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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
LONE STAR CASINO CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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LONE STAR CASINO CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1996
To All Stockholders in
Lone Star Casino Corporation
A Special Meeting of Stockholders (the "Special Meeting") of Lone Star
Casino Corporation, a Delaware corporation (the "Company"), will be held on
Monday June 17, 1996 at the Omni Hotel in Houston, Texas at 9:00 a. m. local
time for the purpose of considering and voting on the following matters:
1. An amendment of the Certificate of Incorporation of the Company
to change the name of the Company to "LS Capital Corporation"
(the "Corporate Name Change").
2. An amendment of the Certificate of Incorporation of the Company
to effect a 1-for-25 reverse stock split (the "Reverse Stock
Split") of the Company's Common Stock, $.01 par value per share
("Common Stock"), in which every twenty-five shares of Common
Stock outstanding as of the effective date of the amendment will
be converted into one share of Common Stock.
3. The approval of issuances of Common Stock, in the discretion of
the Board of Directors, to creditors of the Company (including
officers and directors of the Company) in satisfaction of amounts
owed by the Company (the "Discretionary Stock Issuances").
4. Such other business as may properly come before the Special
Meeting and any adjournment thereof.
The Corporate Name Change, the Reverse Stock Split, the Discretionary Stock
Issuances and other related matters are more fully described in the accompanying
Proxy Statement and the exhibit thereto, which form a part of this Notice. All
stockholders will be entitled to vote on all matters submitted for a vote at the
Special Meeting. The Board of Directors has fixed the close of business on May
15, 1996 as the record date for determining the stockholders entitled to notice
of and to vote at the Special Meeting and any adjournment thereof.
All stockholders of the Company are cordially invited to attend the Special
Meeting. Whether or not you plan to attend the Special Meeting, it is important
that your shares be represented. Accordingly, please sign and date the enclosed
Proxy Card and return it
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promptly in the envelope provided herewith. Even if you return a Proxy Card,
you may revoke the proxies appointed thereby at any time prior to the exercise
thereof by filing with the Chairman of the Board of the Company a written
revocation or duly executed Proxy Card bearing a later date or by attendance and
voting at the Special Meeting. Attendance at the Special Meeting will not, in
itself, constitute revocation of the proxies.
By Order of the Board of Directors,
Paul J. Montle,
Chairman of the Board
Houston, Texas
May 24, 1996
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED POST-PAID ENVELOPE.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
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LONE STAR CASINO CORPORATION
ONE RIVERWAY, SUITE 2550
HOUSTON, TEXAS 77056
(713) 960-9881
PROXY STATEMENT
GENERAL
This Proxy Statement and the accompanying Proxy Card are furnished in
connection with the solicitation of proxies by order of the Board of Directors
of Lone Star Casino Corporation (the "Company") to be voted at the Special
Meeting of Stockholders (the "Special Meeting"), to be held at the time and
place, and for the purposes set forth in the accompanying notice. Such notice,
this Proxy Statement and the Proxy Card are being mailed to Stockholders
beginning on or about May 24, 1996.
The Company will bear the costs of soliciting proxies. In addition to the
solicitation made hereby, proxies may also be solicited by telephone, telegram
or personal interview by officers of the Company. The Company will reimburse
brokers or other persons holding stock in their names or in the names of their
nominees for their reasonable expenses in providing beneficial ownership
information and in forwarding proxy material to beneficial owners of stock who
have objected to the disclosure of information regarding them.
All duly executed Proxy Cards received prior to the Special Meeting will be
voted in accordance with the choices specified thereon, unless revoked in the
manner provided hereinafter. As to any matter for which no choice has been
specified on a Proxy Card, except with respect to broker non-votes, the related
shares will be voted by the persons named therein (1) for each of the proposals
described herein, and (2) in the discretion of such persons in connection with
any other business that may properly come before the Special Meeting.
Stockholders may revoke their proxy at any time prior to the exercise thereof by
written notice to Mr. Paul J. Montle, Chairman of the Board of the Company, at
the address of the Company stated above, by the execution and delivery of a
later dated Proxy Card, or by attendance at the Special Meeting and voting their
shares in person.
As of the close of business on May 15, 1996, the record date (the "Record
Date") for determining Stockholders entitled to vote at the Special Meeting, the
Company had outstanding and entitled to vote 42,832,094 shares of Common Stock,
and these shares are the only outstanding shares of the Company entitled to
vote. Each share of Common Stock is entitled to one vote with respect to each
matter to be acted upon at the meeting. Stockholders personally present, or
represented by proxy, and holding more than one-third of the outstanding Common
Stock will constitute a quorum. The Board of Directors expects that all shares
of Common Stock owned by the Company's directors, officers and affiliates will
vote to take the actions described in Proposals 1, 2 and 3 below. The number of
these shares equals 3,254,272 constituting 7.6% of the total outstanding shares
of Common Stock.
