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 permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
EQUALNET HOLDING CORP.
(Name of Registrant as Specified in its Charter)
EQUALNET HOLDING CORP.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1. Title of each class of securities to which transaction applies:
N/A
2. Aggregate number of securities to which transaction applies: N/A
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A
4. Proposed maximum aggregate value of transaction: N/A
5. Total fee paid: N/A
[ ] 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: N/A
2. Form, Schedule or Registration Statement No.: N/A
3. Filing Party: N/A
4. Date Filed: N/A
<PAGE>
[EQUALNET HOLDING CORP. LOGO]
October 28, 1996
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
EqualNet Holding Corp. to be held at 10:00 a.m., Central Standard Time, on
Tuesday, November 26, 1996, in the Woodbine II Room, Houston Marriott Westside,
13210 Katy Freeway, Houston, Texas.
This year you will be asked to vote in favor of two proposals relating to the
election of two directors and the approval of an amendment to the Company's
Employee Stock Option and Restricted Stock Plan. These matters are more fully
explained in the attached proxy statement, which you are encouraged to read.
The Board of Directors recommends that you approve these proposals and urges
that you return your signed proxy card at your earliest convenience, whether or
not you plan to attend the annual meeting.
Thank you for your cooperation.
Very truly yours,
/s/ ZANE RUSSELL
Zane Russell
Chairman of the Board and
Chief Executive Officer
<PAGE>
EQUALNET HOLDING CORP.
1250 Wood Branch Park Drive
Houston, Texas 77079
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 26, 1996
Notice is hereby given that the Annual Meeting of the Shareholders of
EqualNet Holding Corp., a Texas corporation (the "Company"), will be held on
Tuesday, November 26, 1996, at 10:00 a.m. in the Woodbine II Room, Houston
Marriott Westside, 13210 Katy Freeway, Houston, Texas, for the following
purposes:
(1) To elect two directors of the Company, one to hold office
until the 1997 Annual Meeting of Shareholders or until his successor is
duly elected and qualified, and one to hold office until the 1999 Annual
Meeting of Shareholders or until his successor is duly elected and
qualified.
(2) To consider and vote on a proposal to amend the EqualNet
Holding Corp. Employee Stock Option and Restricted Stock Plan.
(3) To transact such other business as may properly come before
the meeting or any adjournment thereof.
The holders of common stock of the Company of record at the close of
business on October 1, 1996, will be entitled to vote at the meeting.
By Order of the Board of Directors,
/s/ DEAN H. FISHER
Dean H. Fisher
Senior Vice President,
General Counsel and Secretary
October 28, 1996
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. EVEN IF YOU
PLAN TO BE PRESENT, YOU ARE URGED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY
PROMPTLY. IF YOU ATTEND THE MEETING YOU CAN VOTE EITHER IN PERSON OR BY YOUR
PROXY.
<PAGE>
EQUALNET HOLDING CORP.
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 26, 1996
This proxy statement is furnished to the shareholders of EqualNet
Holding Corp. ("EqualNet" or the "Company"), 1250 Wood Branch Park Drive,
Houston, Texas 77079 (Tel. No. 281/529-4600), in connection with the
solicitation by the Board of Directors of the Company of proxies to be used at
the Annual Meeting of Shareholders to be held on Tuesday, November 26, 1996, at
10:00 a.m. in the Woodbine II Room, Houston Marriott Westside, 13210 Katy
Freeway, Houston, Texas, or any adjournment thereof.
Proxies in the form enclosed, properly executed by shareholders and
received in time for the meeting, will be voted as specified therein. If a
shareholder does not specify otherwise, the shares represented by his or her
proxy will be voted for the director nominees listed therein and for amendment
to the employee stock option and restricted stock plan set forth therein. The
giving of a proxy does not preclude the right to vote in person should the
person giving the proxy so desire, and the proxy may be revoked at any time
before it is exercised by written notice delivered to the Company at or prior to
the meeting. This Proxy Statement is being mailed on or about October 28, 1996,
to shareholders of record on October 1, 1996 (the "Record Date").
At the close of business on the Record Date, there were outstanding and
entitled to vote 6,002,000 shares of common stock, $.01 par value per share, of
the Company (the "Common Stock") and only the holders of record on such date
shall be entitled to vote at the meeting.
The holders of record of Common Stock on the Record Date will be
entitled to one vote per share on each matter presented to the shareholders at
the meeting. The enclosed form of proxy provides a means for shareholders to
vote for the director nominees listed therein or to withhold authority to vote
for such nominees and to vote for or against the proposed amendment to the
Company's Employee Stock Option and Restricted Stock Plan or to withhold
authority to vote for such amendment.
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTOR
At the meeting, two directors are to be elected. The Company's Articles
of Incorporation provide that the Board of Directors of the Company will be
divided into three classes, each class to be composed as equally as possible.
The term of one class expires at each annual meeting of shareholders and each
class serves three-year terms. The terms of office of Walter V. Klemp and Zane
Russell expire at the meeting. Mr. Russell is a nominee for director for a term
expiring at the 1999 Annual Meeting of Shareholders. Because the Company
currently has no director in the class expiring at the 1997 Annual Meeting of
Shareholders, Mr. Klemp is a nominee for director of that class. It is the
intention of the persons named in the proxies for the holders of Common Stock to
vote the proxies for the election of the nominees named below, unless otherwise
specified in any particular proxy. The management of the Company does not
contemplate that either nominee will become unavailable for any reason, but if
that should occur before the meeting, proxies will be voted for another nominee
to be selected by management. Any vacancies that may occur during the year may
be filled by an individual appointed by the Board of Directors to serve for the
remainder of the term of such director position. A shareholder entitled to vote
for the election of directors may withhold authority to vote for the nominee for
director. Directors nominees receiving the votes of a plurality of the shares of
Common Stock present in person or by proxy at the meeting and entitled to vote
on the election of directors will be elected directors. Abstentions and broker
non-votes will not be treated as a vote for or against either director nominee
and will not effect the outcome of the election.
