SEC File No. 0-14189
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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:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
CELTIC INVESTMENT, INC.
(Name of Registrant as Specified In Its Charter)
CELTIC INVESTMENT
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rule 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
[ ] 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 free 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
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November 6, 1997
U.S. Securities and
Exchange Commission
Washington, DC 20546
Re: Celtic Investment, Inc. (the "Company") 1997 Form 14A
To Whom It May Concern:
Attached please find a Preliminary Proxy Statement (Form 14A) for the
Company in connection with its Annual Meeting of Shareholders. In addition to
the election of Directors at the Meeting, shareholders will be asked to vote
upon a proposal to reincorporate the Company in Illinois, through a merger into
a wholly-owned Illinois subsidiary. Shareholders will also be asked to vote upon
a proposal to ratify the Company's1997 Stock Option Plan and certain specific
grants of options. The following exhibits are attached to the Proxy Statement:
(1) Exhibit A: Certificate of Incorporation for Celtic Investment, Inc., an
Illinois corporation ("Celtic Illinois");
(2) Exhibit B: Bylaws for Celtic Illinois;
(3) Exhibit C: Delaware Corporate Law regarding appraisal rights;
(4) Exhibit D: 1997 Stock Option Plan;
In addition, pursuant to Instruction 3 of Rule 14a-101 (Item 10)(b)(G),
attached as Appendix 1 are copies of the Option Agreements for specific grants
of options to voted upon as Proposal 4 at the Annual Meeting of Shareholders.
Also attached as Appendix 2, pursuant to Rule 14a-101 (Item 14)(a)(3) is an
Agreement and Plan of Merger between Celtic Delaware and Celtic Ilinois. This
Agreement and Plan of Merger is not a part of the Proxy Statement and will not
be delivered to security holders.
If you have any questions in connection with the foregoing, please contact
A.O. "Bud" Headman, Jr. at 801-532-2666.
Sincerely,
COHNE, RAPPAPORT & SEGAL
A. O. Headman, Jr.
CELTIC INVESTMENT, INC.
17W220 22nd Street, Suite 420
Oakbrook Terrace, IL 60181
------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
------------
To Be Held January 12, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Celtic Investment, Inc., a Delaware
corporation (the "Company"), to be voted at the Annual Meeting of Shareholders
to be held January 12, 1998 (the "Meeting") and at any adjournment(s) thereof.
The Meeting will be held at __________________________________________
_________________________________ at 6:00 p.m. local time. This Proxy Statement,
the Notice of Annual Meeting of Shareholders, and the Proxy were first sent or
given to the Company's shareholders on or about December 10, 1997.
Matters to come before the Meeting are: (1) the election of five directors
to the Board of Directors to serve until the 1998 Annual Meeting of Shareholders
and thereafter until their successors are elected and are qualified; (2) to
consider and act upon a proposal to approve and adopt a Plan of Reorganization
and Agreement of Merger which provides for the merger of the Company with and
into its wholly-owned subsidiary in order to change the state of incorporation
of the Company from Delaware to Illinois; (3) to consider and act upon a
proposal to approve and adopt a Stock Option Plan; and (4) to consider and act
upon a proposal to ratify specific 1996 and 1997 grants of stock options to
certain employees of U.S. Commercial Funding Corp. ("USCF"), Salt Lake Mortgage
Corp. ("SLM") and Advantage Realty, Inc. ("ARI"), all of which are wholly-owned
subsidiaries of the Company, all as are more fully described herein.
There is being mailed herewith to each shareholder of record the Company's
Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997. The date
of this Proxy Statement is the approximate date on which this Proxy Statement
and form of Proxy were first sent or given to shareholders.
RECORD DATE AND VOTING SECURITIES
The securities of the Company entitled to vote at the Meeting consist of
shares of the Company's common stock, $.001 par value. Only shareholders of
record at the close of business on December 10, 1997, the record date for the
Meeting, will be entitled to notice of and to vote at the Meeting. On the record
date, the Company had outstanding 4,406,477 shares of common stock. See
"Principal Shareholders and Security Ownership of Management" for information
concerning beneficial ownership of the Company's common stock.
Assuming a quorum is present, the five (5) nominees receiving the highest
number of votes cast by the holders of the common stock will be elected as
directors. There will be no cumulative voting in the election of directors. A
majority of the shares issued and outstanding must be voted in favor of the
proposal to change the Company's domicile through a reincorporation merger -
Proposal 2. Assuming a quorum is present, the affirmative vote of the holders of
a majority of the shares of common stock present in person or represented by
proxy is required for approval of Proposals 3 and 4.