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PROPOSAL 1
CORPORATE NAME CHANGE
At the Special Meeting, holders of shares of Common Stock will be asked to
consider and vote upon a proposal to change the name of the Company from "Lone
Star Casino Corporation" to "LS Capital Corporation" (the "Corporate Name
Change"), by means of an amendment to the Company's Certificate of
Incorporation. The Board of Directors has adopted resolutions approving the
Corporate Name Change. If the proposed amendment to the Certificate of
Incorporation is approved by the requisite number of shares of Common Stock
entitled to vote at the Special Meeting, the Corporate Name Change and the
proposed amendment to the Company's Certificate of Incorporation will become
effective upon the filing of a Certificate of Amendment of Certificate of
Incorporation with the Secretary of State of Delaware, which is expected to
occur shortly after Stockholder approval.
When the Company was being organized, its organizers planned on locating
the Company's headquarters in Houston, Texas and planned on establishing gaming
facilities in Texas upon the legalization of gaming in such state. Because of
the expected close ties with the state of Texas, the organizers of the Company
selected the Company's current name because Texas is known as the "Lone Star
State." However, the Company's initial gaming facility was located in Colorado,
and during the Company's last fiscal year, the Company opened its facility in
Tinian, the Commonwealth of the North Marianas Islands. The Vineyard Casino, a
card club located in Fowler, California and in which the Company owns interests,
opened on March 8, 1996. The Colorado, Tinian and Fowler facilities are
currently the only facilities that the Company owns and operates or owns an
interest in. Moreover, the Board of Directors believes that the state of Texas
is unlikely to legalize gaming at any time in the foreseeable future. In view
of the foregoing, the Board of Directors does not believe that the Company's
current name is descriptive of the Company's business. Accordingly, the Board
of Directors has decided that Article One of the Company's Certificate of
Incorporation should be amended to change the Company's corporate name to "LS
Capital Corporation", a name that will better reflect the Company's ownership of
subsidiary gaming operations and interests, and possible future entry into non-
gaming businesses.
The Board of Directors believes that the Corporate Name Change, and
accordingly the proposed amendment, are in the best interests of the Company and
its Stockholders and recommends that the Stockholders approve the Corporate Name
Change and the proposed amendment of the Company's Certificate of Incorporation.
The affirmative vote of the holders of at a majority of the outstanding
shares of Common Stock is required for approval of the Corporate Name Change and
the proposed amendment of the Certificate of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
CORPORATE NAME CHANGE AND THE RELATED AMENDMENT TO THE CERTIFICATE OF
INCORPORATION
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PROPOSAL 2
THE REVERSE STOCK SPLIT
GENERAL
At the Special Meeting, holders of shares of Common Stock will be asked to
consider and vote upon a proposal to effect a 1-for-25 reverse stock split of
the Common Stock (the "Reverse Stock Split"), by means of an amendment to the
Company's Certificate of Incorporation. The Board of Directors has adopted
resolutions approving the Reverse Stock Split. A copy of the Board of Director
resolutions approving Reverse Stock Split is annexed to this Proxy Statement as
Exhibit A. If approved by the stockholders of the Company, the Reverse Stock
Split and related amendment to the Company's Certificate of Incorporation will
become effective upon the filing of a Certificate of Amendment of Certificate of
Incorporation with the Secretary of State of Delaware, which is expected to
occur shortly after Stockholder approval.
PRINCIPAL EFFECTS
The Reverse Stock Split would reduce the number of outstanding shares of
Common Stock to approximately one-twenty-fifth the number of shares outstanding
prior to the Reverse Stock Split. Accordingly the Reverse Stock Split would
decrease the number of outstanding shares of Common Stock to approximately 1.6
million shares. The Reverse Stock Split will not affect the proportionate
equity interest in the Company of any holder of the Common Stock, subject to the
provisions for the elimination of fractional shares as described below. If the
Reverse Stock Split is approved, each outstanding share of Common Stock will be
entitled to one vote at each meeting of stockholders of the Company, as is the
case with each currently outstanding share. While a reduced number of
outstanding shares of Common Stock could adversely affect the liquidity of the
Common Stock, the Board of Directors does not believe that this is likely to
happen.
The Reverse Stock Split is not intended as an anti-takeover device and it
is not expected to function unintentionally as one. The Company is not aware of
any present efforts by any person to obtain control of the Company.
REASONS FOR THE REVERSE STOCK SPLIT
The Board of Directors believes that the current market value of the Common
Stock impairs the Company's ability to access the capital markets, and impairs
the acceptability of the Common Stock by members of the investing public.
Theoretically, the price of a stock should not, by itself, affect its
marketability, the type of investor who acquires it, or the Company's reputation
in the financial community. In practice this is not necessarily the case, as
many institutional investors look upon low-priced stock as unduly speculative in
nature and, as a matter of policy, avoid investment in such stocks. Further,
the Board of Directors believes that a lower per-share price will reduced the
effective marketability of the Common Stock because of the reluctance of many
leading brokerage firms to recommend low-priced stock to their clients. In
addition, a variety of brokerage house
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policies and practices tend to discourage individual brokers within those firms
from dealing in low-priced stocks. Some of those policies and practices pertain
to the payment of brokers' commissions and to time-consuming procedures that
function to make the handling of low-priced stocks unattractive to brokers from
an economic standpoint. Many brokerage firms also prohibit investors from
purchasing on margin stocks that are trading below certain prices per share.
