SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED BY A PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
-
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential For Use of the
Commission Only (as Permit-
ted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
-
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11 (c) or Rule 14a-12
RICK'S CABARET INTERNATIONAL, INC.
----------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee: (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act
Rule 14a-6(I)(1) 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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|_| 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 the filing.
(1) Amount Previously Paid:
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(2) For, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
RICK'S CABARET INTERNATIONAL, INC.
3113 BERING DRIVE
HOUSTON, TEXAS 77057
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 4, 1999
The Annual Meeting of Stockholders (the "Annual Meeting") of Rick's Cabaret
International, Inc. (the "Company") will be held at 3113 Bering Drive, Houston,
Texas 77057, on August 4, 1999 at 10:00 AM (CST) for the following purposes:
(1) To elect five (5) directors.
(2) To consider and act upon the 1999 Stock Option Plan.
(3) To ratify the selection of Jackson & Rhodes, P.C. as the Company's
independent auditor for the fiscal year ending September 30, 1999.
(4) To act upon such other business as may properly come before the
Annual Meeting.
Only holders of common stock of record at the close of business on June 29,
1999, will be entitled to vote at the Annual Meeting or any adjournment
thereof.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend the Annual Meeting, please sign, date and return your proxy to us
promptly. Your cooperation in signing and returning the proxy will help avoid
further solicitation expense.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Eric S. Langan
Chairman of the Board and
President
July 6, 1999
Houston, Texas
<PAGE>
RICK'S CABARET INTERNATIONAL, INC.
3113 BERING DRIVE
HOUSTON, TEXAS 77057
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 4, 1999
This proxy statement (the "Proxy Statement") is being furnished to
stockholders (the "Stockholders") in connection with the solicitation of proxies
by the Board of Directors of Rick's Cabaret International, Inc., a Texas
corporation (the "Company") for their use at the Annual Meeting (the "Annual
Meeting") of Stockholders of the Company to be held at 3113 Bering Drive,
Houston, Texas 77057, on August 4, 1999 at 10:00 AM (CST), and at any
adjournments thereof, for the purpose of considering and voting upon the matters
set forth in the accompanying Notice of Annual Meeting of Stockholders (the
"Notice"). This Proxy Statement and the accompanying form of proxy (the
"Proxy") are first being mailed to Stockholders on or about July 6, 1999. The
cost of solicitation of proxies is being borne by the Company.
The close of business on June 29, 1999, has been fixed as the record date
for the determination of Stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournment thereof. As of record date, there were
3,297,991 shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"), issued and outstanding. The presence, in person or by proxy,
of a majority of the outstanding shares of Common Stock on the record date is
necessary to constitute a quorum at the Annual Meeting. Each share is entitled
to one vote on all issues requiring a Stockholder vote at the Annual Meeting.
Each nominee for Director named in Number 1 must receive a majority of the votes
cast in person or by proxy in order to be elected. Stockholders may not
cumulate their votes for the election of Directors. The affirmative vote of a
majority of the shares of Common Stock present or represented by proxy and
entitled to vote at the Annual Meeting is required for the approval of Number 2
set forth in the accompanying Notice.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Annual Meeting in accordance
with the directions on the proxies. If no direction is indicated, the shares
will be voted (I) FOR THE ELECTION OF THE NOMINEES NAMED HEREIN, (II) FOR THE
1999 STOCK OPTION PLAN, AND (III) FOR THE RATIFICATION OF JACKSON & RHODES, P.C.
AS THE COMPANY'S INDEPENDENT AUDITOR FOR THE FISCAL YEAR ENDING SEPTEMBER 30,
1999. The Board of Directors is not aware of any other matters to be presented
for action at the Annual Meeting. However, if any other matter is properly
presented at the Annual Meeting, it is the intention of the persons named in the
enclosed proxy to vote in accordance with their best judgment on such matters.
<PAGE>
The enclosed Proxy, even though executed and returned, may be revoked at
any time prior to the voting of the Proxy (a) by execution and submission of a
revised proxy, (b) by written notice to the Secretary of the Company, or (c) by
voting in person at the Annual Meeting.
_________________________________________________________
(1) TO ELECT FIVE (5) DIRECTORS FOR THE ENSUING YEAR
_________________________________________________________
NOMINEES FOR DIRECTORS
The persons named in the enclosed Proxy have been selected by the Board of
Directors to serve as proxies (the "Proxies") and will vote the shares
represented by valid proxies at the Annual Meeting of Stockholders and
adjournments thereof. They have indicated that, unless otherwise specified in
the Proxy, they intend to elect as Directors the nominees listed below. Two of
the nominees are presently Directors of the Company. Each duly elected Director
will hold office until his successor shall have been elected and qualified.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed Proxy will be voted for the election of the nominees listed below.
Although the Board of Directors of the Company does not contemplate that any of
the nominees will be unable to serve, if such a situation arises prior to the
Annual Meeting, the persons named in the enclosed Proxy will vote for the
election of such other person(s) as may be nominated by the Board of Directors.
The Board of Directors unanimously recommends a vote FOR the election of
each of the nominees listed below.
Eric S. Langan, age 31, has been a Director of the Company since 1998 and
----------------
the President of the Company since March, 1999. Mr. Langan is also the acting
Chief Financial Officer of the Company. He has been involved in the adult
entertainment business since 1989. Mr Langan has also served as the President
and Director of Taurus Entertainment Companies, Inc. since November, 1997.
Taurus is a public subsidiary of the Company. From January 1997 through the
present, he has held the position of President with XTC Cabaret, Inc., which was
subsequently acquired by Taurus. From November 1992 until January 1997, Mr.
Langan was the President of Bathing Beauties, Inc. Since 1989, Mr Langan has
exercised managerial control over the grand openings and operations of more than
twelve adult entertainment businesses. Through these activities, Mr. Langan has
acquired the knowledge and skills necessary to successfully operate adult
entertainment businesses.
Robert L. Watters, age 48, has been a director of the Company since 1986.
------------------
Mr. Watters was president and chief executive officer of the Company from 1991
until March, 1999. He was also a founder in 1989 and operator until 1993 of the
Colorado Bar & Grill, an adult cabaret located in Houston, Texas and in 1988
performed site selection, negotiated the property purchase and oversaw the
design and permitting for the cabaret that became the Cabaret Royale, in Dallas,
<PAGE>
Texas. Mr. Watters practiced law as a solicitor in London, England and is
qualified to practice law in New York state. Mr. Watters worked in the
international tax group of the accounting firm of Touche, Ross & Co. (now
succeeded by Deloitte & Touche) from 1979 to 1983 and was engaged in the private
practice of law in Houston, Texas from 1983 to 1986, when he became involved in
the full_time management of the Company. Mr. Watters graduated from the London
School of Economics and Political Science, University of London, in 1973 with a
Bachelor of Laws (Honours) degree and in 1975 with a Master of Laws degree from
Osgoode Hall Law School, York University.
Michael S. Thurman, age 39, is a nominee for Director and he is the
--------------------
Company's director of operations. He has been employed in the bar and
restaurant industry since 1982 for several operators of bars and restaurantsHe
has served in various management positions. From 1986 through 1989
Mr. Thurman worked as the controller of a multi-location bar and restaurant
chain with annual sales in 1989 of approximately $6,000,000. Beginning in 1989,
Mr. Thurman worked in managerial capacities for adult entertainment businesses
located in Houston, Texas including the Colorado Bar & Grill, the Gold Club,
Rick's, and Caligula XXI. From 1994 until 1997, Mr. Thurman was employed as
the chief financial officer of XTC Group and the XTC Cabaret, businesses now
owned and operated by Taurus Entertainment Companies, Inc., which became a
subsidiary of the Company in 1998. During 1997 until mid-1998, Mr. Thurman was
a director of Taurus Entertainment Companies, Inc.,
Alan Bergstrom, age 53, is a nominee for Director. Since 1997, Mr.
---------------
Bergstrom has been the Chief Operating Officer of Eagle Securities which is an
--
investment consulting firm. Mr. Bergstrom is also a registered stock broker
with Rhodes Securities, Inc. From 1991 until 1997, Mr. Bergstrom was a vice
president--investments with Principal Financial Securities, IncMr. Bergstrom
holds a B.B.A. Degree in Finance, 1967, from the University of Texas.