3
Abstentions are treated as present and entitled to vote at the Meeting.
Therefore, abstentions will be counted in determining whether a quorum is
present and will have the effect of a vote against a matter. A broker non-vote
on a matter (i.e., shares held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote
and as to which the broker or nominee does not have discretionary power to vote
on a particular matter) is considered not entitled to vote on that matter and,
thus, will not be counted in determining whether a quorum is present or whether
a matter requiring approval of a majority of the shares present and entitled to
vote has been approved.
All Proxies received pursuant to this solicitation will be voted at the
Meeting and at any adjournments thereof as indicated in the Proxy. If no
instructions are given, the persons named in the Proxy solicited by the Board of
Directors of the Company intend to vote for the nominees for election as
directors of the Company listed below and for Proposals 2, 3 and 4.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date, or by attending the Meeting and voting in person.
GENERAL INFORMATION ABOUT THE COMPANY
The Company is a Delaware corporation with its principal and executive
offices located at 17W220 22nd Street, Suite 420, Oakbrook Terrace, Illinois
60181, (630) 993-9010. The Company, through its wholly-owned subsidiary, USCF,
is engaged in the business of purchasing accounts receivable ("Factoring") and
through its wholly-owned subsidiaries SLM and ARI, it is engaged in the mortgage
banking business and the real estate brokerage business.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding shares of the
Company's common stock owned beneficially as of December 10, 1997 by each
director and nominee for director, each of the executive officers of the
Company, all officers and directors as a group and each person known by the
Company to beneficially own 5% or more of the outstanding shares of the
Company's common stock. Except as may be indicated in the footnotes to the
table, each of such persons has sole voting and investment power with respect to
the shares beneficially owned. Beneficial ownership has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Under this Rule, certain shares may be deemed to be
beneficially owned by more than one person (such as where persons share voting
power or investment power). In addition, shares are deemed to be beneficially
owned by a person if the person has the right to acquire the shares (for
example, upon exercise of an option) within 60 days of the date as of which the
information is provided; in computing the percentage ownership of any person,
the amount of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of these
acquisition rights. As a result, the percentage of outstanding shares of any
person as shown in the following table does not necessarily reflect the person's
actual voting power at any particular date:
4
Name and Address Percentage
of Beneficial Owner Shares Owned (8) Owned
Douglas P. Morris (1)(2) 448,765 9.01%
330 East Main Street, Suite 206
Barrington, IL 60010
Howard D. Talks (1)(3) 451,384 9.06%
P.O. Box 250
Palm Beach, FL 33480
Larry D. Meek (1)(4) 287,901 5.78%
17W220 22nd Street, #420
Oakbrook Terrace, IL 60181
Pam Davis (1) -0- -0-
102 West 500 South, Suite 300
Salt Lake City, UT 84101
Frank Lucchese (1)(5) 123,528 2.48%
17W220 22nd Street, #420
Oakbrook Terrace, IL 60181
Reese Howell, Jr.(1)(6) 554,500 11.13%
102 West 500 South, #300
Salt Lake City, UT 84101
Roger Davis(7) 545,500 10.95%
102 West 500 South, #300
Salt Lake City, UT 84101
Laurence J. Pino 308,257 6.19%
c/o Open University
Orlando, FL 33480
All Officers and Directors 1,866,132 37.46%
as a group (6 people)
- - -----------
(1) Each of these persons is an officer and/or director of the Company.
(2) The 448,765 total includes 208,527 shares owned by Mr. Morris, 140,239
shares owned of record by Hyacinth Resources. Inc., an affiliate of Mr. Morris,
and 100,000 shares which may be issued upon the exercise of an option
exercisable at a price of $1.00 per share. Such option is currently exercisable.
5
(3) The 451,384 total includes 351,384 shares owned of record by Mr. Talks
and his wife Carol Hall as joint owners and 100,000 shares which may be issued
upon the exercise of an option exercisable at a price of $1.00 per share. Such
option is currently exercisable.
(4) The 287,901 total includes 20,401 shares owned of record by Mr. Meek,
and 267,500 shares which may be issued upon the exercise of stock options
granted in connection with Mr. Meek's employment at an exercise price of $1.00
per share. Such options are currently exercisable. Mr. Meek also owns options to
an additional 87,500 shares of the Company's common stock but such options are
not currently exercisable and are not included in the 287,901 total.
