SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 0)
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[x] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
LUCAS EDUCATIONAL SYSTEMS, INC.
(Name of Registrant as Specified in Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
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(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:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee paid:
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[ ] 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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Lucas Educational Systems, Inc.
17950 Preston Road, Suite 912
Dallas, Texas 75252
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 29, 2000
Notice is hereby given that the annual meeting of the stockholders of
Lucas Educational Systems, Inc. will be held on July 29, 2000, at 10:00 a.m.
(Registration to begin at 9:30 a.m.), local time, at the Crowne Plaza North
Dallas/Addison Hotel, 14315 Midway Road, Addison, Texas, 75001, for the
following purposes:
1. To consider and vote upon the election of Jerry R. Lucas,
Jeffrey R. Gullo and J. D. Young as directors of Lucas Educational
Systems, Inc.
2. To amend the company's Certificate of Incorporation to
effect a one-for-four reverse split of the common stock and return the
number of authorized shares of common stock to 20,000,000.
3. To approve the adoption of the 2000 Employee Stock Option
Plan;
4. To approve the adoption of the 2000 Executive Stock
Incentive Plan; and
5. To transact any other business that properly comes before
the meeting or any adjournment thereof.
Only stockholders of record at the close of business on June 27, 2000,
are entitled to notice of and to vote at the meeting or any adjournment thereof.
The stock transfer books will not be closed.
We encourage you to attend the meeting in person, but understand that
you may not be able to do so. For your convenience, and to ensure that your
shares are represented and voted according to your wishes, we have enclosed a
proxy card for your use. In the event you cannot attend the meeting in person,
please date, sign and return the card in the enclosed envelope as soon as
possible. We have provided a postage-paid envelope to return your proxy card. If
you attend the meeting, you may revoke your proxy and vote in person.
Following the annual meeting of stockholders the company will host a
brief discussion of its business plans and upcoming products. This session will
be open to the public. As the scheduled meeting date is a Saturday, the attire
for both meetings will be business casual.
By Order of the Board of Directors
Steven R. Crowell
Secretary
Dallas, Texas
July 3, 2000
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Lucas Educational Systems, Inc.
17950 Preston Road, Suite 912
Dallas, Texas 75252
PROXY STATEMENT
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held July 29, 2000
The Board of Directors of Lucas Educational Systems, Inc. is soliciting
your proxy in the form of the enclosed proxy card for use at the annual meeting
of stockholders of the company to be held on July 29, 2000, at 10:00 a.m.
(registration beginning at 9:30 a.m.) local time, at the Crowne Plaza North
Dallas/Addison Hotel, 14315 Midway Road, Addison, Texas, 75001, as set forth in
the accompanying Notice of Annual Meeting of Stockholders (the "Notice") and at
any adjournment thereof. This Proxy Statement and the enclosed proxy card are
being mailed to stockholders on or about July 3, 2000.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on June 27, 2000,
will be entitled to vote on matters presented at the meeting or any adjournment
thereof.
As of April 30, 2000, there were issued and outstanding 14,788,619
shares of the company's common stock and 89,974 shares of Series A Convertible
Preferred Stock that will vote together with the common stock and not as a
separate class, at the rate of 100 votes per share for a total of 23,786,019
votes to be cast at the annual meeting. (Hereafter referred to jointly as the
"Voting Stock"). The holders of the combined majority of these shares entitled
to vote at the meeting must be represented at the meeting in person or by proxy
to have a quorum for the meeting and to act on the matters specified in the
Notice. Votes withheld from any director nominee will be counted in determining
whether a quorum has been reached. Under the Certificate of Incorporation of
Lucas Educational Systems, Inc., each share of common stock is entitled to one
vote, and each share of Series A Convertible Preferred Stock is entitled to 100
votes, on all matters brought before the meeting or any adjournment thereof.
Assuming a quorum is present, the affirmative vote of a plurality of
the shares of Voting Stock voted for the election of directors is required for
the election of directors. Votes may be cast in favor of, or withheld from, a
director nominee. Votes that are withheld from a particular nominee will not
affect the outcome of the vote. In the election of directors, stockholders are
not entitled to cumulate their votes and are not entitled to vote for a greater
number of persons than the number of nominees named in this Proxy Statement.
Two directors will be elected by the holders of the common stock, and
the Board of Directors has nominated Jerry R. Lucas and Jeffrey R. Gullo for
these positions. The third director will be elected by the holders of the Series
A Convertible Preferred Stock, and the Board of Directors has nominated J. D.
Young for this position.
The affirmative vote of at least a majority of the outstanding shares
of Voting Stock entitled to vote thereon is required to approve the amendment of
the Certificate of Incorporation to affect a one-for-four reverse split of the
common stock and subsequently return the number of authorized shares to
20,000,000. The affirmative vote of at least a majority of the outstanding
shares of Voting Stock voting at the annual meeting is required to approve the
adoption of the 2000 Stock Option Plan, the 2000 Executive Incentive Plan and
any other matters that properly come before the meeting.
Under applicable rules, brokers who hold shares in street name have the
authority to vote in favor of all matters specified in the Notice, if they do
not receive contrary voting instructions from beneficial owners. Under
applicable law, if a broker has not received voting instructions with respect to
certain shares and gives a proxy for those shares, but does not vote the shares
on a particular matter, those shares will not affect the outcome of the vote
with respect to the matter. Any stockholder that is present at the meeting,
either in person or by proxy, but abstains from voting, will be counted for
purposes of determining whether a quorum exists, even if the stockholder
abstains from voting. An abstention will not be counted as an affirmative or
negative vote in the election of the directors. With respect to the proposals to
amend the Certificate of Incorporation, an abstention would have the same effect
as a vote against the proposal. The stockholders have no appraisal rights under
Delaware law with respect to the proposals specified in the Notice.
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Any stockholder giving a proxy may revoke it at any time before it is
voted by giving written notice to the company or by attending the meeting in
person and voting such shares. Where a stockholder has appropriately specified
how a proxy is to be voted, it will be voted accordingly, and where no specific
direction is given, it will be voted FOR adoption of each of the proposals set
forth in the Notice and at the discretion of the proxy holders on any matter
proposed to come before the meeting.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information concerning
beneficial ownership of the company's common stock as of April 30, 2000, by (i)
each person who is known to us to own beneficially more than five percent of the
outstanding shares of common stock, (ii) each director and executive officer of
the company and (iii) all directors and executive officers as a group. The
company is not aware of any arrangement which might result in a change in
control in the future.
Name and Address of Percent of
Beneficial Owner Number of Shares(1) Voting Control
----------------------------------------------------------------------
Jerry R. Lucas(2) 8,045,000 33.8%
Box 789
Templeton, CA 93465
Jeffrey R. Gullo(3) 2,385,000 10.0%
17950 Preston Rd., Ste. 912
Dallas, Texas 75252
J. D. Young 5,806,036(4) 24.4%
17950 Preston Rd., Ste. 912
Dallas, Texas 75252
The John J. Gullo 1994 Trust 1,285,347(4) 5.4%
5504 Weatherby Lane
Plano, Texas 75093
Directors and executive 16,236,036 68.2%
officers as a group
(3 persons)
----------------------
(1) Share amounts are prior to the reverse stock split proposed to be approved
at the annual meeting.
(2) Excludes options to acquire an additional 1,000,000 shares at the earlier
of 48 months service under an employment agreement or when the cumulative
gross revenue of the Company reaches $2,000,000, and another 1,000,000
shares of Common Stock at the earlier of 48 months service under his
employment agreement or when quarterly revenue reaches $1,250,000 in any
fiscal quarter. The Company may issue options to purchase 1,500,000
further shares if it determines to acquire certain intellectual property
rights not covered by the Licensing and Royalty Agreement between him and
the company. See "Management - Related Party Transactions".
(3) Includes 1,255,000 shares that are subject to forfeiture if the Company
does not commence operations as evidenced by the ability to accept and
fulfill orders for products via phone, facsimile and the Internet by March
1, 2001; and excludes options to acquire 1,575,000 shares at the earlier
of 48 months service under his employment agreement or when the cumulative
gross revenue of the Company reaches $2,000,000; 1,900,000 shares at the
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earlier of 48 months service under his employment agreement or when
quarterly revenue reaches $1,250,000 in any fiscal quarter, and 1,955,000
shares after 36 months of continuous employment by the Company. If all
such targets are met, Mr. Gullo will own or have the right to acquire
7,815,000 shares of Common Stock, representing 26.7% of the Company on a
fully diluted basis.
(4) Represents shares of common stock to be issued upon conversion of Series A
Convertible Preferred Stock upon approval and filing of the amendment to
the Certificate of Incorporation described herein.