Travis Reese, age 29, is a nominee for Director and he has been hired to be
------------
the Company's Director of Technology commencing July, 1999. From 1997 through
the present, Mr. Reese has been a senior network administrator at St. Vincent's
Hospital in Sante Fe, New Mexico, a position he will be leaving to join the
Company. During 1997, Mr. Reese was a computer systems engineer with Deloitte &
Touche. From 1995 until 1997, Mr. Reese was a vice-president with Digital
Publishing Resources, Inc., an internet service provider. From 1994 until 1995,
Mr. Reese was a pilot with Continental Airlines. From 1992 until 1994, Mr.
Reese was a pilot with Hang On, Inc., an airline company. Mr. Reese has an
Associates Degree in Aeronautical Science from Texas State Technical College.
PRESENT DIRECTORS NOT STANDING FOR REELECTION
Erich Norton White, Martin Sage and Scott Mitchell are presently directors
of the Company, but are not standing for reelection. The Company expects to
replace Mr. White as corporate secretary after the new directors are elected.
<PAGE>
Erich Norton White, age 29, served as vice president and general manager of
the Company from July, 1995 until March, 1999. Mr. White is a Director and the
Secretary of the Company. Mr. White joined the Company in January, 1993 as a
night manager and from May, 1995 until November, 1998 has been a General
Manager, first in Houston and subsequently in New Orleans. From October, 1989,
until joining the Company in 1993, Mr. White worked in the hospitality industry
for the Bennigan's restaurant chain. Mr. White completed the Bennigan's
Restaurant Management Training Program in 1992.
Martin Sage, age 48, has served as a Director of the Company since July,
1995. Mr. Sage is the founder and director of Sage Productions, Inc., which is
involved in the development of applying advanced learning theory to business.
The Sage Learning Method enables individuals to build innovative approaches to
management, leadership and team building. The Sage Learning Method works to
create dynamic relationships which motivate and create synergy between
individuals and the businesses where they work. For the past 16 years, Mr. Sage
has served as a consultant to businesses throughout the United States bringing
his innovative approach to business to many organizations and corporations.
Scott C. Mitchell, age 45, has served as a director of the Company since
December, 1994. Mr. Mitchell has been a certified public accountant in private
practice since 1976 and has been a principal of his own firm since 1981. Mr.
Mitchell's current firm Mitchell & Cavallo, P.C. serves a wide range of
business and individual clients. Mr. Mitchell has been licensed since 1980 to
practice law in the State of Texas and since 1986 has been admitted to practice
before the Tax Court of the United States. Further, Mr. Mitchell has been
appointed by various District Courts as a receiver and special master of
business entities under court jurisdiction. Mr. Mitchell was appointed a
Receiver of the Company in September, 1989 with limited authority to oversee and
review the receipt and disbursement of revenues of the Company. Mr. Mitchell,
however, had no authority over the management of the Company. The receivership
was terminated in March, 1993. Mr. Mitchell graduated from the University of
Texas with an honors degree in Business Administration
RELATED TRANSACTIONS
The Board of Directors of the Company has adopted a policy that Company
affairs will be conducted in all respects by standards applicable to
publicly_held corporations and that the Company will not enter into any future
transactions and/or loans between the Company and its officers, directors and 5%
shareholders unless the terms are no less favorable than could be obtained from
independent, third parties and will be approved by a majority of the
independent, disinterested directors of the Company. In the Company's view, all
of the transactions described below involving the Company meet this standard.
The Company was organized in 1994 to acquire all of the outstanding common
stock of Trumps, Inc. ("Trumps"), a Texas corporation formed in 1982, from
Robert L. Watters, its sole stockholder. The Company issued to Mr. Watters
1,750,000 shares of its common stock in exchange for the common stock of Trumps.
This exchange, which resulted in Trumps becoming a wholly owned subsidiary of
the Company, was consummated in February 1995. The transaction was entered as
part of a corporate reorganization, the result of which was to create the
Company as a holding company for Trumps.
<PAGE>
In August, 1995, the Board of Directors of the Company authorized the
acquisition from Mr. Watters of all of the capital stock of Tantric Enterprises,
Inc., Tantra Dance, Inc., and Tantra Parking, Inc. (collectively "Tantra"). The
Company issued to Mr. Watters 50,000 shares of its common stock in exchange for
the stock of Tantra. The exchange was consummated in September, 1995. The
Tantra companies own and operate Tantra, a non_sexually oriented discotheque and
billiard club in Houston, Texas. The Board of Directors determined that the
combination of the business operations of Tantra and the Company would create a
synergy which will enhance the profitability of both businesses. Moreover, the
diversification of the Company's operations into the business of Tantra was
anticipated to enhance the public image of the Company. The Board of Directors
received an opinion of an independent third_party appraiser that the terms of
the transaction were fair and reasonable to the Company and are at least as
favorable to the Company as would be the case between unrelated parties. Mr.
Watters had no cost basis in the stock of Tantra.
In August, 1998, the Company acquired approximately 93% of the outstanding
common stock of Taurus Entertainment Companies, Inc. ("Taurus") in a private
stock exchange transaction with the certain principal stockholders of Taurus,
among whom were Eric S. Langan and Ralph McElroy. The Stock Exchange Agreement
provided that the Company exchange one share of its common stock for each three
and one_half shares of Taurus common stock owned by certain principal
shareholders of Taurus. As a result of the Exchange, Mr. Langan received
402,146 shares of common stock of the Company, and Mr. McElroy received 393,389
shares of common stock the Company. The terms and conditions of the Exchange
were determined by the parties through arms length negotiations.
In a transaction simultaneous to the acquisition of Taurus, the Company
acquired certain real estate in San Antonio, Texas from Mr. McElroy. The
Company acquired the property from Mr. McElroy for the same price that Mr.
McElroy paid for the property. The Company financed the purchase of the
property by the issuance of a six year $366,000 Convertible Debenture, secured
by the real estate acquired. The Convertible Debenture bears interest at the
rate of 12% per annum, with interest payable monthly. Interest payments began
in September, 1998. The principal balance of the Convertible Debenture is due
in one lump sum payment in July, 2004. The Convertible Debenture is subject to
redemption at the option of the Company, in whole or in part, at 100% of the
principal face amount of the Convertible Debenture redeemed plus any accrued and
unpaid interest on the redemption date, at any time and from time to time, upon
not less than 30 nor more than 60 days notice, if the Closing Price of the
common stock of the Company shall have equaled or exceeded $8.50 per share of
common stock for ten (10) consecutive trading days. The Convertible Debenture
is convertible into shares of Common Stock at any time prior to maturity (unless
earlier redeemed) at the Conversion Price of $2.75 per share. In the event that
the Company files a Registration Statement to register shares of its Common
Stock with the Securities and Exchange Commission on Form S_3 or other similar
form (except for Form S_8 or Form S_4) than the Company will undertake to use
its best efforts to register for resale all of Mr. McElroy's shares into which
the Convertible Debenture may be converted under the same Registration
Statement.
<PAGE>
In a transaction simultaneous to the acquisition of Taurus, Taurus
refinanced a mortgage on one of its real estate holdings in Houston, Texas by
extinguishing this mortgage and replacing it with a Convertible Debenture
secured by this real estate. The mortgagee was Mr. McElroy and Mr. McElroy
received the Convertible Debenture. Taurus had purchased the property from Mr.
McElroy for the same price that Mr. McElroy paid for the property. The Company
refinanced the purchase of the property on terms more favorable to Taurus by the
issuance of a six year $286,744 Convertible Debenture, secured by the real
estate acquired. The Company is a guarantor of this Convertible Debenture. The
Convertible Debenture bears interest at the rate of 12% per annum, with interest
payable monthly. Interest payments began in September, 1998. The principal
balance of the Convertible Debenture is due in one lump sum payment in July,
2004. The Convertible Debenture is convertible into shares of Common Stock of
the Company at any time prior to maturity at the Conversion Price of $2.75 per
share. In the event that the Company files a Registration Statement to register
shares of its Common Stock with the Securities and Exchange Commission on Form
S_3 or other similar form (except for Form S_8 or Form S_4) than the Company
will undertake to use its best efforts to register for resale all of Mr.
McElroy's shares into which the Convertible Debenture may be converted under the
same Registration Statement.