(5) The 123,528 total includes 16,028 shares owned of record by Mr.
Lucchese, his wife and his minor children, and 107,500 shares which may be
issued upon the exercise of stock options granted in connection with Mr.
Lucchese's employment at an exercise price of $1.00 per share. Mr. Lucchese also
owns options to an additional 37,500 shares of the Company's common stock but
such options are not currently exercisable and are not included in the 123,528
total.
(6) The 554,500 shares are owned of record by Mr. Howell. Of these 554,500
shares, 250,000 are held in escrow pending the achievement of certain financial
goals, however, all of such shares are entitled to be voted at the Meeting. Not
included in the 554,500 total, are 250,000 shares which may be issued at the
price of $1.00 per share upon the exercise of stock options owned by Mr. Howell.
Such options are not currently exercisable.
(7) The 545,500 shares are owned of record by Mr. Davis. Of these 545,500
shares, 250,000 are held in escrow pending the achievement of certain financial
goals, however, all of such shares are entitled to be voted at the Meeting. Not
included in the 545,500 total, are 250,000 shares which may be issued at the
price of $1.00 per share upon the exercise of stock options owned by Mr. Davis.
Such options are not currently exercisable.
(8) The Company had 4,406,477 shares outstanding on December 10, 1997.
Additionally, a total of 575,000 shares are issuable upon the exercise of
currently exercisable options held by directors and officers. Therefore, for
purposes of the above set forth chart, 4,981,477 shares are deemed to be issued
and outstanding.
PROPOSAL 1: ELECTION OF DIRECTORS
General
The Board of Directors are elected annually by the shareholders of the
Company. The Board of Directors of the Company, appoints the Board of Directors
of the Company's wholly-owned subsidiaries, USCF, SLM and ARI. Pursuant to the
Bylaws of the Company, the number of directors of the Company has been set at
five members. It is proposed to elect five directors at this Meeting to hold
office for a one-year term until the 1998 Annual Meeting of Shareholders and
until their successors are duly elected and qualified. It is intended that the
accompanying form of Proxy will be voted for the nominees set forth below, each
of whom is presently a director of the Company. If, in the Board of Directors'
judgment, some unexpected occurrence should make necessary the substitution of
some other person or persons for any of the nominees, shares will be voted for
such other person or persons as the Board of Directors may select. The Board of
Directors is not aware that any nominee may be unable or unwilling to serve as a
director.
The following table sets forth for each nominee for election as a
director his name, all positions with the Company held by him, his principal
occupation, his age and the year in which he first became a director of the
Company.
6
Director
Nominees Principal Occupation Age Since
- - -------- -------------------- --- ---------
Douglas P. Morris Mr. Morris has been an officer and director of the Company 42 1994
since July, 1994. Mr. Morris is also a director of the each of
the Company's subsidiaries, USCF, SLM and ARI. Mr. Morris
is, and has been since 1988, the owner of H & M Capital
Investments, Inc., a privately-held business consulting firm.
Mr. Morris is Vice-President of Capital Markets and a director
of Millenniun Electronics, Inc., a publicly-held
computer/electronics company. Mr. Morris is a director of
Dauphin Technology, Inc., a publicly-traded electronic
manufacturing and computer company.
Howard D. Talks Mr. Talks has been a director of the Company since July 1, 43 1994
1994. Mr. Talks has been involved in the real estate industry
for the past 19 years. Mr. Talks has developed and/or purchased
commercial and residential real estate properties in Florida.
Larry Meek Mr. Meek became a director of the Company and President of 45 1995
USCF in August 1995. He has over twenty years experience in
sales, marketing, general management, and business
development.
Reese Howell, Jr. Mr. Howell was appointed Senior Vice-President and a director 29 1997
of the Company in January 1997. He also serves as President
and CEO of SLM and is a director of ARI. Mr. Howell was the
founder of SLM and has been in the mortgage industry since
1990.
Pamela Davis Ms. Davis has been a director of the Company since January 31, 33 1997
1997. She is employed by Westin Hotel Resorts where she is
Manager of Computer Operations in the Central Technology
Center in Salt Lake City, Utah.
Committees and Meetings
The Board of Directors held eleven (11) meetings during the last fiscal
year. All of the directors of the Company attended all meetings in person or
telephonically. The Board of Directors also took various actions through
unanimous written consent in lieu of meetings of directors.
The Board of Directors presently has no standing audit, compensation or
nominating committee.
Executive Compensation
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the last fiscal year to the Company's
officers.