The following table sets forth certain information with respect to the
persons who have been nominated to serve as directors and for the Company's
other directors:
<TABLE>
<CAPTION>
DIRECTOR
AGE POSITION WITH THE COMPANY SINCE
--- ------------------------- -----
<S> <C> <C> <C>
NOMINEE FOR ELECTION FOR TERM
EXPIRING AT THE 1999 ANNUAL
MEETING OF SHAREHOLDERS
Zane Russell 31 Chairman of the Board and Chief Executive Officer, 1990
President and Director
DIRECTORS WHOSE TERMS EXPIRE
AT THE 1998 ANNUAL MEETING OF
SHAREHOLDERS
Michael L. Hlinak 47 Senior Vice President, Chief Financial Officer, 1991
Chief Operating Officer and Director
Terry S. Parker 51 Director 1995
NOMINEE FOR ELECTION FOR TERM
EXPIRING AT THE 1997 ANNUAL
MEETING OF SHAREHOLDERS
Walter V. Klemp 37 Director 1995
</TABLE>
BACKGROUND OF NOMINEES FOR DIRECTOR AND DIRECTORS
WALTER V. KLEMP has served as a director of the Company since April
1995. He has served as Chairman of the Board and Co-Chief Executive Officer of
Drypers Corporation, which manufactures and markets disposable diapers, since
January 1995 and has also been a director since its formation in 1987. He served
as the Managing Director-Finance of Drypers Corporation from its formation until
December 1994. In 1984, Mr. Klemp participated in the formation of VMG Holdings
Corp., a disposable diaper manufacturer, and in 1987, the formation of Drypers
Corporation. From February 1984 to April 1986, he served as Chief Financial
Officer of VMG Holdings Corp. Prior to 1984, Mr. Klemp, a certified public
accountant, specialized in consulting to development stage businesses with the
accounting firm of Coopers & Lybrand L.L.P.
2
<PAGE>
ZANE RUSSELL co-founded EqualNet in July 1990 and served as President
and director since that time until November 1994 when he assumed the position of
Chairman of the Board and Chief Executive Officer. He has also served as the
President of the Company since January 1996. Prior to the formation of EqualNet,
from January to July 1990, he was a commercial accounts manager for American
Telco Long Distance. From November 1989 to November 1990, Mr. Russell served as
project manager for Natkin Mechanical, a construction company. Byron A. Russell,
Senior Vice President of the Company, is Zane Russell's father.
MICHAEL L. HLINAK has served as a director of EqualNet since July 1991
and as Chief Financial Officer since June 1994, becoming Senior Vice President
in November 1994 and Chief Operating Officer in May 1996. Mr. Hlinak, a
certified public accountant, is President and sole owner of Cardinal Interests,
Inc., a diversified Houston investment company which he founded in 1985. He also
is the President of Partners Management Company, a management services company,
a position that he has held since 1986.
TERRY S. PARKER has served as a director of EqualNet since November
1995. Mr. Parker also serves on the Boards of Directors of CellStar Corporation
("CellStar") and Highway Master Communications, Inc. Mr. Parker was the
president and chief operating officer of CellStar, a major supplier of cellular
telecommunications products, from April 1995 until July of 1996. Prior to
joining CellStar, Mr. Parker was with GTE Corporation, where he served as
president of GTE Telecommunications Products and Services from 1990 to 1993 and
served as both senior vice president of GTE Corporation and president of GTE
Personal Communications Services from April 1993 to March of 1995.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
During the fiscal year ended June 30, 1996, the Board of Directors held
thirteen meetings. Each director attended at least 75% of the total combined
number of meetings held by the Board and by the committees on which each
director served. Mr. Parker was elected to the Board of Directors in November
1995.
The Board of Directors has an audit committee and compensation committee
that each comprises Walter V. Klemp and Terry S. Parker. The Board of Directors
has not established an executive or nominating committee. Board of Director
nominees are proposed by management.
The audit committee is charged with recommending to the Board of
Directors the appointment of the Company's independent public accountants,
reviewing their fees, ensuring that proper guidelines are established for the
dissemination of financial information, meeting periodically with the
independent public accountants, the Board of Directors and certain officers of
the Company and its subsidiaries to ensure the adequacy of internal controls and
reporting, reviewing consolidated financial statements and performing any other
duties or functions deemed appropriate by the Board of Directors. The audit
committee held one meeting during the fiscal year ended June 30, 1996.
The compensation committee awards options and stock awards pursuant to
the Company's stock option and restricted stock award plans, determines the
terms and conditions of such options and awards, including (i) the persons to
whom such options and stock awards will be granted and (ii) the form, terms and
provisions of any agreement pursuant to which such options or stock awards are
awarded. This committee is also responsible for consideration of compensation
matters for the named executive officers. The compensation committee held one
meeting during the fiscal year ended June 30, 1996.
3
<PAGE>
PROPOSAL 2: AMENDMENT OF THE COMPANY'S EMPLOYEE STOCK OPTION AND
RESTRICTED STOCK PLAN
GENERAL
At the meeting, the shareholders of the Company will be asked to vote on
a proposal (the "Amendment") to amend the EqualNet Holding Corp. Employee Stock
Option and Restricted Stock Plan (the "Employee Plan"). Approval of the
Amendment requires the affirmative vote of the holders of a majority of the
shares of Common Stock that are outstanding as of the Record Date. The Employee
Plan and the Amendment are summarized under "Description of Company Stock Plans"
and the Amendment is set forth in full in ANNEX A attached to this Proxy
Statement.