On March 29, 1999, Robert L. Watters, a Director of the Company, purchased
RCI Entertainment Louisiana, Inc. ("RCI Louisiana"), a subsidiary of the
Company, for the purchase price of $2,200,000 consisting of $1,057,327 in cash,
the endorsement over to the Company of a $652,744 secured promissory note (the
"McElroy Note"),a guaranteed promissory note in the amount of $326,773 made by
Mr. Watters (the "Watters Note"), and the cancellation by Mr. Watters of the
Company's $163,156 indebtedness to him. The McElroy Note, which is due July
31, 2004, bears interest at the rate of twelve percent (12%) per annum with
interest being paid monthly. The principal of the McElroy Note is due in
one lump sum payment. The McElroy Note is secured by (i) a convertible
debenture of the Company in the original principal amount of $366,000,
which was issued August, 11, 1998, in favor of Mr. McElroy
(the "Convertible Debenture") and (ii) a promissory note of Taurus
Entertainment Companies, Inc. (a subsidiary of the Company) and guaranteed
by the Company (which has a conversion feature) in the original
principal amount of $286,744.61, dated August 11, 1998, in favor of Mr.
McElroy, (the "Convertible Promissory Note"). Both the Convertible
Debenture and the Convertible Promissory Note are secured by certain
real estate of the Company or its subsidiaries. The Watters Note is
guaranteed by RCI Louisiana, which operates a Rick's Cabaret in New Orleans,
Louisiana. In connection with the acquisition of the stock of RCI
Louisiana, Mr. Watters also assumed RCI Louisiana's liabilities of
approximately $1,400,000. As a condition of this transaction, Mr. Watters
arranged for the release by a lender of the Company's liability of
$763,199 owed to the lender by RCI Louisiana, which the Company had
guaranteed. The Company obtained an opinion from Chaffe & Associates, Inc., a
New Orleans investment banking firm, stating that the purchase price paid by
Mr. Watters for RCI Louisiana was fair from a financial point of view to the
shareholders of the Company. The terms of this transaction were the result of
arms_length negotiations between the Company and Mr. Watters. In
connection with the sale of RCI Louisiana, Mr. Watters and Erich Norton White, a
director of the Company, entered into agreements with the Company to
terminate their Employment Agreements and to cancel all stock options of the
Company which they held. Messrs. Watters and White continue to serve as
Directors of the Company. Further, in connection with the sale of RCI
Louisiana, the Company entered into an Exclusive Licensing Agreement with Mr.
Watters which granted Mr. Watters the right to the use of the name "Rick's
Cabaret" and all logos, trademarks and service marks attendant thereto for
use in the states of Louisiana, Florida, Mississippi and Alabama.
<PAGE>
During the Company's fiscal years ending 1998 and 1997, the Company paid
$33,000 and $20,090, respectively, for accounting services to accounting firms
in which Mr. Mitchell, a director of the Company, was a principal.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company has no compensation committee and no nominating committee.
Decisions concerning executive officer compensation for 1998 were made by the
full Board of Directors. Eric S. Langan and Erich Norton White are the only
directors of the Company who are also officers of the Company. Mr. White is not
standing for reelection.
The Company has an Audit Committee of independent directors whose members
are Martin Sage and Scott Mitchell. Messrs. Sage and Mitchell are not standing
for reelection. The Company's Board presently intends to appoint a new Audit
Committee consisting of Robert L. Watters and Alan Bergstrom. The primary
purpose of the Audit Committee is to oversee the Company's financial reporting
process on behalf of the Board of Directors. The Audit Committee will meets
privately with the Company's Chief Accounting Officer and with the Company's
independent public accountants and evaluates the responses by the Chief
Accounting Officer both to the facts presented and to the judgments made by the
outside independent accountants. The Audit Committee reports its activities to
the full Board after each such meeting so that the Board is kept informed of its
activities on a current basis. In addition, the activities and responsibilities
of the Audit Committee include the nomination or selection of the independent
auditors, review of the results of the audit and a detailed review of the
overall Company and the adequacy of the Company's internal controls.
The Board of Directors held three meetings and took action by consent on
nine occasions during the fiscal year ended September 30, 1998.
There is no family relationship between or among any of the directors and
executive officers of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company believes all persons so required to, have complied with Section
16(a) of the Securities Exchange Act of 1934.
<PAGE>
EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to
the Company for the fiscal years ended September 30, 1998, 1997, 1996 of
certain executive officers. No other executive officer of the Company
received compensation which exceeded $100,000 during 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------- -------------------------------
Awards Payouts
------ -------
Other Securities All
Annual Restricted Underlying Other
Name and Compens- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation (1) Awards SARs Payouts sation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. 1998 $325,000 -0- -0- -0- 20,000 -0- -0-
Watters 1997 $325,000 -0- -0- -0- -0- -0- -0-
Director 1996 $325,000 -0- -0- -0- -0- -0- -0-
Erich 1998 $100,000 -0- -0- -0- 35,000 -0- -0-
Norton 1997 $ 65,000 -0- -0- -0- -0- -0- -0-
White 1996 $ 50,000 -0- -0- -0- -0- -0- -0-
Director
</TABLE>
The Company provides certain executive officers certain personal
benefits. Since the value of such benefits does not exceed the lesser of
$50,000 or 10% of annual compensation, the amounts are omitted.
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Number of Percent of Total
Securities Options/SARs
Underlying Granted To
Options/SARs Employees In Exercise of Expiration
Name Granted Fiscal Year Base Price Date
- ------------------ ---------------- --------------------------- ------------------------
<S> <C> <C> <C>
Robert L. Watters 20,000 30% 2.50 1-28-03
Erich Norton White 35,000 50% 2.50 1-28-03
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number Of
Unexercised Value of
Securities Unexercised
Underlying In-The-Money
Options/SARs Options/SARs
Shares At FY-End At FY-End
Acquired On Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ------------------ ------------ -------- -------------- -------------
<S> <C> <C> <C> <C>
Robert L. Watters No exercises -0- -0- /20,000 -0- / -0-
Erich Norton White No exercises -0- 43,750 /20,000 -0- / -0-
</TABLE>
All of the options held by Messrs. Watters and White were canceled by
agreement in connection with Mr. Watters' purchase of RCI Entertainment
Louisiana, Inc. from the Company. See, Related Transactions.
DIRECTOR COMPENSATION
The Company does not currently pay any cash directors' fees, but it pays
the expenses of its directors in attending board meetings. In January, 1998,
the Company issued 10,000 options (post-reverse split) on the Company's
common stock to each of Messrs. Watters, White, Mitchell and Sage,
Directors of the Company, all at an exercise price of $2.50 per share,
expiring in January, 2003. The options are exercisable only as to one_fourth
of the total number of shares covered by each grant of options during each
12_month period for which they serve as Directors. These options were granted
under the Company's 1995 Stock Option Plan. All of the options held by Messrs.
Watters and White were canceled by agreement in connection with Mr. Watters'
Purchase of RCI Entertainment Louisiana, Inc. from the Company. See, Related
Transactions.
<PAGE>
EMPLOYEE STOCK OPTION PLAN
While the Company has been successful in attracting and retaining qualified
personnel, the Company believes that its future success will depend in part on
its continued ability to attract and retain highly qualified personnel. The
Company pays wages and salaries which it believes are competitive. The Company
also believes that equity ownership is an important factor in its ability to
attract and retain skilled personnel, and in 1995 adopted a Stock Option Plan
(the "Plan") for employees and directors. The purpose of the Plan is
to further the interest of the Company, its subsidiaries and its stockholders
by providing incentives in the form of stock options to key employees and
directors who contribute materially to the success and profitability of the
Company. The grants will recognize and reward outstanding individual
performances and contributions and will give such persons a proprietary interest
in the Company, thus enhancing their personal interest in the Company's
continued success and progress. This Plan will also assist the Company and
its subsidiaries in attracting and retaining key employees and directors.
The Plan is administered by the Board of Directors. The Board of Directors has
the exclusive power to select the participants in the Plan, to establish the
terms of the options granted to each participant, provided that all options
granted shall be granted at an exercise price equal to at least 85%of the fair
market value of the Common Stock covered by the option on the grant date and
to make all determinations necessary or advisable under the Plan. A total of
300,000 shares may be granted and sold under the Plan. As of June 17, 1999,
a total of 167,500 stock options had been granted and are outstanding under the
Plan, none of which have been exercised. The Company does not plan to
issue any additional options under the 1995 Plan.