7
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation(1) Awards Payouts
------------------- Restricted Securities
Name and Fiscal Other Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Award(s) Options Payouts Compensation
Douglas P. Morris 1997 $26,000 $-0- $-0- $-0- #-0- $-0- $-0-
1996 $26,000 $-0- $-0- $-0- #-0- $-0- $-0-
1995 $24,000 $-0- $-0- $-0- #-0- $-0- $-0-
Larry Meek 1997 $133,337 $18,583 $-0- $-0- # 75,000(3) $-0- $-0-
1996 $125,000 $-0- $-0- $-0- # 280,000(2) $-0- $-0-
1995 $ 4,800 $50,000 $-0- $-0- #-0- #-0- $-0-
Frank Lucchese 1997 $91,062 $12,882 $-0- $-0- # 75,000(3) $-0- $-0-
1996 $85,000 $-0- $-0- $-0- # 70,000(2) $-0- $-0-
1995 $4,904 $-0- $-0- $-0- #-0- $-0- $-0-
Reese Howell Jr. 1997 $37,500 $-0- $-0- $-0- #250,000(2) $-0- $-0-
1996 $-0- $-0- $-0- $-0- #-0- $-0- $-0-
1995 $-0- $-0- $-0- $-0- #-0- $-0- $-0-
(1) See the discussions under the caption "Employment Contracts"
regarding certain other compensation to which the named officer may be
entitled upon certain specified events.
(2) These options were granted pursuant to Employment Agreements. The
number of options indicated give effect to an agreement between the
Company and the option holder wherein one-half of the options
originally issued were cancelled, and the option price was reduced from
$3.00 per share to $1.00 per share.
(3) These options were granted as performance bonus for fiscal year
1996 pursuant to Employment Agreements and/or the Merger Agreement. The
number of options indicated give effect to an agreement between the
Company and the option holder wherein one-half of the options
originally issued were cancelled and the option price was reduced from
$3.00 per share to $1.00 per share.
Stock Options Granted in Last Fiscal Year
The following table set forth grants of stock options made during the
fiscal year ended June 30, 1997 to the employees of the Company.
Individual Grants
-----------------
% of Total
Options/SARs
Number of Securities Granted to Exercise or
Underlying Options/ Employees in Base Price
Name SARs Granted (#) Fiscal Year ($/Share) Expiration Date
Douglas P. Morris -0- N/A N/A N/A
Reese Howell Jr. (1,4) 250,000 35.8% $1.00 (1)
Roger Davis (1,4) 250,000 35.8% $1.00 (1)
Larry Meek (2,4) 75,000 10.8% $1.00 (2)
Frank Lucchese (2,4) 75,000 10.8% $1.00 (2)
Other Employees (3) 45,000 3.2% $3.00 (3)
8
(1) These options are granted as part of the Stock for Stock Exchange in the
acquisition of SLM and ARI and related employment agreements. They have an
expiration date of January 31, 2001 and January 31, 2007. One hundred fifty
thousand of the options are time-based and 350,000 of the options are
performance-based on a profitability formula relating to SLM and ARI
operations.
(2) These options are granted pursuant to certain employment agreements and
have a July 17, 2003 expiration date.
(3) These options are granted pursuant to certain employment agreements and
have expiration dates of May 15, 2000 through May 15, 2003.
(4) On June 29, 1997 the Company offered and various employees agreed to cancel
one-half of their outstanding options in consideration of reducing the
exercise price from $3.00 to $1.00 per share. Mr. Howell and Mr. Davis each
canceled 250,000 share options. Mr. Meek canceled 355,000 options shares.
Mr. Lucchese canceled 145,000 options shares.
Aggregate Option Exercises and Number/Value of Unexercised Options
The following table provides information concerning the exercise of
options during the last fiscal year by persons named in the Summary Compensation
Table, the number of unexercised options held by such persons at the end of the
last fiscal year, and the value of such unexercised options as of such date:
Total Number of Value of Unexercised
Shares Acquired Values Unexercised Options In-the-Money Options
Name on Exercise (1) Realized ($) at 6/30/97 (1.2) at 6/30/97 (1.2)
- - ------ --------------- ------------ ---------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
Douglas P. Morris -0- -0- 100,000 0 $0 $0
Larry Meek -0- -0- 217,500 137,500 $0 $0
Frank Lucchese -0- -0- 57,500 87,000 $0 $0
Reese Howell, Jr. -0- -0- 0 250,000 $0 $0
1 An "In-the-Money" stock option is an option for which the market
price of the Company's common stock underlying the option on June 30,
1997 exceeded the option exercise price. The value shown is calculated
by multiplying the number of unexercised options by the difference
between (i) the average of the bid and ask price for the common stock
on the NASDAQ Small Cap Market on June 30, 1997 of $1.00 and (ii) the
exercise price of the stock options of $1.00 per share.