REASONS FOR THE AMENDMENT
The Board of Directors believes it is in the best interests of the
Company to attract and retain the services of experienced and knowledgeable
employees and to provide an incentive for such employees to increase their
proprietary interest in the Company's long-term success and progress. The
Employee Plan is designed to provide certain full-time key employees, including
officers and directors of the Company and its subsidiaries (approximately 183
persons at June 30, 1996), with additional incentives to promote the success of
the Company's business and to enhance the Company's ability to attract and
retain the services of qualified persons.
The Employee Plan currently provides that options to purchase Common
Stock and restricted stock awards of Common Stock may be granted with respect to
an aggregate of up to 300,000 shares of Common Stock. The Amendment would
increase the aggregate number of shares of Common Stock with respect to which
such awards could be granted to 800,000. The Board of Directors has adopted the
Amendment and directed that it be presented to the shareholders for their
approval.
CERTAIN CONSIDERATIONS
Shareholders should note that certain disadvantages may result from the
adoption of the Amendment, including a reduction in their interests of the
Company with respect to earnings per share, voting, liquidation value and book
and market value per share if options to acquire the authorized shares of Common
Stock are granted and subsequently exercised or if restricted stock is granted
and subsequently vests.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT. Approval
of the Amendment requires the affirmative vote of the holders of a majority of
the shares of Common Stock that are voted at the meeting in person or by proxy.
If not otherwise provided, proxies will be voted "FOR" approval of the
Amendment. Abstentions will not be counted as shares voting on the proposal,
and, therefore, an abstention will have no effect on the outcome of the
proposal. A broker non-vote will not be treated as a share entitled to vote on
the proposal and will not be considered as a vote for or against the proposal.
Therefore, a broker non-vote will have no effect on the outcome of the proposal.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the Record Date (unless
indicated otherwise) with respect to (i) persons known to the Company to be the
beneficial owners of more than 5% of the outstanding shares of the Common Stock,
(ii) each director and named executive officer of the Company and (iii) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
NAME SHARES PERCENT
---- ------ -------
<S> <C> <C>
Zane Russell(2)....................................... 967,556 16.1%
1250 Wood Branch Park Drive
Houston, Texas 77079
Marc R. Smith(3)...................................... 967,556 16.1
2500 City West, Suite 300
Houston, Texas 77042
Massachusetts Financial Services Company(4)........... 602,210 10.0
500 Boylston Street
Boston, Massachusetts 02116
Denver Investment Advisors LLC(5)..................... 343,500 5.7
1225 17th Street, 26th Floor
Denver, Colorado 80217-0487
California State Teachers Retirement(6)............... 307,100 5.1
7667 Folsom Blvd.
Sacramento, California 95826-2614
Michael L. Hlinak(2).................................. 266,952 4.4
Dean H. Fisher(7)..................................... 266,952 4.4
Byron A. Russell(8)................................... 235,832 3.9
Walter V. Klemp(9).................................... 2,667 *
Terry S. Parker(10)................................... 1,667 *
Current directors and executive officers as
a group (6 persons)................................... 1,739,962 29.0
</TABLE>
* Less than one percent.
(1) Except as otherwise noted, each shareholder has sole voting and dispositive
power with respect to the shares of Common Stock.
(2) Excludes 45,000 shares of Common Stock issuable upon exercise of stock
options awarded under the Employee Plan that are not exercisable within
sixty days.
(3) Information relating to ownership by Mr. Smith is based solely on a report
on Form 13G filed with the Securities and Exchange Commission on February
14, 1996. According to that report, Mr. Smith has sole investment
discretion and sole voting authority with respect to all 967,556 shares of
Common Stock.
(4) Information relating to ownership by Massachusetts Financial Services
Company, an institutional investment manager ("MFS"), is based solely on a
report on Form 13G filed with the Securities and Exchange Commission on
January 13, 1996. According to that report, MFS has sole investment
discretion with respect to all 602,210 shares of Common Stock, but has sole
voting authority with respect to only 593,810 shares and no voting
authority with respect to the remaining 8,400 shares. According to this
report on Form 13G, MFS Series Trust II - MFS Emerging Growth Fund is also
a beneficial owner of 560,400 of the 602,210 shares of Common Stock owned
by MFS.
(5) Information relating to ownership by Denver Investment Advisors LLC
("DIA"), is based solely on a report on Form 13G filed with the Securities
and Exchange Commission on March 6, 1996. According to that report, DIA has
sole investment discretion with respect to all 343,500 shares of Common
Stock, but has sole voting authority with respect to only 13,700 shares and
no voting authority with respect to the remaining 329,800 shares.
(FOOTNOTES CONTINUED ON NEXT PAGE)
5
<PAGE>
(6) Information relating to ownership by California State Teachers Retirement
is based solely upon information published in the Corporate Record(TM) by
the Nasdaq Stock Market for the quarter ended June 28, 1996. The Company
has received no Form 13D or Form 13G relating to these holdings
and has no information as to the investment discretion or voting
authority with respect to these shares.
(7) Excludes 17,500 shares of Common Stock issuable upon exercise of stock
options awarded under the Employee Plan that are not exercisable within
sixty days.
(8) Excludes 12,500 shares of Common Stock issuable upon exercise of stock
options awarded under the Employee Plan that are not exercisable within
sixty days.