The Board of Directors has approved the new 1999 Stock Option Plan (the
"1999 Stock Option Plan"), which is being submitted to shareholders for
approval. See below, Proxy Statement Item Number (2) "TO CONSIDER AND ACT UPON
THE 1999 STOCK OPTION PLAN."
EMPLOYMENT AGREEMENT
The Company has a three year employment agreement with Eric S. Langan
(the"Langan Agreement"). The Langan Agreement extends through August 11, 2001
and provides for an annual base salary of $171,600. In April, 1999, Mr. Langan
took a voluntary salary reduction of 20% or a reduction of $34,320 per annum.
The Langan Agreement also provides for participation in all benefit plans
maintained by the Company for salaried employees. Mr. Langan's Agreement
contains a confidentiality provision and an agreement by Mr. Langan not to
compete with the Company upon the expiration of the Langan Agreement. The
Company has not established long_term incentive plans or defined benefit or
actuarial plans. Pursuant to the Langan Agreement, Mr. Langan has received
options to purchase 125,000 (post-reverse split) of the Company's shares at
an exercise price of $1.87 per share, vesting in August, 1999.
STOCK OWNERSHIP OF MAJOR STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information at June 17, 1999,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company who owns beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each executive officer of the Company and (iv) all executive officers and
directors of the Company as a group. Unless otherwise indicated, each
stockholder has sole voting and investment power with respect to the shares
shown.
<PAGE>
<TABLE>
<CAPTION>
Name and Number of Title of Percent
Address Shares Class of Class
- -------------------------------- ---------- ------------ ---------
<S> <C> <C> <C>
Eric S. Langan
505 North Belt, Suite 630
Houston, Texas 77060 774,138(1) Common Stock 23.5%
Robert L. Watters
315 Bourbon Street
New Orleans, Louisiana 70130 -0- Common Stock -0-%
Michael S. Thurman
505 North Belt, Suite 630
Houston, Texas 77060 8,572 Common Stock 0.2%
Travis Reese
505 North Belt, Suite 630
Houston, Texas 77060 100 Common Stock 0.1%
Alan Bergstrom 5,000 Common Stock 0.2%
707 Rio Grande, Suite 200
Austin, Texas 78701
Erich Norton White
315 Bourbon Street
New Orleans, Louisiana 70130 -0- Common Stock -0-%
Scott C. Mitchell
820 Gessner ,Suite 1380
Houston, Texas 77024 9,375(2) Common Stock 0.2%
<PAGE>
Name and Number of Title of Percent
Address Shares Class of Class
- -------------------------------- ---------- ------------ ---------
Martin Sage
100 Congress Avenue, Suite 2100
Austin, Texas 78701 4,375(2) Common Stock 0.1 %
E. S. Langan. L.P.
505 North Belt, Suite 630
Houston, Texas 77060 566,732 Common Stock 17.2%
Ralph McElroy 817,147(3) Common Stock 24.0%
1211 Choquette
Austin, Texas, 78757
All directors, officers,
and nominees as a group
(Eight (8) persons) 801,560 Common Stock 24.2%
<FN>
___________________
(1) This amount includes shares owned indirectly through E. S. Langan, L.P.
Mr. Langan is the general partner of E. S. Langan, L.P. Mr. Langan has sole
voting and investment power for 207,406 shares which he owns directly. Mr.
Langan has shared voting and investment power for 566,732 shares which he owns
indirectly through E. S. Langan, L.P.
(2) Includes options to purchase 1,875 shares at an exercise price of $3.00
per share, and options to purchase 2,500 shares at an exercise price of $2.50
per share.
(3) Includes 66,545 shares of common stock issuable upon conversion of
a convertible debenture. Also includes 52,135 shares of common stock
issuable upon conversion of a convertible promissory note.
</TABLE>
_________________________________________________________
(2) TO CONSIDER AND ACT UPON THE 1999 STOCK OPTION PLAN
_________________________________________________________
The 1999 Stock Option Plan (the "Plan") was adopted by the Board of
Directors on June 24, 1999, at which time the Board also voted to submit the
Plan to the Stockholders for approval. If approved by the Stockholders, the
Plan will allow Incentive Stock Option grants as determined by the Compensation
Committee, or the Board of Directors if there is no compensation committee (the
"Committee"). The Board of Directors has reserved 500,000 shares of Common
Stock for issuance pursuant to the Plan. The purpose of the Plan is to foster
and promote the financial success of the Company and increase Stockholder value
by enabling eligible key employees, directors and consultants to participate in
the long-term growth and financial success of the Company. The Board of
Directors unanimously recommends a vote FOR the 1999 Stock Option Plan.
ELIGIBILITY. The Plan is open to key employees (including officers and
directors) and consultants of the Company and its affiliates ("Eligible
Persons").
TRANSFERABILITY. The grants are not transferrable.
<PAGE>
CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The Plan will not affect the
right of the Company to authorize adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure. In the
event of an adjustment, recapitalization or reorganization the award shall be
adjusted accordingly. In the event of a merger, consolidation, or liquidation,
the Eligible Person will be eligible to receive a like number of shares of stock
in the new entity he would have been entitled to if immediately prior to the
merger he had exercised his option. The Board may waive any limitations imposed
under the Plan so that all options are immediately exercisable.
OPTIONS. The Plan provides for both Incentive and Nonqualified Stock
Options.
Option price. Incentive options shall be not less than the greater of
(i)100% of fair market value on the date of grant, or (ii) the aggregate par
value of the shares of stock on the date of grant. The Compensation Committee,
at its option, may provide for a price greater than 100% of fair market value.
The price for Incentive Stock Options for Stockholders owning 10% or more of the
Company's shares ("10% Stockholders") shall be not less than 110% of fair market
value.
Amount exercisable-incentive options. In the event an Eligible Person
exercises Incentive Options during the calendar year whose aggregate fair market
value exceeds $100,000, the exercise of options over $100,000 will be considered
non qualified stock options.
Duration. No option may be exercisable after the expiration date as set
forth in the option agreement.
Exercise of Options. Options may be exercised by written notice to the
President of the Company with:
(i) cash, certified check, bank draft, or postal or express money order
payable to the order of the Company for an amount equal to the option price of
the shares; or
(ii) stock at its fair market value on the date of exercise;
TERMINATION OF OPTIONS.
Termination of Employment. Any Option which has not vested at the time the
Optionee ceases continuous employment for any reason other than death,
disability or retirement shall terminate upon the last day that the Optionee is
employed by the Company. Incentive Stock Options must be exercised within three
months of cessation of Continuous Service for reasons other than death,
disability or retirement in order to qualify for Incentive Stock Option tax
treatment. Nonqualified Options may be exercised any time during the Option
Period regardless of employment status.
Death. Unless the Option expires sooner, the Option will expire one year
after the death of the Eligible Person.
<PAGE>
Disability. Unless the Option expires sooner, the Option will expire one
year after the disability of the Eligible Person.
Retirement. Any Option which has not vested at the time the Optionee
ceases continuous employment due to retirement shall terminate upon the last day
that the Optionee is employed by the Company. Upon retirement Incentive Stock
Options must be exercised within three months of cessation of Continuous Service
in order to qualify for Incentive Stock Option tax treatment. Nonqualified
Options may be exercised any time during the Option Period regardless of
employment status.
AMENDMENT OR TERMINATION OF THE PLAN. The Committee may amend, terminate
or suspend the Plan at any time, in its sole and absolute discretion; provided,
however, that to the extent required to qualify the Plan under Rule 16b_3
promulgated under Section 16 of the Exchange Act, no amendment that would (a)
materially increase the number of shares of stock that may be issued under the
Plan, (b) materially modify the requirements as to eligibility for participation
in the Plan, or (c) otherwise materially increase the benefits accruing to
participants under the Plan, shall be made without the approval of the Company's
Stockholders; provided further, however, that to the extent required to maintain
the status of any incentive option under the Code, no amendment that would (a)
change the aggregate number of shares of stock which may be issued under
incentive options, (b) change the class of employees eligible to receive
incentive options, or (c) decrease the option price for incentive options below
the fair market value of the stock at the time it is granted, shall be made
without the approval of the Stockholders. Subject to the preceding sentence, the
Board shall have the power to make any changes in the Plan and in the
regulations and administrative provisions under it or in any outstanding
incentive option as in the opinion of counsel for the Company may be necessary
or appropriate from time to time to enable any incentive option granted under
this Plan to continue to qualify as an incentive stock option or such other
stock option as may be defined under the Code so as to receive preferential
federal income tax treatment. No amendment, suspension or termination of the
Plan shall act to impair or extinguish rights in Options already granted at the
date of such amendment, suspension or termination.
