SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Enhanced Services Company, Inc.
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(Name of Registrant as Specified in its Charter)
Enhanced Services Company, Inc.
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(Name of Person(s) Filing Proxy Statement)
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(j)(2).
[ ] $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:
____________________________________________________________
1 Set forth the amount on which the filing fee is calculated and state how
it was determined.
[X] 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:
$125
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2) Form, Schedule or Registration Statement No.:
Preliminary Proxy Statement
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3) Filing Party:
Registrant
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4) Date Filed:
May 24, 1996
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<PAGE>
ENHANCED SERVICES COMPANY, INC.
16000 Barkers Point Lane
Houston, Texas 77079
________________________________________________________________________
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
________________________________________________________________________
Dear Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of
Stockholders to be held on June 17, 1996, at 2:00 pm at The India House, One
Hanover Square, New York, New York, to consider and act upon the following
matters:
I. To elect a Board of five directors to serve until the next Annual Meeting
of stockholders or until their successors are elected and qualified;
II. To approve a proposal to amend and restate the Company's 1992 Incentive
Stock Option Plan in order to (i) increase the number of shares reserved for
issuance under the Plan to 250,000; (ii) add provisions whereby upon joining
the Board and upon each subsequent reelection to the Board, non-employee
directors would automatically receive options to purchase up to 2,000 shares
of the Company's Common Stock; (iii) add provisions to permit the granting of
Non-Qualified Stock Options to consultants, advisors, and representatives of
the Company; (iv) replace the limitation whereby the fair market value of
Incentive Stock Options granted to an individual during any calendar year can
not exceed $100,000, with a provision permitting an individual to exercise
Incentive Stock Options for shares having a fair market value of $100,000
during any calendar year; and (v) extend the term of the Plan from March 2002
to April 2006;
III. To ratify the appointment of Schumacher & Associates, Inc. as the
Company's independent certified public accountants; and
IV. To consider and act upon such other business as may properly come before
the meeting.
At the meeting, we will also report on the operations of the Company,
and you will have an opportunity to ask questions. Whether or not you plan to
attend, please take a few minutes now to sign, date and return your proxy to
the Company. The Proxy may be revoked at any time prior to the time that it
is voted. Only stockholders of record at the close of business on May 21,
1996 will be entitled to vote at the meeting.
Thank you for your continued interest in the Company.
Bertram Pariser, Ph.D
Secretary
June 4, 1996
<PAGE>
ENHANCED SERVICES COMPANY, INC.
PROXY STATEMENT
FOR 1996 ANNUAL MEETING OF STOCKHOLDERS
The enclosed Proxy is solicited on behalf of Enhanced Services Company,
Inc. (the "Company") for use at the Annual Meeting of Stockholders to be held at
The India House, One Hanover Square, New York, New York on June 17, 1996 at 2:00
pm local time, or at any adjournment thereof, for the purposes set forth herein
and in the accompanying Notice of Annual Meeting of Stockholders.
The Company's principal executive offices are located at 16000 Barkers
Point Lane, Houston, Texas 77079. The telephone number at that location is (713)
556-5051.
Properly executed proxies received prior to or at the meeting will be
voted. If a stockholder specifies how the proxy is to be voted, it will be so
voted. If no specification is made, it will be voted (1) FOR the election of
the five directors nominated by management; (2) FOR the proposal to amend and
restate the Company's 1992 Incentive Stock Option Plan (the "Plan"); and (3) FOR
the ratification of the appointment of Schumacher & Associates, Inc., as the
Company's auditors. The Company is not aware of any other matter intended to be
presented at the meeting. If other matters properly come before the meeting, it
is the intention of the persons named in the proxy to vote on them in their
discretion.
Only holders of Common Stock, $.001 par value per share, of record at the
close of business on May 21, 1996 (the "Record Date") are entitled to notice of
and to vote at the meeting. On the Record Date, after giving effect to the one-
for-five reverse stock split, effected May 20, 1996 (the "Reverse Split"), there
were 1,044,256 shares of the Company's Common Stock outstanding, each entitled
to one vote on all matters submitted for stockholder approval. All references
herein to the number of outstanding shares and to prices per share, have been
adjusted for the Reverse Split.
Execution and delivery of a proxy will not affect a stockholder's right to
attend the Annual Meeting and vote in person. A stockholder in whose name
shares are registered as of the Record Date and who has given a proxy may revoke
it at any time before it is voted by executing and delivering a written
revocation to the Secretary of the Company, by execution and delivery of a later
dated proxy or by attending the Meeting and voting by ballot (which has the
effect of revoking the prior proxy). Attendance at the Annual Meeting, however,
will not in and of itself revoke a proxy.
A stockholder who is a beneficial owner, but not a registered owner, as of
the Record Date cannot vote his or her shares except by the stockholder's
broker, bank or nominee in whose name the shares are registered executing and
delivering a proxy on his or her behalf or the stockholder attending the Meeting
with a proxy or other authorization to vote from the registered owner and
voting.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company will reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or telegram. The approximate date on
which this Proxy Statement and the accompanying form of proxy will be mailed to
the Company's stockholders is June 4, 1996.
<PAGE>
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 21, 1996 by each shareholder
who is known by the Company to own beneficially more than 5% of its Common
Stock:
Amount and Nature Percentage of
Name and Address of Beneficial Ownership Class Outstanding
---------------- ----------------------- -----------------
Kenneth M. Duckman 642,667 (1)(2) 61.1%
16000 Barkers Point Lane
Houston, TX 77029
NB Holding, Inc. 201,119 (3) 19.3%
2110 Priest Bridge Drive
Crofton, MD 21114
Ralph LaBarge 86,470 (3)(4) 8.3%
NB Engineering, Inc.
2110 Priest Bridge Drive
Crofton, MD 21114
Creative Business 112,668 (5) 9.8%
Strategies, Inc.
5353 Manhattan Circle,
Suite 201
Boulder, CO 80302
- -------------------
(1) Includes 47,667 shares of Common Stock held by a charitable trust for
which Mr. Duckman is co-trustee.
(2) Includes 7,800 shares underlying stock options for which Mr. Duckman
has the right to acquire within 60 days.
(3) Includes 39,918 shares of Common Stock being held in escrow which are
required to be released to NB Holding, Inc. (formerly NB Engineering,
Inc., the predecessor of NB Engineering, Inc., a wholly-owned
subsidiary of the Company) if certain financial goals are achieved by
NBE.
(4) Mr. LaBarge, together with his wife, own approximately 42% of the
Common Stock of NB Holding, Inc. Also includes 2,000 shares
underlying stock options for which Mr. LaBarge has the right to
acquire within 60 days.
(5) Includes 109,000 shares underlying warrants for which Creative
Business Strategies, Inc. has the right to acquire within 60 days.
See "Related Party Information."
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<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
A Board of five directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
FOR the Company's five nominees named below, all of whom are presently directors
of the Company. In the event that any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted FOR any nominee who shall be designated by the present Board of
Directors to fill the vacancy. The proxy holders will vote the proxies only for
the nominees named below. However, in the event any of the nominees should
become unavailable to serve as a director, the persons named as joint proxies in
the enclosed form of proxy may vote for the election of such person or persons
as the Board may recommend in the place of such nominee or nominees. The
Company is not aware of any nominee who will be unable or will decline to serve
as a director. The term of office of each person elected as a director will
continue until the next Annual Meeting of Stockholders or until his successor
has been elected and qualified.