(9) Includes 2,667 shares of Common Stock issuable upon exercise of stock
options awarded under the Company's 1995 Non-Employee Director Stock Option
Plan (the "Director Plan"), which options will be exercisable within sixty
days. Excludes 3,333 shares of Common Stock issuable upon exercise of stock
options awarded under the Director Plan that are not exercisable within
sixty days.
(10) Includes 1,667 shares of Common Stock issuable upon exercise of stock
options awarded under the Director Plan, which options will be exercisable
within sixty days. Excludes 3,333 shares of Common Stock issuable upon
exercise of stock options awarded under the Director Plan that are not
exercisable within sixty days.
EXECUTIVE OFFICERS AND COMPENSATION
The following section sets forth background and compensation information
relating to the Company's executive officers.
BACKGROUND OF EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
DATE OF
NAME OFFICES HELD FIRST ELECTION AGE
<S> <C> <C> <C>
Zane Russell Chairman of the Board and Chief July 1990 31
Executive Officer
Dean H. Fisher Senior Vice President, General Counsel July 1991 46
and Secretary
Michael L. Hlinak Senior Vice President and Chief Financial July 1991 47
Officer
Byron A. Russell Senior Vice President July 1991 57
</TABLE>
For further information regarding the background of Messrs. Zane Russell
and Hlinak, see "Background of Nominee for Director and Directors".
DEAN H. FISHER became Vice President and General Counsel of EqualNet in
May 1993, Senior Vice President in November 1994 and Secretary in January 1995.
He has also served as director of EqualNet Corporation since July 1991. From May
1976 to June 1993, Mr. Fisher was engaged in the private practice of law in
Houston, Texas, serving as President of Fisher & Readhimer, P.C. from April 1985
to June 1993.
BYRON A. RUSSELL, one of the founding shareholders, has served as Senior
Vice President of the Company since May 1993. He has also served as director of
EqualNet Corporation, a subsidiary of the Company, since July 1991. Previously,
from October 1989 to April 1990, he was Regional Vice President of Integrated
Control Systems, a consulting company. From September 1986 through September
1989, Mr. Russell served as regional Director of Universal Technical Institute.
Zane Russell, Chairman of the Board and Chief Executive Officer of the Company,
is the son of Byron Russell.
All officers of the Company hold office until the regular meeting of
directors following the annual meeting of shareholders or until their respective
successors are elected and qualify or their earlier resignation or removal.
6
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
which is composed of non-employee Directors and performs the duties described on
page 3 of this Proxy Statement, has furnished the following report on executive
compensation.
EqualNet's compensation philosophy is designed to benefit the Company's
shareholders by creating a flexible compensation package that provides a variety
of medium and long-term incentive compensation opportunities to senior
management and executive officers of the Company. The Company's philosophy is to
provide a strong link between senior management and executive officer
compensation and Company performance. These compensation opportunities will
reward management for improvements in financial performance and an increase in
shareholder value as reflected by an increase in the price of the Common Stock.
In this way, the Company's compensation package is intended to encourage and
reward superior performance by individuals whose performance is a key element in
achieving the Company's continued financial and operational success. The
Company's compensation plan also is designed to assist the Company to recruit,
reward, retain and motivate management to achieve the Company's mission of being
a top performer in its industry by rewarding increases in shareholder value. The
compensation plan consists of base salary, annual cash incentive compensation
and stock reward plans (stock options and restricted stock awards).
BASE SALARY. Merit increases are to be based on individual performance
over the previous year and salaries are targeted to be within the 50th to 75th
percentile for similar positions in other high technology companies with similar
revenues ($40 million to $99 million). Fiscal year 1996 salaries were derived in
accordance with the Company's philosophy to be competitive with other high
technology companies of similar size and are within the 50th to 75th percentile
as compared to those companies.
The Committee evaluates the Chief Executive Officer's performance,
recommends changes to his annual compensation level for future years to the
Board and reviews and approves changes to compensation levels for all executive
officers. The salaries of the Chief Executive Officer and all other executive
officers for fiscal 1996 were adjusted to compensate for an increase in the cost
of benefits. No merit increases were awarded for fiscal 1996.
ANNUAL INCENTIVE COMPENSATION. The Company's executive officers and
other management employees are eligible to receive annual cash bonus awards
which are linked directly to the Company's pre-tax income. The annual bonus for
the named executive officers, other than the Chairman of the Board and Chief
Executive Officer, is 2% each of the amount that the Company's pre-tax income
exceeds $2 million for fiscal year 1995 and 2% each of the increase in pre-tax
income from the previous fiscal year to the current fiscal year thereafter. The
maximum bonus received in any fiscal year cannot exceed a fixed percentage of
the officer's base salary, 53% to 75% depending upon the position held. Total
annual compensation, including incentive bonuses, is targeted to be within the
50th to 75th percentile of high technology companies of similar size.
The Chairman of the Board and Chief Executive Officer of the Company is
entitled to receive bonuses in an amount equal to 4% of the amount by which the
Company's pre-tax and pre-bonus income exceeds $2 million. See "--Employment
Agreements". The Chairman of the Board and Chief Executive Officer did not
receive a bonus for the fiscal year ended June 30, 1996.
STOCK INCENTIVE PROGRAMS. The Committee believes that compensation in
the form of stock provides incentive for management to increase shareholder
value by closely aligning management compensation with the performance of the
Company's common stock. The Company has adopted the Employee Plan, pursuant to
which the Committee may authorize the grants of stock options and restricted
stock awards. The awards vest over a period of five years in 20% increments. See
"Description Employee Plan". During fiscal year 1996, no shares of restricted
stock were awarded to members of senior management. No awards were made to
executive officers during fiscal year 1996 under the Employee Plan.