The Company has not granted any stock appreciation rights.
2 On June 29, 1997 the Company offered, and various employees agreed,
to cancel one-half of their outstanding options in consideration of
reducing the Exercise Price from $3.00 to $1.00. Mr. Meek canceled
355,000 options shares. Mr. Lucchese canceled 145,000 options shares.
Mr. Howell canceled 250,000 option shares.
Compensation of Directors
During the year ended June 30, 1997 the Company paid no compensation to
directors except under employment agreements set forth above in the Summary
Compensation Table and below in "Employment Agreements."
9
Employment Agreements
The Company is currently a party to the following Employment
Agreements:
Douglas P. Morris. In July 1994, the Company and Mr. Morris entered into an
Employment Agreement for a five year term. The agreement provides for a first
year salary of $24,000 which will increase by ten percent per year. Under his
Employment Agreement, Mr. Morris is required to devote only part-time to the
service of the Company. Mr. Morris has been granted options to purchase 100,000
shares of the Company's common stock. (See "Present Shareholders" herein.)
Larry D. Meek. On June 28, 1995, the Company and Mr. Meek entered into a
three year Employment Agreement. The agreement provides for a signing bonus of
$50,000 and a salary of $125,000 with annual cost of living adjustments not
greater than 10%. Mr. Meek is eligible for bonuses in subsequent years subject
to the discretion of the Board of Directors. Mr. Meek has been granted options
to purchase 560,000 shares at $3.00 of the Company's common stock. Mr. Meek was
granted 150,000 share options at $3.00 per share in July 1996. On June 1, 1996,
the Company and Mr. Meek agreed to extend the Employment Agreement for one
additional year. In June 1997, Mr. Meek canceled 355,000 options shares in
consideration of the reduction in the exercise price from $3.00 to $1.00 per
share. The Company has agreed to use its best effort to register the option
shares on Form S-8.
Frank Lucchese. On June 28, 1995, the Company and Mr. Lucchese entered into
a three-year Employment Agreement. The agreement provides for a salary of
$85,000 with annual cost of living adjustments not greater than 10%. Mr.
Lucchese is eligible for bonuses in subsequent years subject to the discretion
of the Board of Directors. Mr. Lucchese has been granted options to purchase
140,000 shares at $3.00 per share of the Company's common stock. Mr. Lucchese
was granted 150,000 options on the Company's shares at $3.00 per share in July
1996. On June 1, 1996, the Company and Mr. Lucchese agreed to extend the
Employment Agreement for one additional year. In June 1997, Mr. Lucchese
canceled 145,000 option shares in consideration of the reduction in the exercise
price from $3.00 to $1.00. The Company has agreed to use its best effort to
register the option shares on Form S-8.
Martha Marroquin. On September 26, 1995, the Company and Ms. Marroquin
entered into a three- year Employment Agreement. The agreement provides for a
salary of $45,000 with annual cost of living adjustments not greater than 10%.
Ms. Marroquin is eligible for bonuses in subsequent years subject to the
discretion of the Board of Directors. Ms. Marroquin has been granted options to
purchase 50,000 shares at $3.00 per share of the Company's common stock. In June
1997, Ms. Marroquin canceled 25,000 option shares in consideration of the
reduction of the exercise price from $3.00 to $1.00 per share. The Company has
agreed to use its best effort to register the option shares on Form S-8.
Reese Howell Jr. On January 31, 1997, the Company and Mr. Howell
entered into a five-year Employment Agreement. The agreement provides for a
salary of $90,000 with annual cost of living adjustments not greater than 10%.
Mr. Howell is entitled to a bonus of 7.5% of pre-tax profits of SLM and ARI
until such time as his annual compensation reaches $150,000. After the $150,000
threshold is met, Mr. Howell is entitled to an additional bonus of 1.5% of the
pre-tax profits of SLM and ARI. Mr. Howell has been granted time-based and
performance-based options to purchase 500,000 shares of the Company's stock at
$3.00 per share. The performance-based options are contingent on the
profitability of SLM and ARI. In June 1997, Mr. Howell agreed to cancel 250,000
options shares in consideration of the reduction in the exercise price from
$3.00 to $1.00 per share.