MANAGEMENT
Directors and Executive Officers
Name Age Position with Company
Jerry R. Lucas 60 Chairman
Jeffrey R. Gullo 37 President, Director and Chief Executive Officer
J. D. Young 41 Director
Steven R. Crowell 46 Chief Financial Officer and Secretary
Jerry R. Lucas, Chairman since 1996, has over 30 years of experience in
developing, promoting, and selling learning and memory training products. Known
as Dr. Memory,(TM) Mr. Lucas co-authored The Memory Book, a New York Times best
seller that sold more than 3 million copies. Mr. Lucas was voted one of the top
50 NBA players of all time, having been a three-time college All-American at
Ohio State and a seven-time All-Pro with the New York Knicks. He has been the
Chairman of the company and its predecessors since 1992.
Jeffrey R. Gullo, President since 2000 and consultant since late 1999.
Prior to consulting with the company, Mr. Gullo was a Senior Vice President with
United Dental Care, Inc. He had previously spent six years with Arthur Andersen
& Co. as a Senior Manager specializing in business process re-engineering and
information systems integration.
J. D. Young, Director since 2000. Since retiring from Oracle
Corporation in 1997, Mr. Young has been an Independent Investor. He was a sales
executive while with Oracle.
Steven R. Crowell, Chief Financial Officer since 2000. From 1998 to
2000 Mr. Crowell was Chief Financial Officer with Integrated Software Solutions,
Inc. Previously he was Vice President - Treasurer for TIG Insurance Company.
Directors serve for a term of one year or until their successors are
elected and qualified. Directors do not receive cash compensation for serving as
such.
Executive officers are appointed by and serve at the will of the Board
of Directors. There are no family relationships between or among any of the
directors or executive officers of the company.
Related Party Transactions
Substantially all of the company's intellectual property used in its
products is held under a Licensing and Royalty Agreement (the "License") with
Jerry and Cheryl Lucas that provides for the Lucases to retain ownership of all
intellectual property previously developed by them and the license of certain
products in exchange for 8% of the sales price as defined.
Pursuant to an Amendment to the Licensing and Royalty Agreement,
additional products not covered by the License may be included in the License at
the company's election upon issuing to them options to purchase 1,500,000 shares
of common stock.
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The company leases its 1,200 square foot product development facility
from Cheryl Lucas on a month-to-month rental basis for monthly rent of $1,200.
On March 24, 2000, the company completed a private placement and
management restructuring to enable it to actively pursue its business of
marketing and distributing proprietary memory enhancement products developed by
its founder, former NBA All Pro Jerry Lucas. A total of $1,400,000 was raised
through an offering of 89,974 shares of Series A Convertible Preferred Stock
that were sold to a group of accredited investors. The Series A Convertible
Preferred Stock will convert to approximately 9 million shares of common stock
on March 24, 2001. Proceeds from the offering are being used to commence
marketing and distribution activities to establish the company as a provider of
memory training techniques and related educational products. As part of the
restructuring, the company entered into employment agreements with Messrs. Gullo
and Lucas, described in "Compensation of Executive Officers - Employment
Agreements," the Amendment to the Licensing and Royalty Agreement with Mr. and
Mrs. Lucas described above and issued certain of the shares of common stock and
options described in "Securities Ownership of Certain Beneficial Owners."
Meeting Attendance
The Board of Directors held two actions by unanimous consent during the
year ended March 31, 2000. No director failed to attend at least 75% of the
meetings.
Committees of Directors
The Board of Directors has an audit committee comprised of J. D. Young
and Jeffrey R. Gullo. The audit committee oversees the annual audit of the
company, provides oversight into the adequacy of the company's internal controls
and other financial matters as the committee may deem appropriate.
The Board of Directors has a compensation/benefits committee comprised
of Messrs. Young and Lucas. The compensation/benefits committee oversees the
employment contracts of the company's key employees and directors and such other
related items as the committee may deem appropriate from time to time.
Section 16(a) Beneficial Ownership Reporting Compliance
Under U.S. securities laws, directors, certain executive officers and
persons holding more than 10% of the Company's common stock must report their
initial ownership of the common stock and any changes in that ownership to the
Securities and Exchange Commission. The Securities and Exchange Commission has
designated specific due dates for these reports and the company must identify in
this Proxy Statement those persons who did not file these reports when due.
Based on its review of the reports filed with the Securities and Exchange
Commission and written representations of its directors and executive officers,
the Company believes, except as follows, that all persons subject to reporting
filed the required reports on time during the year ended March 31, 2000. Mr.
Lucas filed his first report in March 2000 upon completion of the Company's
private placement of Series A Convertible Preferred Stock.
COMPENSATION OF EXECUTIVE OFFICERS
Executive Compensation
The following summary compensation table sets forth certain information
regarding compensation paid during each of the three fiscal years ended March
31, 2000, 1999 and 1998, to the persons serving as the company's chief executive
officer and each executive officer. No employee's annual compensation exceeded $
100,000.
<TABLE>
Annual Compensation Restricted Securities All
-------------------
Name and Fiscal Stock Underlying Other
Principal Position Year Salary Awards Options Compensation
------------------ ---- ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C>
Jerry R. Lucas Chairman 2000 $16,000 -0- 2,000,000 $-0-
1999 $72,000 -0- -0- $-0-
1998 $16,000 -0- -0- $-0-
Jeffrey R. Gullo
President and CEO 2000 $ -0- 2,385,000 5,430,000 $-0-
</TABLE>
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Employment Agreements
All company employees other than Messrs. Lucas and Gullo have executed
employment agreements that provide for typical benefits and purport to restrict
the employee's ability to disclose confidential information or compete against
the company following termination. None of such agreements provide for extensive
severance or other payments following termination, which may be given at the
will of the company.
Mr. Gullo's contract provides for payment of $10,000 per month base
pay, and annual bonus up to 100% of base salary based upon the company's
performance measured by its EBITDA, and incentive stock awards and options as
described in "Securities Ownership of Certain Beneficial Owners." Mr. Lucas'
contract provides for $8,000 per month base salary, payment of royalties to him
under the Licensing and Royalty Agreement, and options described under
"Securities Ownership of Certain Beneficial Owners."
Stock Option Plans
See the discussion below regarding the 2000 Employee Stock Option Plan
and 2000 Executive Incentive Plan.
MATTERS TO BE BROUGHT BEFORE THE MEETING
As to all matters to be considered at the annual meeting, Messrs.
Lucas, Gullo and Young together hold sufficient voting power to approve such
measures and have indicated they will vote to do so.
Proposal 1. Election of Directors
Three directors will be elected at the meeting. Two directors will be
elected by the holders of common stock and one director will be elected by the
holders of the Series A Convertible Preferred Stock. The persons named below
have been nominated for election as directors. Should any nominee become unable
or unwilling to accept nomination or election, no person will be substituted in
his stead, and the Board of Directors, in accordance with the bylaws of the
company, will by resolution reduce the number of members of the Board of
Directors accordingly or nominate a substitute to be elected at the meeting. The
Board of Directors has no reason to believe that any of the nominees will be
unable or unwilling to serve if elected, and to the knowledge of the Board of
Directors, each of the nominees intends to serve the entire term for which
election is sought.
<TABLE>
Name(1) Principal Occupation Director Since
------- -------------------- --------------
<S> <C> <C>
Nominated to be elected by the holders of Common Stock
------------------------------------------------------
Jerry R. Lucas Chairman 1996
Jeffrey R. Gullo President and Chief Executive 2000
Officer
Nominated to be elected exclusively by the holders of
Series A Convertible Preferred Stock
-----------------------------------------------------
J. D. Young Investor 2000
</TABLE>
(1) For information concerning the ages, business experience and background of
the nominees, see "Management--Directors and Executive Officers."
The affirmative vote of a plurality of the shares of Voting Stock or
Series A Convertible Preferred Stock, as appropriate, voted for the election of
directors is required for the election of directors. Votes may be cast in favor
of or withheld from a director nominee. Votes withheld from a nominee will not
affect the outcome of the election. In the election of directors, stockholders
are not entitled to cumulate their votes and are not entitled to vote for a
greater number of persons than the number of nominees for election.
THE BOARD OF DIRECTORS URGES YOU TO VOTE "FOR" EACH OF THE NOMINEES FOR
DIRECTOR AS SET FORTH ABOVE.