Walter V. Klemp
Terry S. Parker
7
<PAGE>
SUMMARY OF COMPENSATION
The following table summarizes compensation information concerning the
Chief Executive Officer and each of the Company's most highly compensated
executive officers as to whom the total annual salary and bonus for the fiscal
year ended June 30, 1996, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND FISCAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2)
<S> <C> <C> <C> <C>
Zane Russell 1996 $178,000 - $4,249
Chairman of the Board and Chief 1995 175,000 $69,025 7,107
Executive Officer and President 1994 60,000 112,120 6,142
Marc R. Smith(3) 1996 178,000 - 6,532
President and Chief Operating Officer 1995 175,000 69,025 8,679
1994 60,000 114,915 7,907
Michael L. Hlinak 1996 128,000 - 6,576
Senior Vice President, Chief Financial 1995 125,000 34,513 2,409
Officer and Chief Operating Officer 1994(4) 5,000 - -
Dean H. Fisher 1996 128,000 - 6,097
Senior Vice President, General Counsel 1995 125,000 34,513 8,401
and Secretary 1994 60,000 98,061 7,863
Byron A. Russell 1996 100,000 - 4,077
Senior Vice President 1995 100,000 34,513 5,570
1994 45,000 42,461 4,495
</TABLE>
(1) Bonuses reported for fiscal 1995, although paid in fiscal 1996, relate to
the Company's results of operations in fiscal 1995. No bonuses will be paid
relating to the Company's results of operations for fiscal 1996.
(2) Represents contributions in 1994 by the Company under the Company's 401(k)
Plan for Messrs. Z. Russell, Smith, Fisher and B. Russell of $2,267,
$2,307, $2,263 and $1,616, respectively, and health insurance premiums paid
in 1994 by the Company for Messrs. Z. Russell, Smith, Fisher and B. Russell
of $3,875, $5,600, $5,600 and $2,879, respectively. Represents
contributions in 1995 by the Company under the Company's 401(k) Plan for
Messrs. Z. Russell, Smith, Hlinak, Fisher and B. Russell, of $2,002,
$2,289, $2,409, $2,011 and $3,470, respectively, and health insurance
premiums paid by the Company for Messrs. Z. Russell, Smith, Hlinak, Fisher
and B. Russell, of $5,105, $6,390, $0, $6,390 and $2,100, respectively.
Represents contributions in 1996 by the Company under the Company's 401(k)
Plan for Messrs. Z. Russell, Smith, Hlinak, Fisher and B. Russell, of
$1,676, $1,900, $2,477, $1,676 and $2,078, respectively, and health
insurance premiums paid by the Company for Messrs. Z. Russell, Smith,
Hlinak, Fisher and B. Russell, of $4,572, $4,632, $4,100, $4,421 and
$1,998, respectively.
(3) Mr. Smith resigned from Board of Directors of the Company and from the
office of President and Chief Operating Officer effective December 18,
1996.
(4) Mr. Hlinak was employed by the Company beginning June 1, 1994.
None of the named executive officers received grants of stock options or
restricted stock awards from the Company in fiscal 1996.
PERFORMANCE PRESENTATION
The following performance graph compares the performance of the Common
Stock on an indexed basis to the Center for Research in Security Prices ("CRSP")
Index for The Nasdaq Stock Market (US Companies) and a CRSP index of Nasdaq
Stock Market telephone communications companies (SIC codes 4810 through 4819).
Information
8
<PAGE>
with respect to the Common Stock, the CRSP Index for The Nasdaq
Stock Market (US Companies) and a CRSP index of Nasdaq Stock Market telephone
communications companies (SIC codes 4810 through 4819) is from March 9, 1995,
the date on which the Common Stock first began public trading. The graph assumes
that the value of the investment in the Common Stock and each index was $100 at
March 9, 1995, and that all dividends were reinvested. The Company will provide
the names of the companies included in the telephone communications index (SIC
codes 4810 through 4819) upon written request to the Investor Relations
Department of the Company.
[PERFORMANCE GRAPH - GRAPHICAL REPRESENTATION OF INFORMATION SET FORTH BELOW]
MARCH 9, 1995 JUNE 30, JUNE 30,
1995 1996
EqualNet Holding Corp. 100.0 134.8 34.8
Nasdaq Stock Market 100.0 117.3 150.8
Nasdaq Stock Market Telephone 100.0 108.3 150.0
Communications Companies
(SIC 4810-4819 US Companies)
Note:
The indices are reweighed daily, using the market capitalization on the previous
trading day.
COMPENSATION OF DIRECTORS
Each non-employee director is paid $10,000 per year, plus $500 for each
meeting of the Board which he personally attends, $350 for each meeting of a
committee of the Board which he personally attends and $100 for each meeting in
which he participates by telephone. All non-employee directors of the Company
are reimbursed for ordinary and necessary expenses incurred in attending Board
or committee meetings. The Company has adopted the Director Plan, pursuant to
which each non-employee director receives options to purchase 5,000 shares of
Common Stock on the date of his election as a director and options to purchase
1,000 shares of Common Stock on the day following each annual meeting of the
Company's shareholders. These options have an exercise price equal to the
closing price on the day before the date of grant and vest over three years in
331/3% increments. Employee directors of the Company do not receive any
additional compensation from the Company for their services as directors.