10
Roger Davis. On January 31, 1997, the Company and Mr. Davis entered
into a five-year Employment Agreement. The agreement provides for a salary of
$90,000 with annual cost of living adjustments not greater than 10%. Mr. Davis
is entitled to a bonus of 7.5% of pre-tax profits of SLM and ARI until such time
as his annual compensation reaches $150,000. After the $150,000 threshold is
met, Mr. Davis is entitled to an additional bonus of 1.5% of the pre-tax profits
of SLM and ARI. Mr. Davis has been granted time-based and performance-based
options to purchase 500,000 shares of the Company's stock at $3.00 per share.
The performance-based options are contingent on the profitability of SLM and
ARI. In June 1997, Mr. Davis agreed to cancel 250,000 option shares in
consideration of the reduction in the exercise price from $3.00 to $1.00 per
share.
Recommendation of Board of Directors
The Board of Directors recommends a vote FOR all of the aforementioned
nominees for directors.
PROPOSAL 2: REINCORPORATION PROPOSAL
The Company's Board of Directors has unanimously approved and, for the
reasons described below, unanimously recommends that the Company's shareholders
approve a proposal which provides, among other things, for the change of the
Company's state of incorporation from Delaware to Illinois (the "Reincorporation
Proposal"). Approval of the Reincorporation Proposal will not result in a change
in the name of the Company nor will it result in any change in the business,
management, board of directors, assets or liabilities of the Company. In
particular, persons elected as directors of the Company at the 1997 Annual
Meeting will serve as directors of Celtic Investment, Inc., the Illinois
corporation. The Board of Directors of the Company has adopted a Plan of
Reorganization and Agreement of Merger (the "Merger Agreement") in order to
change the state of incorporation of the Company from Delaware to Illinois. The
Merger Agreement provides for the merger (the "Merger") of the Company into its
Illinois Subsidiary.
The Company, which is currently incorporated in the State of Delaware,
is hereafter referred to as "Celtic Delaware". In order to change the domicile
of Celtic Delaware to the State of Illinois, Celtic Delaware has formed a
wholly-owned subsidiary corporation in the State of Illinois ("Celtic Illinois")
for the sole purpose of reincorporating in Illinois and, if the Company's
shareholders approve this Proposal 2, Celtic Delaware will merge into Celtic
Illinois and Celtic Illinois will be the surviving company. As the result of
such merger, the Company will then be an Illinois corporation and will be
domiciled in Illinois. Prior to the Merger, the Surviving Corporation will not
engage in any business or have any assets or liabilities. As a result of the
Merger, Celtic Illinois will succeed to all the rights and will be vested with
all the properties and be subject to all the liabilities of the Company. Celtic
Illinois will continue the activities currently conducted by the Company.
When the Merger becomes effective, each outstanding share of common
stock of the Company will be converted into one share of common stock of Celtic
Illinois. Shares will continue to be listed on NASDAQ without interruption. It
will not be necessary for holders of shares of common stock of the Company to
exchange their existing stock certificates for stock certificates of the
Surviving Corporation as each outstanding certificate representing shares of the
Company will continue to represent the same number of shares of Celtic Illinois.
11
Purposes of the Reincorporation Proposal- Change of State of Domicile
The Company's Board of Directors believes that the best interests of
the Company and its shareholders will be served by changing the Company's place
of incorporation from Delaware to Illinois. The Board of Directors believes that
the franchise tax imposed by the State of Delaware is an unnecessary expense for
the Company. Because the Company is incorporated in Delaware, it is required to
pay franchise taxes to the State of Delaware. Because the Company does business
in Illinois, it also pays franchise taxes in Illinois. In Illinois, the basis
for computation of the franchise tax payable by a corporation incorporated in
Illinois and by a corporation incorporated in another state and qualified to do
business in Illinois is the same. Accordingly, as a result of the Merger, Celtic
Illinois would, under current law, pay an annual franchise tax in Illinois
determined on the same basis as that being paid by the Company, but it would be
relieved of the expense of the annual franchise tax payable in Delaware. For the
foregoing reasons, the Board of Directors believes that the activities of the
Company can be carried on to better advantage if the Company is able to operate
under the laws of Illinois. (See "Comparison of Shareholders' Rights Under
Illinois and Delaware Law" herein.)