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Proposal 2. Amendment of the Articles of Incorporation to Increase the Number of
Authorized Shares of Common Stock
Terms of the Proposal
In March 2000, the Company completed a private placement of $1,400,000
of Series A Convertible Preferred Stock and the issuance of common shares and
options to acquire new and existing executive personnel under the 2000 Executive
Incentive Plan. Such issuances were undertaken in connection with the
implementation of a plan to commence distribution and marketing of the company's
products and services via direct and wholesale distribution channels. The
company has 20,000,000 shares of common stock authorized. One provision of the
Series A Convertible Preferred Stock is that such shares will be converted on
March 24, 2001 following approval of the pending amendment to the Certificate of
Incorporation proposed in this Proxy Statement. As of April 30, 2000 there were
issued and outstanding 14,788,619 shares of common stock. An additional
7,910,000 shares may be issued upon the exercise of all outstanding stock
options, and 8,997,400 shares will be issued upon conversion of the outstanding
shares of Series A Convertible Preferred Stock. In addition, the company
anticipates that it will engage in future financings involving the issuance of
common stock as needed to fund anticipated growth. The Board of Directors has
therefore determined that the Certificate of Incorporation should be amended to
affect a one-for-four reverse split of the common stock and subsequently return
the number of authorized shares to 20,000,000.
Upon effectiveness of this amendment, one new share will be issued for
each four shares previously outstanding and the number of authorized shares will
be returned from 5,000,000 to 20,000,000, the number of shares currently
authorized. Fractional shares will be rounded, except that any person holding
less than one share after the split will be paid for his fractional share in
cash.
The affirmative vote of a majority of the shareholders entitled to
vote, in person or by proxy, is required to approve the proposal to amend the
Certificate of Incorporation to authorize the reverse split and return the
number of authorized shares to 20,000,000.
Following approval of the amendment at the annual meeting, the company
will prepare and file an amendment to the Certificate of Incorporation with the
Secretary of State of Delaware that will (i) cause the existing outstanding
shares of common stock to be exchanged on the basis of one new share of common
stock issued for each four outstanding shares of common stock and (ii) return
the total authorized shares of common stock to 20,000,000. Such exchange will
become effective upon filing of the amendment, and thereafter the company will
mail letters of transmittal to its stockholders to return their pre-split
certificates. Upon receipt of the pre-split certificates, the company's agent
will mail post-split certificates to tendering stockholders. Shares owned in
book entry through Depository Trust Company will be exchanged by sending a
single, global certificate to Depository Trust Company for all shares held by
it.
The voting rights and other rights attributable to common stock will
not be altered by the amendment. Except for the rounding of fractional shares
(which will result in only minor adjustments), the proposed reverse split will
not affect any stockholder's proportionate equity interest in the company. The
amendment will not change the par value of common stock. The only effect on the
company's consolidated financial statements will be a reclassification of the
capital accounts of the company's balance sheet and a recalculation of earnings
per share and weighted average shares outstanding as if the reverse split had
occurred on the first day of each period presented.
Reasons for the Reverse Split
The Board of Directors believes that there are too many shares
outstanding in relation to the price of the company's common stock in the
over-the-counter market. It is contemplated that the reverse split will result
in a corresponding proportional increase in the market price of the stock,
although there is no assurance that such reaction will take place.
The Board of Directors is hopeful that the decrease in the number of
shares of common stock outstanding as a consequence of the proposed reverse
split, and the anticipated corresponding increased price per share, will
stimulate interest in the company's post-split common stock and ultimately
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promote greater liquidity for the company's stockholders. However, the
possibility does exist that such liquidity could be adversely affected by the
reduced number of shares which would be outstanding after the proposed reverse
split.
The Board of Directors is also hopeful that the proposed reverse split
will result in a price level for the shares that would mitigate the present
refusal on the part of some brokerage firms to deal in the company's stock and
diminish the adverse impact of trading commissions on the potential market for
the company's stock. However, there can be no assurance that the proposed
reverse split will achieve such results, nor can there be any assurance that the
reverse split will not adversely affect the market price of the common stock or,
alternatively, that any increased price per share of the common stock
immediately after the proposed reverse split will be sustained for any prolonged
period of time. In addition, the reverse split may have the effect of creating
odd lots of stock for some stockholders, and such odd lots may be more difficult
to sell or have higher brokerage commissions associated with the sale of such
odd lots.
Management of the company is not aware of any present efforts by any
person or persons to accumulate common stock in order to obtain control of the
company and the proposed reverse split is not intended to be an anti-takeover
device. The approval of the amendment is being sought simply to enhance the
image of the company and to price the common stock in a range more acceptable to
the brokerage community and to investors.
General Effect of Amendment
The effect of the amendment on the aggregate number of shares of the
company's common stock is as follows:
Number of Shares Prior to Amendment After Amendment
---------------- ------------------ ---------------
Common Stock
Authorized 20,000,000 20,000,000
Outstanding 14,788,619 3,697,155(1)
Reserved for Conversion of the
Series A Convertible Preferred Stock 8,997,400 2,249,350
---------- ------------
Net Available (Shortfall) for Issuance (3,786,019) 14,053,495
Par value per share $.001 $.001
Preferred Stock
Authorized 1,000,000 1,000,000
Outstanding Series A 89,974 89,974
-------------------------------
(1) Subject to minor adjustment due to rounding of fractional shares.
Effect Upon Outstanding Options and Convertible Stock
In connection with the amendment, all outstanding options and
convertible stock exercisable for 16,907,400 shares of common stock will be
adjusted so that the number of shares issuable upon the exercise of such
outstanding options or convertible stock will be decreased in proportion to the
1-for-4 reverse split, and the exercise price per share under such outstanding
options will be proportionately increased. Outstanding options and convertible
stock will be rounded to the nearest whole share, and no cash payment will be
made in respect of any fractional share. The company's 2000 Employee Stock
Option Plan and 2000 Executive Incentive Plan (the "Plans") now provide for
1,500,000 shares and 11,315,000 shares, respectively, which numbers will be
decreased proportionately so that the number of post-split shares authorized
under the Plans will be 375,000 shares and 2,828,750 shares, respectively.
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Federal Income Tax Consequences
A summary of the federal income tax consequences of the proposed
reverse split is set forth below. The following discussion is based upon present
federal tax law and does not purport to be a complete discussion of such
consequences. Accordingly, STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS FOR MORE DETAILED INFORMATION REGARDING THE EFFECTS OF THE PROPOSED
REVERSE SPLIT ON THEIR INDIVIDUAL TAX STATUS.
1. The proposed reverse split will not be a taxable transaction
to the company.
2. A stockholder will not recognize any gain or loss as a result
of the reverse split.
3. The aggregate tax basis of a stockholder's post-split shares
of common stock (including any fractional shares issued in
connection with the rounding up of fractional share) will
equal the aggregate tax basis of the stockholder's shares of
pre-split common stock. The holding period of the post-split
common stock generally will include the holding period of the
stockholder's pre-split common stock, provided the pre-split
shares of common stock were capital assets in the hands of
such stockholder.
No Dissenters' Rights
Under Delaware law, stockholders are not entitled to dissenters' rights
with respect to the reverse split or any other element of the Amendment.
THE BOARD OF DIRECTORS URGES YOU TO VOTE "FOR" THE APPROVAL OF THE
AMENDMENT.
Proposal 3. Adoption of the company's 2000 Employee Stock Option Plan
General
A copy of the 2000 Employee Stock Option Plan (the "Employee Plan") is
attached to this Proxy Statement as Exhibit A, and the following summary is
qualified in its entirety by reference to the full text of the Employee Plan.
The following is a summary of certain provisions of the Employee Plan.
The company's Board of Directors has approved, and recommends that the
stockholders approve, the adoption of the Employee Plan, under which the company
has reserved 1,500,000 shares of pre-split common stock for issuance to key
employees, directors and consultants of the company pursuant to options granted
by the Board of Directors (or a Compensation Committee of the Board of
Directors) during the term of the Employee Plan.
The purposes of the Employee Plan are to encourage key employees,
directors and consultants of the company and its subsidiaries to acquire a
proprietary interest in the company and thus share in the future success of the
company's business; to enable the company, by offering comparable incentives, to
attract and retain quality management personnel, directors and consultants who
are in a position to make important and direct contributions to the success of
the company; and to promote a closer alignment of interest between the company's
employees, directors and consultants and its stockholders. The maximum number of
shares reserved for issuance and subject to option under the Employee Plan will
be 1,500,000 pre-split shares of common stock (375,000 shares post-split). Under
the Employee Plan, officers, key employees, directors and consultants of the
company and its subsidiaries will be eligible to receive options to purchase
common stock. The exercise period of each option will be determined by the Board
of Directors, but no option shall have a term longer than ten years. Options
granted under the Employee Plan may be either Incentive Stock Options or options
that are not intended to be Incentive Stock Options ("Nonqualified Stock
Options"). The Board of Directors is authorized to designate the recipients of
options, the dates of grants, the number of shares subject to options, the
option price, the terms of payment upon exercise of the options, and the time
during which the options may be exercised. The Board of Directors may delegate
its authority to a committee of the Board of Directors from time to time under
the Plan.
