan. In the event of any stock dividend, stock split,
recapitalization, combination, reclassification , or like change
in the capital structure of the Company, appropriate adjustments
will be made to the shares subject to the Option Plan, to the
Option Limit and to outstanding options. To the extent any
outstanding option under the Option Plan expires or terminates
prior to exercise in full or if shares issued upon exercise of an
option are repurchased by the Company, the shares of Common Stock
for which such option is not exercised or repurchased are
returned to the Option Plan and become available for future
grant. The Company intends that the compensation related to
options granted under the Option Plan qualifies for the
"performance-based compensation" exemption under Section 162(m)
of the Code. Section 162(m) generally limits the deductibility
by the company for federal income tax purposes of compensation
paid to certain executive officers.
Administration. The Option Plan is administered by the Board or
a duly appointed committee of non-employee members of the Board.
With respect to the participation of individuals who are subject
to Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act"), the Option Plan must be administered in
compliance with the requirements of Rule 16b-3 under the Exchange
Act. Subject to the provisions of the Option Plan, the Board or
the committee, consisting of non-employee directors, determines
the persons to whom options are to be granted, the number of
shares to be covered by each option, whether an option is to be
an incentive stock option or a non-statutory stock option, the
terms of vesting and exercisability of each option, the type of
consideration to be paid to the Company upon exercise of an
option, the term of each option, and all other terms and
conditions fo the options. The Board or committee will interpret
the Option Plan and options granted under the Option Plan, and
all determinations of the Board or committee will be final and
binding on all persons having an interest in the Option Plan or
any option.
Eligibility. All employees (including officers and directors who
are also employees), consultants, advisors or other independent
contractors of the company or of any present or future parent or
subsidiary corporations of the Company are eligible to
participate in the Option Plan. As of October 15, 1996, the
Company had approximately 70 employees, including eight executive
officers, and no consultants, advisors and other independent
contractors. Only employees may be granted incentive stock
options. Consultants, advisors, and other independent
contractors may only be granted nonstatutory stock options.
Terms and Conditions of Options. Each option granted under the
Option Plan is evidenced by a written agreement between the
company and the optionee specifying the number of shares subject
to the option and the other terms and conditions of the option,
consistent with the requirements of the Option Plan. The per
share exercise price of an option must equal at least the fair
market value of a share of the Company's Common Stock on the date
of grant. The per share exercise price of any option granted to
a person who at the time of grant owns stock possessing more than
10% of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary corporation of the
Company must be at least 110% of the fair market value of a share
of the Company's Common Stock on the date of grant, and the term
of any such option cannot exceed five years.
Generally, options may be exercised by payment of the exercise
price in cash, by check, or in cash equivalent, by tender of
shares of the Company's Common Stock owned by the optionee having
a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale of some or all of the shares
of Common Stock being acquired upon the exercise of the option,
or by any combination of these. However, the Board or committee
may restrict the forms of payment permitted in connection with
any option grant or may grant options permitting payment of the
exercise price with a promissory note.
Options granted under the Option Plan will become exercisable and
vested at such times as specified by the Board of committee.
Generally, options granted under the Option Plan are exercisable
on and after the date of grant, subject to the right of the
Company to reacquire at the optionees's exercise price any
unvested shares held by the optionee upon termination of
employment or service with the Company or if the optionee
attempts to transfer any unvested shares. Shares subject to
options generally vest in installments subject to the optionee's
continued employment or service. The maximum term of options
granted under the Option Plan is ten years. Options are
nontransferable by the optionee other than by will or by the laws
of descent and distribution, and are exercisable during the
optionee's lifetime only by the optionee.
Transfer of Control. A "Transfer of Control" will be deemed to
occur upon any of the following events in which the stockholders
of the Company do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the
Company or its successor: (i) the direct or indirect sale or
exchange by the stockholders of the Company of all or
substantially all of the stock of the Company, (ii) a merger in
which the Company is a party, or (iii) the sale, exchange or
transfer of all or substantially all of the assets of the
Company. If a Transfer of Control occurs, the surviving,
continuing successor, or purchasing corporation or parent
corporation thereof (the "Acquiring Corporation") will either
assume outstanding options or substitute options for the
Acquiring Corporation's stock for the outstanding options.
However, if the Acquiring Corporation elects not to assume or
substitute for outstanding options in connection with a merger
described in clause (ii) above, the Company's Board will provide
that any unexercisable and/or unvested portion of the outstanding
options will be immediately exercisable and vested. Any options
which are neither assumed or substituted for by the Acquiring
Corporation nor exercised as of the date of the Transfer of
Control will terminate effective as of such date.
Termination or Amendment. Unless sooner terminated, no options
may be granted under the Option Plan after October 15, 2006. The
Board or committee may terminate or amend the Option Plan at any
time, but without stockholder approval, the Board may not amend
the Option Plan to increase the total number of shares of Common
Stock reserved for issuance thereunder, change the class of
persons eligible to receive incentive stock options, or expand
the class of persons eligible to receive nonstatutory stock
options. No amendment may adversely affect an outstanding option
without the consent of the optionee, unless the amendment is
intended to preserve the option's status as an incentive stock
option.