Additionally, the structure of trading commissions also tends to have an adverse
impact upon holders of low-priced stock because the brokerage commission on a
sale of low-priced stock generally represents a higher percentage of the sales
price than the commission on a relatively higher priced stock. Therefore, lower
prices for the Common Stock may adversely affect anyone who wishes to acquire
shares and holders who wish to liquidate their holdings.
The Reverse Stock Split is intended to result in a higher per-share market
price for the Common Stock, both now and in the future. Hopefully this will
increase investor interest and eliminate the resistance of brokerage firms.
However, there can be no assurance that the market price of a share of Common
Stock after the Reverse Stock Split will be twenty-five times the market price
before the Reverse Stock Split, that the marketability of the Common Stock will
increase, or that the Reverse Stock Split will otherwise have the desired
effects described.
The Board of Directors desires to enhance the value of the Common Stock.
The Board of Directors believes that the value of the Common Stock will be
significantly less, and efforts to enhance the value of the Common Stock will be
impaired, if the Reverse Stock Split is not approved and implemented.
EXCHANGE OF STOCK CERTIFICATES AND ELIMINATION OF FRACTIONAL SHARE INTERESTS
If the Reverse Stock Split is approved by the requisite number of shares of
Common Stock entitled to vote at the Special Meeting, a Certificate of Amendment
effecting the Reverse Stock Split will be filed in the Office of the Secretary
of State of Delaware promptly after such approval. The Reverse Stock Split
would become effective as of the close of business on the date of the filing of
the Certificate of Amendment (such filing is referred to hereinafter as the
"Filing"). Stockholders of the Company of record as of the Filing will then be
furnished the necessary materials and instructions to effect the exchange of
their certificates representing Common Stock outstanding prior to the Reverse
Stock Split (referred to hereinafter as "Pre-Split Shares") for new certificates
representing Common Stock after the Reverse Stock Split (referred to hereinafter
as "Post-Split Shares"). Certificates representing Pre-Split Shares
subsequently presented for transfer will not be transferred on the books and
records of the Company but will be returned to the tendering person for
exchange. Stockholders of the Company should not submit any certificates until
requested to do so. In the event any certificate representing Pre-Split Shares
is not presented for exchange upon request, any dividends which may be declared
after June 30, 1996 with respect to the shares represented by such certificate
will be withheld by the Company until such certificate has been properly
presented for exchange, at which time all such withheld dividends which have not
yet been paid to a public official pursuant to the abandoned property laws will
be paid to the holder thereof or his designee, without interest.
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No fractional shares will be issued. Accordingly, holders of Pre-Split
Shares, both of record and beneficial, who would otherwise be entitled to
receive a fractional Post-Split Share will receive cash in lieu thereof. The
amount of cash to which such a holder will be entitled will be the product of
the closing sale price of the Common Stock on the OTC Bulletin Board on the last
trading day prior to the Filing, multiplied by the number of shares of Pre-Split
Shares that would otherwise be converted into a fractional Post-Split Share.
DISSENTERS' RIGHTS
Under Delaware corporation law and the Company's Certificate of
Incorporation and bylaws, holders of Common Stock will not be entitled to
dissenters' rights with respect to the Reverse Stock Split.
FEDERAL INCOME TAX CONSEQUENCES
This discussion is for general information only and does not discuss
consequences which may apply to special classes of taxpayers (e.g., non-resident
aliens, broker-dealers, or insurance companies). Stockholders are urged to
consult their own tax advisors to determine the particular consequences to them
of the Reverse Stock Split.
The exchange of Pre-Split Shares for Post-Split Shares will not result in
recognition of gain or loss for federal income tax purposes (except in the case
of cash received for fractional shares as described below). Provided that a
stockholder held the Pre-Split Shares as a capital asset, the Post-Split Shares
received in exchange therefor will also be held as a capital asset and the
holding period of the Post-Split Shares will include the stockholder's holding
period for the Pre-Split Shares. The tax basis of the Post-Split Shares will be
same as the tax basis of the Pre-Split Shares exchanged therefor.
Holders of Pre-Split Shares who receive cash in lieu of a fractional share
interest will be treated as if the Company had redeemed their fractional share
interest. Provided that such redemption results in a reduction of such holder's
percentage ownership interest in the Company (including for this purpose shares
constructively owned), such holder will recognize gain or loss, as the case may
be, measured by the difference between the amount of cash received and the basis
of the fractional share interest determined as described above. Such gain or
loss will be capital gain or loss if such holder's Pre-Split Shares were held as
a capital asset, and any such capital gain or loss will generally be long-term
capital gain or loss to the extent such holder's holding period for his
Pre-Split Shares exceeds twelve months.
The Board of Directors believes that the Reverse Stock Split, and the
proposed amendment, are in the best interests of the Company and its
Stockholders and recommends that the Stockholders approve the Reverse Stock
Split and the proposed amendment of the Company's Certificate of Incorporation.