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The Employee Plan will continue for a period of ten years after
approval of the stockholders, and no options will be granted after expiration.
All options granted prior to that time will remain in effect in accordance with
their terms. In the event of any future change in the company's common stock as
a result of stock splits or stock dividends, or combinations or exchanges of
stock, or otherwise, the number of shares available for option and subject to
any option and the price per share of shares subject to any option may be
proportionately adjusted by the Board of Directors, which will administer the
Employee Plan, subject to its power to delegate authority from time to time to a
committee of the Board of Directors to administer the Employee Plan.
The Board of Directors has full power to select optionees from and
among the officers, key employees, directors and consultants of the company and
its subsidiaries, and to specify the terms and conditions of any option granted
under the Employee Plan; however, no option may be granted at an exercise price
less than 100% of the fair market value of the company's common stock on the
business day preceding the date of the grant of such option. No option may be
exercisable more than ten years after the date of its grant, but options may
have differing permissible exercise periods.
The Board of Directors may not grant an Incentive Stock Option to a
consultant who is not a salaried employee of the company, or any of its
subsidiaries, nor may it grant an Incentive Stock Option to any stockholder who
at the time of the grant beneficially owns more than 10% of the company's
outstanding voting securities, unless such option has an exercise price at the
time of the grant of at least 110% of the fair market value of the common stock,
and the option is not exercisable for more than five years from the date of
grant. Incentive Stock Options may not be granted to any person when the effect
would be to permit such person to first exercise options, in any calendar year,
for the purchase of shares of common stock having a fair market value in excess
of $100,000 (determined at the time of the grant of the options).
Incentive Stock Options and Nonqualified Stock Options may not be
transferred except by will or the laws of descent and distribution, and during
the lifetime of the optionee to whom granted, may be exercised only by such
optionee. Incentive Stock Options and Nonqualified Stock Options may be
exercised by the optionee within three months after termination of employment,
directorship or consulting relationship (unless the option expires earlier by
its terms), unless such termination was due to death or disability of the
optionee. In the event of death of an optionee holding an Incentive Stock Option
or Nonqualified Stock Option while employed by, or serving as a director or
consultant of, the company the option shall be exercisable by the person or
persons to whom such optionee's rights pass by will or by the laws of descent
and distribution at any time prior to the expiration date of the option or
within one year after the date of such death, whichever is earlier, but only to
the extent the optionee had the right to exercise such Incentive Stock Option or
Nonqualified Stock Option on the date of his death. In the event of the
disability of an optionee holding an Incentive Stock Option or Nonqualified
Stock Option while employed by, or serving as a director or consultant of the
company, which results in termination of such optionee's employment,
directorship or consulting relationship, the Board of Directors may allow an
Incentive Stock Option or Nonqualified Stock Option to be exercisable by the
optionee at any time prior to the expiration date of the Incentive Stock Option
or Nonqualified Stock Option or within one year after the date of such
termination, whichever is earlier, but only to the extent the optionee had the
right to exercise such option at the date of such termination.
The Board of Directors may amend the Employee Plan at any time in any
manner; however, no amendment may, without the approval of the company's
stockholders increase the maximum number of shares issuable under the Employee
Plan except in the case of certain capital adjustments.
Options for Shares
Options for 480,000 shares have been issued under the Employee Plan to
two employees.
Federal Income Tax Consequences
There are no federal income tax consequences to the optionee or the
company upon the grant of stock options under the Employee Plan. The federal tax
consequences upon exercise will vary depending on whether the option is an
Incentive Stock Option or a Nonqualified Stock Option.
10
<PAGE>
Incentive Stock Options. When an optionee exercises an Incentive Stock
Option, the optionee will not at that time recognize any income, nor will be
company be entitled to a deduction. The optionee will recognize capital gain or
loss at the time of disposition of the shares acquired through the exercise of
an Incentive Stock Option if the disposition occurs more than two years after
the option was granted and if the shares have been held more than one year after
it was exercised. The company will be not be entitled to a tax deduction if the
optionee satisfies these holding requirements. The net federal income tax effect
to the holder of Incentive Stock Options is to defer, until the acquired stock
is sold, taxation of any increase in the stock's value from the time of grant of
the option to the time of its exercise, and to tax such gain, at the time of
sale, at capital gain rates rather than ordinary rates.
If the holding requirements are not met, then upon sale of the shares
the optionee generally recognizes as ordinary income the excess of the fair
market value of the shares at the date of exercise over the exercise price, and
any increase in the value of the option stock subsequent to exercise is long or
short-term capital gain to the optionee depending on the optionee's holding
period for the stock. However, if the sale is for a price less than the value of
the shares on the date of exercise, the optionee might recognize ordinary income
only to the extent the sale price exceeded the option price. In either case, the
company is entitled to a business expense deduction to the extent of ordinary
income recognized by the optionee.
Nonqualified Stock Options. When an optionee exercises a Nonqualified
Stock Option, the optionee recognizes ordinary income in the amount of the
excess of the fair market value of the shares received upon exercise over the
aggregate amount paid for those shares, and the company may deduct as an expense
the amount of income so recognized by the optionee. For capital gains purposes,
the holding period of the shares begins upon the exercise of the option, and the
optionee's basis in the shares is equal to the fair market value of the shares
on the date of exercise.
If, upon exercise of a Nonqualified Stock Option, the optionee pays all
or part of the purchase price by delivering to the company shares of
already-owned stock, there are no federal income tax consequences to the
optionee or the company to the extent of the number of shares so delivered. As
to any additional shares received, the optionee recognizes ordinary income equal
to the aggregate fair market value of the additional shares received, less any
cash paid to the company, and the company is allowed to deduct as an expense the
amount of such income. For purposes of calculating tax upon disposition of the
shares acquired, the holding period and basis of the new shares, to the extent
of the number of old shares delivered, is the same as for those old shares. The
holding period for any additional shares begins on the date the option is
exercised, and the basis in those additional shares is equal to the taxable
income recognized by the optionee, plus the amount of any cash paid to the
company.
Summary
The Board of Directors believes that the Employee Plan is in the best
interest of the company's stockholders and is necessary to enable it to attract
and retain highly qualified key employees and directors. The affirmative vote of
a majority of the shareholders entitled to vote on, and that vote for or against
or expressly abstain with respect to, this matter is required to adopt the
Employee Plan.
THE BOARD OF DIRECTORS URGES YOU TO VOTE "FOR" THE ADOPTION OF THE 2000
EMPLOYEE STOCK OPTION PLAN.
Proposal 4. Adoption of the company's 2000 Executive Incentive Plan
General
A copy of the 2000 Executive Incentive Plan (the "Executive Plan") is
attached to this Proxy Statement as Exhibit B, and the following summary is
qualified in its entirety by reference to the full text of the Executive Plan.
The following is a summary of certain provisions of the Executive Plan.
The company's Board of Directors has approved, and recommends that the
stockholders approve the adoption of the Executive Plan, under which the company
has reserved 11,315,000 shares of pre-split common stock (2,828,750 shares
11
<PAGE>
post-split) for issuance to Jeffrey R. Gullo and Jerry R. Lucas as either
restricted stock grants or non-qualified stock options to purchase common
shares.
The primary purpose of the Executive Plan is to implement the agreement
between Mr. Gullo and the company for him to develop a business and marketing
plan, raise capital to begin implementation of the business and marketing plan,
become the chief executive officer of the company, and be rewarded upon the
achievement of certain milestones in the company's development. The second
purpose of the Executive Plan is to provide for non-qualified stock options to
be issued to Mr. Lucas as both an incentive for the achievement of certain
company objectives and compensation for the transfer of additional intellectual
property rights.
Pursuant to approval by the Board of Directors, all of the shares
covered by the Executive Plan have been issued or reserved for issuance as
follows, and no further shares will be issued under the Executive Plan.
Recipient Shares Conditions to Issuance
--------- ------ ----------------------
Jeffrey R. Gullo 2,385,000 Issued upon closing private
placement, of which 1,255,000
are subject to forfeiture if
the Company does not commence
operations by March 1, 2001.
Jeffrey R. Gullo 5,430,000 Options that become exercisable
as described in footnote 3 to
"Securities Ownership of
Certain Beneficial Owners."
Jerry R. Lucas 2,000,000 Options that become exercisable
as described in footnote 2 to
"Securities Ownership of
Certain Beneficial Owners."