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EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement (the "Employment
Agreement") with the Zane Russell. The Employment Agreement provides for an
annual salary of $175,000 during the term of the Employment Agreement, which
terminates February 1, 1998, with month-to-month renewals thereafter. In
addition, if the Company's audited consolidated income, before taxes and bonuses
paid to senior executive officers, exceeds $2 million in each fiscal year
covered by the Employment Agreement, Mr. Russell will receive a bonus in an
amount equal to 4% of the amount by which the Company's pre-tax and pre-bonus
income exceeds $2 million. However, such bonus shall not exceed 75% of Mr.
Russell's salary in any fiscal year. The Employment Agreement also provides for
certain employee benefits, vacation and reimbursement of expenses.
The Employment Agreement may be terminated by the Company (i) for cause
(as hereinafter defined), (ii) upon notice to the Company by Mr. Russell of his
intention to terminate the Employment Agreement, (iii) upon the death of Mr.
Russell or (iv) upon disability of Mr. Russell. Under the Employment Agreement,
cause is defined to mean (i) if Mr. Russell is guilty of willful misconduct or
neglect in the discharge of his duties under the Employment Agreement after
notice thereof has been given, (ii) if Mr. Russell is convicted of or pleads
guilty or nolo contendere to any act involving moral turpitude, other than an
offense that in the opinion of the Board of Directors does not affect Mr.
Russell's position as an employee or (iii) if Mr. Russell violates any material
part of the Employment Agreement regarding confidentiality or the solicitation
of Company employees. Mr. Russell may be removed as an officer at any time by
the Company without cause, but such removal will not affect his right to a
salary or his right to remain covered by the Company's medical insurance
policies throughout the remaining term of the Employment Agreement. Upon such
removal, all other benefits will cease, including any right to receive any
variable bonus.
Mr. Russell has agreed that for the term of his Employment Agreement and
for a period of two years after termination for whatever reason, he will not,
directly or indirectly, engage or participate in any business engaged in the
sale or marketing of long-distance service within the United States, employ any
of the Company's employees or induce any of the Company's employees to leave
their employment with the Company.
The Company also had entered into an employment agreement with Mr. Marc
Smith, previously the President and Chief Operating Officer of the Company. Mr.
Smith's employment agreement, which Mr. Smith terminated effective June 28,
1996, had substantially the same terms as Mr. Russell's employment agreement.
TRANSACTIONS
On July 31, 1991, the Company agreed to loan up to $75,000 to each of Zane
Russell, Marc R. Smith and Byron A. Russell, all executive officers of the
Company at that time. As of June 30, 1996, $17,654, $8,884 and $13,692,
including accrued but unpaid interest, remained outstanding on the loans to Zane
Russell, Marc. R. Smith and Byron A. Russell, respectively. The loans were
evidenced by unsecured promissory notes bearing interest at 8% per annum and
matured on June 30, 1992.
Additionally, Zane Russell, Marc Smith and Byron Russell each have
executed a personal guaranty in connection with an agreement for long-distance
services between the Company and Sprint Communications Company, L.P. ("Sprint").
Pursuant to this personal guaranty, each of the guarantors is jointly and
severally liable to Sprint for all obligations of the Company under the
agreement with Sprint, including the payment of all sums due under the
agreement, and each of the guarantors also agrees to indemnify Sprint for losses
resulting from wrongful acts of the Company.
EqualLine Services, a company that acts as one of the Company's
independent marketing agents, is managed and directed by the brother-in-law of
Marc Smith, who was the President, Chief Operating Officer and director of the
Company until December 18, 1996 and is a shareholder of the Company. For the
year ended June 30, 1996, the Company paid commissions to EqualLine Services of
approximately $75,400. EqualLine Services provides marketing services to the
Company pursuant to the terms of the standard agreement that EqualNet uses with
its other independent marketing agents.
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The father-in-law of Zane Russell, Chairman of the Board and Chief
Executive Officer, owns 100% of the capital stock of Equal Network Consulting,
Inc. ("Network"), a company that acts as one of the Company's independent
marketing agents. In the fiscal year ending June 30, 1996, the Company paid
approximately $14,000 to Network, which constituted substantially all of
Network's revenue for that time period.
DESCRIPTION OF EMPLOYEE PLAN
Pursuant to applicable federal securities laws, the Company is required to
furnish to its shareholders in this proxy statement certain information with
respect to the Employee Plan. The following summary does not purport to be a
complete summary of the Employee Plan and is qualified in its entirety by
reference to such plan.
The Employee Plan was adopted by the Board of Directors and approved by the
shareholders in February 1995. The Employee Plan authorizes a committee of the
Board of Directors to issue options intended to qualify as incentive stock
options ("ISOs"), as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), stock options that are not intended to conform to
the requirements of the Code Section ("Non-ISOs") and restricted stock awards.