Set forth below is information, as of May 21, 1996, concerning the
Company's nominees:
<TABLE><CAPTION>
Name Age Principal Occupation Director Number Percent of
---- --- and Business Experience Since of Shares(1) Outstanding
----------------------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C>
Kenneth M. Duckman 44 President (Chief 1992 642,667(2)(3) 61.1%
Executive Officer) and
director. Mr. Duckman
has been Chairman of
the Board, President
and CEO of Laptop
Solutions, Inc. (a
wholly-owned subsidiary
of the Company) since
its inception in
February, 1991 and a
director of NB
Engineering, Inc. (a
wholly-owned subsidiary
of the Company) since
June 1995. Mr. Duckman
was the founder of LTC
Technologies, Inc.,
d/b/a Source One
Systems (field
automation technology
specialists) and served
as its President from
December 1984 to
February 1991. In
February 1990, LTC was
acquired by Spectrum
Information
Technologies, Inc.
(diversified
technology), and from
February 1990 to
February 1991 Mr.
Duckman served as a
member of its Board of
Directors and as its
vice-president of
Corporate Development.
</TABLE>
-3-
<PAGE>
<TABLE><CAPTION>
Name Age Principal Occupation Director Number Percent of
---- --- and Business Experience Since of Shares(1) Outstanding
----------------------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C>
Bertram Pariser, 55 Director and Secretary. 1993 8,000(4) *
Ph.D. Dr. Pariser has been
the Secretary and a
Director of Laptop
Solutions, Inc. since
May 1993. In June 1995
he became the Secretary
and a Director of NB
Engineering, Inc.
Since 1966, he has been
the President of
M.I.T.C.U. Corporation,
which provides
consultation to
investment banking
firms and private
clients. Since 1991,
Dr. Pariser has also
been a member of the
faculty at Technical
Career Institutes, in
the department of
electronic engineering
technology, lecturing
in physics. Dr.
Pariser is a cousin of
Mr. Duckman.
Ralph LaBarge 40 Director. Mr. LaBarge 1995 86,470(5) 8.3%
has served as the
President and Chief
Technical Officer of NB
Engineering, Inc. since
January 1985. Prior to
his employment with the
Company, Mr. LaBarge
was President of NB
Engineering, Inc., the
predecessor of NB
Engineering, Inc., and
served as a principal
engineer for HRB-
Singer, Inc., a defense
contractor.
Michael Bernard 44 Director. Mr. Bernard 1993 12,500(6) 1.2%
is currently a
consultant in the field
of international
marketing and
distribution for high
technology
communications and
computer products.
From 1991 through 1992,
Mr. Bernard was Vice-
President,
International Sales and
Marketing, for Portable
Products at U.S.
Robotics, Inc.
(computer modems).
Prior to its
acquisition by U.S.
Robotics, Inc.,
Mr. Bernard was
the co-founder of
Touchbase Systems, Inc.
(modem and
communication
products), serving as
Director of
International Sales and
Marketing, from 1985.
</TABLE>
-4-
<PAGE>
<TABLE><CAPTION>
Name Age Principal Occupation Director Number Percent of
---- --- and Business Experience Since of Shares(1) Outstanding
----------------------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C>
John Meaney 49 Director. Since 1992, 1993 5,000(7) *
Mr. Meaney has served
as the General Manager
for the Panasonic
Personal Computer
Company and from 1968
to 1992 as a Director
of the Southern Region
for Toshiba. From
1986-1988, he served as
Director of Product
Marketing at NYNEX
Business Centers in
Atlanta, GA.
</TABLE>
- ----------------------------
<TABLE><CAPTION>
<S> <C>
* Constitutes less than 1%
(1) Includes shares deemed to be beneficially owned by such persons pursuant to Rule 13d-3
promulgated under the Exchange Act because they have the right to acquire such shares
within 60 days upon the exercise of options or because such persons or entities have or
share investment or voting power.
(2) Includes 47,667 shares of Common Stock held by a charitable trust for which Mr. Duckman
serves as co-trustee.
(3) Includes 7,800 shares underlying stock options held by Mr. Duckman.
(4) Includes 8,000 shares underlying stock options held by Dr. Pariser.
(5) Mr. LaBarge, together with his wife, own approximately 42% of the Common Stock of NB
Holding, Inc. Also includes 2,000 shares underlying stock options held by Mr. LaBarge.
(6) Includes 6,000 shares underlying stock options held by Mr. Bernard.
(7) Includes 5,000 shares underlying stock options held by Mr. Meaney.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE ELECTION AS DIRECTORS OF THE FIVE NOMINEES
NAMED IN THIS PROXY STATEMENT.
-5-
<PAGE>
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held eight formal meetings during the
fiscal year ended November 30, 1995. Presently, the Board of Directors has no
standing audit or nominating committees. The Board has a Compensation Committee
recomend the compensation levels of officers and directors of the Company,
including all stock option grants made under the Company's Stock Option Plan.
During the Company's last fiscal year, the Compensation Committee held three
formal meetings; its members are Michael Bernard, Dr. Bertram Pariser and John
Meaney.
Each director attended in person (or participated by telephone in) more
than 75% of the total number of Board of Directors' meetings held during the
last fiscal year.
COMPENSATION OF DIRECTORS
Directors do not receive a salary for their services as directors, although
they are reimbursed for expenses incurred in attending Board meetings. The
Company has granted its directors non-qualified stock options in consideration
of their services to the Company. In the last fiscal year the Company granted
options for a total of 8,000 shares of its Common Stock to four of its
directors.
EXECUTIVE OFFICERS
The Company has one executive officer other than Mr. Duckman, its Chief
Executive Officer. The age, business experience over the past five years and
the number of shares of the Company's Common Stock owned by such executive
officer is set forth below:
<TABLE><CAPTION>
Business No. of Percent of
Name Age Experience Shares Outstanding
- ------------------- --- ---------- ------ -----------
<S> <C> <C> <C> <C>
Robert Smith 57 Mr. Smith has been Chief Financial 10,100(1) *
Officer of Laptop Solutions, Inc. since
October 1993. Prior thereto,
Mr. Smith served as President of
Horizon Computer Resources, Inc., a full
service consulting and automation advisory
firm, from 1986.
- ----------------------------
</TABLE>
* Constitutes less than 1%.
(1) Includes 9,500 shares underlying stock options held by Mr. Smith which
he has a right to acquire within 60 days.
-6-
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
--------------------------
The following table sets forth all compensation paid to the Company's
Chief Executive Officer during the last three fiscal years. The Company had no
executive officers as of November 30, 1995 who earned in excess of $100,000 in
compensation during the fiscal year then ended.
<TABLE><CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Fiscal All Other
Name and Principal Position Year Salary Bonus Options Compensation
--------------------------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Kenneth M. Duckman 1995 $90,000 $ - 0 - - 0 - *
President and 1994 60,000 6,000 39,000 *
Chief Executive Officer 1993 42,704 6,000 10,000 *
______________
* Constitutes less than 10% of the named executive officer's salary.
</TABLE>
STOCK OPTIONS
No options were granted to the Company's President and Chief Executive
Officer during the fiscal year ended November 30, 1995. The Company has no
SAR Plan and has issued no SARs.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
The following table sets forth information concerning options exercised
during the Company's fiscal year ended November 30, 1995 and the number of
unexercised options held by the Company's above named executive officer at the
end of such fiscal year:
<TABLE><CAPTION>
Value of
Number of Unexercised
Unexercised in-the-Money
Options at Options at
Shares Value FY-End(#) FY-End($)
Acquired Realized
Name on Exercise(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
----------- -------------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Kenneth M. -0- -0- 7,800/0 $13,260/0
Duckman
</TABLE>
(1) Based on the average high/low bid/ask prices of the Company's Common
Stock as reported by the National Quotations Bureau, the fair market
value of its Common Stock as of its fiscal year ended November 30,
1995 was $4.20 per share.