The affirmative vote of the holders of at a majority of the outstanding
shares of Common Stock is required for approval of the Reverse Stock Split and
the proposed amendment of the Certificate of Incorporation.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE REVERSE
STOCK SPLIT AND THE PROPOSED AMENDMENT TO THE CERTIFICATE OF INCORPORATION
PROPOSAL 3
APPROVAL OF ISSUANCES OF COMMON STOCK
At the Special Meeting, holders of shares of Common Stock will be asked to
consider and vote upon a proposal to approve issuances of Common Stock (the
"Discretionary Stock Issuances"), in the discretion of the Board of Directors
but subject to certain restrictions, to creditors of the Company (including
officers and directors of the Company) in satisfaction of amounts owed by the
Company to such creditors. Specifically, holders of shares of Common Stock will
be asked to consider and approve resolutions (the "Discretionary Stock Issuances
Resolutions"), a copy of which is annexed to this Proxy Statement as Exhibit B.
The Company currently owes certain amounts to various persons, including
certain officers and directors of the Company. With regard to amounts owed to
officers and directors of the Company, on January 22, 1996, Kent E. Lovelace,
Jr., a director of the Company, and Roger W. Cope, a director and the former
President of the Company, each loaned $50,000 to the Company. These loans were
originally due on July 19, 1996 and were originally secured by a leasehold
interest in a Las Vegas, Nevada property that the Company then owned but now no
longer owns. These loans bear interest at the current rate of 12% per annum.
No amounts have been paid on these loans. These loans were later secured by
additional collateral consisting of (a) a $200,000 two-year promissory note
convertible (at the option of the Company provided certain conditions are met)
into 3% of the equity interests of the operator of the Vineyard Casino in
Fowler, California, (b) a note receivable of approximately $180,000 owed by RMS
Titanic, Inc. to the Company, and (c) 220,000 shares of stock in RMS Titanic,
Inc. Messrs. Lovelace and Cope subsequently released their security interest in
the 220,000 shares of stock in RMS Titanic, Inc. In addition to the loans made
on January 22nd, Messrs. Lovelace and Cope each loaned to the Company $25,000,
$10,000 and $10,000 on August 11, 1995, August 15, 1995 and November 22, 1995,
respectively. These loaned amounts are due upon demand, bear interest at a
current rate of 12% per annum and are secured by the same collateral securing
the January 22nd loans. No amounts have been paid on these loans. In
consideration of these additional loans, each of Messrs. Lovelace and Cope were
granted a perpetual royalty consisting of .006% of the gross revenues of the
Tinian Casino (as defined below), and each of Messrs. Lovelace and Cope have
received a total of $3,571 pursuant to these royalties. Moreover, on November
7, 1995, a trust (the "Montle Trust") for the benefit of Paul J. Montle, the
Chairman of the Board and Chief Executive Officer of the Company, loaned $40,000
to the Company. This loan also is due upon demand, bears interest at a current
rate of 12% per annum and is secured by the same collateral securing the January
22nd loans from Messrs. Lovelace and Cope. No amounts have been paid on this
loan.
Currently, the outstanding balance of these loans (including accrued
interest) totals approximately $251,900. Of this amount, $104,750 is owed to Mr.
Lovelace, $104,750 is owed
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to Mr. Cope, and $42,400 is owed to the Montle Trust. Of the $251,900 balance,
$100,000 is currently in default, and the remaining $151,900 must be repaid upon
demand.
All of the proceeds from the loan described above were use by the Company
for working capital for the Company's Casino located on the island of Tinian,
the Commonwealth of the Northern Marianas Islands (the "Tinian Casino"). The
Tinian Casino was closed in December 1995 for a variety of seasonal and
operational reasons. The Tinian Casino was expected to reopen on January 5,
1996. However, the casino's permit to operate in its current facility expired
on December 31, 1995, and the Company was not able to negotiate an extension of
the permit by the time of its expiration. Although the Company is currently
engaged in negotiations with the Tinian Casino Gaming Control Commission with a
view to reactivating the casino's permit, the staunch position that this
commission has taken (especially with regard to fees to be paid by the Company)
is causing the Company to consider not reopening the Tinian Casino. A decision
by the Company to reopen or not reopen the Tinian Casino may be made in the near
future.
On May 4, 1993, the Company loaned $500,000 to RMS Titanic, Inc.
("Titanic"). This loan was evidenced by a secured promissory note. In November
1993, the Company assigned to Glenville Properties Incorporated ("Glenville")
all of its rights in, to and under the Titanic promissory note, which at the
time of the assignment had an outstanding balance, including accrued interest,
of $145,000. In exchange for the assignment of the Titanic promissory note and
other items, Glenville issued a promissory to the Company in the amount of
$185,000 which was due and payable on November 15, 1994. Glenville is an entity
controlled by Paul J. Montle, the Chairman of the Board and Chief Executive
Officer of the Company, who guaranteed repayment of the Glenville promissory
note. The Company wanted to assign the Titanic promissory note because it
appeared that litigation would arise out of such note and the Company did not
want to be involved in any litigation as it was applying for a Nevada gaming
license at the time of the assignment and would have had to report any such
litigation to the Nevada gaming authorities. Glenville agreed to purchase the
Titanic promissory note as an accommodation to the Company.