Jerry R. Lucas 1,500,000 Options that become exercisable
if the company elects to
acquire certain intellectual
property rights under the
Amendment to Licensing and
Royalty Agreement.
Terms of Securities
The purchase price for all shares issued and the exercise price of all
stock options under the Executive Plan is $0.061 per share, which was the value
of the shares as of March 20, 2000 as determined by an independent appraisal by
the Hill Valuation Group, LLC.
All shares issued or to be issued under the Executive Plan are
restricted securities and may not be sold by the holders except in compliance
with federal and state securities laws.
All options issued under the Executive Plan are non-qualified stock
options bearing the same characteristics described in "Proposal 3 - Adoption of
the Company's 2000 Employee Stock Option Plan." Such options have an exercise
period of ten years after the date of grant.
Summary
The Board of Directors believes that the Executive Plan is in the best
interest of the company's stockholders and is necessary to enable it to attract
and retain highly qualified executives. The affirmative vote of a majority of
the shareholders shares of common stock entitled to vote on, and that vote for
or against or expressly abstain with respect to, this matter is required to
adopt the Executive Plan.
12
<PAGE>
THE BOARD OF DIRECTORS URGES YOU TO VOTE "FOR" THE ADOPTION OF THE 2000
EXECUTIVE STOCK INCENTIVE PLAN.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholders intending to submit proposals to be included in the proxy
materials for the 2001 Annual Meeting of Stockholders must submit their
proposals in writing so that they will be received by the company no later than
April 1, 2001. The proposals should be directed to the Secretary of the company,
Steven R. Crowell at 17950 Preston Road, Suite 912, Dallas, Texas 75252. Under
Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended,
proposals of stockholders must conform to certain requirements as to form and
may be omitted from the proxy materials under certain circumstances. To avoid
unnecessary expenditures of time and money by stockholders and the company,
stockholders are urged to review this Rule and, if questions arise, consult
legal counsel prior to submitting a proposal to the company.
MISCELLANEOUS
The Board of Directors of the company knows of no matters other than
those described herein that will be presented for consideration at the meeting.
If, however, other matters come before the meeting, the proxy holders intend to
vote all proxies in accordance with their best judgment in the interest of the
company.
The cost of solicitation of proxies, including the cost of preparing,
printing and mailing proxy materials and the cost of reimbursing brokers for
forwarding proxies and Proxy Statements to their principals, will be borne by
the company. Proxies may also be solicited without extra compensation by the
officers and employees of the company by telephone, facsimile, telegraph or
personally. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of shares of common stock held of record by such
persons, and the company may reimburse them for reasonable out-of-pocket
expenses incurred by them.
PLEASE DATE, SIGN, AND RETURN THE PROXY AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.
A PROMPT RETURN OF YOUR PROXY WILL BE APPRECIATED, AS IT WILL SAVE THE EXPENSE
OF FURTHER MAILINGS.
A copy of the company's 2000 Annual Report containing audited financial
statements accompanies this Proxy Statement. The Annual Report does not
constitute any part of the proxy solicitation material.
By Order of the Board of Directors
Steven R. Crowell
Secretary
Dallas, Texas
July 3, 2000
13
<PAGE>
Exhibit A
LUCAS EDUCATIONAL SYSTEMS, INC.
2000 EMPLOYEE STOCK OPTION PLAN
1,500,000 Shares
ARTICLE I - GENERAL
1.1 Purpose of the Plan.
--------------------
The purpose of the Lucas Educational Systems, Inc. 2000 Employee Stock
Option Plan (the "Plan") is to assist Lucas Educational Systems, Inc.,
a Delaware corporation (the "Company"), in securing and retaining Key
Participants of outstanding ability by making it possible to offer them
an increased incentive to join or continue in the service of the
Company and to increase their efforts for its welfare through
participation or increased participation in the ownership and growth of
the Company.
1.2 Definitions.
------------
(a) "Acceleration Event" means any event which in the opinion
of the Board of Directors of the Company is likely to lead to changes
in control of share ownership of the Company, whether or not such
change in control actually occurs.
(b) "Award" means an Option granted to a Key Participant under
the Plan.
(c) "Board of Directors" or "Board" means the Board of
Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means the committee referred to in Section
1.3.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Fair Market Value" means the closing price of the shares
on the principal trading market on which the Common Stock is primarily
traded on the day on which such value is to be determined or, if no
shares were traded on such day, on the next preceding day on which
shares were traded, as reported by NASDAQ. If at any time shares of
Common Stock are not traded on an exchange or in the over-the-counter
market, Fair Market Value shall be the value determined by the Board of
Directors or Committee administering the Plan, taking into
consideration those factors affecting or reflecting value which they
deem appropriate.
(h) "Grantee" means a Key Participant to whom an Award is
granted under the Plan.
(i) "Incentive Share" means a share of Common Stock awarded to
a Key Participant under Article VI hereof on such terms as are
determined by the Committee.
(j) "Incentive Share Agreement" means a written agreement in
such form as the Board or Committee, as applicable, shall approve that
evidences the terms and conditions of an award of Incentive Shares
hereunder.
14
<PAGE>
(k) "Incentive Stock Option" means an option to purchase
shares of Common Stock which is intended to qualify as an incentive
stock option as defined in Section 422 of the Code.
(l) "Key Participant" means any person, including officers,
directors, employees, agents and consultants of the Company or any
Subsidiary who are designated a Key Participant by the Board or
Committee, as applicable, and is or is expected to be primarily
responsible for the management, growth, or supervision of some part or
all of the business of the Company. The power to determine who is and
who is not a Key Participant is reserved solely for the Committee.
(m) "Nonqualified Stock Option" means an option to purchase
shares of Common Stock which is not intended to qualify as an Incentive
Stock Option as defined in Section 422 of the Code.
(n) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
(o) "Optionee" means a Key Participant to whom an Option is
granted under the Plan.
(p) "Parent" means any corporation which qualifies as a parent
of a corporation under the definition of "parent corporation" contained
in Section 425(e) of the Code.
(q) "Subsidiary" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary
corporation" contained in Section 425(f) of the Code.
(r) "Term" means the period during which a particular option
may be exercised as determined by the Committee and as provided in the
option agreement.
1.3 Administration of the Plan.
---------------------------
The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors consisting solely of two or more
Non-Employee Directors, as defined in Rule 16b-3 (see Section 1.10,
below), or in the absence of an appointment of such a Committee, the
full Board shall serve as the Committee. Subject to the control of the
Board, and without limiting the control over decisions described in
Section 1.7, the Committee shall have the power to interpret and apply
the Plan and to make regulations for carrying out its purpose. More
particularly, the Committee shall determine which Key Participants
shall be granted Options and the terms of such grants. When granting
Options, the Committee shall designate the Option as either an
Incentive Stock Option or a Nonqualified Stock Option. Determinations
by the Committee under the Plan (including, without limitation,
determinations of the person to receive Awards, the form, amount and
timing of such Awards, and the terms and provisions of such Awards and
the agreements evidencing same) need not be uniform and may be made by
it selectively among persons who receive, or are eligible to receive,
Awards under the Plan, whether or not such persons are similarly
situated. In serving on the Committee, members thereof shall be
considered to be acting in their capacity as members of the Board of
Directors and shall be entitled to all rights of indemnification
provided by the Bylaws of the Company or otherwise to members of the
Board of Directors.
1.4 Shares Subject to the Plan.
---------------------------
The total number of shares that may be purchased pursuant to Options
under the Plan shall not exceed 1,500,000 shares of Common Stock.
Shares subject to the Options which terminate or expire prior to
exercise shall be available for future Awards under the Plan without
again being charged against the limitation of 1,500,000 shares set
forth above. Shares issued pursuant to the Plan may be either unissued
shares of Common Stock or reacquired shares of Common Stock held in
treasury.
15
<PAGE>
1.5 Terms and Conditions of Options.
--------------------------------
All Options shall be evidenced by agreements in such form as the
Committee shall approve from time to time subject to the provisions of
Article II and Article III, as appropriate, and the following
provisions:
(a) Exercise. The Committee shall determine whether the Option
shall be exercisable in full at any time during the Term or in
cumulative or noncumulative installments during the Term.
(b) Termination of Employment or Contractor Relationship. An
Optionee's Options shall expire on the expiration of the Term specified
in Section 2.1 or 3.1 as the case may be, or upon the occurrence of
such events as are specified in the agreement. In the event of exercise
of the Option after termination of employment or contractor
relationship, the Optionee may exercise the Option only with respect to
the shares which could have been purchased by the Optionee at the date
of such termination, and then only for a period of 90 days thereafter.