-7-
<PAGE>
PROPOSAL TWO
APPROVAL OF AMENDED AND
RESTATED STOCK OPTION PLAN
INTRODUCTION
In March 1992, the Company's Board and shareholders adopted the Company's
1992 Incentive Stock Option Plan (the "Plan"), under which 70,000 shares of the
Company's Common Stock, $.001 par value, were initially reserved for issuance
under options granted or to be granted to certain employees, officers or
directors of the Company or its subsidiaries. In April 1994, the shareholders
approved an amendment which increased the number of shares reserved under the
Plan to 130,000.
In April 1996, the Board amended and restated the Plan, subject to approval
and ratification by the Company's shareholders. If the Amended and Restated
Plan is approved it would (i) further increase the number of shares reserved for
issuance under the Plan to 250,000; (ii) add provisions whereby upon joining the
Board and upon subsequent reelection to the Board, non-employee directors would
automatically receive options to purchase up to 2,000 shares of the Company's
Common Stock; (iii) add provisions to permit the granting of Non-Qualified Stock
Options to consultants, advisors, and representatives of the Company; (iv)
replace the limitation whereby the fair market value of Incentive Stock Options
granted to an individual during any calendar year can not exceed $100,000, with
a provision permitting an individual to exercise Incentive Stock Options for
shares having a fair market value of $100,000 during any calendar year; and (v)
extend the term of the Plan from March 2002 to April 2006. The Amended and
Restated Plan is annexed hereto as exhibit A.
The Plan is not subject to the Employee Retirement Income Security Act of
1974.
SUMMARY OF THE PLAN
The following summary of the Plan is not intended to be complete, and is
qualified in its entirety by reference to the Plan itself, a copy of which may
be obtained without charge from the Company by requesting a copy from Enhanced
Services Company, Inc., 16000 Barkers Point Lane, Houston, TX 77079, telephone
(713) 556-5051, facsimile (713) 556-5035. Capitalized terms used herein shall
have the meaning ascribed to them in the Plan.
PURPOSE
The primary purpose of the Plan is to promote the growth and profitability
of the Company by providing, through the granting of options, incentives to
attract highly talented persons to positions with one or more of the
Participating Companies, to retain such persons and to motivate them to use
their best efforts on behalf of the Participating Company employer. Options
granted to employees under the Plan may be either incentive stock options,
within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code") ("Incentive Stock Options"), or options which do not
constitute Incentive Stock Options ("Non-Qualified Stock Options"). Options
granted to consultants and non-employee directors under the Plan will be Non-
Qualified Options.
ADMINISTRATION
The Plan is administered either by (i) the Board or (ii) a Committee of no
less than two Board members, appointed by the Board. The Board and the
Committee each have full and absolute power and authority in its sole discretion
to (i) determine which Eligible Persons shall receive Options, (ii) determine
the time when Options shall be granted, (iii) determine the terms and
conditions, of any Option granted under the Plan, (iv) determine the number of
Shares which shall be subject to each Option granted under the Plan, and (v)
interpret the provisions of the Plan and of any Option granted under the Plan.
-8-
<PAGE>
The interpretations and constructions by the Board or Committee of any
provisions of the Plan and of Options granted thereunder, and such
determinations of the Board or Committee as they deem appropriate for the
administration of the Plan and of Options granted thereunder, are final and
conclusive on all persons having any interest thereunder. The Board may from
time to time remove members from, or add members to, the Committee, and
vacancies on the Committee shall be filled by the Board. The Board may abolish
the Committee at any time or revest in the Board the administration of the Plan.
ELIGIBILITY AND EXTENT OF PARTICIPATION
Options may be granted only to employees, consultants, representatives,
advisors and directors of the Company and its subsidiaries. Incentive Stock
Options may be granted only to individuals who are employees (including officers
and directors who are also employees) of the Company or any parent or subsidiary
corporation (as defined in Section 424 of the Code) of the Company at the time
the Option is granted. Non-Qualified Stock Options may be granted to
individuals who are consultants, representatives, advisors or directors of the
Company or any such parent or subsidiary corporation. As of May 21, 1996,
approximately 45 individuals were eligible to receive Options, and Options were
held by 22 individual(s) under the Plan. Subject to the terms of the Plan, the
Board and the Committee have full and final authority to determine the persons
who are to be granted Options under the Plan and the number of Shares subject to
each Option.
EXISTING OPTION GRANTS
On April 1, 1996, the Board granted new options to twelve current employees
of the Company, in exchange for the cancellation of options previously granted
to such individuals. In the aggregate, new options to purchase up to 16,700
shares of the Company's Common Stock at an exercise price of $2.50 per share
were granted, in exchange for the cancellation of old options to purchase up to
(i) 5,700 shares at $4.55 per share and (ii) 11,000 shares at $9.15 per share.
As of May 21, 1996, options to purchase 8,760 shares had been exercised, and
options to purchase up to 81,533 shares were outstanding as follows:
No. of Outstanding No. of
Exercise Price Options Vested Shares
-------------- ------- -------------
$2.50 53,033 45,833
$4.55 20,500 20,500
$12.65 8,000 8,000
159,707 shares of the Company's Common Stock are currently available for future
issuance under the Plan.
PURCHASE PRICE AND EXERCISE OF OPTIONS
The purchase price for each Share issuable upon exercise of an Option are
to be determined by the Committee, but in the case of Incentive Stock Options
shall not be less than 100% of the fair market value of such Share on the date
the Option is granted, except that no Incentive Stock Option may be granted to
an individual if, at the time the Option is granted, such individual
beneficially owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of Section 422(b)(6) of the Code, unless (i) at
the time such Option is granted the option price is at least 110% of the fair
market value of the Stock subject to the Option and (ii) such Option by its
terms is not exercisable after the expiration of five years from the date of the
grant. To the extent that the aggregate fair market value (determined at the
time the respective Incentive Stock Option is granted) of stock with respect to
which Incentive Stock Options are exercisable for the first time by an
individual during any calendar year exceeds $100,000, such excess Incentive
Stock Options are to be treated as Non-Qualified Stock Options.
-9-
<PAGE>
An Option may be exercised in such amounts and at such times as may be
determined by the Board or the Committee at the time of grant of such Option.
To the extent that an Option is not exercised within the period of
exercisability fixed by the Committee, it will expire as to the then unexercised
part.
EXPIRATION AND TRANSFER OF OPTIONS
Options are non-transferable, except by will or by the laws of descent and
distribution. During the lifetime of each Option holder, only he or she may
exercise his or her Option.
ADJUSTMENT OF SHARES
If any change is made in the Shares subject to the Plan, or subject to any
Option granted under the Plan, through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination of Shares, rights
offerings, change in the corporate structure of the Company, or otherwise, such
adjustment are to be made as to the maximum number of Shares subject to the
Plan, and the number of Shares and prices per share of stock subject to
outstanding Options as the Committee may deem appropriate.
AMENDMENTS TO AND TERMINATION OF THE PLAN
The Board may amend, suspend, alter, or terminate the Plan at any time. To
the extent necessary or desirable to comply with Rule 16b-3, the I.R.C. or any
other applicable law or regulation, the Company is required to obtain
shareholder approval of any amendment to the Plan only in such a manner and to
such a degree as required.