The assignment of the Titanic promissory note was rescinded on October 19,
1995. The effect of the rescission was (a) to revest in the Company full right,
title and interest in the Titanic promissory note and other items assigned, as
if the original assignment of these items to Glenville had never occurred, and
(b) to cancel the Glenville promissory note and related personal guarantee. The
Company and Glenville decided to rescind the transaction because Titanic was
contesting the collectibility of the Titanic promissory note on the basis that
it was not assignable. The rescission was viewed as essential in order to
pursue the collection of the Titanic promissory note without the possibility of
being hampered by a possibly dispositive affirmative defense. When the
assignment of the Titanic promissory note was rescinded, Mr. Montle was owed by
the Company accrued salary in an approximate amount of $26,000. The amount owed
to Mr. Montle by the Company was not offset by the amount guaranteed by Mr.
Montle because under Texas law regarding the payment of employee compensation,
the Company was legally prohibited from offsetting the accrued salary, and with
the entire transaction being rescinded, Mr. Montle's guarantee was no longer in
effect or relevant. Glenville received no interest under the Titanic promissory
note, and the Company did not require Glenville to pay any of the interest on
the Glenville promissory note that otherwise had become due and payable.
Moreover, while principal
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amount of the Glenville promissory note became due on November 15, 1994, the
Company did not seek to enforce the payment of the Glenville promissory note
because by the time such note became due it already appeared that the original
assignment of the Titanic promissory note might have to be rescinded for the
reasons stated above.
In addition to the loaned amounts, the Company has accrued but not paid
salaries to certain of its current and former officers currently approximating
$137,208 ($114,375 to Mr. Montle and $22,833 to Mr. Cope). Because of a
voluntary 50% reduction in these salaries effective August 1, 1996 by these
officers, these accrued salaries are less that what they otherwise would have
been. The officers owed these accrued salaries legally could demand payment of
them at any time.
As of the date hereof, none of the officers and directors owed loan amounts
or accrued salaries has demanded payment of the amounts owed to them or
otherwise threatened litigation. However, the officers and directors owed these
amounts have no legal duty to refrain from exercising their legal rights to
collect amounts owed to them. While management does not believe that the
enforcement of the officers' and directors' respective rights to receive payment
of the aforementioned amounts would have a material adverse effect on the
Company, such enforcement could constrain the Company to take action that it
would otherwise prefer to avoid. Moreover, these amount owed increase the
liabilities on the Company's balance sheet. Currently, none of the officers and
directors owed loan amounts or accrued salaries, nor any of their affiliates, is
indebted to the Company for any amounts.
The Company currently has, and may for the foreseeable future have, only
limited amounts of cash. The Board of Directors believes that the issuance of
Common Stock is a preferable approach for satisfying the amounts owed to the
Company's creditors (including the Company's officers and directors) rather than
attempting to satisfy these amounts by the payment of cash. The satisfaction of
these amounts would eliminate the possible future assertion of claims and would
reduce the level of liabilities on the Company's balance sheet.
The Discretionary Stock Issuances Resolutions approve the issuance by the
Company for one year after the date of their adoption of shares of Common Stock
to persons (including officers and directors of the Company) owed amounts by the
Company. The persons to be issued Common Stock, the number of shares to be
issued to them, the terms, provisions and conditions upon which the Common Stock
will be issued and the documentation memorializing the issuance are all within
the sole discretion of the Board of Directors, subject to certain restrictions
described in the following paragraph.
The Discretionary Stock Issuances Resolutions require that any issuance of
Common Stock to a director of the Company be approved by a majority of directors
other than the director to be issued the Common Stock. Moreover, the
Discretionary Stock Issuances Resolutions restrict the discretion of the Board
of Directors by requiring that the number of shares of Common Stock being issued
not have an aggregate market value at the time of issuance exceeding the amount
being satisfied by the Common Stock if the Common Stock being issued is freely
tradeable immediately after issuance, or not have an aggregate market value at
the time of issuance twice the amount being satisfied by such issuance if the
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Common Stock being issued is not freely tradeable immediately after issuance.
The rationale for distinguishing between freely and non-freely tradeable stock
is that in the case of non-freely tradeable stock the holder bears the risk of a
decline in the value of the stock for a much greater period of time and as a
consequence non-freely tradeable stock generally trades at a significant
discount to freely tradeable stock. This has been the experience of the Company
when it has sold Common Stock in private transactions, of which the
Discretionary Stock Issuances is one. In recent private transactions, the
Company has generally received for the sale only 50% of the then current market
value of the Common Stock being sold. The restriction on the amount of Common
Stock that may be issued places only a maximum amount of Common Stock that may
be issued and does not require the Company to issue up to the maximum amount of
the restriction. Once a person receives a Discretionary Stock Issuance, such
person will not be issued any more Common Stock if the market value of the
Common Stock declines, nor will such person be required to reconvey or otherwise
forfeit any of the Common Stock issued to him if the market value of the Common
Stock increases.
