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
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(C) or ss. 240.14a-12
American Physicians Service Group, Inc.
(Name of Registrant as Specified In Its Charter)
American Physicians Service Group, Inc.
(Name of Persons(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| $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:
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 0-11:1
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:
[ ] 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:
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[LOGO HERE]
AMERICAN PHYSICIANS SERVICE GROUPO, INC.
1301 Capital of Texas Highway
Austin, Texas 78746
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 11, 1998
Notice is hereby given that the Annual Meeting of Shareholders of
American Physicians Service Group, Inc., a Texas corporation (the "Company"),
will be held at the Four Seasons Hotel located at 98 San Jacinto Blvd., Austin,
Texas 78701, on Thursday, June 11, 1998 at 8:00 a.m., Austin, Texas time, for
the following purposes:
(a) To elect four directors to serve on the Board of Directors;
(b) To approve an amendment to the Company's 1995 Incentive and
Non-qualified Stock Option Plan.
(c) 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 April 24, 1998,
are entitled to notice of, and to vote at, the Annual Meeting of Shareholders or
any adjournment(s) thereof.
You are cordially invited and urged to attend the meeting, but if you
are unable to attend the meeting, you are requested to 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 your proxy. In any event, a proxy may be
revoked at any time before it is exercised.
By Order of the Board of Directors
/s/ W. H. Hayes
----------------------------
W. H. HAYES, VP and Secretary
Austin, Texas
May 1, 1998
<PAGE>
AMERICAN PHYSICIANS SERVICE GROUP, INC.
1301 Capital of Texas Highway
Austin, Texas 78746
PROXY STATEMENT
for
ANNUAL MEETING OF SHAREHOLDERS
To Be Held June 11, 1998
This Proxy Statement is sent to shareholders of American Physicians
Service Group, Inc., a Texas 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 at the Four Seasons
Hotel located at 98 San Jacinto Blvd., Austin, Texas 78701, on Thursday, June
11, 1998 at 8:00 a.m., Austin, Texas time, 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 telecopy by directors, officers, and regular employees of the
Company. The Company may also engage the service of others to solicit proxies in
person or by telephone or telecopy. In addition, the Company may also request
banking institutions, brokerage firms, custodians, nominees, and fiduciaries to
forward solicitation material 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 form of proxy were first mailed
to shareholders on or about May 1, 1998.
Unless the context indicates otherwise, the "Company" includes the
Company and all of the other direct and indirect subsidiaries of the Company on
a consolidated basis.
ANNUAL REPORT
Enclosed is an Annual Report to Shareholders for the year ended
December 31, 1997, including audited financial statements. Such Annual Report to
Shareholders does not form any part of the material for the solicitation of
proxies.
REVOCATION OF PROXY
Any shareholder returning the accompanying proxy may revoke such proxy
at any time prior to its exercise (a) by giving written notice to the Secretary
of the Company of such revocation, (b) by voting in person at the meeting, or
(c) by executing and delivering to the Secretary of the Company a later dated
proxy.
OUTSTANDING COMMON STOCK; CERTAIN SHAREHOLDERS
The voting securities of the Company are shares of its common stock,
$.10 par value (the "Common Stock"), each share of which entitles the holder
thereof to one vote on each matter properly brought before the meeting. Only
shareholders of record at the close of business on April 24, 1998 are entitled
to notice of, and to vote at, the Annual Meeting of Shareholders and any
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adjournment(s) thereof. At April 24, 1998, the Company had outstanding and
entitled to vote 4,160,693 shares of Common Stock.
The following table sets forth certain information as of April 24, 1998
regarding the amount and nature of 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 outstanding shares of Common Stock, (b) each director
and nominee for director of the Company, (c) each executive officer of the
Company named in the Summary Compensation Table below, and (d) all officers and
directors of the Company as a group:
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership(1)(2) Class
------------------- ----------------- -------
Kenneth S. Shifrin..................... 449,158 10.6
1301 Capital of Texas Highway
Austin, Texas 78746
Dimensional Fund Advisors, Inc. (4)........... 256,700 6.2
1299 Ocean Ave., 11th Floor
Santa Monica, California 90401
EQSF Advisers, Inc./M.J. Whitman Advisers, Inc. 338,300 8.1
767 Third Ave.
New York, New York 10017
Franklin Resources, Inc. ......................... 265,800 6.4
777 Mariners Island Blvd.
San Mateo, California 94403
Heartland Advisors, Inc. ....................... 400,700 9.6
790 North Milwaukee St.
Milwaukee, Wisconsin 53202
Duane K. Boyd................................... 91,466 2.1
W. H. Hayes..................................... 118,666 2.8
Jack Murphy..................................... 62,000 1.5
Robert L. Myer.................................. 22,000 .5
William A. Searles.............................. 32,000 .8
All officers and directors as
a group (8 persons)(2)(3)...................... 813,122 18.0
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(1) Except as otherwise indicated, each individual has sole voting and
investment power with respect to all shares owned by such
individual.