The Board may amend the terms of any Option previously granted,
prospectively or retroactively; provided, however, that unless required by
applicable law, rule or regulation, no amendment of the Plan or of any Option
Agreement may without the consent of any Optionee holding any such affected
Options, be permitted if such amendment would affect in a material and adverse
manner Options granted prior to the date of any such amendment.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the Federal income tax consequences of the grant
and exercise of Options, and the disposition of Shares purchased pursuant to the
exercise of Options, is intended to reflect the current provisions of the Code
and the regulations thereunder. This summary is not intended to be a complete
statement of applicable law, not does it deal with state and local tax
considerations.
INCENTIVE STOCK OPTIONS
No taxable income will be recognized by the Option holder at the time of a
grant or exercise of an Option. The excess of the fair market value of the
Common Stock over the option price at the date of exercise of an Option is an
adjustment for purposes of computing the alternative minimum tax under section
55 of the Code. If the requirements of section 422 of the Code are met by the
Option holder (including the requirement that no disposition of such Shares is
made by the Option holder for more than two years after the grant of the Option
and for more than one year after the exercise of such Option), then any gain or
loss realized by the Option holder upon disposition of such Shares will be
treated as long-term capital gain or loss (assuming such Shares are held as a
capital asset by the Option holder). If the requirements of section 422 of the
Code are met, the Company will not be entitled to any deduction for Federal
income tax purposes as a result of the issuance of such Shares pursuant to the
exercise of the Option. If Shares acquired on exercise of an Option are
disposed of prior to the expiration of either of the required holding periods
described above (a "disqualifying disposition"), the Option holder will
recognize ordinary income in the year in which the disposition of such Shares
occurs. The amount of such ordinary income will be the excess of (a) the lower
of the amount realized on disposition of such Shares or the fair market value of
such Shares on the date of exercise of such Option, over (b) the Option price,
so long as the disposition is by sale or exchange with respect to which a loss,
if sustained, would be recognized.
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<PAGE>
In addition, long-term capital gain may be recognized by the Option holder
(assuming such Shares are held as a capital asset for more than six months by
the Option holder) in an amount equal to the excess of the amount realized on
the disqualifying disposition over the sum of the Option price and the ordinary
income recognized by the Option holder. The Company (or the employer of the
Option holder) will ordinarily be entitled to a deduction for Federal income tax
purposes at the time of the disqualifying disposition in an amount equal to the
ordinary income recognized by the Option holder.
If an Option is exercised by the estate of an Option holder, the holding
periods do not apply, and the estate will not recognize any ordinary income when
it disposes of the Shares acquired upon the exercise of such Option. The
estate, however, may recognize long-term capital gain, and the Company will not
be entitled to any deduction for Federal income tax purposes.
NON-QUALIFIED STOCK OPTIONS
No tax obligation will arise for the optionee or the Company upon the
granting of either Incentive Stock Options or Non-Qualified Stock Options under
the Plan. Upon exercise of a Non-Qualified Stock Option, an optionee will
recognize ordinary income in an amount equal to the excess, if any, of the fair
market value, on the date of exercise, of the stock acquired over the exercise
price of the option. Thereupon, the Company will be entitled to a tax deduction
in an amount equal to the ordinary income recognized by the optionee. Any
additional gain or loss realized by an optionee on disposition of the shares
generally will be capital gain or loss to the optionee and will not result in
any addition tax deduction to the Company. The taxable event arising from
exercise of Non-Qualified Stock Options by officers of the Company subject to
Section 16(b) of the Securities Act of 1934 occurs on the later of the date on
which the option is exercised or the date six months after the date the option
was granted unless the optionee elects, within 30 days of the date of exercise,
to recognize ordinary income as of the date of exercise. The income recognized
at the end of any deferred period will include any appreciation in the value of
the stock during that period and the capital gain holding period will not being
to run until the completion of such period.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE AMENDING AND RESTATING OF THE COMPANY'S 1992
INCENTIVE STOCK OPTION PLAN
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<PAGE>
PROPOSAL THREE
RATIFICATION OF THE APPOINTMENT OF SCHUMACHER & ASSOCIATES, INC.
AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed Schumacher & Associates, Inc. to be
retained as the Company's independent certified public accountants for the
current fiscal year and is seeking stockholder ratification of their
appointment. Even if the appointment is ratified, the Board of Directors, in
its discretion, may direct the appointment of a new independent accounting firm
at any time during the fiscal year, if the Board of Directors feels that such a
change would be in the best interests of the Company and its stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE RATIFICATION OF THE SELECTION OF SCHUMACHER & ASSOCIATES, INC.
AS THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
RELATED PARTY INFORMATION
On April 8, 1996 the Company entered into an agreement (the "Agreement")
with Creative Business Strategies, Inc. ("CBS"), a beneficial holder, on the
exercise of warrants granted pursuant thereto, of 9.8% of the Company's
outstanding Common Stock. Pursuant to the Agreement, CBS is to provide certain
consulting services to the Company for an initial term of one year. As
consideration for all services to be rendered by CBS under the Agreement, the
Company issued to CBS Common Stock purchase warrants exercisable to purchase, in
the aggregate 42,000 shares of the Company's Common Stock at $.05 per share, and
67,000 shares at $3.00 per share. The shares of Common Stock issuable to CBS
upon exercise of the warrants have been registered under the Securities Act of
1933 (the "Act"), and may be resold to the public by CBS upon delivery of a
prospectus meeting the requirements of the Act. The Chairman of CBS, Sanford
Schwartz, is the first cousin of Kenneth Duckman, the Company's President and
Chief Executive Officer.
The Company has a line of credit, secured by its inventory and accounts
receivable, in which a trust of which Mr. Duckman is a co-trustee and has a 50%
lending participation. See "Principal Holders of Common Stock." On May 1,
1996, in connection with the Company's increasing its borrowing under the line
of credit to $500,000, options for 10,000 shares were granted by the Company to
the participants in the loan, pro rata to their participations, exercisable at
$4.00 per share until January 18, 2000. The Company is required to make monthly
payments of interest on its borrowings under the line of credit, at the annual
rate equal to 2% in excess of the prime rate published by the Wall Street
Journal, until January 19, 1997, at which time the full principal amount plus
any accrued and unpaid interest thereon becomes payable.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE OF ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors, and beneficial holders of 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission
reports of ownership and changes in ownership within specified time periods.
The Company believes that all such filing requirements have been satisfied.
-12-
<PAGE>
SUBMISSION OF STOCKHOLDERS' PROPOSALS
The annual meeting of stockholders for the fiscal year ending November 30,
1996 is expected to be held in May, 1997, with the mailing of proxy materials
for such meeting expected to be in April, 1996. All proposals of stockholders
intended to be presented at the Company's next annual meeting of stockholders
must be received at the Company's executive office no later than January 15,
1997 in order to be considered for inclusion in the proxy statement and form of
proxy related to that meeting.
OTHER BUSINESS
The Board of Directors knows of no other business to be acted upon at the
Meeting. However, if any other business properly comes before the Annual
Meeting, it is the intention of the persons named in the enclosed form of proxy
to vote on such matters in accordance with their best judgment.
Bertram Pariser, Ph.D
Secretary
June 4, 1996
-13-
<PAGE>
Exhibit A
AMENDED AND RESTATED
(As of April 1, 1996)
1992 INCENTIVE STOCK OPTION PLAN
OF
ENHANCED SERVICES COMPANY, INC.