If approved by the stockholders of the Company, the Discretionary Stock
Issuances (if any) are expected to occur after the effectiveness of the Reverse
Stock Split. Currently management owns approximately 7.6% of the outstanding
Common Stock. If the Discretionary Stock Issuances Resolutions are approved and
non-freely tradeable Common Stock in the maximum amount permitted by the
Discretionary Stock Issuances is issued sufficient to satisfy all of the
Company's obligations to the Company's officers and directors, the officers and
directors of the Company are expected to then own approximately 19.4% of the
outstanding Common Stock. This is based on the recent market aggregate market
value of the Common Stock of approximately $5,850,000, and the issuance of
Common Stock having an aggregate market value of approximately $780,000, the
maximum amount that may be issued under the restrictions of the Discretionary
Stock Issuances Resolutions. The percentage ownership interest of management
resulting from the Discretionary Stock Issuances would be greater than the
foregoing example if the market price of the Common Stock were to decline from
its currents level. Regardless of the ultimate percentage ownership interest of
management resulting from the Discretionary Stock Issuances, any increase in
such ownership interest resulting from such issuances would diminish
stockholders' current ability to remove management. In addition, the subsequent
sale of the Common Stock issued in connection with the Discretionary Stock
Issuances could have the effect of reducing the market price of the Common
Stock. Moreover, the Company has recently filed with the U.S. Securities and
Exchange Commission a Registration Statement on Form S-1 registering 4,475,728
shares of Common Stock which have been issued in certain private placements and
4,155,000 shares of Common Stock which may be issued pursuant to the exercise of
outstanding warrants. The sale of the shares of Common Stock being registered
could also have the effect of reducing the market price of the Common Stock.
While the Discretionary Stock Issuances are expected to increase
significantly the percentage ownership of management, the issuance of Common
Stock to management in the manner contemplated by the Discretionary Stock
Issuances Resolutions may be required to continue the involvement of management
in the Company. The continued involvement of management in the Company is
viewed as essential to the financial and operational
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viability of the Company. However, neither the approval of the Discretionary
Stock Issuances Resolutions nor the continued involvement of management in the
Company can guarantee the financial and operational viability of the Company.
In addition, the example given in the preceding paragraph as to the percentage
ownership of management after the Discretionary Stock Issuances represents the
largest percentage ownership of management, and the maximum amount of dilution
of existing shareholders, that may result from the Discretionary Stock
Issuances, based on the current market price of the Common Stock.
The Common Stock is traded on the OTC Bulletin Board under the symbol
"LONE". On May 8, 1996, the last reported sale of the Common Stock was $.14 per
share.
The Discretionary Stock Issuances Resolutions need not be approved before
the Company may legally issue Common Stock. However, the Discretionary Stock
Issuances Resolutions are being submitted to the stockholders of the Company to
comply with certain provisions of Section 144 of the Delaware General
Corporation Law.
Section 144 provides in relevant part that no transaction, between a
corporation and one or more of its directors and officers in which the directors
and officers involved have a financial interest, shall be void or voidable (1)
solely for this reason, or (2) solely because the director or officer is present
at or participates in the meeting of the board that authorizes the transaction,
or (3) solely because their votes are counted for such purposes, so long as the
material facts as to their interests and the transaction are disclosed or known
to shareholders entitled to vote thereon and the transaction is specifically
approved in good faith by vote of the shareholders. The Discretionary Stock
Issuances are transactions in which certain officers and directors of the
Company have a financial interest. At common law, transactions in which
officers and directors had a financial interest were automatically void or could
be automatically voided by shareholders, with little or no proof as to the
unfairness of the transaction. Without compliance with Section 144, officers
and directors involved in an interested transaction would bear a burden of
clearly proving their utmost good faith and the most scrupulous inherent
fairness of the transaction. Compliance with Section 144 shifts to objecting
shareholders the burden of proving the unfairness of the interested transaction.
The objecting shareholders' burden of proof may be a difficult burden to meet.
Essentially, compliance or non-compliance with Section 144 affects the procedure
as to who bears the burden of proof as to the fairness or unfairness of
interested transaction. Delaware courts have stated that compliance with
Section 144 removes an "interested director cloud" or "taint", but it will not
make a transaction immune to judicial scrutiny, sanction unfairness, or prevent
the transaction from being declared void on other grounds such as waste,
illegality or fraud.
The Board of Directors believes that the Discretionary Stock Issuances,
upon the terms and conditions of Discretionary Stock Issuances Resolutions, will
be in the best interests of the Company and its Stockholders and recommends that
the Stockholders approve the Discretionary Stock Issuances and the Discretionary
Stock Issuances Resolutions. If the Discretionary Stock Issuances Resolutions
are not approved by stockholders, the Board of Directors may resubmit them to
stockholders for their approval in the future or the Board of Directors may
proceed to authorize issuance of Common Stock in the manner contemplated by the
Discretionary Stock Issuances Resolutions without
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stockholder approval if the Board of Directors determines that the exigencies of
the Company require this course of action.