The Employee Plan is designed to provide certain full-time key employees,
including officers and directors of the Company and its subsidiaries
(approximately 183 persons at June 30, 1996), with additional incentives to
promote the success of the Company's business and to enhance the Company's
ability to attract and retain the services of qualified persons. The Employee
Plan is to be administered by a committee (the "Committee") of no less than
two-persons appointed by the Board of Directors. Committee members may not be
employees of the Company and must be "disinterested persons" as defined in Rule
16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act"). Under the
Employee Plan, options to purchase Common Stock and restricted stock awards of
Common Stock, up to an aggregate of 300,000 shares of Common Stock, may be
granted by the Committee. The maximum number of shares of Common Stock subject
to options that may be awarded under the Employee Plan to any employee during
any consecutive three year period is 200,000. The maximum number of shares of
Common Stock that may be awarded under the Employee Plan to any employee
pursuant to restricted stock awards during any consecutive three year period is
100,000. The exercise price of an option granted pursuant to the Employee Plan
is determined by the Committee on the date the option is granted and may not be
less than the fair market value of the shares of Common Stock on such date. In
the case of a grant to an employee who owns ten percent or more of the
outstanding shares of Common Stock (a "10% Shareholder"), the exercise price of
each option under the Employee Plan may not be less than 110% of the fair market
value of the Common Stock on the date of the grant. No option may be granted
under the Employee Plan for a term of more than ten years. In the case of a 10%
Shareholder, no option that is an ISO may be granted that is exercisable for
more than five years from the date of grant. To the extent that the aggregate
fair market value (determined as of the date the option is granted) of the
Common Stock with respect to which ISOs are exercisable for the first time by
the option holder in any calendar year (under this Employee Plan and any other
incentive stock option plans of the Company and any parent and subsidiary
corporation within the meaning of Section 424 of the Code) exceeds $100,000, the
options must be treated as Non-ISOs. In making this determination, options shall
be taken into account in the order in which they were granted. No options were
granted under the Employee Plan prior to the end of fiscal 1996. In July 1996,
the Company granted options to purchase 45,000, 45,000, 17,500 and 12,500 shares
of Common Stock to Messrs. Zane Russell, Hlinak, Fisher and Byron Russell,
respectively.
Under the Employee Plan, the Committee also may issue shares of restricted
stock to employees for no payment by the employee or for a payment below the
fair market value on the date of grant. The restricted stock is subject to
certain restrictions described in the Employee Plan. Restricted stock will
constitute issued and outstanding Common Stock for all corporate purposes.
Subject to the terms of the Employee Plan and the recipient's agreement with
respect to the award, the recipient will have the right to vote the restricted
stock awarded to such recipient and to receive and retain all regular cash
dividends, and to exercise all other rights, powers, and privileges of a holder
of Common Stock with respect to such restricted stock. In 1995, the Company
granted restricted stock awards for an aggregate of 63,638 shares of Common
Stock to certain key employees, none of whom are directors or named executive
officers. These employees were not required to make any payment for these
restricted stock awards, which will vest over five years in 20% increments.
Restrictions on transfer and forfeiture
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provisions upon termination of employment will apply to the restricted stock
covered by the awards for a period of five years, after which time the
restrictions will lapse and the stock will be owned by the employees free of
further restrictions under the Employee Plan. In fiscal 1996, the Company
granted no restricted stock awards.
The Employee Plan may be amended by the Board of Directors without any
requirement of shareholder approval, except as required by the incentive stock
option provisions of the Code.
AMENDMENT
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the Employee Plan to increase the aggregate number of shares of
Common Stock for which awards may be granted under the plan from 300,000 to
800,000. This proposed amendment is set forth in full in ANNEX A to this Proxy
Statement.
Non-employee directors are not eligible to receive awards under the
Employee Plan. The benefits or amounts that will be received by or allocated to
the executive officers and employees of the Company under the Employee Plan are
not determinable, as the Employee Plan does not provide for any automatic grants
but is administered by the Committee. In fiscal 1996, no awards were granted
under the Employee Plan. In July 1996, the Company granted options to purchase
45,000, 45,000, 17,500 and 12,500 shares of Common Stock to Messrs. Zane
Russell, Hlinak, Fisher and Byron Russell, respectively, and options to purchase
an aggregate of 128,000 shares of Common Stock to employees other than executive
officers.
FEDERAL TAX CONSEQUENCES
Options granted under the Employee Plan may be either ISOs which satisfy
the requirements of Section 422 of the Code or Non-ISOs which are not intended
to meet these requirements. The federal income tax treatment for the two types
of options differs as follows.
In general, no tax consequences should result from the grant to or exercise
by an employee of an ISO under the Employee Plan. The optionee will, however,
recognize taxable income in the year in which the purchased shares are sold or
otherwise made the subject of a disposition.
For federal income tax purposes, dispositions are either qualifying or
disqualifying. An optionee makes a qualifying disposition of the purchased
shares if he sells or otherwise disposes of the shares after holding them for
more than two years after the date the option was granted and more than one year
after the exercise date. If the optionee fails to satisfy either of these two
holding periods prior to the sale or other disposition, a disqualifying
disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, the excess of (i) the fair market value of those shares on the
date the option was exercised over (ii) the exercise price paid for the shares
generally will be taxable as ordinary income. Any additional gain recognized
upon the disposition will be a capital gain. If, however, the disqualifying
disposition is a sale or exchange with respect to which a loss (if sustained)
would be recognized, the amount of ordinary income realized by the optionee
cannot exceed the amount on the sale or exchange over the exercise price paid
for the shares.
If the optionee makes a disqualifying disposition of the purchased shares,
the Company will be entitled to an income tax deduction for the taxable year in
which the disposition occurs, equal to the excess of (i) the fair market value
of such shares on the date the option was exercised over (ii) the exercise price
paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
No taxable income is recognized by an optionee upon the grant of a Non-ISO.
The optionee will in general recognize ordinary income, in the year in which the
option is exercised, equal to the excess of the fair market value
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of the purchased shares on the date of exercise over the exercise price paid for
the shares. The Company is entitled to a deduction in the same amount as the
income recognized by the optionee, provided that the Company withholds income
tax with respect to that amount if the optionee is an employee.