(2) The number of shares beneficially owned by officers and directors
includes the following number of shares subject to options that
are presently exercisable or exercisable within 60 days after
April 24, 1998: Mr. Shifrin, 70,333; Mr. Boyd, 23,666; Mr. Hayes,
93,666; Mr. Murphy, 62,000; Mr. Myer, 22,000; Mr. Searles, 32,000.
The number of shares beneficially owned by all directors and
officers as a group, including the above-named directors, includes
340,497 shares subject to options that are presently exercisable
or exercisable within 60 days after April 24, 1998.
(3) Includes the president and chairman of the board, if any, of each
of the Company's consolidated subsidiaries.
(4) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered
investment advisor, is deemed to have beneficial ownership of
256,700 shares of American Physicians Service Group, Inc. stock as
of December 31, 1997, all of which shares are held in portfolios
of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust
Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional Fund Advisors
Inc.serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares.
EXECUTIVE COMPENSATION
Summary Compensation Table
Set forth below is information concerning aggregate cash compensation paid
during each of the Company's last three fiscal years to the Company's Chief
Executive Officer and each of the Company's other most highly compensated
executive officers who received in excess of $100,000 in salary and bonuses
during any of the last three years.
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<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
--------------------------------------------- -----------------------
Awards
-------------------
Other Annual Securities
Fiscal Bonus Compensation Underlying All Other
Year Salary($) ($)(1) ($) Options (#) Compensation
- ----------------------------- ------- --------- --------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth S. Shifrin, Chairman 1997 112,500 44,500 -- 35,000 2,492
and CEO
1996 112,500 240,000 -- 50,000 4,527
1995 112,500 44,800 -- 25,000 3,145
Duane K. Boyd, Senior VP 1997 140,000 108,300 -- 20,000 2,497
1996 150,000 96,560 -- 25,000 4,536
1995 150,000 121,000 -- -- 3,154
William H. Hayes, Senior VP 1997 86,160 19,200 -- 20,000 2,497
1996 86,160 104,782 -- 25,000 4,536
1995 87,620 19,300 -- 25,000 3,154
</TABLE>
(1) Reflects bonus paid during the fiscal year.
(2) Consists of Company contributions to the Company's 401(k) plan.
Options Granted During Last Fiscal Year
The following table provides information related to options granted to the
named executive officers during 1997. The Company does not have any outstanding
stock appreciation rights.
Option Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Potential realizable value at
Number of securities Percent of total options assumed annual rates of stock
underlying Options granted to employees Exercise Expiration price appreciation for option term
Name granted (#) (1) in fiscal year Price($/Sh) Date 5%($) (2) 10%($) (2)
- -------------- -------------------- ----------- ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth S. Shifrin 35,000 12% $5.88 06/19/02 56,810 125,536
Chairman and CEO
Duane K. Boyd, Jr. 20,000 7% $5.88 06/19/02 32,463 71,735
Senior VP
William H. Hayes 20,000 7% $5.88 06/19/02 32,463 71,735
Senior VP
</TABLE>
(1) These options were granted at fair market value at the time of
grant and vest in three annual installments beginning one year
after grant.
(2) The potential realizable value of the options granted in 1997 to
each of these executive officers was calculated by multiplying
those options by the excess of (a) the assumed market value, of
the underlying Common Stock five years from grant date of the
options if the market value of Common Stock were to increase 5% or
10% in each year of the option's 5-year term over (b) the exercise
price shown. This calculation does not take
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into account any taxes or other expenses which might be owed. The
5% and 10% appreciation rates are set forth in the Securities and
Exchange Commission rules and no representation is, of course,
made that the Common Stock will appreciate at these assumed rates
or at all.