The affirmative vote of the holders of a majority of the shares of Common
Stock voting on this proposal is required for approval of the Discretionary
Stock Issuances and the Discretionary Stock Issuances Resolutions. Broker
non-votes and abstentions will not be counted in tabulations of the total votes
cast on this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
DISCRETIONARY STOCK ISSUANCES AND THE DISCRETIONARY STOCK ISSUANCES RESOLUTIONS.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the Record Date
concerning the beneficial ownership of the Common Stock (i) by each stockholder
who is known by the Company to own beneficially in excess of 5% of the
outstanding Common Stock; (ii) by each director; (iii) by each executive officer
named in the Summary Compensation Table under "Executive Compensation," below;
and (iv) by all executive officers and directors as a group. Except as
otherwise indicated, all persons listed below have (i) sole voting power and
investment power with respect to their shares of Common Stock, except to the
extent that authority is shared by spouses under applicable law, and (ii) record
and beneficial ownership with respect to their shares of Common Stock.
SHARES OF
COMMON STOCK BENEFICIALLY OWNED (1)
-----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ ------ -------
Richard D. Corley 2,202,500 5.5%
1101 Main
Peoria, Illinois 61606
Paul J. Montle 1,724,560(2) 4.0%
One Riverway, Suite 2550
Houston, Texas 77056
Roger W. Cope 441,000(3) 1.0%
One Riverway, Suite 2550
Houston, Texas 77056
Kent E. Lovelace, Jr. 917,500(4) 2.1%
3300 West Beach Street
Gulfport, Mississippi
C. Thomas Cutter 171,212(5) (6)
54 Emerson Road
Waltham, Massachusetts 02254-151
All directors and officers
as a group (six persons) 3,254,272(7) 7.6%
(FOOTNOTES NEXT PAGE)
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(1) Includes shares of Common Stock beneficially owned pursuant to options and
warrants exercisable on the Record Date or within 60 days thereafter.
(2) Includes 839,516 shares of Common Stock held by Travis Partners, G.P. in
which Mr. Montle has a 51.67% interest and the trust for the benefit of Mr.
Montle's children which has a 15% interest, 95,044 shares of Common Stock
directly owned; 40,000 shares of Common Stock beneficially owned pursuant
to non-qualified stock options currently exercisable and 750,000 shares
beneficially owned pursuant to warrants currently exercisable by a trust
for the benefit of Mr. Montle's children. Mr. Montle has neither voting
control nor investment power in respect of the general partnership interest
held by the trust, and disclaims beneficial ownership of such interest.
(3) Includes 181,000 shares directly owned; 100,000 shares owned by Mr. Cope's
wife; and 160,000 shares beneficially owned pursuant to stock options
immediately exercisable.
(4) Includes 267,500 shares directly owned; 300,000 shares owned by Mr.
Lovelace's wife 300,000 shares beneficially owned pursuant to warrants
currently exercisable; and 50,000 shares beneficially owned pursuant to
stock options immediately exercisable.
(5) Includes 5,000 shares directly owned; 116,212 shares owned by Mr. Cutter's
wife; and 50,000 shares beneficially owned pursuant to stock options
immediately exercisable.
(6) Less than 1%
(7) Includes 2,059,272 shares directly owned; 950,000 shares beneficially owned
pursuant to warrants currently exercisable; and 360,000 shares beneficially
owned pursuant to stock options immediately exercisable.
OTHER MATTERS
The Board of Directors does not know of any other business to be presented
at the Special Meeting. If any other matter properly comes before the Special
Meeting, however, it is intended that the persons named in the enclosed Proxy
Card will vote said Proxy in accordance with the discretion and instructions of
the Board of Directors.
VOTING PROCEDURES
The votes of holders of Common Stock present in person or represented by
proxy at the meeting will be tabulated by an inspector of elections appointed by
the Company. The inspector's duties include determining the number of shares
represented at the meeting, counting all votes and ballots and certifying the
determination of the number of shares represented and the outcome of the
balloting.
The Corporate Name Change and the Reverse Stock Split must be approved by a
majority of the outstanding shares of Common Stock. The approval of the
Discretionary Stock Issuances by a majority of the outstanding shares of Common
Stock will also
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constitute valid stockholder approval of these issuances. Under Delaware law
and the Company's Certificate of Incorporation, as amended, and by-laws,
abstentions will have no effect on the outcome of the proposals described
herein. In the event a broker that is a record holder of Common Stock does not
return a signed proxy, the shares of represented by such proxy will not be
considered present at the meeting, and therefore will not be counted towards a
quorum. With respect to the Discretionary Stock Issuances, broker non-votes
will not be considered shares entitled to vote, will be excluded entirely from
the tabulation, and will not affect the outcome of the vote. With respect to
the Corporate Name Change and the Reverse Stock Split, broker non-votes will
have the effect of a negative vote. A broker non-vote occurs if a holder or
other nominee does not have discretionary authority and has not received
instructions with respect to a particular proposal.