ARTICLE I
PURPOSE OF PLAN
---------------
1.1 Purpose. The purpose of this amended and restated Plan is to
-------
promote the growth and profitability of the Company by providing, through the
granting of options, incentives to attract highly talented persons to
positions with one or more of the Participating Companies, to retain such
persons and to motivate them to use their best efforts on behalf of the
Participating Company employer. This Plan is hereby being amended and
restated to (i) increase the number of shares reserved for issuance under the
Plan to 250,000; (ii) add provisions whereby upon joining the Board and upon
each subsequent reelection to the Board, non-employee directors would
automatically receive options to purchase up to 2,000 shares of the Company's
Common Stock; (iii) add provisions to permit the granting of Non-Qualified
Stock Options to consultants, advisors, and representatives of the Company;
(iv) replace the limitation whereby the fair market value of Incentive Stock
Options granted to an individual during any calendar year can not exceed
$100,000, with a provision permitting an individual to exercise Incentive
Stock Options for shares having a fair market value of $100,000 during any
calendar year; (v) extend the term of the Plan from March 2002 to April 2006;
and (vi) make certain additional changes.
ARTICLE II
DEFINITIONS
-----------
For the purposes of this Plan, the following terms shall have the
meanings set forth in this Article II:
2.1 Board. The term "Board" shall mean the Board of Directors of
-----
the Company.
2.2 Committee. The term "Committee" shall mean a committee
---------
appointed by the Board pursuant to Section 3.4 constituting not less than two
members of the Board.
<PAGE>
2.3 Company. The term "Company" shall mean Enhanced Services
-------
Company, Inc., a Colorado corporation, or any successor thereof.
2.4 Director. The term "Director" shall mean a member of the
--------
Board or a member of the Board of Directors of any Participating Company.
2.5 Effective Date. The term "Effective Date" shall mean April 1,
--------------
1996.
2.6 Eligible Person.
---------------
(a) With respect to the granting of Incentive Stock Options,
the term "Eligible Person" shall mean any employee of any Participating
Company.
(b) With respect to the granting of Nonstatutory Stock
Options, the term "Eligible Person" shall mean any employee, member of the
Board of Directors, consultant, advisor or representative of any
Participating Company.
2.7 Eligible Person Termination Date. As to an Eligible Person
--------------------------------
who is an employee or Director, the term "Eligible Person Termination Date"
shall mean the date as of which the employment or directorship, as the case
may be, of such person terminates.
2.8 Exchange Act. The term "Exchange Act" shall mean the
------------
Securities Exchange Act of 1934, as amended.
2.9 Fair Market Value. The term "Fair Market Value", when used
-----------------
with respect to the determination of the fair market value of the Shares
shall mean: (a) if Shares are exchange-traded or traded on the NASDAQ small-
cap market ("Small-Cap"), the closing sales or last sales price per share of
the Shares; (b) if Shares are regularly traded in any over-the-counter market
other than Small-Cap, the average of the bid and asked prices per share of
the Shares; and (c) if Shares are not traded as described in (a) and (b) of
this Section 2.9, the per share fair market value of the Shares as determined
in good faith by the Board or Committee on such basis as the Board or
Committee in its sole discretion shall choose. The date of determination of
Fair Market Value with respect to subparagraphs (a), (b) and (c) shall be the
date of the grant of the Options, or if no trading day, the last day prior to
the grant on which there has been such trading.
2.10 Incentive Stock Option. The term "Incentive Stock Option"
----------------------
shall mean any Option intended to satisfy the requirements under I.R.C.
Section 422(b) as an incentive stock option which qualifies for special
federal income tax treatment under I.R.C. Section 421 et seq.
-- ----
-2-
<PAGE>
2.11 I.R.C. The term "I.R.C." shall mean the Internal Revenue Code
------
of 1986, as it may be amended from time to time.
2.12 Income Tax Regulations. The term "Income Tax Regulations"
----------------------
shall mean the regulations promulgated by the United States Treasury
Department under the I.R.C.
2.13 Nonstatutory Stock Option. The term "Nonstatutory Stock
-------------------------
Option" shall mean any Options granted hereunder which do not qualify and are
not intended to be treated as Incentive Stock Options.
2.14 Option. The term "Option" shall mean an option to acquire
------
Shares granted under this Plan.
2.15 Option Agreement. The term "Option Agreement" shall refer to
----------------
an agreement evidencing an Option granted under this Plan.
2.16 Option Grant Date. The term "Option Grant Date" shall mean
-----------------
the effective date of the grant of an Option. The effective date of the
grant shall be deemed to be the date on which the Board or Committee
authorizes the grant of the Option, unless a subsequent date is specified in
such authorization.
2.17 Option Termination Date. The term "Option Termination Date"
-----------------------
shall mean the date as of which all installments of an Option shall expire
and terminate as the Board or Committee shall determine, but in no event
later than 8 years after the Option Grant Date.
2.18 Optionee. The term "Optionee" shall mean an Eligible Person
--------
who has been granted one or more Options.
2.19 Parent Corporation. The term "Parent Corporation" shall mean
------------------
a corporation as that term is defined in I.R.C. Section 425(e).
2.20 Participating Company. The term "Participating Company" shall
---------------------
mean the Company and any Parent Corporation or Subsidiary Corporation.
2.21 Plan. The term "Plan" shall refer to the Company's 1992
----
Incentive Stock Option Plan as amended and restated herein.
2.22 Restricted Shareholder. The term "Restricted Shareholder"
----------------------
shall mean an Optionee granted an Incentive Stock Option who, at the time an
Option is granted, beneficially owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its
Parent Corporation or Subsidiary Corporation, with stock ownership determined
in accordance with the attribution rules of I.R.C. Section 425(d).
-3-
<PAGE>
2.23 Rule 16b-3. The term "16b-3" shall mean Rule 16b-3
----------
promulgated by the Securities and Exchange Commission under the Exchange Act
as such rule may be amended from time to time.
2.24 Shares. The term "Shares" shall mean shares of the Company's
------
authorized but unissued Common Stock, $.001 par value, or any such Shares
held in the Company's treasury.
2.25 Subsidiary Corporation. The term "Subsidiary Corporation"
----------------------
shall mean a corporation as that term is defined in I.R.C. Section 425(f).
2.26 Terminating Transaction. The term "Terminating Transaction"
-----------------------
shall mean any of the following events: (a) the dissolution or liquidation
of the Company; (b) a reorganization, merger or consolidation of the Company
with one or more other corporations (except with respect to a transaction,
the purpose of which is to change the domicile of the Company), as a result
of which the Company goes out of existence or becomes a subsidiary of another
corporation (which shall be deemed to have occurred if another corporation
shall own, directly or indirectly, fifty percent (50%) or more of the
aggregate voting power of all outstanding equity securities of the Company);
or (c) a sale of all or substantially all of the Company's assets.
2.27 Termination Date. The term "Termination Date" shall mean the
----------------
day before the 10th anniversary of the Effective Date.
2.28 Total Disability. The term "Total Disability" shall mean a
----------------
total and permanent disability as that term is defined in I.R.C. Section
105(d)(4).
2.29 Vested Installment. The term "Vested Installment" shall mean
------------------
any vested installment of an Option.
ARTICLE III
ADMINISTRATION OF PLAN
----------------------
3.1 Administration by Board. The Plan shall be administered by
-----------------------
the Board. The Board shall have full and absolute power and authority in its
sole discretion to (i) determine which Eligible Persons shall receive
Options, (ii) determine the time when Options shall be granted, (iii)
determine the terms and conditions, of any Option granted hereunder, (iv)
determine the number of Shares which shall be subject to each Option granted
hereunder, and (v) interpret the provisions of the Plan and of any Option
granted under the Plan.
3.2 Rules and Regulations. The Board may adopt such rules and
---------------------
regulations as it, in its discretion, may deem necessary
-4-
<PAGE>
or appropriate to carry out the purposes of the Plan, and shall have
authority to take all action necessary or appropriate to administer the Plan.