Option Exercises During 1997 and Option Values at December 31, 1997
- -------------------------------------------------------------------
The following table provides information related to options exercised by the
named executive officers during 1997 and the number and value of options held at
December 31, 1997. The Company does not have any outstanding stock appreciation
rights.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the--
Underlying Unexercised Money Options at Fiscal Year
Options at Fiscal End(2)
--------------------- ---------------------------
Name Shares Acquired Value Realized Exercisable Unexercisable Exercisable Unexercisable
on Exercise(#) ($)(1) (#) (#) ($) ($)
- ------------------------------------- ------------ ------------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth S. Shifrin, Chairman and CEO 100,000 362,500 33,332 76,668 64,581 76,044
Duane K. Boyd, Senior VP -- -- 8,333 36,667 -- 25,000
William H. Hayes, Senior VP 5,000 25,625 69,999 45,001 273,956 57,294
</TABLE>
(1) The Value Realized was calculated by subtracting the per share
exercise price of the option from the closing price for the
Company's Common Stock on the date of exercise and multiplying the
difference by the number of shares of Common Stock underlying the
option.
(2) The Value of Unexercised In-the-Money Options is before any income
taxes and was calculated by subtracting the per share exercise
price of the option from the closing price for the Company's
Common Stock on December 31, 1997 ($7.125) and multiplying the
difference by the number of shares of Common Stock underlying the
option.
Compensation of Directors
- -------------------------
Messrs. Murphy and Searles receive a fee of $1,000 for each meeting of the
Board of Directors that they attend. Mr. Myer has requested that the Company
make a $1,000 charitable contribution for each meeting in lieu of a fee to him.
Mr. Shifrin does not receive separate compensation for his service as director.
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REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Company is engaged in several highly competitive industries. In order
to succeed, the Company believes that it must be able to attract and retain
qualified executives. To achieve this objective, the Company has structured an
executive compensation system tied to operating performance that the Company
believes has enabled it to attract and retain key executives.
During 1996, the Compensation Committee was comprised of Robert L. Myer
and William A. Searles, both of whom are outside directors.
During 1997, the Compensation Committee had primary responsibility for
determining executive compensation levels. The Board as a whole maintains a
philosophy that compensation of executive officers, specifically including that
of the Chief Executive Officer, should be linked to both operating and stock
price performance. A portion of the management compensation has been comprised
of bonuses, based on operating and stock price performance, with a particular
emphasis on the attainment of planned objectives. Accordingly, in years in which
performance goals are achieved or exceeded, executive compensation tends to be
higher than in years in which performance is below expectations. Stock options
are granted from time to time to members of management, based primarily on such
person's potential contribution to the Company's growth and profitability. The
Committee feels that options are an effective incentive for managers to create
value for stockholders since the value of an option bears a direct relationship
to the Company's stock price.
For 1997, the Company's executive compensation program consisted of base
salary and a bonus based upon the achievement of specific performance
measurements. Executives of subsidiaries of the Company were paid a bonus based
upon achieving a targeted pretax income. The Chief Executive Officer was paid a
bonus in 1998 based upon the improvement in 1997 pretax income over 1996 pretax
income.
The Company's objective is to obtain a financial performance that achieves
several goals over time, including earnings-per-share growth, stock price growth
and a proper diversification of business risks. The Committee believes that
compensation levels during 1997 adequately reflect the Company's compensation
goals and policies.
Compensation Committee: Robert L. Myer and
William A. Searles
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's affiliate Prime Medical Services, Inc. ("Prime") occupies
approximately 5,575 square feet of office space owned by the Company and also
shares certain personnel with the Company. Prime pays the Company rent and
personnel reimbursements of approximately $7,500 per month. As of April 24,
1998, the Company owned 3,064,503 shares of Prime.
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On October 1, 1997, the Company formed Syntera Healthcare Corporation
("Syntera") with an initial ownership of 85%. Syntera specializes in the
management of OB/GYN and related medical practices. Certain officers, directors
and employees of the Company also invested in Syntera, paying the same price per
share for their investment as the Company. These investments were as follows:
Initial
Name Title Ownership %
------ ------ ------------
Duane K. Boyd,Jr. Senior VP .5
William H. Hayes Senior VP .1
Jack Murphy Director .9
Robert L. Myer Director 1.8
Kenneth S. Shifrin Chairman and CEO 1.3
All others .5
Mr. Boyd and Mr. Shifrin are members of Syntera's Board of Directors.
In December 1997, the Company guaranteed a loan from a bank to director
William Searles in the amount of $85,000. To secure its obligations under the
guaranty, the Company received a security interest in all rights to certain
Stock Option Agreements and to certain securities belonging to Mr. Searles. The
excess value of the underlying stock over the exercise price of the options plus
the value of the securities was approximately $72,000 at April 24, 1998.
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PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return with the total stockholder returns of all NASDAQ stocks (the "NASDAQ
Total") and of all stocks (the "Peer Index") contained in the following three
NASDAQ indexes (with each index being given equal weight): Financial, Health
Services and Insurance.