In the year ended June 30, 1997 the Delaware franchise tax amounted to
$6,800. Because the estimated expenses of the Merger will be approximately
$3,000, the cost savings resulting from the Merger will not begin to be realized
for approximately six (6) months. Additional reasons for incorporating in
Illinois are that the Company's principal place of business is located in
Illinois and that based on a recent analysis, Illinois is the state where
approximately one hundred (100) of the holders of record of shares of common
stock of the Company reside. This represents 64% of the total number of the
Company's shareholders. In addition, Illinois residents held approximately
2,400,000 Company shares, or 55% of the total 4,406,477 shares of common stock
then outstanding.
The following discussion summarizes important aspects of the
Reincorporation Proposal. The Board of Directors believes that there is no
negative impact on shareholder rights from the change of domicile. This summary
does not purport to be a complete description of the Reincorporation Proposal.
Copies of the existing Certificate of Incorporation of the Company, the Articles
of Incorporation of Celtic Illinois, the Bylaws of Celtic Illinois and the
Merger Agreement are available for inspection at the Company's offices and
copies will be sent to shareholders upon request.
General
Celtic Illinois is a wholly-owned subsidiary of Celtic Delaware and was
recently organized for the sole purpose of effecting the reincorporation of the
Company in Illinois. The reincorporation transaction will involve the merger of
Celtic Delaware with and into Celtic Illinois (the "Merger").
Existing stock certificates will remain valid and there is no need for
shareholders to exchange existing stock certificates for new ones. At the
Effective Time (as defined in the Merger Agreement), the separate existence of
Celtic Delaware will cease and Celtic Illinois will succeed, to the extent
permitted by law, to all the business, properties, assets and liabilities of
Celtic Delaware. Each common share of Celtic Delaware, $ .001 par value
("Delaware Common Stock" or "Common Stock") issued immediately prior to the
Effective Time will, by virtue of the Reincorporation Proposal, be converted
into one fully-paid share of common stock, par value $ .001 per share, of Celtic
Illinois ("Illinois Common Stock"). At the Effective Time, certificates which
immediately prior to the Effective Time represented Delaware Common Stock will
be deemed for all corporate purposes to represent the same number of shares of
Illinois Common Stock into which such Delaware Common Stock has been converted.
12
It is anticipated that the Merger will become effective (the "Effective
Time") within sixty (60) days from the date of the Annual Meeting of
Shareholders. However, the Merger Agreement provides that the Merger may be
abandoned by the Board of Directors of either Celtic Illinois or Celtic Delaware
prior to the Effective Time thereof, either before or after shareholder
approval. In addition, the Merger Agreement may be amended prior to the
Effective Time of the Merger, either before or after shareholder approval
thereof; provided, however, that the Merger Agreement may not be amended after
shareholder approval if such amendment would (1) alter or change the amount or
kind of shares or other consideration to be received by shareholders in the
Merger, (2) alter or change any term of the Celtic Illinois Articles of
Incorporation, (3) alter or change any of the terms and conditions of the Merger
Agreement if such alteration or change would adversely affect the shareholders,
or (4) otherwise violate applicable law.
The affirmative vote of the holders of a majority of the outstanding
Delaware Common Stock is required for approval of the Reincorporation Proposal.
A vote for approval of the Reincorporation Proposal will constitute specific
approval of the Merger as well as other matters included in the Reincorporation
Proposal described in this Proxy Statement. Shareholders of the Company whose
shares are not voted in favor of the Reincorporation Proposal will have
statutory dissenter's rights under Delaware law. (See "Dissenting Shareholder's
Rights" herein.)
Other Effects of the Reincorporation
Approval of the Merger Agreement and the Reincorporation Proposal by
the Company's shareholders will also constitute approval of the provisions of
the Celtic Illinois Articles of Incorporation and the Celtic Illinois Bylaw
Provisions. For a description of the differences between the Celtic Illinois
Articles of Incorporation and Celtic Illinois Bylaw Provisions and the Celtic
Delaware Certificate and Bylaws, see "Differences in Charter Document
Provisions" herein. In addition, as shareholders of a Illinois corporation, the
rights of shareholders of Celtic Illinois will be governed by Illinois rather
than Delaware law. (See "Comparison of Shareholders' Rights Under Illinois and
Delaware Law" herein.)
Differences in Charter Document Provisions
Except for the elimination of liability for money damages (See
"Comparison of Shareholders' Right Under Illinois and Delaware Law - Limitation
of Damages"), there are no substantive differences between the Celtic Delaware
and Celtic Illinois Articles and Bylaws. The Articles of Incorporation of Celtic
Delaware presently authorize the issuance of 25,000,000 shares of Common Stock,
$ .001 par value, and 7,500,000 shares of preferred stock. Celtic Illinois has
been formed with the same authorized capital. In addition, terms of the Illinois
Common Stock will be identical to those of the Delaware Common Stock. For
example, neither shares have preemptive rights or cumulative voting rights.