However, the Committee may, but is not required to, waive any
requirements made pursuant to Section 1.5(b) so that some or all of the
shares subject to the Option may be exercised within the time
limitation described in this subsection. An Optionee's employment or
contractor relationship shall be deemed to terminate on the last date
for which he receives a regular wage, salary or contract payment.
Whether military, government or other service or other leave of absence
shall constitute a termination of employment shall be determined in
each case by the Committee at its discretion, and any determination by
the Committee shall be final and conclusive. A termination of
employment or contractor relationship shall not occur where the
Optionee transfers from the Company to one of its Subsidiaries or
transfers from a Subsidiary to the Company.
(c) Death or Disability. Upon termination of an Optionee's
employment or contractor relationship by reason of death or disability
(as determined by the Committee consistent with the definition of
Section 422(c)(7) of the Code), the Option shall expire on the earlier
of the expiration of (i) the date specified in the Option which in no
event shall be later than 12 months after the date of such termination,
or (ii) the Term specified in Section 2.1 or 3.1 as the case may be.
The Optionee or his successor in interest, as the case may be, may
exercise the Option only as to the shares that could have been
purchased by the Optionee at the date of his termination of employment.
However, the Committee may, but is not required to, waive any
requirements made pursuant to Section 1.5(b) so that some or all of the
shares subject to the Option may be exercised within the time
limitation described in this subsection.
(d) Payment. Payment for shares as to which an Option is
exercised shall be made in such manner and at such time or times as
shall be provided in the option agreement, including cash, Common Stock
of the Company which was previously acquired by the Optionee, or any
combination thereof. The Fair Market Value of the surrendered Common
Stock as of the date of exercise shall be determined in valuing Common
Stock used in payment for Options.
(e) Nontransferability. No Option granted under the Plan shall
be transferable other than by will or by the laws of descent and
distribution. During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee.
(f) Additional Provisions. Each option agreement may contain
such other terms and conditions not inconsistent with the provisions of
the Plan, including the award of cash amounts, as the Committee may
deem appropriate from time to time.
16
<PAGE>
1.6 Stock Adjustments; Mergers.
---------------------------
(a) Generally. Notwithstanding Section 1.4, in the event the
outstanding shares are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities
of the Company or of any other corporation by reason of any merger,
sale of stock, consolidation, liquidation, recapitalization,
reclassification, stock split up, combination of shares, stock
dividend, or transaction having similar effect, the total number of
shares set forth in Section 1.4 shall be proportionately and
appropriately adjusted by the Committee.
(b) Options. Following a transaction described in subsection
(a) above, if the Company continues in existence, the number and kind
of shares that are subject to any Option and the option price per share
shall be proportionately and appropriately adjusted without any change
in the aggregate price to be paid therefor upon exercise of the Option.
If the Company will not remain in existence or substantially all of its
voting Common Stock and Common Stock will be purchased by a single
purchaser or group of purchasers acting together, then the Committee
may (i) declare that all Options shall terminate 30 days after the
Committee gives written notice to all Optionee's of their immediate
right to exercise all Options then outstanding (without regard to
limitations on exercise otherwise contained in the Options), or (ii)
notify all Optionee's that all Options granted under the Plan shall
apply with appropriate adjustments as determined by the Committee to
the securities of the successor corporation to which holders of the
numbers of shares subject to such Options would have been entitled, or
(iii) take action that is some combination of aspects of (i) and (ii).
The determination by the Committee as to the terms of any of the
foregoing adjustments shall be conclusive and binding. Any fractional
shares resulting from any of the foregoing adjustments under this
section shall be disregarded and eliminated.
1.7 Acceleration Event.
-------------------
If an Acceleration Event occurs in the opinion of the Board of
Directors, based on circumstances known to it, the Board of Directors
may, but is not obligated to, direct the Committee to declare that any
or all Options granted under the Plan shall become exercisable
immediately notwithstanding the provisions of the respective agreements
granting any such Awards.
1.8 Notification of Exercise.
-------------------------
Options shall be exercised by written notice directed to the Secretary
of the Company at the principal executive offices of the Company. Such
written notice shall be accompanied by any payment required pursuant to
Section 1.5(d). Exercise by an Optionee's heir or the representative of
his estate shall be accompanied by evidence of his authority to so act
in form reasonably satisfactory to the Company.
1.9 Modification, Extension and Renewal of Awards.
----------------------------------------------
Subject to the terms and conditions and within the limitations of the
Plan, the Committee may modify, extend or renew outstanding Awards or
accept the surrender of outstanding Awards (to the extent not
theretofore exercised) granted under the Plan or under any other plan
of the Company or a Subsidiary, and authorize the granting of new
Awards pursuant to the Plan in substitution therefor, and the
substituted Awards may bear such different or additional terms and
conditions as the Committee shall deem appropriate within the
limitations of the Plan. Notwithstanding the foregoing, however, no
modification of an Award shall, without the consent of the Grantee
holding the Award, adversely affect the rights or obligations of such
Grantee.
1.10. Compliance with Rule 16b-3.
---------------------------
It is intended that the provisions of the Plan and any Award shall
comply in all respects with the terms and conditions of Rule 16b-3
under the Securities Exchange Act of 1934, as in effect on January 1,
1999 and as amended, or any successor provisions, as it relates to
persons subject to the reporting requirements of Section 16(a) of such
Act. Any agreement granting an Award shall contain such provisions as
are necessary or appropriate to assure such compliance. To the extent
that any provision hereof is found not to be in compliance with such
rule as it relates to such Act, such provision shall be deemed to be
modified so as to be in compliance with such rule, or if such
modification is not possible, shall be deemed to be null and void, as
it relates to such Grantee.
17
<PAGE>
ARTICLE II - INCENTIVE STOCK OPTIONS
2.1 Terms of Incentive Stock Options.
---------------------------------
Each Incentive Stock Option granted under the Plan shall be exercisable
only during a Term fixed by the Committee; provided, however, that the
Term shall end no later than 10 years after the date the Incentive
Stock Option is granted.
2.2 Limitation on Options.
----------------------
The aggregate Fair Market Value of Common Stock (determined at the time
the Incentive Stock Option is granted) subject to Incentive Stock
Options granted to a Key Participant under all plans of the Key
Participant's employer corporation and its Parent or Subsidiary
corporations and that become exercisable for the first time by such Key
Participant during any calendar year may not exceed $100,000.
2.3 Special Rule for Ten Percent Shareholder.
-----------------------------------------
If at the time an Incentive Stock Option is granted, a participant owns
stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of his employer corporation or of
its Parent or any of its Subsidiaries, as determined using the
attribution rules of Section 424(d) of the Code, then the terms of the
Incentive Stock Option shall specify that the option price shall be at
least 110% of the Fair Market Value of the stock subject to the
Incentive Stock Option and such Incentive Stock Option shall not be
exercisable after the expiration of five years from the date such
Incentive Stock Option is granted.
2.4 Interpretation.
---------------
In interpreting this Article II of the Plan and the provisions of
individual option agreements, the Committee and the Board shall be
governed by the principles and requirements of Sections 421, 422 and
425 of the Code, and applicable Treasury Regulations.
ARTICLE III - NONQUALIFIED STOCK OPTIONS
3.1 Terms and Conditions of Options.
--------------------------------
In addition to the requirements of Section 1.5, each Nonqualified Stock
Option granted under the Plan shall be exercisable only during a Term
fixed by the Committee.
3.2 Section 83(b) Election.
-----------------------
The Company recognizes that certain persons who receive Nonqualified
Stock Options may be subject to restrictions regarding their right to
trade Common Stock under applicable securities laws. Such may cause
Optionee's exercising such Options not to be taxable under the
provisions of Section 83(c) of the Code. Accordingly, Optionee's
exercising such Nonqualified Stock Options may consider making an
election to be taxed upon exercise of the Option under Section 83(b) of
the Code and to effect such election will file such election with the
Internal Revenue Service within thirty (30) days of exercise of the
Option and otherwise in accordance with applicable Treasury
Regulations.
18
<PAGE>
ARTICLE IV - ADDITIONAL PROVISIONS
4.1 Stockholder Approval.
---------------------
The Plan shall be submitted for the approval of the stockholders of the
Company at the first annual meeting of stockholders held subsequent to
the adoption of the Plan and in all events within two years of its
approval by the Board of Directors. If at said meeting the stockholders
of the Company do not approve the Plan, the Plan shall terminate.