In general, the recipient of a restricted stock award will recognize income
as the award vests. The Company will be entitled to a deduction for the income
attributable to the restricted stock, subject to certain limitations that apply
if the recipient's aggregate compensation is greater than $1,000,000. Although
amounts in excess of $1,000,000 may not, under certain circumstances, be
deductible by the Company, the Company does not anticipate that any recipient's
compensation will exceed the $1,000,000 limit on deductions.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Ernst & Young LLP served as the Company's principal independent public
accountants for the 1996 fiscal year and has been recommended by the audit
committee to so serve for the current year. Representatives of Ernst & Young LLP
are expected to be present at the annual meeting of shareholders, will have the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than 10% of a registered class of
the Company's equity securities to file Form 3, Form 4 and Form 5 reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% shareholders are required by the
regulation to furnish the Company with copies of all Section 16(a) reports they
file.
Based solely on a review of reports on Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year and written
representations from reporting persons that no report on Form 5 was required,
the Company believes that during the fiscal year ended June 30, 1996, all
officers, directors and greater than 10% shareholders complied with all filing
requirements applicable to them, except that Marc R. Smith failed to timely file
a Form 5 to report that he is no longer subject to the reporting requirements of
Section 16 as a result of his resignation as an officer and director, and Mr.
Klemp failed to timely file a Form 5 to report an automatic grant of options
pursuant to the Company's 1995 Non-Employee Director Stock Option Plan.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of holders of Common Stock intended to be presented at the
annual meeting of shareholders of the Company to be held in 1997 must be
received by the Company at its principal executive offices, 1250 Wood Branch
Park Drive, Houston, Texas 77079, no later than June 28, 1997 to be included in
the proxy statement and form of proxy relating to that meeting.
OTHER MATTERS
The management of the Company knows of no other matters which may come
before the meeting. However, if any matters other than those referred to above
should properly come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote such proxy in accordance with their best
judgment.
The cost of solicitation of proxies in the accompanying form will be paid
by the Company. In addition to solicitation by use of the mails, certain
directors, officers or employees of the Company may solicit the return of
proxies by telephone, telegram or personal interview.
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ANNEX A
FIRST AMENDMENT
TO
EQUALNET HOLDING CORP.
EMPLOYEE STOCK OPTION AND RESTRICTED STOCK PLAN
ADOPTED BY THE BOARD OF DIRECTORS JULY 11, 1996
1. Section 3 of the EqualNet Holding Corp. Employee Stock Option and
Restricted Stock Plan is hereby deleted in its entirety and replaced by the
following:
Section 3. STOCK SUBJECT TO THE PLAN
The total amount of the Common Stock with respect to which Awards
may be granted shall not exceed in the aggregate 800,000 shares. The
class and aggregate number of shares which may be subject to the Options
granted under this Plan shall be subject to adjustment under Section 7.
The class and aggregate number of shares which may be subject to the
Restricted Stock Awards granted under the plan also shall be subject to
adjustment under Section 8. Shares of Common Stock with respect to which
Awards may be granted may be treasury shares or unauthorized but
unissued shares of Common Stock. If any Award under the Plan shall
expire or terminate for any reason without having been exercised in
full, or if any Award shall be forfeited, the shares subject to the
unexercised or forfeited portion of such Award shall be available again
for the purposes of the Plan.
2. Except as expressly amended by this First Amendment, the EqualNet
Holding Corp. Employee Stock Option and Restricted Stock Plan shall continue in
full force and effect in accordance with its terms.
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APPENDIX 1
THIS FORM OF PROXY IS FILED HEREWITH PURSUANT TO NOTE TO PARAGRAPH (a)(3) TO
RULE 14a-4 PROMULGATED UNDER THE SECURITIES ACT OF 1934.
EQUALNET HOLDING CORP.
PROXY
THIS PROXY FOR HOLDERS OF COMMON STOCK IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD NOVEMBER 26, 1996
The shareholder of EqualNet Holding Corp. (the "Company") whose signature
appears on the reverse side of this Proxy hereby appoints Zane Russell and Dean
H. Fisher, and each of them, attorneys and proxies of the undersigned, with full
power of substitution, to vote, as designated on the reverse side hereof, the
number of votes which the undersigned would be entitled to cast if personally
present at the Annual Meeting of Shareholders of the Company to be held at the
Woodbine II Room, Houston Marriott Westside, 13210 Katy Freeway, Houston, Texas
at 10:00 a.m., Tuesday, November 26, 1996, and at any adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NOMINEES NAMED IN ITEM
1 OR, IF EITHER OF THE NOMINEES BECOMES UNAVAILABLE, FOR ANOTHER NOMINEE TO BE
SELECTED BY THE BOARD OF DIRECTORS AND FOR THE AMENDMENT TO THE 1995 EMPLOYEE
STOCK OPTION AND RESTRICTED STOCK PLAN SET FORTH IN ITEM 2.
(Continued, and to be dated and signed on the reverse side.)
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A [X] Please mark your
votes as in this
example
FOR the nominees
listed at right WITHHOLD AUTHORITY
(except as indicated to to vote for the
the contrary below) nominees listed at right
1. ELECTION OF [ ] [ ] Nominees: Walter V. Klemp
DIRECTORS (one-year term)
(Instruction: To withhold authority to vote for Zane Russell
any individual nominee, write that nominee's name (three-year term)
in the space provided below.)
_________________________________________________
FOR AGAINST ABSTAIN
2. PROPOSAL TO APPROVE AN AMENDMENT [ ] [ ] [ ]
TO THE EQUALNET HOLDING CORP. 1995
EMPLOYEE STOCK OPTION AND RESTRICTED
STOCK PLAN.
3. In their discretion, the proxies are authorized to vote on such other
business as may properly come before the meeting or any adjournment thereof
and upon matters incident to the conduct of the meeting.
Please Mark, Sign, Date and Return Your Proxy Promptly in the Enclosed Envelope.
Signature(s)________________ Signature(s)________________ Dated:________________
Signature, if held jointly
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as it appears hereon.