THE BOARD OF DIRECTORS HAS APPROVED THE ADOPTION OF THE PLAN AND UNANIMOUSLY
RECOMMENDS A VOTE FOR THE PROPOSED PLAN. SUCH ADOPTION REQUIRES THE AFFIRMATIVE
VOTE OF THE HOLDERS OF A MAJORITY OF SHARES OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS PRESENT OR REPRESENTED BY PROXY AND ENTITLED TO VOTE AT THE ANNUAL
MEETING.
A copy of the Plan is attached hereto as Appendix "A".
________________________________________________________
(3) TO RATIFY THE SELECTION OF JACKSON & RHODES, P.C.
AS THE COMPANY'S INDEPENDENT AUDITOR
FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1999
_________________________________________________________
<PAGE>
The Board of Directors has selected Jackson & Rhodes, P.C. as the Company's
independent auditor for the current fiscal year. Although not required by law
or otherwise, the selection is being submitted to the Stockholders of the
Company as a matter of corporate policy for their approval.
The Board of Directors wishes to obtain from the Stockholders a
ratification of their action in appointing their existing certified public
accountant, Jackson & Rhodes, P.C., independent auditor of the Company for the
fiscal year ending September 30, 1999. Such ratification requires the
affirmative vote of a majority of the shares of Common Stock present or
represented by proxy and entitled to vote at the Annual Meeting.
In the event the appointment of Jackson & Rhodes, P.C. as independent
auditor is not ratified by the Stockholders, the adverse vote will be considered
as a direction to the Board of Directors to select other independent auditors
for the fiscal year ending September 30, 1999.
A representative of Jackson & Rhodes, P.C. is expected to be present at the
Annual Meeting with the opportunity to make a statement if he so desires and to
respond to appropriate questions.
The Board of Directors unanimously recommends a vote FOR the ratification
of Jackson & Rhodes, P.C. as independent auditor for fiscal year ending
September 30, 1999.
_________________________________________________________
(4) OTHER MATTERS
_________________________________________________________
The Board of Directors is not aware of any other matters to be presented
for action at the Annual Meeting. However, if any other matter is properly
presented at the Annual Meeting, it is the intention of the persons named in the
enclosed proxy to vote in accordance with their best judgement on such matters.
<PAGE>
FUTURE PROPOSALS OF STOCKHOLDERS
The deadline for stockholders to submit proposals to be considered for
inclusion in the Proxy Statement for the 2000 Annual Meeting of Stockholders is
December 31, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Eric S. Langan
Chairman of the Board and
President
Houston, Texas
<PAGE>
PROXY
RICK'S CABARET INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 4, 1999
The undersigned hereby appoints Eric S. Langan and Michael S. Thurman, and
each of them as the true and lawful attorneys, agents and proxies of the
undersigned, with full power of substitution, to represent and to vote all
shares of Common Stock of Rick's Cabaret International, Inc. held of record by
the undersigned on June 29, 1999, at the Annual Meeting of Stockholders to be
held on August 4, 1999, at 10:00 AM (CST) at 3113 Bering Drive, Houston, Texas
77057, and at any adjournments thereof. Any and all proxies heretofore given
are hereby revoked.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE
UNDERSIGNED. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE NOMINEES
LISTED IN NUMBER 1 AND FOR THE RATIFICATION IN NUMBER 2.
1. ELECTION OF DIRECTORS OF THE COMPANY. (INSTRUCTION: TO WITHHOLD
--------------------------
AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH, OR
- --------------------------------------------------------------------------------
OTHERWISE STRIKE, THAT NOMINEE'S NAME IN THE LIST BELOW.)
- ----------------------------------------------------------------
FOR all nominees listed WITHHOLD authority to
below except as marked vote for all nominees
to the contrary. below.
Eric S. Langan Robert L. Watters Michael S. Thurman
Alan Bergstrom Travis Reese
2. TO ACT UPON THE 1999 STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
3. PROPOSAL TO RATIFY THE SELECTION OF JACKSON & RHODES, P.C. AS THE
COMPANY'S INDEPENDENT AUDITOR FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
_____________________ ___________________________________
Number of Signature
Shares Owned
___________________________________
(Typed or Printed Name)
___________________________________
Signature if held jointly
___________________________________
(Typed or Printed Name)
DATED: ___________________________
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED
AT THE MEETING. PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY PROMPTLY.
<PAGE>
Appendix "A"
RICKS CABARET INTERNATIONAL, INC.
1999 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Ricks Cabaret International, Inc. 1999
-------
Stock Option Plan ("the Plan") is to promote the financial interests of the
Company, its subsidiaries and its shareholders by providing incentives in the
form of stock options to key employees and directors who contribute materially
to the success and profitability of the Company. The grants will recognize and
reward outstanding individual performances and contributions and will give such
persons a proprietary interest in the Company, thus enhancing their personal
interest in the Company's continued success and progress. This Plan will also
assist the Company and its subsidiaries in attracting, retaining and motivating
key employees and directors. The options granted under this Plan may be either
Incentive Stock Options, as that term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended, or Nonqualified options taxed under Section 83
of the Internal Revenue Code of 1986, as amended.
RULE 16B_3 PLAN. The Company is subject to the reporting requirements of
----------------
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
therefore the Plan is intended to comply with all applicable conditions of Rule
16b_3 (and all subsequent revisions thereof) promulgated under the Exchange
Act. To the extent any provision of the Plan or action by the Committee or the
Board of Directors or Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee. In
addition, the Committee or the Board of Directors may amend the Plan from time
to time as it deems necessary in order to meet the requirements of any
amendments to Rule 16b_3 without the consent of the shareholders of the
Company.
EFFECTIVE DATE OF PLAN. The effective date of this Plan shall be June 24,
-------------------------
1999 (the "Effective Date"). The Board of Directors shall, within one year of
the Effective Date, submit the Plan for approval to the shareholders of the
Company. The plan shall be approved by at least a majority of shareholders
voting in person or by proxy at a duly held shareholders' meeting, or if the
provisions of the corporate charter, by_laws or applicable state law prescribes
a greater degree of shareholder approval for this action, the approval by the
holders of that percentage, at a duly held meeting of shareholders. No
Incentive Option or Nonqualified Stock Option shall be granted pursuant to the
Plan ten years after the Effective Date. In the event that the Plan is not
approved by the shareholders of the Company, the Plan shall be deemed to be a
non-qualified stock option plan.
2. DEFINITIONS. The following definitions shall apply to this Plan:
-----------
(a) "Affiliate" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
Appendix "A" - Page 1
<PAGE>
(b) "Agreement" means, individually or collectively, any agreement
entered into pursuant to the Plan pursuant to which Options are granted to a
participant.
(c) "Award" means each of the following granted under this Plan:
Incentive Stock Options or Nonqualified Stock Options.
(d) "Board" means the board of directors of the Company.
(e) "Cause" shall mean, for purposes of whether and when a participant
has incurred a Termination of Employment for Cause: (i) any act or omission
which permits the Company to terminate the written agreement or arrangement
between the participant and the Company or a Subsidiary or Parent for Cause as
defined in such agreement or arrangement; or (ii) in the event there is no such
agreement or arrangement or the agreement or arrangement does not define the
term "cause," then Cause shall mean an act or acts of dishonesty by the
participant resulting or intending to result directly or indirectly in gain to
or personal enrichment of the participant at the Company's expense and/or gross
negligence or willful misconduct on the part of the participant.