4.2 Compliance with Other Laws and Regulations.
-------------------------------------------
The Plan, the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such
Options, shall be subject to all applicable Federal and state laws,
rules, and regulations and to such approvals by any government or
regulatory agency as may be required. The Company shall not be required
to issue or deliver any certificates for shares of Common Stock prior
to (a) the listing of such shares on any stock exchange on which the
Common Stock may then be listed and (b) the completion of any
registration or qualification or exemption of such shares under any
Federal or state law, or any ruling or regulation of any government
body which the Company shall, in its sole discretion, determine to be
necessary or advisable.
4.3 Amendments.
-----------
The Board of Directors may discontinue the Plan at any time, and may
amend it from time to time, but no amendment, without approval by
stockholders, may increase the total number of shares which may be
issued under the Plan. Other than as expressly permitted under the
Plan, no outstanding Award may be revoked or altered in a manner
unfavorable to the Grantee without the consent of the Grantee.
4.4 No Rights As Shareholder.
-------------------------
No Grantee shall have any rights as a shareholder with respect to any
share subject to his or her Option prior to the date of issuance to him
or her of a certificate or certificates for such shares.
4.5 Withholding.
------------
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right
to require the Grantee to remit to the Company an amount sufficient to
satisfy any Federal, state or local withholding tax liability in such
form as the Company may determine or accept in its sole discretion,
including payment by surrender or retention of shares of Common Stock
prior to the delivery of any certificate or certificates for such
shares.
4.6 Continued Employment Not Presumed.
----------------------------------
This Plan and any document describing this Plan and the grant of any
Award hereunder shall not give any Optionee or other Participant a
right to continued employment or directorship by the Company or its
Subsidiaries or affect the right of the Company or its Subsidiaries to
terminate the employment or directorship of any such person with or
without cause.
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4.7 Effective Date; Duration.
-------------------------
The Plan shall become effective as of the date of stockholder approval
and shall expire ten years thereafter. No Awards may be granted under
the Plan after the expiration date, but Awards granted on or before
that date may be exercised according to the terms of the related
agreements and shall continue to be governed by and interpreted
consistent with the terms hereof.
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EXHIBIT B
LUCAS EDUCATIONAL SYSTEMS, INC.
2000 EXECUTIVE STOCK INCENTIVE PLAN
11,315,000 SHARES
ARTICLE I
GENERAL
1.1 Purpose of the Plan.
--------------------
The purpose of the Lucas Educational Systems, Inc. 2000 Executive Stock
Incentive Plan (the "Plan") is to assist Lucas Educational Systems, Inc., a
Delaware corporation (the "Company") in securing and retaining key persons of
outstanding ability to serve the Company as key executive personnel by making it
possible to offer them an increased incentive to join or continue in the service
of the Company and to increase their efforts for its welfare through
participation or increased participation in the ownership and growth of the
Company.
1.2 Definitions.
(a) "Award" means a Restricted Stock Grant or an Option
granted to a Participant under the Plan.
(b) "Board of Directors" or "Board" means the Board of
Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Grantee" means a Participant to whom an Award is granted
under the Plan.
(f) "Participant" means any person, including consultants and
directors, who is designated a Participant and is or is expected to be
instrumental in promoting the business of the Company.
(g) "Nonqualified Stock Option" means an option to purchase
shares of Common Stock which is not intended to qualify as an Incentive
Stock Option as defined in Section 422 of the Code.
(h) "Option" means a Nonqualified Stock Option to purchase
shares of Common Stock.
(i) "Optionee" means a Participant to whom an Option is
granted under the Plan.
(j) "Parent" means any corporation which qualifies as a parent
of a corporation under the definition of "parent corporation" contained
in Section 425(e) of the Code.
(k) "Restricted Stock Grant" means an Award in the form of a
grant of restricted common stock of the Company at a purchase price of
$0.061 per Share, which may be paid by the recipient in cash or by the
provision of services acceptable to the Board of Directors.
(l) "Subsidiary" means any corporation which qualifies as a
subsidiary of a corporation under the definition of "subsidiary
corporation" contained in Section 425(f) of the Code.
(m) "Term" means the period during which a particular option
may be exercised as determined by the Committee and as provided in the
option agreement.
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1.3 Administration of the Plan.
---------------------------
The Plan shall be administered by the Board of Directors. The Board
shall have the power to interpret and apply the Plan and to make
regulations for carrying out its purpose. More particularly, the Board
shall determine which Participants shall be granted Options and the
terms of such grants. Determinations by the Board under the Plan
(including, without limitation, determinations of the person to receive
Awards, the form, amount and timing of such Awards, and the terms and
provisions of such Awards and the agreements evidencing same) need not
be uniform and may be made by it selectively among persons who receive,
or are eligible to receive, Awards under the Plan, whether or not such
persons are similarly situated. The Plan shall not be qualified under
Section 423 of the Code.
1.4 Shares Subject to the Plan.
---------------------------
The total number of shares that may be purchased pursuant to Awards
under the Plan shall be 11,315,000 shares of Common Stock. Shares may
be issued either under Nonqualified Stock Options or as Restricted
Stock Grants.
1.5 Terms and Conditions of Options.
--------------------------------
All Options shall be evidenced by agreements in such form as the
Committee shall approve from time to time subject to the provisions of
Article II and Article III, as appropriate, and the following
provisions:
(a) Exercise Price. The exercise price of the Option shall be
$0.061 per share, which is the price determined by the Board of
Directors to be the fair market value of the Common Stock on the date
hereof pursuant to an independent appraisal.
(b) Exercise. All options must be exercised, if at all, within
the time set forth in the Employment Agreement or Option Agreement
evidencing the Options.
(c) Termination. An Optionee's Option shall expire if not
exercised by the Termination Date, or upon the occurrence of such
events as are specified in the agreement.
(d) Death or Disability. Options under the Plan shall not
terminate due to a Participant's death or disability.
(e) Payment. Payment for shares as to which an Option is
exercised shall be made by each Participant in cash or in existing
shares of common stock at their fair market value.
(f) Nontransferability. No Option granted under the Plan shall
be transferable other than by will or by the laws of descent and
distribution. During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee.
(g) Additional Provisions. Each option agreement may contain
such other terms and conditions not inconsistent with the provisions of
the Plan, including the award of cash amounts, as the Committee may
deem appropriate from time to time.
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(h) Awards. Awards are hereby made to the following persons in
the following amounts:
------------------------- -------------------- --------------------------------
Name Shares Type of Award*
------------------------- -------------------- --------------------------------
Jeffrey R. Gullo 2,385,000 Restricted Stock Grant
Jeffrey R. Gullo 5,430,000 Options
Jerry R. Lucas 2,000,000 Options
Jerry R. Lucas 1,500,000 Options that may be
granted if Company elects to
acquire certain intellectual
property rights
* All such Awards are defined in and made pursuant to Employment Agreements
dated March 22, 2000 with such persons.
1.6 Stock Adjustments; Mergers.
---------------------------
(a) Generally. Notwithstanding Section 1.4, in the event the
outstanding shares are increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
or of any other corporation by reason of any merger, sale of stock,
consolidation, liquidation, recapitalization, reclassification, stock split
up, combination of shares, stock dividend, or transaction having similar
effect, the total number of shares set forth in Section 1.4 shall be
proportionately and appropriately adjusted.
(b) Options. Following a transaction described in subsection
(a) above, if the Company continues in existence, the number and kind of
shares that are subject to any Option and the option price per share shall
be proportionately and appropriately adjusted without any change in the
aggregate price to be paid therefor upon exercise of the Option. If the
Company will not remain in existence or substantially all of its voting
Common Stock and Common Stock will be purchased by a single purchaser or
group of purchasers acting together, then the Company may (i) declare that
all Options shall terminate 30 days after the Company gives written notice
to all Optionee's of their immediate right to exercise all Options then
outstanding (without regard to limitations on exercise otherwise contained
in the Options), or (ii) notify all Optionee's that all Options granted
under the Plan shall apply with appropriate adjustments as determined by
the Company to the securities of the successor corporation to which holders
of the numbers of shares subject to such Options would have been entitled,
or (iii) take action that is some combination of aspects of (i) and (ii).
The determination by the Company as to the terms of any of the foregoing
adjustments shall be conclusive and binding. Any fractional shares
resulting from any of the foregoing adjustments under this section shall be
disregarded and eliminated.
1.7 Notification of Exercise.
-------------------------
Options shall be exercised by written notice directed to the Secretary of
the Company at the principal executive offices of the Company. Such written
notice shall be accompanied by any payment required pursuant to Section
1.5(e). Exercise by an Optionee's heir or the representative of his estate
shall be accompanied by evidence of his authority to so act in form
reasonably satisfactory to the Company.