3.3 Binding Authority. All decisions, determinations,
-----------------
interpretations, or other actions by the Board shall be final, conclusive,
and binding on all Eligible Persons, Optionees, Participating Companies and
any successors-in-interest to such persons.
3.4 Administration by Committee.
---------------------------
(a) The Board in its sole discretion may from time to time
appoint a Committee of no less than two Board members to administer the Plan
and, subject to applicable law, to exercise all of the powers, authority, and
discretion of the Board under this Plan. The Board may from time to time
remove members from, or add members to, the Committee, and vacancies on the
Committee shall be filled by the Board. The Board may abolish the Committee
at any time or revest in the Board the administration of the Plan.
(b) The Committee shall report to the Board the names of
Eligible Persons granted Options, the number of Shares covered by each
Option, and the terms and conditions of each such Option.
3.5 Compliance with Applicable Regulations and Laws.
-----------------------------------------------
Notwithstanding anything in this Article III to the contrary, to the extent
necessary or desirable to comply with Rule 16b-3, the I.R.C., or any other
applicable law or regulation, the Plan shall be administered in accordance
with the requirements imposed by such regulations or laws.
ARTICLE IV
NUMBER OF SHARES AVAILABLE UNDER THE PLAN
-----------------------------------------
4.1 Maximum Number of Shares in the Aggregate. Subject to Section
-----------------------------------------
8.1, the maximum number of Shares which may be optioned and sold under the
Plan is 250,000 in the aggregate.
4.2 Additional Availability of Shares. If Options granted under
---------------------------------
the Plan shall for any reason terminate, lapse, be forfeited or canceled, or
expire without being exercised, the Shares subject to such unexercised
Options shall again be available for the granting of Options under the Plan
and shall be included in the number of Shares which may be optioned and sold
under the Plan. In the event that Shares which were previously issued by the
Company upon the exercise of an Option are reacquired by the Company as part
of the consideration received (in accordance with Section 6.6(b) hereof) upon
the subsequent exercise of an Option, such Shares shall again be available
for the granting of Options
-5-
<PAGE>
under the Plan and shall be included in the number of shares described in
Section 4.1.
4.3 Reservation of Shares. The Company, during the term of this
---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall equal the number of Shares subject to then-outstanding options under
this Plan.
ARTICLE V
TERM OF PLAN
------------
5.1 Term. The Plan shall be effective as of the Effective Date
----
and Shall terminate on the Termination Date. No option may be granted
hereunder after the Termination Date.
ARTICLE VI
OPTION TERMS
------------
6.1 Form of Option Agreement. Any Option granted under the Plan
------------------------
shall be evidenced by an Option Agreement in such form as the Board, in its
discretion, may from time to time approve. Any Option Agreement shall
contain such terms and conditions as the Board, in its discretion, may deem
necessary or appropriate and which are not inconsistent with the provisions
of this Plan.
6.2 Limitations on Incentive Stock Options.
--------------------------------------
(a) In the event that the aggregate Fair Market Value
(determined as of the Option Grant Date) of the Shares with respect to which
Incentive Stock Options are exercisable for the first time by an Eligible
Person during any calendar year under the Plan exceeds $100,000, Options with
respect to and to the extent of such excess shall be treated as Nonstatutory
Stock Options. This Section 6.2(a) shall be applied by taking Options which
are intended to be Incentive Stock Options into account in the order in which
they were granted.
(b) No Optionee who is a Restricted Shareholder may be
granted an Incentive Stock Option which is exercisable after the expiration
of five years after the Option Grant Date.
6.3 Option Exercise Price. The option exercise price for Shares
---------------------
to be issued under this Plan shall be determined by the Board in its sole
discretion, but in no event shall the option exercise price be less than the
Fair Market Value of the Shares on the Option Grant Date. If the Optionee is
a Restricted Shareholder, the option exercise price shall be not less than
110% of the Fair Market Value of the Shares on the Option Grant Date.
-6-
<PAGE>
6.4 Vesting and Exercisability of Options. Subject to the
-------------------------------------
limitations set forth herein and/or in any applicable Option Agreement
entered into hereunder, Options granted under the Plan shall vest and be
exercisable in accordance with the rules set forth in this Section 6.4:
(a) General. Subject to the other provisions of this Section
-------
6.4, Options shall vest and become exercisable at such times and in such
installments as the Board shall provide in each individual Option Agreement;
provided, however, that in no event shall any Option vest at a rate less than
20% per year. Notwithstanding the foregoing, the Board may in its sole
discretion accelerate the time at which an Option or installment thereof may
be exercised. Unless otherwise provided in this Section 6.4, Section 8.4 or
in the Option Agreement pursuant to which an Option is granted, an Option may
be exercised when Vested Installments vest as provided in such Option
Agreement and at any time thereafter until, and including, the Option
Termination Date.
(b) Termination of Options. All installments of an Option
----------------------
shall expire and terminate on the Option Termination Date.
(c) Termination of Eligible Person Status Other than by
---------------------------------------------------
Reason of Death or Disability. In the event that the Eligible Person status
-----------------------------
of an Optionee is terminated for any reason other that by reason of death or
Total Disability, any installment under an Option held by such Optionee which
has not vested as of the Eligible Person Termination Date shall expire and
become unexercisable as of such date. Except as set forth in Section 6.4(f),
all Vested Installments of Options granted hereunder to such Optionee which
have not been exercised prior to the Eligible Person Termination Date shall
expire and become unexercisable as of the earlier of:
(i) The date which is three months following the
Eligible Person Termination Date; or
(ii) The Option Termination Date.
(d) Leave of Absence. In the case of any employee on an
----------------
approved leave of absence, the Board may make such provision respecting
continuance of the Option as the Board, in its discretion, deems appropriate,
except that in no event shall an Option be exercisable after the Option
Termination Date.
(e) Death or Total Disability of an Eligible Person. In the
-----------------------------------------------
event that the Eligible Person status of an Optionee is terminated by reason
of death or Total Disability, any installments under the Option held by such
Optionee which have not vested as of the Eligible Person Termination Date
shall expire and become unexercisable as of such date. Except as set forth
in Section 6.4(f), all Vested Installments of Options granted
-7-
<PAGE>
hereunder to such Optionee which have not been exercised prior to the
Eligible Person Termination Date shall expire and become unexercisable as of
the earlier of:
(i) The applicable Option Termination Date; or
(ii) The first anniversary of the Eligible Person
Termination Date.
Any Vested Installments of a deceased Optionee may be exercised
prior to their expiration only by the person or persons to whom the
Optionee's Option rights pass by will or the laws of descent and
distribution.
(f) Extensions. Notwithstanding the provisions covering the
----------
exercisability of Options following the Eligible Person Termination Date set
forth in Sections 6.4(c) and (e), respectively, the Board may, in its sole
discretion, with the consent of the Optionee extend the period of time during
which Vested Installments shall remain exercisable, provided that in no event
shall such extension go beyond the Option Termination Date. In the case of
Incentive Stock Options, extensions under this Section 6.4(f) may result in
loss of the favorable treatment accorded incentive stock options under the
I.R.C.
6.5 Exercise of Options. An Option may be exercised in accordance
-------------------
with this Section 6.5 as to all or any portion of the Shares covered by a
Vested Installment of the Option from time to time during the applicable
option period, except that an Option shall not be exercisable with respect to
fractions of a Share. Options may be exercised, in whole or in part, by
giving written notice of exercise to the Company, which notice shall specify
the number of Shares to be purchased and shall be accompanied by payment in
full of the purchase price in accordance with Section 6.6. An Option shall
be deemed exercised when such written notice of exercise and full payment for
the Shares covered thereby has been received by the Company. No Shares shall
be issued until full payment of the purchase price thereof has been made and
the Optionee has satisfied such other conditions as may be required
hereunder; as may be required by applicable law, rules, or regulations; or as
may be adopted or imposed by the Board.