(f) "Change in Control" means, for purposes of this Plans
i. there shall be consummated (i) any consolidation or merger of the Company
in which the Company is not the continuing or surviving corporation or pursuant
to which shares of the Company's common stock would be converted into cash,
securities or other property, other than a merger of the Company in which the
holders of the Company's common stock immediately prior to the merger have
substantially the same proportionate ownership of common stock of the surviving
corporation immedi-ately after the merger; or (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company; or
ii. the shareholders of the Company shall approve any plan or proposal for
the liquidation or dissolution of the Company; or
(g) "Code" means the Internal Revenue Code of 1986, as amended, final
Treasury Regulations thereunder and any subsequent Internal Revenue Code.
Appendix "A" - Page 2
<PAGE>
(h) "Committee" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board of Directors. The
Committee shall be comprised solely of at least two members who are both
Disinterested Persons and Outside Directors.
(i) "Common Stock" means the Common Stock, par value per share of the
Company whether presently or hereafter issued, or such other class of shares or
securities as to which the Plan may be applicable, pursuant to Section 11
herein.
(j) "Company" means Ricks Cabaret International, Inc., a Texas
Corporation and includes any successor or assignee company corporations into
which the Company may be merged, changed or consolidated; any company for whose
securities the securities of the Company shall be exchanged; and any assignee of
or successor to substantially all of the assets of the Company.
(k) "Continuous Service" means the absence of any interruption or
termination of employment with or service to the Company or any Parent or
Subsidiary of the Company that now exists or hereafter is organized or acquired
by or acquires the Company. Continuous Service shall not be considered
interrupted in the case of sick leave, military leave, or any other bona fide
leave of absence of less than ninety (90) days (unless the participants right to
reemployment is guaranteed by statute or by contract) or in the case of
transfers between locations of the Company or between the Company, its Parent,
its Subsidiaries or its successors
(l) "Date of Grant" means the date on which the Committee grants an
Option.
(m) "Director" means any member of the Board of Directors of the
Company or any Parent or subsidiary of the Company that now exists or hereafter
is organized or acquired by or acquires the Company.
(n) "Non Employee Director" means a "Non Employee Director" as that term is
defined in Rule 16b-3 under the Exchange Act.
(o) "Eligible Persons" shall mean, with respect to the Plan, those
persons who, at the time that an Award is granted, are (i)officers, directors or
employees of the Company or Affiliate or (ii) consultants or subcontractors of
the Company or affiliate.
(p) "Employee" means any person employed on an hourly or salaried basis
by the Company or any Parent or Subsidiary of the Company that now exists or
hereafter is organized or acquired by or acquires the Company.
(q) "Exchange Act" means the Securities Exchange Act of 1934, as
amended and the rules and regulations promulgated thereunder.
Appendix "A" - Page 3
<PAGE>
(r) "Fair Market Value" means (i) if the Common Stock is not listed or
admitted to trade on a national securities exchange and if bid and ask prices
for the Common Stock are not furnished through NASDAQ or a similar organization,
the value established by the Committee, in its sole discretion, for purposes of
the Plan; (ii) if the Common Stock is listed or admitted to trade on a national
securities exchange or a national market system, the closing price of the Common
Stock, as published in the Wall Street Journal, so listed or admitted to trade
-------------------
on such date or, if there is no trading of the Common Stock on such date, then
the closing price of the Common Stock on the next preceding day on which there
was trading in such shares; or (iii) if the Common Stock is not listed or
admitted to trade on a national securities exchange or a national market system,
the mean between the bid and ask price for the Common Stock on such date, as
furnished by the National Association of Securities Dealers, Inc. through NASDAQ
or a similar organization if NASDAQ is no longer reporting such information. If
trading in the stock or a price quotation does not occur on the Date of Grant,
the next preceding date on which the stock was traded or a price was quoted will
determine the fair market value.
(s) "Incentive Stock Option" means a stock option, granted pursuant to
either this Plan or any other plan of the Company, that satisfies the
requirements of Section 422 of the Code and that entitles the Optionee to
purchase stock of the Company or in a corporation that at the time of grant of
the option was a Parent or subsidiary of the Company or a predecessor company of
any such company.
(t) "Nonqualified Stock Option" means an Option to purchase Common
Stock in the Company granted under the Plan other than an Incentive Stock Option
within the meaning of Section 422 of the Code.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Option Period" means the period beginning on the Date of Grant and
ending on the day prior to the tenth anniversary of the Date of Grant or such
shorter termination date as set by the Committee.
(w) "Optionee" means an Employee (or Director or subcontractor) who
receives an Option.
(x) "Parent" means any corporation which owns 50% or more of the voting
securities of the Company.
(y) "Plan" means this Stock Option Plan as may be amended from time to
time.
(z) "Share" means the Common Stock, as adjusted in accordance with
Paragraph 11 of the Plan.
Appendix "A" - Page 4
<PAGE>
(aa) "Ten Percent Shareholder" means an individual who, at the time the
Option is granted, owns Stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any Affiliate. An
individual shall be considered as owning the Stock owned, directly or
indirectly, by or for his brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants; and Stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust, shall be
considered as being owned proportionately by or for its shareholders, partners,
or beneficiaries.
(bb) "Termination" or "Termination of Employment" means the occurrence
of any act or event whether pursuant to an employment agreement or otherwise
that actually or effectively causes or results in the person's ceasing, for
whatever reason, to be an officer or employee of the Company or of any
Subsidiary or Parent including, without limitation, death, disability,
dismissal, severance at the election of the participant, retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Subsidiaries or Parent of all businesses owned or operated by
the Company or its Subsidiaries. A Termination of Employment shall occur to an
employee who is employed by an Subsidiary if the Subsidiary shall cease to be a
Subsidiary and the participant shall not immediately thereafter become an
employee of the Company or a Subsidiary.
(cc) "Subsidiary" means any corporation 50% or more of the voting
securities of which are owned directly or indirectly by the Company at any time
during the existence of this Plan.
In addition, certain other terms used in this Plan shall have the
definitions given to them in the first place in which they are used.
3. ADMINISTRATION.
--------------
a. This Plan will be administered by the Committee. A majority of the full
Committee constitutes a quorum for purposes of administering the Plan, and all
determinations of the Committee shall be made by a majority of the members
present at a meeting at which a quorum is present or by the unanimous written
consent of the Committee.
b. If no Committee has been appointed, members of the Board may vote on
any matters affecting the administration of the Plan or the grant of any Option
pursuant to the Plan, except that no such member shall act on the granting of an
Option to himself, but such member may be counted in determining the existence
of a quorum at any meeting of the Board during which action is taken with
respect to the granting of Options to him.
c. Subject to the terms of this Plan, the Committee has the sole and
exclusive power to:
Appendix "A" - Page 5
<PAGE>
i. select the participants in this Plan;
ii. establish the terms of the Options granted to each participant which may
not be the same in each case;
iii. determine the total number of options to grant to an Optionee, which
may not be the same in each case;
iv. fix the Option period for any Option granted which may not be the same
in each case; and
v. make all other determinations necessary or advisable under the Plan.
vi. determine the minimum number of shares with respect to which Options may
be exercised in part at any time.
vii. The Committee has the sole and absolute discretion to determine whether
the performance of an eligible Employee warrants an award under this Plan, and
to determine the amount of the award.
viii. The Committee has full and exclusive power to construe and interpret
this Plan, to prescribe and rescind rules and regulations relating to this Plan,
and take all actions necessary or advisable for the Plan's administration. Any
such determination made by the Committee will be final and binding on all
persons.
d. A member of the Committee will not be liable for performing any act or
making any determination in good faith.
4. SHARES SUBJECT TO OPTION. Subject to the provisions of Paragraph 11
--------------------------
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan shall be 500,000. Such shares may be authorized but
unissued, or may be treasury shares. If an Option shall expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares that were subject to the Option shall, unless the Plan has
then terminated, be available for other Options under the Plan.
a. Eligible Persons . Every Eligible Person, as the Committee in its sole
-----------------
discretion designates, is eligible to participate in this Plan. Directors who
are not employees of the Company or any subsidiary or Parent shall only be
eligible to receive Incentive Stock Options if and as permitted be applicable
law and regulations. The Committee's award of an Option to a participant in any
year does not require the Committee to award an Option to that participant in
any other year. Furthermore, the Committee may award different Options to
different participants. The Committee may consider such factors as it deems
pertinent in selecting participants and in determining the amount of their
Option, including, without limitation;
Appendix "A" - Page 6
<PAGE>
(i) the financial condition of the Company or its Subsidiaries;
(ii) expected profits for the current or future years;
(iii) the contributions of a prospective participant to the profitability
and success of the Company or its Subsidiaries; and
(iv) the adequacy of the prospective participant's other compensation.