The following is a table representation of the performance graph depicted on
page 8 of the print version of the proxy.
NASDAQ INDEX CONVERSION (12/31/92 = 100)
PEER
FYE NASDAQ INDEX APSG
-------- ------ ------ ------
12/31/92 100.00 100.00 100.00
12/31/93 114.80 113.34 88.89
12/31/94 112.21 115.48 105.56
12/31/95 158.70 156.91 427.78
12/31/96 195.19 175.86 288.89
12/31/97 239.53 230.66 316.67
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SECTION 16 FILING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (the "SEC") and the NASDAQ Stock Exchange. Such persons are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms received by the Company
with respect to 1997, or written representations from certain reporting persons,
the Company believes that all filing requirements applicable to its directors
and officers and persons who own more than 10% of a registered class of the
Company's equity securities have been complied with, except that during 1997 one
report on Form 4 was filed late by former director Richard J. Clark.
QUORUM; VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote is necessary to constitute a
quorum at the meeting. If a quorum is not present or represented at the meeting,
the shareholders entitled to vote thereat, present in person or represented by
proxy, have the power to adjourn the meeting from time to time, without notice
other than an announcement at the meeting, until a quorum is present or
represented. At any such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally notified.
Cumulative voting is not permitted in the election of directors of the
Company. On all matters (including election of directors) submitted to a vote of
the shareholders at the meeting or any adjournment(s) thereof, each holder of
Common Stock will be entitled to one vote for each share of Common Stock owned
of record by such shareholder at the close of business on April 24, 1998.
SHAREHOLDER PROPOSALS
Any shareholder of the Company meeting certain minimum stock ownership and
holding period requirements may present a proposal for action at the annual
meeting of shareholders to be held in 1999. Such shareholder must deliver the
proposal to the executive offices of the Company no later than January 15, 1999,
unless the Company notifies the shareholders otherwise. Only those proposals
that are proper for shareholder action and otherwise proper may be included in
the Company's proxy statement. The Board of Directors will consider nominations
for directors of the Company to be elected at the Annual Meeting of Shareholders
to be held in 1999 that are submitted in writing by any shareholder of the
Company prior to January 15, 1999. Notwithstanding the foregoing, all
shareholder proposals must be made in compliance with the applicable provisions
of the Bylaws of the Company.
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ACTION TO BE TAKEN UNDER THE PROXY
Proxies in the accompanying form which are properly executed and returned
will be voted at the meeting and any adjournment(s) thereof and will be voted in
accordance with the instructions thereon. Any proxy upon which no instructions
have been indicated with respect to a specified matter will be voted as follows
with respect to such matters: (a) "FOR" the four persons named in this Proxy
Statement as the Board of Directors' nominees for election to the Board of
Directors, (b) "FOR" the amendment to the 1995 Incentive and Non-qualified Stock
Option Plan, (c) in the transaction of such other business as may properly come
before the meeting or any adjournment(s) thereof. The Board of Directors knows
of no matters, other than those stated above, to be presented for consideration
at the meeting. If, however, other matters properly come before the meeting or
any adjournment(s) thereof, it is the intention of the persons named in the
accompanying proxy to vote such proxy in accordance with their judgment on any
such matters. The persons named in the accompanying proxy may also, if it is
deemed to be advisable, vote such proxy to adjourn the meeting from time to
time.
ELECTION OF DIRECTORS
Pursuant to the Company's Bylaws, the Board of Directors has, by
resolution, fixed the number of directors at four, and four directors will be
elected. All nominees will be elected to hold office until the next annual
meeting of shareholders of the Company and until his successor is elected and
qualified. Each nominee is presently a director of the Company and has served
continuously since first becoming a director. The Board of Directors held eight
meetings during the year ended December 31, 1997, and each director attended at
least 75% of the aggregate of (a) the total number of meetings of the Board of
Directors held during the period for which he served as a director and (b) the
total number of meetings held by all committees of the board on which he served.
Director of
Name Age Company Since
Jack Murphy 69 1974
Robert L. Myer 49 1996
William A. Searles 55 1989
Kenneth S. Shifrin 49 1987
Mr. Shifrin has been Chairman of the Board since March 1990. He has been
President and Chief Executive Officer since March 1989 and was President and
Chief Operating Officer from June 1987 to February 1989. He has been a Director
of the Company since February 1987. From February 1985 until June 1987, Mr.
Shifrin served as Senior Vice President - Finance and Treasurer. He has been
Chairman of the Board of Prime since October 1989. Mr. Shifrin is a member of
the Young Presidents' Organization.