6.6 Payment of Option Exercise Price. Except as otherwise
--------------------------------
provided in Section 6.6(b), the entire option exercise price shall be paid at
the time the Option is exercised by cashier's check or such other means
deemed acceptable by the Board. The Board may, in its discretion, permit
Optionees to borrow from the Company an amount of money sufficient to cover
the option exercise price, which amount may or may not bear interest and
shall be repayable as the Board shall determine.
-8-
<PAGE>
6.7 Substitution of Options. In the Board's discretion, the Board
-----------------------
may, with an Optionee's consent, substitute Nonstatutory Stock Options for
outstanding Incentive Stock Options, and any such substitution shall not
constitute a new Option grant for the purposes of this Plan, and shall not
require a revaluation of the Option exercise price for the substituted
Option. Any such substitution may be implemented by an amendment to the
applicable Option Agreement or in such other manner as the Board in its
discretion may determine.
6.8 Option Not Transferable. Options granted hereunder may not be
-----------------------
sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, either voluntarily or involuntarily
by operation of law, other than by will or the laws of descent and
distribution, and may be exercised during the lifetime of the Optionee only
by such Optionee. Upon any attempt to transfer Options other than by will or
the laws of descent and distribution, or to assign, pledge, hypothecate or
otherwise dispose of Options, or upon the levy of any execution, attachment
or similar process thereon, such Options shall become null and void and any
subsequent attempted exercise of the Options shall be ineffective against the
Company. The terms of the Options shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
6.9 Restrictions on Issuance of Shares.
----------------------------------
(a) No Shares shall be issued or delivered upon exercise of
an Option unless and until there shall have been compliance with all
applicable requirements of the Securities Act of 1933, as amended, (the "1933
Act"), all applicable listing requirements of any market or securities
exchange on which Shares are then listed, and any other requirement of law or
of any regulatory body having jurisdiction over such issuance and delivery.
The inability of the Company to obtain any required permits, authorizations,
or approvals necessary for the lawful issuance and sale of any Shares
hereunder on the terms deemed reasonable by the Board shall relieve the
Company, the Board, and any Committee of any liability in respect of the non-
issuance or sale of such Shares as to which such requisite permits,
authorization, or approvals shall not have been obtained.
(b) As a condition to the granting or exercise of any Option,
the Board may require the person receiving or exercising such Option to make
any representation and/or warranty to the Company as may be required (or
deemed appropriate by the Board, in its discretion) under any applicable law
or regulation, including but not limited to a representation that the option
and/or shares are being acquired only for investment and without any present
intention to sell or distribute such option and/or shares, if such a
representation is required under the 1933 Act or any other applicable law,
rule, or regulation.
-9-
<PAGE>
6.10 Option Adjustments.
------------------
(a) If the outstanding shares of Common Stock of the Company
are increased, decreased, changed into or exchanged for a different number or
kind of shares of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split, upon
authorization by the Board an appropriate and proportionate adjustment shall
be made in the number or kind of shares, and the per-share option price
thereof, which may be issued in the aggregate and to any individual Optionees
under this Plan upon exercise of options granted hereunder; provided,
however, that no such adjustment need be made if, upon the advise of counsel,
the Board determines that such adjustment may result in the receipt of
federally taxable income to holders of Options granted under the Plan or the
holder of Common Stock or other classes of the Company's securities.
(b) Upon the occurrence of a Terminating Transaction, as of
the effective date of such Terminating Transaction, the Plan and any then
outstanding Options (whether or not vested) shall terminate unless (i)
provision be made in writing in connection with such transaction for the
continuance of the Plan and for the assumption of such Options, or for the
substitution for such Options of new options covering the securities of a
successor corporation or an affiliate thereof, with appropriate adjustments
as to the number and kind of securities and exercise prices, in which event
the Plan and such outstanding Options shall continue or be replaced, as the
case may be, in the manner and under the terms so provided; or (ii) the Board
otherwise shall provide in writing for such adjustments as it deems
appropriate in the terms and conditions of the then-outstanding Options
(whether or not vested), including without limitation (A) accelerating the
vesting of outstanding Options, and/or (B) providing for the cancellation of
the Options and their automatic conversation into the right to receive the
securities or other properties which a holder of the Shares underlying such
Options would have been entitled to receive upon such Terminating Transaction
had such Shares been issued and outstanding (net of the appropriate option
exercise prices). If, pursuant to the foregoing provisions of this paragraph
(b), the Plan and the Options shall terminate by reason of the occurrence of
a Terminating Transaction without provision for any of the action(s)
described in clause (i) or (ii) hereof, then any Optionee holding outstanding
Options shall have the right, at such time immediately prior to the
consummation of the Terminating Transaction as the Board shall designate, to
exercise his or her Options to the full extent not theretofore exercised,
including any installments which have not yet become Vested Installments
(subject, however, to the provisions of Section 6.2(a) above).
(c) Except to the extent required to retain qualification of
an Option as an Incentive Stock Option under I.R.C. Section 422, to the
maximum extent possible any adjustments
-10-
<PAGE>
authorized under this Section 6.10 with respect to any outstanding Options
shall be made by means of appropriate adjustments to the number of Shares (or
other securities) and the option exercise price therefor under the
unexercised portions of such outstanding Options, but without changing the
aggregate exercise price applicable to said unexercised portions. In all
cases, the nature and extent of adjustments under this Section 6.10 shall be
determined by the Board, and any such determination as to what adjustments
shall be made, and the extent thereof, shall be final, binding and
conclusive. No fractional shares of stock shall be issued under the Plan
pursuant to any such adjustment.
6.11 Taxes. The Board shall make such provisions and take such
-----
steps as it deems necessary or appropriate for the withholding of any
federal, state, local and other tax required by law to be withheld with
respect to the grant or exercise of an Option under the Plan, including,
without limitation, the deduction of the amount of any such withholding tax
from any compensation or other amounts payable to an Optionee by any of the
Participating Companies, or requiring an Optionee (or the Optionee's
beneficiary or legal representative) as a condition of granting or exercising
an Option to pay to any Participating Companies any amount required to be
withheld, or to execute such other documents as the Board deems necessary or
desirable in connection with the satisfaction of any applicable withholding
obligation. In the discretion of the Board, upon exercise of a Nonstatutory
Stock Option, the Optionee may request the Company to withhold from the
Shares to be issued upon such exercise that number of Shares (based on the
Fair Market Value of the Shares as of the day immediately preceding the day
notice of exercise is received by the Company) that would satisfy any tax
withholding requirement; provided, however, that any such withholding shall
conform to any restrictions as to timing or otherwise under Rule 16b-3.
6.12 Legends on Options and Stock Certificates. Each Option
-----------------------------------------
Agreement and each certificate representing Shares acquired upon exercise of
an Option shall be endorsed with all legends, if any, required by applicable
federal and state securities laws to be placed on the Option Agreement and/or
the certificate. The determination of which legends, if any, shall be placed
upon Option Agreements and/or the Shares shall be made by the Board in its
sole discretion and such decision shall be final and binding.
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
--------------------------------
7.1 Board Authority. The Board may amend, suspend, alter, or
---------------
terminate the Plan at any time. To the extent necessary or desirable to
comply with Rule 16b-3, the I.R.C. or any other applicable law or regulation,
the Company shall obtain shareholder
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<PAGE>
approval of any amendment to the Plan only in such a manner and to such a
degree as required.