Participants may include persons to whom stock, stock options, or other benefits
previously were granted under this or another plan of the Company or any
Subsidiary, whether or not the previously granted benefits have been fully
exercised.
b. No Right of Employment. An Optionee's right, if any, to continue to serve
----------- ----------
the Company and its Subsidiaries as an Employee will not be enlarged or
otherwise affected by his designation as a participant under this Plan, and such
designation will not in any way restrict the right of the Company or any
Subsidiary, as the case may be, to terminate at any time the employment of any
5. REQUIREMENTS OF OPTION GRANTS. Each Option granted under this Plan
------------------------------
shall satisfy the following requirements.
a. Written Option. An Option shall be evidenced by a written Agreement
---------------
specifying (i) the number of Shares that may be purchased by its exercise, (ii)
the intent of the Committee as to whether the Option is be an Incentive Stock
Option or a Non-qualified Stock Option, (iii) the Option period for any Option
granted and (iv) such terms and conditions consistent with the Plan as the
Committee shall determine, all of which may differ between various Optionees and
various Agreements.
b. Duration of Option. Each Option may be exercised only during the Option
------------ ------
Period designated for the Option by the Committee. At the end of the Option
Period the Option shall expire.
c. Option Exercisability. The Committee, on the grant of an Option, each
----------------------
Option shall be exercisable only in accordance with its terms.
d. Acceleration of Vesting. Subject to the provisions of Section 5(b), the
---------------- -------
Committee may, it its sole discretion, provide for the exercise of Options
either as to an increased percentage of shares per year or as to all remaining
shares. Such acceleration of vesting may be declared by the Committee at any
time before the end of the Option Period, including, if applicable, after
termination of the Optionee's Continuous Service by reason of death, disability,
retirement or termination of employment.
Appendix "A" - Page 7
<PAGE>
e. Option Price. Except as provided in Section 6(a) the Option price of
-------------
each Share subject to the Option shall equal the Fair Market Value of the Share
on the Option's Date of Grant.
f. Termination of Employment Any Option which has not vested at the time
---------------------------
the Optionee ceases Continuous Service for any reason other than death,
disability or retirement shall terminate upon the last day that the Optionee is
employed by the Company. Incentive Stock Options must be exercised within three
months of cessation of Continuous Service for reasons other death, disability or
retirement in order to qualify for Incentive Stock Option tax treatment.
Nonqualified Options may be exercised any time during the Option Period
regardless of employment status.
g. Death. In the case of death of the Optionee, the beneficiaries designated
-----
by the Optionee shall have one year from the Optionee's demise or to the end of
the Option Period, whichever is earlier, to exercise the Option, provided,
however, the Option may be exercised only for the number of Shares for which it
could have been exercised at the time the Optionee died, subject to any
adjustment under Sections 5(d) and 11.
h. Retirement. Any Option which has not vested at the time the Optionee
----------
ceases Continuous Service due to retirement shall terminate upon the last day
that the Optionee is employed by the Company. Upon retirement Incentive Stock
Options must be exercised within three months of cessation of Continuous Service
in order to qualify for Incentive Stock Option tax treatment. Nonqualified
Options may be exercised any time during the Option Period regardless of
employment status
i. Disability. In the event of termination of Continuous Service due to
----------
total and permanent disability (within the meaning of Section 422 of the Code),
the Option shall lapse at the earlier of the end of the Option Period or twelve
months after the date of such termination, provided, however, the Option can be
exercised at the time the Optionee became disabled, subject to any adjustment
under Sections 5(d) and 11.
6. INCENTIVE STOCK OPTIONS. Any Options intended to qualify as an
-------------------------
Incentive Stock Option shall satisfy the following requirements in addition to
the other requirements of the Plan:
a. Ten Percent Shareholders. An Option intended to qualify as an Incentive
--------------------------
Stock Option granted to an individual who, on the Date of Grant, owns stock
possessing more than ten (10) percent of the total combined voting power of all
classes of stock of either the Company or any Parent or Subsidiary, shall be
granted at a price of 110 percent of Fair Market Value on the Date of Grant and
shall be exercised only during the five-year period immediately following the
Date of Grant. In calculating stock ownership of any person, the attribution
rules of Section 425(d) of the Code will apply. Furthermore, in calculating
stock ownership, any stock that the individual may purchase under outstanding
options will not be considered.
Appendix "A" - Page 8
<PAGE>
b. Limitation on Incentive Stock Options The aggregate Fair Market Value,
---------------------------------------
determined on the date of Grant, of stock in the Company exercisable for the
first time by any Optionee during any calendar year, under the Plan and all
other plans of the Company or its Parent or Subsidiaries (within the meaning of
Subsection (d) of Section 422 of the Code) in any calendar year shall not exceed
$100,000.00.
c. Exercise of Incentive Stock Options. No disposition of the shares
---------------------------------------
underlying an Incentive Stock Option may be made within two years from the Date
of Grant nor within one year after the exercise of such incentive Stock Option.
d. Approval of Plan. No Option shall qualify as an Incentive Stock Option
-------------------
unless this Plan is approved by the shareholders within one year of the Plan's
adoption by the Board.
7. NONQUALIFIED AND INCENTIVE STOCK OPTIONS. Any Option not intended to
----------------------------------------
qualify as an Incentive Stock Option shall be a Nonqualified Stock Option.
Nonqualified Stock Options shall satisfy each of the requirements of Section 5
of the Plan. An Option intended to qualify as an Incentive Stock Option, but
which does not meet all the requirements of an Incentive Stock Option shall be
treated as a Nonqualified Stock Option.
8. METHOD OF EXERCISE. An Option granted under this Plan shall be
---------- --------
deemed exercised when the person entitled to exercise the Option (i) delivers
written notice to the President of the Company of the decision to exercise, (ii)
concurrently tenders to the Company full payment for the Shares to be purchased
pursuant to the exercise, and (iii) complies with such other reasonable
requirements as the Committee establishes pursuant to Section 3 of the Plan.
During the lifetime of the Employee to whom an Option is granted, such Option
may be exercised only by him. Payment for Shares with respect to which an Option
is exercised may be in cash, or by certified check, or wholly or partially in
the form of Common Stock of the Company having a fair market value equal to the
Option Price. No person will have the rights of a shareholder with respect to
Shares subject to an Option granted under this Plan until a certificate or
certificates for the Shares have been delivered to him.
Appendix "A" - Page 9
<PAGE>
An Option granted under this Plan may be exercised in increments of not
less than 10% of the full number of Shares as to which it can be exercised. A
partial exercise of an Option will not effect the holder's right to exercise the
Option from time to time in accordance with this Plan as to the remaining Shares
subject to the Option.
9. TAXES. COMPLIANCE WITH LAW: APPROVAL OF REGULATORY BODIES. The
-------------------------------------------- -----------------
Company, if necessary or desirable, may pay or withhold the amount of any tax
attributable to any Shares deliverable or amounts payable under this Plan, and
the Company may defer making delivery or payment until it is indemnified to its
satisfaction for the tax. Options are exercisable, and Shares can be delivered
and payments made under this Plan, only in compliance with all applicable
federal and state laws and regulations, including, without limitation, state and
federal securities laws, and the rules of all stock exchanges on which the
Company's stock is listed at any time. An Option is exercisable only if either
(i) a registration statement pertaining to the Shares to be issued upon exercise
of the Option has been flied with and declared effective by the Securities and
Exchange Commission and remains effective on the date of exercise, or (ii) an
exemption from the registration requirements of applicable securities laws is
available. This plan does not require the Company, however, to file such
registration statement or to assure the availability of such exemptions. Any
certificate issued to evidence Shares issued under the Plan may bear such
legends and statements, and shall be subject to such transfer restrictions, as
the Committee deems advisable to assure compliance with federal and state laws
and regulations and with the requirements of this Section 9 of the Plan. No
Option may be exercised, and no Shares may be issued under this Plan, until the
Company has obtained the consent or approval of every regulatory body, federal
or state, having jurisdiction over such matter as the Committee deems advisable.