The Company has issued and outstanding 60 shares of its Series 1994-1
Convertible Preferred Stock (the "Series 1994-1 Preferred Stock"), all of which
are owned by GFL Ultra Fund, Ltd. ("GFL"). The Series 1994-1 Preferred Stock
was issued for a per share price of $10,000. The Series 1994-1 Preferred Stock
entitles GFL to a 6% annual dividend ($600.00 per share) from funds legally
available therefor. Each share of the Series 1994-1 Preferred Stock is
convertible at any time until June 28, 1996 into a number of shares of Common
Stock determined by dividing $10,000 by 78% of the closing bid of the Common
Stock on the conversion date. Outstanding shares of the Series 1994-1 Preferred
Stock are subject to a mandatory redemption on June 28, 1996 at a per share
redemption price of $10,000. The Series 1994-1 Preferred Stock carries a
liquidation preference of $10,000 per share.
On February 14, 1996, GFL instituted in federal court in the state of
Washington a lawsuit alleging that the Company wrongfully refused to convert
certain shares of Series 1994-1 Preferred Stock into 1,183,431 shares of Common
Stock. If GFL were issued these shares of Common Stock it would own
approximately 2.7% of the outstanding shares of Common Stock. GFL is seeking
specific performance of the Company's alleged obligation to convert such stock
and a monetary recovery of an unspecified amount representing any losses
suffered by it as a result of the alleged wrongful refusal to convert. The suit
is in preliminary stages, and the Company filed motions to dismiss this lawsuit
for lack of jurisdiction, improper venue and failure to state a claim upon which
relief can be granted. After these motions were filed, GFL consented to move
the venue of the lawsuit to Texas. The Company has denied all causes of
actions, believes that it has meritorious affirmative defenses, and intends to
vigorously defend the case. However, if GFL is successful in this lawsuit and
subsequently disagrees with the approval of or failure to approve any proposal
considered at the Special Meeting, GFL could conceivably challenge the approval
or failure to approve any such proposal on the basis that it would have been
entitled to vote at the Special Meeting but for the Company's alleged wrongful
refusal to convert the Series 1994-1 Preferred Stock and that its votes would
have resulted in a different outcome of the vote. The Company is not now in a
position to determine the likely outcome of this lawsuit, the likelihood that
the shares of Common Stock that GFL alleges to be entitled would affect the vote
on any proposal considered at the Special Meeting, the likelihood that GFL would
challenge the approval of or failure to approve any proposal considered at the
Special Meeting, or the likelihood that GFL will be successful if it were mount
such a challenge.
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SUBMISSION OF STOCKHOLDER PROPOSALS
FOR 1996 ANNUAL MEETING
Stockholders wishing to submit proposals for consideration by the Company's
Board of Directors at the Company's 1996 Annual Meeting of Stockholders should
submit them in writing to the attention of the Chairman of the Board of the
Company not later than June 30, 1996 so that they may be considered by the
Company for inclusion in its proxy statement and form of proxy for that meeting.
By Order of the Board of Directors,
Paul J. Montle
Chairman of the Board
Houston, Texas
May 24, 1996
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EXHIBIT A
BE IT RESOLVED, that the Article Fourth of the Certificate of
Incorporation of the Company be and hereby is amended to add a last
paragraph, which shall read as follows:
"Upon the effectiveness of the filing with the
Secretary of State of Delaware of Articles of Amendment to
the Certificate of Incorporation adding this paragraph to
the Certificate of Incorporation, each twenty-five (25)
shares of Common Stock issued and outstanding immediately
prior to the filing of such Articles of Amendment as
aforesaid shall be combined into one (1) share of validly
issued, fully paid and non-assessable Common Stock. As soon
as practicable after such date, the corporation shall
request holders of the Common Stock to be combined in
accordance with the preceding to surrender certificates
representing their Common Stock to the corporation's
authorized agent, and each such stockholder shall receive
upon such surrender one or more stock certificates to
evidence and represent the number of shares of Common Stock
to which such stockholder is entitled after the combination
of shares provided for herein; provided, however, that this
corporation shall not issue fractional shares of Common
Stock in connection with this combination, but, in lieu
thereof, shall make a cash payment equal to the product of
the closing sale price of the Common Stock on the last
trading day prior to the effective date of the filing of
this instrument, multiplied by the number of shares of
Common Stock issued and outstanding immediately prior to the
filing of this instrument that would otherwise comprise the
fractional share of Common Stock."
<PAGE>
EXHIBIT B
BE IT RESOLVED, that the stockholders of the Company hereby
approve the issuance by the Company at any time and from time to time
of such number of shares of the Company's Common Stock, $.01 par value
per share ("Common Stock"), to such persons (including officers and
directors of the Company) upon such terms, provisions and conditions
and memorialized by such documentation, all as the Board of Directors
of the Company shall in its sole discretion approve, for the purpose
of satisfying any or all indebtedness of the Company to such persons;
provided, however, that (a) the number of shares of Common Stock to be
issued to such persons shall not have an aggregate market value at the
time of issuance exceeding the amount being satisfied by such issuance
if the Common Stock being issued is freely tradeable immediately after
issuance, or an aggregate market value at the time of issuance twice
the amount being satisfied by such issuance if the Common Stock being
issued is not freely tradeable immediately after issuance, and (b) any
issuance of Common Stock to a director of the Company shall be
approved by a majority of directors other than the director to be
issued the Common Stock; and further
RESOLVED, that the preceding resolution shall remain in full
force and effect for one year after the date of its adoption.