7.2 Limitation on Board Authority. The Board may amend the terms
-----------------------------
of any Option previously granted, prospectively or retroactively, and may
amend the Plan in accordance with the provisions of Section 7.1; provided,
however, that unless required by applicable law, rule or regulation, no
amendment of the Plan or of any Option Agreement shall, without the consent
of any Optionee holding any such affected Options, be permitted if such
amendment would affect in an material and adverse manner Options granted
prior to the date of any such amendment.
7.3 Contingent Grants Based on Amendments. Options may be granted
-------------------------------------
in reliance on and consistent with any amendment adopted by the Board and
which is necessary to enable such Options to be granted under the Plans, even
though such amendment requires future shareholder approval; provided,
however, that any such contingent Option by its terms may not be exercised
prior to shareholder approval of such amendment, and provided further, that
in the event shareholder approval is not obtained within twelve months of the
date of grant of such contingent Option, then such contingent Option shall be
deemed cancelled and no longer outstanding.
ARTICLE VIII
CERTAIN PROVISIONS RELATING TO
EXECUTIVE OFFICERS AND DIRECTORS
--------------------------------
8.1 Limitations on Grants to Certain Executive Officers. From and
---------------------------------------------------
after the Company's 1996 Annual Meeting of Stockholders, the maximum number
of options that may be granted during any calendar year to the Company's
chief executive officer and its four mostly highly compensated executive
officers who are compensated at an annual rate in excess of $100,000 is
50,000.
8.2 Limitation on Exercisability of Director Options.
------------------------------------------------
Notwithstanding the provisions contained in section 6.4, Options granted to
members of the Board may not be exercised prior to one year after the date
such Option is granted.
8.3 Automatic Award of Options to Non-Employee Directors. Each
----------------------------------------------------
Director who is not an employee of any Participating Company shall receive
2,000 Options on joining the Board and 2,000 options on the day of each
Annual Meeting of Stockholders in which such Director is elected or reelected
to office. Such Options shall be awarded at the fair market value on the
date of grant. This provision shall not be amended more than once every six
months, other than to conform with changes in the I.R.C., the Employee
Retirement Income Security Act of 1974, or the rules promulgated thereunder.
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<PAGE>
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1 Availability of Plan. A copy of this Plan shall be shown to
--------------------
any Eligible Person making reasonable inquiry concerning the Plan.
9.2 No Rights in Shares Before Issuance and Delivery. Neither the
------------------------------------------------
Optionee, his or her estate nor his or her transferees by will or the laws of
descent and distribution shall be, or have any rights or privileges of, a
shareholder of the Company with respect to any Shares issuable upon exercise
of the Option unless and until certificates representing such Shares shall
have been issued and delivered notwithstanding exercise of the Option. No
adjustment will be made for a dividend or other rights where the record date
is prior to the date such stock certificates are issued, except as provided
in Section 6.10(a).
9.3 Notice. Any notice or other communication required or
------
permitted to be given pursuant to the Plan or under any Option Agreement must
be in writing and may be given by registered or certified mail, and if given
by registered or certified mail, shall be determined to have been given and
received on the date three days after a registered or certified letter
containing such notice, properly addressed with postage prepaid, is deposited
in the United States mails; and if given otherwise than by registered or
certified mail, it shall be deemed to have been given when delivered to and
received by the party to whom addressed. Notice shall be given to Eligible
Persons at their most recent addresses shown in the Company's records.
Notice to the Company shall be addressed to the Company at the address of the
Company's principal executive offices, to the attention of the Treasurer of
the Company.
9.4 Titles and Headings. Titles and headingsf sections of this
-------------------
Plan document are for convenience of reference only and shall not affect the
construction of any provisions hereof.
9.5 Governing Law. This Plan shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with the internal laws of the
State of Colorado applicable to agreements made and to be performed wholly
within the State of Colorado.
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<PAGE>
9.6 Information. During the period that Options are outstanding,
-----------
the Company will provide Optionees with copies of all reports, proxy
statements and other communications distributed to its shareholders
generally.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption
of this Amended and Restated Plan by the Board on April 1, 1996, the Company
has caused this Amended and Restated Plan to be duly executed by its duly
authorized officers.
ENHANCED SERVICES COMPANY, INC.
By:
------------------------------
Kenneth Duckman, President
and Chief Executive Officer
By:
-------------------------------
Robert Smith, Treasurer and
Chief Financial Officer
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ENHANCED SERVICES COMPANY, INC. - ANNUAL MEETING OF SHAREHOLDERS
Monday, June 17, 1996
The undersigned hereby appoints KENNETH M. DUCKMAN and
BERTRAM PARISER, and each of them, with power of substitution, as
proxies to represent the undersigned at the Annual Meeting of
Shareholders to be held at The India House, One Hanover Square,
New York, New York on June 17, 1996 at 2:00 P.M., and at any
adjournment thereof, and to vote all the shares of stock the
undersigned would be entitled to vote if personally present at
the meeting as indicated below:
(1) ELECTION OF DIRECTORS
[_] For all nominees listed [_] WITHHOLD AUTHORITY
below (except as marked (to vote for all
to the contrary below; nominees listed
see "Instruction") below)
---
KENNETH M. DUCKMAN, JOHN MEANEY,
MICHAEL BERNARD, BERTRAM PARISER
AND RALPH LABARGE
(INSTRUCTION: To withhold authority to vote for any individual
nominee print that nominee's name on the line provided below.)
_____________________________________________________
(2) APPROVE AMENDED AND RESTATED STOCK OPTION PLAN IN ORDER TO
(I) INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
UNDER THE PLAN TO 250,000; (II) ADD PROVISIONS WHEREBY UPON
JOINING THE BOARD AND UPON EACH SUBSEQUENT REELECTION TO THE
BOARD, NON-EMPLOYEE DIRECTORS WOULD AUTOMATICALLY RECEIVE
OPTIONS TO PURCHASE UP TO 2,000 SHARES OF THE COMPANY'S
COMMON STOCK; (III) ADD PROVISIONS TO PERMIT THE GRANTING OF
NON-QUALIFIED STOCK OPTIONS TO CONSULTANTS, ADVISORS, AND
REPRESENTATIVES OF THE COMPANY; (IV) REPLACE THE LIMITATION
WHEREBY THE FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS
GRANTED TO AN INDIVIDUAL DURING ANY CALENDAR YEAR CAN NOT
EXCEED $100,000, WITH A PROVISION PERMITTING AN INDIVIDUAL
TO EXERCISE INCENTIVE STOCK OPTIONS FOR SHARES HAVING A FAIR
MARKET VALUE OF $100,000 DURING ANY CALENDAR YEAR; AND (V)
EXTEND THE TERM OF THE PLAN FROM MARCH 2002 TO APRIL 2006
[_] For [_] Against [_] Abstain
<PAGE>
(3) RATIFY THE APPOINTMENT OF SCHUMACHER & ASSOCIATES, INC. AS
THE COMPANY'S AUDITORS
[_] For [_] Against [_] Abstain
(4) IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
The shares represented by this proxy will be voted as
directed. If no contrary instruction is given, the shares will
be voted FOR the Election of Directors, FOR the amending and
restating of the Company's Stock Option Plan, and FOR the
ratification of the appointment of Schumacher & Associates, Inc.
as the Company's auditors.
Dated: __________________, 1996
X_____________________________
Signature
(Please date, sign as name appears hereon, and return promptly.
If the stock is registered in the names of two or more persons
each should sign. When signing as Corporate Officer, Partner,
Executor, Administrator, Trustee or Guardian, please give full
title. Please note any change in your address alongside the
address as it appears hereon.)