Each Person who acquires the right to exercise an Option by bequest or
inheritance may be required by the Committee to furnish reasonable evidence of
ownership of the Option as a condition to his exercise of the Option. In
addition, the Committee may require such consents and release of taxing
authorities as the Committee deems advisable.
10. ASSIGNABILITY. An Option granted under this Plan is not
-------------
transferable except by will or the laws of descent and distribution. The Option
may be exercised only by the Optionee during the life of the Optionee. More
particularly, but without limitation of the foregoing, the Option may be not be
assigned or transferred except as provided above and shall not be assignable by
operation of law and shall not be subject to execution, attachment or similar
process. Any attempted assignment, transfer or distribution contrary to the
provisions hereof shall be null and void and without effect.
11. ADJUSTMENT UPON CHANGE OF SHARES. If a reorganization, merger,
------------------------------------
consolidation, reclassification, recapitalization, combination or exchange of
shares, stock split, stock dividend, rights offering, or other expansion or
contraction of the Common Stock of the Company occurs, the number and class of
Shares for which Options are authorized to be granted under this Plan, the
number and class of Shares then subject to Options previously granted under this
Plan, and the price per Share payable upon exercise of each Option outstanding
under this Plan shall be equitably adjusted by the Committee to reflect such
changes. To the extent deemed equitable and appropriate by the Committee or the
Board, subject to any required action by shareholders, in any merger,
consolidation, reorganization, liquidation or dissolution, any Option granted
under the Plan shall pertain to the securities and other property to which a
holder of the number of Shares of stock covered by the Option would have been
entitled to receive in connection with such event.
Appendix "A" - Page 10
<PAGE>
12. ACCELERATIONS OF OPTIONS UPON CHANGE IN CONTROL. In the event that
-----------------------------------------------
a Change of Control has occurred with respect to the Company, any and all
Options will become fully vested and immediately exercisable with such
acceleration to occur without the requirement of any further act by either the
Company or the participant, subject to Section 9 hereof.
13. LIABILITY OF THE COMPANY. The Company, its Parent and any
------------- ------------
Subsidiary that is in existence or hereafter comes into existence shall not be
liable to any person for any tax consequences expected but not realized by an
Optionee or other person due to the exercise of an Option.
14. EXPENSES OF PLAN. The Company shall bear the expenses of
------------------
administering the Plan.
15. DURATION OF PLAN. Options may be granted under this Plan only
------------------
within 10 years from the effective date of the Plan.
16. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN. The Board of
-------------------------------------------------
Directors of the Company may amend, terminate or suspend this Plan at any time,
in its sole and absolute discretion; provided, however, that to the extent
required to qualify this Plan under Rule 16b_3 promulgated under Section 16 of
the Exchange Act, no amendment that would (a) materially increase the number of
shares of Stock that may be issued under this Plan, (b) materially modify the
requirements as to eligibility for participation in this Plan, or (c) otherwise
materially increase the benefits accruing to participants under this Plan, shall
be made without the approval of the Company's shareholders; provided further,
however, that to the extent required to maintain the status of any Incentive
Option under the Code, no amendment that would (a) change the aggregate number
of shares of Stock which may be issued under Incentive Options, (b) change the
class of employees eligible to receive Incentive Options, or (c) decrease the
Option price for Incentive Options below the Fair Market Value of the Stock at
the time it is granted, shall be made without the approval of the Company's
shareholders. Subject to the preceding sentence, the Board of Directors shall
have the power to make any changes in the Plan and in the regulations and
administrative provisions under it or in any outstanding Incentive Option as in
the opinion of counsel for the Company may be necessary or appropriate from time
to time to enable any Incentive Option granted under this Plan to continue to
qualify as an incentive stock option or such other stock option as may be
defined under the Code so as to receive preferential federal income tax
treatment. Notwithstanding the foregoing, no amendment, suspension or
termination of the Plan shall act to impair or extinguish rights in Options
already granted at the date of such amendment, suspension or termination.
Appendix "A" - Page 11
<PAGE>
17. FORFEITURE. Notwithstanding any other provisions of this Plan, if
----------
the Committee finds by a majority vote after full consideration of the facts
that an Eligible Person, before or after termination of his employment with the
Company or an Affiliate for any reason (a) committed or engaged in fraud,
embezzlement, theft, commission of a felony, or proven dishonesty in the course
of his employment by the Company or an Affiliate, which conduct damaged the
Company or Affiliate, or disclosed trade secrets of the Company or an Affiliate,
or (b) participated, engaged in or had a material, financial or other interest,
whether as an employee, officer, director, consultant, contractor, shareholder,
owner, or otherwise, in any commercial endeavor anywhere which is competitive
with the business of the Company or an Affiliate without the written consent of
the Company or Affiliate, the Eligible Person shall forfeit all outstanding
Options, including all exercised Options and other situations pursuant to which
the Company has not yet delivered a stock certificate. Clause (b) shall not be
deemed to have been violated solely by reason of the Eligible Person's ownership
of stock or securities of any publicly owned corporation, if that ownership does
not result in effective control of the corporation.
The decision of the Committee as to the cause of an Employee's discharge,
the damage done to the Company or an Affiliate, and the extent of an Eligible
Person's competitive activity shall be final. No decision of the Committee,
however, shall affect the finality of the discharge of the Employee by the
Company or an Affiliate in any manner.
18. INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
-------------------------------------------------------------
respect to administration of this Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors against, and each
member of the Committee and the Board of Directors shall be entitled without
further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of the
Committee and/or the Board of Directors at the time of incurring the expenses,
including, without limitation, matters as to which he shall be finally adjudged
in any action, suit or proceeding to have been found to have been negligent in
the performance of his duty as a member of the Committee or the Board of
Directors. However, this indemnity shall not include any expenses incurred by
any member of the Committee and/or the Board of Directors in respect of matters
as to which he shall be finally adjudged in any action, suit or proceeding to
have been guilty of gross negligence or willful misconduct in the performance of
his duty as a member of the Committee and the Board of Directors. In addition,
no right of indemnification under this Plan shall be available to or enforceable
by any member of the Committee and the Board of Directors unless, within 60 days
after institution of any action, suit or proceeding, he shall have offered the
Company the opportunity to handle and defend same at its own expense. The
failure to notify the Company within 60 days shall only affect a Director or
committee member's right to indemnification if said failure to notify results in
an impairment of the Company's rights or is detrimental to the Company. This
right of indemnification shall inure to the benefit of the heirs, executors or
administrators of each member of the Committee and the Board of Directors and
shall be in addition to all other rights to which a member of the Committee and
the Board of Directors may be entitled as a matter of law, contract, or
otherwise.
Appendix "A" - Page 12
<PAGE>
19. GENDER. If the context requires, words of one gender when used in
------
this Plan shall include the others and words used in the singular or plural
shall include the other.
20. HEADINGS. Headings of Articles and Sections are included for
--------
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
21. OTHER COMPENSATION PLANS. The adoption of this Plan shall not
--------------------------
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall the Plan preclude the
Company from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.
22. OTHER OPTIONS OR AWARDS. The grant of an Option or Awards shall
--------------------------
not confer upon the Eligible Person the right to receive any future or other
Options or Awards under this Plan, whether or not Options or Awards may be
granted to similarly situated Eligible Persons, or the right to receive future
Options or Awards upon the same terms or conditions as previously granted.
23 GOVERNING LAW. The provisions of this Plan shall be construed,
---------------
administered, and governed under the laws of the State of Texas.
Appendix "A" - Page 13
<PAGE>
Supplemental Information
------------------------
Not to be Provided to Stockholders
----------------------------------
The Plan described herein does not require that the Company register the
options or the shares underlying options.
The Company believes that each of the persons receiving these securities
has the knowledge and experience in financial and business matters which allows
them to evaluate the merits and risk of the receipt of these securities of the
Company. In such capacity they are knowledgeable about the Company's operations
and financial condition. These transactions are effectuated by the Company in
reliance upon exemptions from registration under the Securities Act of 1933 as
amended (the "Act") as provided in Section 4(2) thereof. Each certificate
issued for unregistered securities contains a legend stating that the securities
have not been registered under the Act and setting forth the restrictions on the
transferability and the sale of the securities. No underwriter participated in,
nor did the Company pay any commissions or fees to any underwriter in connection
with any of these transactions. None of the transactions involves a public
offering.
<PAGE>