1.8 Modification, Extension and Renewal of Awards.
---------------------------------------------
Subject to the terms and conditions and within the limitations of the Plan,
the Company may modify, extend or renew outstanding Awards or accept the
surrender of outstanding Awards (to the extent not theretofore exercised)
granted under the Plan or under any other plan of the Company or a
Subsidiary, and authorize the granting of new Awards pursuant to the Plan
in substitution therefor, and the substituted Awards may bear such
different or additional terms and conditions as the Company shall deem
appropriate within the limitations of the Plan. Notwithstanding the
foregoing, however, no modification of an Award shall, without the consent
of the Grantee holding the Award, adversely affect the rights or
obligations of such Grantee.
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1.9. Compliance with Rule 16b-3.
--------------------------
It is intended that the provisions of the Plan and any Award shall comply
in all respects with the terms and conditions of Rule 16b-3 under the
Securities Exchange Act of 1934, as in effect on March 1, 2000 and as
amended, or any successor provisions, as it relates to persons subject to
the reporting requirements of Section 16(a) of such Act. To the extent that
any provision hereof is found not to be in compliance with such rule as it
relates to such Act, such provision shall be deemed to be modified so as to
be in compliance with such rule, or if such modification is not possible,
shall be deemed to be null and void, as it relates to such Grantee.
ARTICLE II
ADDITIONAL PROVISIONS
2.1 Board Approval.
---------------
The Plan has been approved by the unanimous consent of the Board of
Directors of the Company.
2.2 Compliance with Other Laws and Regulations.
-------------------------------------------
The Plan, the grant and exercise of Options hereunder, and the obligation
of the Company to sell and deliver shares under such Options, shall be
subject to all applicable Federal and state laws, rules, and regulations
and to such approvals by any government or regulatory agency as may be
required. The Company shall not be required to issue or deliver any
certificates for shares of Common Stock prior to (a) the listing of such
shares on any stock exchange on which the Common Stock may then be listed
and (b) the completion of any registration or qualification or exemption of
such shares under any Federal or state law, or any ruling or regulation of
any government body which the Company shall, in its sole discretion,
determine to be necessary or advisable. The Company shall file a Form S-8
registration statement to register the Common Stock issued under the Plan
and any resales thereof as soon as the Company becomes eligible for the use
of Form S-8. Each Participant shall be required to execute a Subscription
Agreement in the form of Exhibit A attached hereto.
2.3 Amendments.
-----------
The Board of Directors may discontinue the Plan at any time, and may amend
it from time to time, but no amendment, without approval by stockholders,
may (a) increase the total number of shares which may be issued under the
Plan or to any individual under the Plan, (b) reduce the Option price for
shares which may be purchased pursuant to Options under Articles II or III
of the Plan, (c) extend the period during which Awards may be granted, or
(d) change the class of employees to whom Awards may be granted, except as
provided in Section 1.6. Other than as expressly permitted under the Plan,
no outstanding Award may be revoked or altered in a manner unfavorable to
the Grantee without the consent of the Grantee.
2.4 No Rights As Shareholder.
-------------------------
No Grantee shall have any rights as a shareholder with respect to any share
subject to his or her Option prior to the date of issuance to him or her of
a certificate or certificates for such shares.
2.5 Withholding.
-----------
Whenever the Company proposes or is required to issue or transfer shares of
Common Stock under the Plan, the Company shall have the right to require
the Grantee to remit to the Company an amount sufficient to satisfy any
Federal, state or local withholding tax liability in such form as the
Company may determine or accept in its sole discretion, including payment
by surrender or retention of shares of Common Stock prior to the delivery
of any certificate or certificates for such shares.
2.6 Effective Date; Duration.
The Plan shall become effective as of March 24, 2000 pursuant to Board of
Director approval received effective such date and shall be submitted for
ratification by the Stockholders at the next annual meeting of
stockholders.
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Common Stock Proxy
Lucas Educational Systems, Inc.
This Common Stock Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders of Lucas Educational Systems, Inc. (the "Company") to be
held at the Crowne Plaza North Dallas/Addison Hotel, 14315 Midway Road, Addison,
Texas, 75001, on July 29, 2000, beginning at 10:00 a.m., local time, and the
Proxy Statement in connection therewith and (2) appoints Jeffrey R. Gullo and
Steven R. Crowell, or either of them, the undersigned's proxy with full power of
substitution for and in the name, place and stead of the undersigned, to vote
upon and act with respect to all of the shares of Common Stock of the Company
standing in the name of the undersigned, or with respect to which the
undersigned is entitled to vote and act, at the meeting and at any adjournment
thereof.
The undersigned directs that the undersigned's proxy be voted as follows:
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) for all nominees listed below
Jerry R. Lucas; Jeffrey R. Gullo
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.)
Withhold authority to vote for:
------------------------------------------------
2. APPROVE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO AFFECT A 1-FOR-4
REVERSE SPLIT AND RETURN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO
20,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ADOPTION OF THE COMPANY'S 2000 EMPLOYEE STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. ADOPTION OF THE COMPANY'S 2000 EXECUTIVE INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. IN THE DISCRETION OF THE PROXIES, ON ANY OTHER MATTER WHICH MAY PROPERLY COME
BEFORE THE MEETING.
This proxy will be voted as specified above. If no specification is made, this
proxy will be voted for the election of the director nominees in item 1 above
and for the ratification in items 2, 3 and 4 above.
The undersigned hereby revokes any proxy heretofore given to vote or act with
respect to the Common Stock of the Company and hereby ratifies and confirms all
that the proxies, their substitutes, or any of them may lawfully do by virtue
hereof.
If more than one of the proxies named shall be present in person or by
substitute at the meeting or at any adjournment thereof, the majority of the
proxies so present and voting, either in person or by substitute, shall exercise
all of the powers hereby given.
Please date, sign and mail this proxy to the Company.
Date , 2000
-------------
--------------------------------- ---------------------------------
Signature of Shareholder Signature of Shareholder
Please date this proxy and sign your name exactly as it appears hereon. Where
there is more than one owner, each should sign. When signing as an attorney,
administrator, executor, guardian or trustee, please add your title as such. If
executed by a corporation, the proxy should be signed by a duly authorized
officer.
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Series A Convertible Preferred Stock Proxy
Lucas Educational Systems, Inc.
This Series A Convertible Preferred Stock Proxy is Solicited on Behalf of the
Board of Directors
The undersigned hereby (1) acknowledges receipt of the Notice of Annual Meeting
of Stockholders of Lucas Educational Systems, Inc. (the "Company", to be held at
the Crowne Plaza North Dallas/Addison Hotel, 14315 Midway Road, Addison, Texas,
75001,on July 29, 2000, beginning at 10:00 a.m., local time, and the Proxy
Statement in connection therewith and (2) appoints Jeffrey R. Gullo and Steven
R. Crowell, or either of them, the undersigned's proxy will full power of
substitution for and in the name, place and stead of the undersigned, to vote
upon and act with respect to all of the shares of Series A Convertible Preferred
Stock of the Company standing in the name of the undersigned, or with respect to
which the undersigned is entitled to vote and act, at the meeting and at any
adjournment thereof.
The undersigned directs that the undersigned's proxy be voted as follows:
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) for all nominees listed below
Jerry R. Lucas; Jeffrey R. Gullo; J. D. Young
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the line provided below.)
Withhold authority to vote for:
------------------------------------------------
2. APPROVE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO AFFECT A 1-FOR-4
REVERSE SPLIT AND RETURN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO
20,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ADOPTION OF THE COMPANY'S 2000 EMPLOYEE STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. ADOPTION OF THE COMPANY'S 2000 EXECUTIVE INCENTIVE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. IN THE DISCRETION OF THE PROXIES, ON ANY OTHER MATTER WHICH MAY PROPERLY COME
BEFORE THE MEETING.
This proxy will be voted as specified above. If no specification is made, this
proxy will be voted for the election of the director nominees in item 1 above
and for the ratification in items 2, 3 and 4 above.
The undersigned hereby revokes any proxy heretofore given to vote or act with
respect to the Series A Convertible Preferred Stock of the Company and hereby
ratifies and confirms all that the proxies, their substitutes, or any of them
may lawfully do by virtue hereof.
If more than one of the proxies named shall be present in person or by
substitute at the meeting or at any adjournment thereof, the majority of the
proxies so present and voting, either in person or by substitute, shall exercise
all of the powers hereby given.
Please date, sign and mail this proxy to the Company.
Date , 2000
----------------
---------------------------------- ----------------------------------
Signature of Shareholder Signature of Shareholder
Please date this proxy and sign your name exactly as it appears hereon. Where
there is more than one owner, each should sign. When signing as an attorney,
administrator, executor, guardian or trustee, please add your title as such. If
executed by a corporation, the proxy should be signed by a duly authorized
officer.
26