All outstanding options issued pursuant to the 1991 Stock Option
Plan to employees eligible under the new Stock Option Plan have
been returned to the Company and been replaced by equivalent
options under the new Stock Option plan.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN
The following summary is intended only as a general guide as to
the United States federal income tax consequences under current
law with respect to participation in the Option Plan and does not
attempt to describe all possible federal or other tax
consequences of such participation. Furthermore, the tax
consequences of options are complex and subject to change, and a
taxpayer's particular situation may be such that some variation
of the described rules is applicable. Optionees should consult
their own tax advisors prior to the exercise of any option and
prior to the disposition of any shares of Common Stock acquired
upon the exercise of an option.
Incentive Stock Options Options designated as incentive stock
options are intended to fall within the provisions of section 422
of the Code. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or
exercise of such an option.
For optionees who do not dispose of their shares for two years
following the date the option was granted nor within one year
following the exercise of the option, the gain on sale of the
shares (which is the difference between the sale price and the
purchase price of the shares) will be taxed as long-term capital
gain. If an optionee satisfies such holding periods upon a sale
of the shares, the Company will not be entitled to any deduction
for federal income tax purposes. If an optionee disposes of
shares within two years after the date of grant or within one
year from the date of exercise (a "disqualifying disposition"),
the difference between the fair market value of the shares on the
determination date (see discussion under "Nonstatutory Stock
Option" below) and the option exercise price (not to exceed the
gain realized on the sale if the disposition is a transaction
with respect to which a loss, if sustained, would be recognized)
will be taxed as ordinary income at the time of disposition. Any
gain in excess of that amount will be a capital gain. If a loss
is recognized, there will be no ordinary income, and such loss
will be a capital loss. A capital gain or loss will be long-term
if the optionee's holding period i more than 12 months. Any
ordinary income recognized by the optionee upon the disposition
of the shares should be deductible by the Company for federal
income tax purposes, except to the extent such deduction is
limited by Section 162(m) of the Code.
The difference between the option exercise price and the fair
market value of the shares on the determination date of an
incentive stock option (see discussion under "Nonstatutory Stock
Options" below) is an adjustment in computing the optionee's
alternative minimum taxable income and may be subject to an
alternative minimum tax which is paid if such tax exceeds the
regular tax for the year. Special rules may apply with respect
to certain subsequent sales of the shares in a disqualifying
disposition, certain basis adjustments for purposes of computing
the alternative minimum taxable income on a subsequent sale of
the shares and certain tax credits which may arise with respect
to optionees subject to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated as incentive
stock options will be nonstatutory stock options. Nonstatutory
stock options have no special tax status. An optionee generally
recognizes no taxable income as the result of the garnt of such
an option.
Upon exercise of a nonstatutory stock option, the optionee
normally recognizes ordinary income in the amount of the
difference between the option exercise price and the fair market
value of the shares on the determination date (as defined below).
If the optionee is an employee, ordinary income generally is
subject to withholding of income and employment taxes. The
"determination date" is the date on which the option is exercised
unless the shares are not vested and/or the
sale of the shares at a profit would subject the optionee to suit
under Section 16(b) of the Exchange Act, in which case the
determination date is the later of (i) the date on which the
shares vest, or (ii) the date the sale of the shares at a profit
would no longer subject the optionee to suit under Section 16(b)
of the Exchange Act. Section 16(b) of the Exchange Act generally
is applicable only to officers, directors and beneficial owners
of more than 10% of the Common Stock of the Company. If the
determination date by filing an election with the Internal
Revenue Service not later than 30 days after the date the option
is exercise. Upon the sale of stock acquired by the exercise of
a nonstatutory stock option, any gain or loss, based on the
difference between the sale price and the fair market value on
the date of recognition of income, will be taxed as capital gain
or loss. A capital gain or loss will be long-term if the
optionee's holding period is more than 12 month. No tax
deduction is available to the company with respect to the grant
of a nonstatutory option or the sale of the stock acquired
pursuant to such grant. The company should be entitled to a
deduction equal to the amount of ordinary income recognized by
the optionee as a result of the exercise of a nonstatutory
option, except to the extent such deduction is limited by Section
162(m) of the Code, as described above.
The Board recommends approval of the creation of the 1996 Stock
Option Plan.
MANAGEMENT PROPOSAL III
The following resolution will be offered by Management pursuant
to the Board of Directors resolutions at the meeting:
"RESOLVED, that the amendment of the 1991 Employee Stock Option
Plan is hereby approved."
The Board has determined to use the 1991 Employee Stock Option
Plan for non-employee directors and has therefore amended the
plan to specifically cover said directors with a disinterested
committee of only employee directors to administer the plan.
Other than a name change to the 1991 Outside Director Stock
Option Plan and as set out above, the plan will otherwise stay
the same.
SHAREHOLDER APPROVAL
Shareholders, representing a majority of those common shares out
standing, and eligible to vote must return proxies to constitute
a quorum, including abstentions. A majority of those shares
constituting the quorum eligible to vote is required for approval
of Management Proposal I, II, and III, and the election of
directors.
OTHER BUSINESS
The Board of Directors of the Company does not know of any
other business to be presented at the Annual Meeting. If any
other matters are properly brought before the meeting, however,
it is intended that the persons named in the accompanying form of
proxy will vote such proxy in accordance with their best
judgment.
By order of the Board of Directors
Jeanette P. Fitzgerald
Corporate Secretary
Dallas, Texas
November 15, 1996