Mr. Murphy, a founder of the Company, was Chairman of the Board from
February 1989 to March 1990 and previously held that position from October 1974
to December 1987. He has been
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a Director of the Company since October 1974 and was President from October 1974
to January 1986.
Mr. Myer has been a director since June 1996. He is currently President and
Chief Executive Officer of College Insurance Group, Inc., an insurance holding
company which owns 100% of Annuity Service Corp. and Financial Assurance Life
Insurance Company. Annuity Service Corp. manages and administers qualified plan
annuity and life insurance business for several insurance companies. Financial
Assurance Life is a provider of annuity and life insurance products. Mr. Myer
founded and is President and Chief Executive Officer of the NAP Group of
Companies. The NAP Group of Companies markets and administers tax-deferred
annuity and life insurance programs.
Mr. Searles has been a director since July 1989. He is an independent
business consultant and from 1981 to 1989 was associated with Bear, Stearns &
Co., Inc. (an investment banking firm), most recently as an Associate
Director/Limited Partner. He has served as a Director of Prime since October
1989.
Should any nominee named herein for the office of director become
unwilling or unable to accept nomination of election, it is intended that the
persons acting under the proxy will vote for the election, in his stead, of such
other persons as the Board of Directors of the Company may recommend or the
Board of Directors of the Company may reduce the number of directors to be
elected. The Board of Directors has no reason to believe that any nominee named
above will be unwilling or unable to serve.
The Board recommends a vote FOR each nominee for director.
PROPOSAL TO AMEND
THE 1995 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Plan") currently provides
that the aggregate number of shares of Common Stock that may be issued upon the
exercise of all options under the 1995 Plan shall not exceed 800,000. As of
March 31, 1998, 30,000 shares had been issued pursuant to the 1995 Plan and an
additional 766,000 shares were subject to outstanding options. Accordingly,
there are only 4,000 shares remaining available for issuance under the 1995
Plan. The Board of Directors of the Company, on March 27, 1998, subject to
stockholder approval at the Annual Meeting, approved an amendment to the 1995
Plan to increase the aggregate number of shares that may be issued thereunder by
400,000 to 1,200,000. The Company has in the past utilized stock options as a
significant element of compensation to officers, key employees and directors and
intends to continue to do so. The Board of Directors believes that the effect of
this amendment will be to preserve the benefits to the Company of the 1995 Plan
by ensuring that officers, directors and other key employees continue to be
eligible to receive options.
The Board recommends a vote FOR the amendment to the 1995 Plan.
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CERTAIN INFORMATION CONCERNING THE BOARD OF DIRECTORS
No family relationships exist among the officers or directors of the
Company. Except as indicated above, no director of the Company is a director of
any company with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or subject to
the requirements of Section 15(d) of the Exchange Act or any company registered
as an investment company under the Investment Company Act of 1940.
The Board of Directors has a standing audit committee which, during 1997,
consisted of two directors, Mr. Murphy and Mr. Myer. The audit committee held
one meeting during the year ended December 31, 1997, at which both members were
present. The audit committee meets with the Company's independent auditors,
reviews the financial statements of the Company, and recommends to the Board of
Directors of the Company the selection of the Company's independent auditors for
each fiscal year. The Board has a standing compensation committee which, in
1997, consisted of two directors, Mr. Myer and Mr. Searles. The compensation
committee held two meetings during the year ended December 31, 1997. The
compensation committee has primary responsibility for determining executive
compensation and for recommending option grants to key employees and directors.
The Board of Directors has an executive committee currently consisting of
Mr. Murphy and Mr. Shifrin. The executive committee held no meetings during the
year ended December 31, 1997. The executive committee has the authority to take
all actions that the Board of Directors of the Company has, except in limited
circumstances as described in the Bylaws of the Company and the Texas Business
Corporation Act.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company selected KPMG Peat Marwick LLP
("Peat Marwick") as independent auditors for the year ended December 31, 1997.
Peat Marwick advised the Company that, in accordance with professional
standards, it would not perform any non-audit service which would impair its
independence for purposes of expressing an opinion on the Company's financial
statements. A representative of Peat Marwick will attend the meeting with the
opportunity to make a statement if such representative desires to do so and will
be available to respond to appropriate questions. The Audit Committee has not
yet made a recommendation of independent auditors for 1998.
OTHER MATTERS
The Board of Directors of the Company does not intend to bring any other
matters before the meeting and does not know of any matters which will be
brought before the meeting by others.
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However, if any other matters 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.
By Order of the Board of Directors
/s/ W.H. Hayes
--------------------------
W. H. HAYES
Vice President and Secretary
Austin, Texas
May 1, 1998
13