Further, similar to Delaware law, Illinois law permits the Board of Directors to
issue the Preferred Stock in one or more series, and to fix, among other things,
the designation and number of shares to constitute each series and the relative
rights and preferences of shares of each series. Illinois law and Delaware law
contain generally similar provisions for the indemnification of directors and
officers. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to directors or
officers under the Celtic Illinois Articles and Bylaws, it is the position of
the Securities and Exchange Commission that such indemnification would be
against public policy as expressed in the Securities Act and therefore
unenforceable.
13
Comparison of Shareholders' Rights Under Illinois and Delaware Law
Although it is impracticable to compare all of the aspects in which the
general corporation laws of Illinois and Delaware differ, the following is a
summary of certain significant corporate issues:
Action by Shareholder Consent. Both Illinois and Delaware law provide
that shareholder action may be taken without a meeting if a written consent is
signed by the shareholders holding the number of shares necessary to authorize
the action at a meeting of shareholders. The Bylaws of Celtic Illinois and the
Bylaws of Celtic Delaware also provide for action by shareholder consent.
Call of Shareholders Meetings. Special meetings of shareholders of
Illinois corporations may be called at any time by shareholders entitled to cast
at least one-fifth of the votes entitled to be cast on any issue proposed to be
considered at the particular meeting. The Bylaws of Celtic Illinois also provide
that a Special Meeting of Shareholders may be called by the owners of one-fifth
of the total shares issued and outstanding. Delaware law has no such provision,
but the Bylaws of Celtic Delaware provide that a special meeting of shareholders
may be called by the owners of one-fourth of the total shares issued and
outstanding.
Charter Amendments. Under Delaware law, charter amendments must be
approved by the holders of a majority of the shares issued and outstanding.
Under Illinois law, charter amendments must be approved by the holders of
two-thirds of the shares issued and outstanding unless otherwise provided for
the in the corporation's Articles of Incorporation. The Articles of
Incorporation of Celtic Illinois do provide that charter amendments may be
approved by the holders of a simple majority of the shares issued and
outstanding rather than by a two-thirds majority except for charter amendments
to increase authorized capital which must be approved by the holders of
two-thirds of the shares issued and outstanding.
Class Voting. Pursuant to Illinois law, holders of a particular class
of shares are entitled to vote as a separate class if the rights of such class
are affected in certain respects by mergers, consolidations or amendments to the
articles of incorporation. The Delaware law requires voting by separate classes
only with respect to amendments to the certificate of incorporation which
adversely affect the holders of such classes or which increase or decrease the
aggregate number of authorized shares or the par value of the shares of any such
classes.
Appraisal Rights. Under Illinois law, dissenting shareholders are
entitled to appraisal rights in connection with the lease, sale, exchange,
transfer or other disposition of all or substantially all of the assets of a
corporation made in the usual or regular course of its business. In addition,
shareholders of a Illinois corporation being merged into a surviving corporation
or being consolidated into a new corporation are also entitled to appraisal
rights. Under Delaware law, appraisal rights are available only in connection
with statutory mergers or consolidations. Even in such case, unless the
certificate of incorporation otherwise provides, (that of Celtic Delaware does
not so provide), the Delaware law does not recognize dissenters' rights if the
shares of the merged corporation are listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by NASDAQ or held of record by more than 2,000 shareholders.
Cumulative Voting. Under Illinois law, shareholders are entitled to
vote cumulatively in elections for directors, unless the articles of
incorporation limit or eliminate such right. Under Delaware law, shareholders do
not have cumulative voting rights unless so provided in the certificate of
incorporation. Since the Certificate of Incorporation of the Company does not
grant shareholders cumulative voting rights and since
14
the Articles of Incorporation of Celtic Illinois expressly deny such rights, the
Merger will not effect any change in the manner of electing directors for the
Company.
Director Removal. Under Delaware law and Illinois law, a director may
be removed, with or without cause, by a majority of shareholders entitled to
vote at an election of directors, unless in the case of a staggered board, the
certificate of incorporation provides otherwise. Neither Celtic Delaware's
Certificate of Incorporation nor the Articles of Incorporation of Celtic
Illinois provide for a staggered board.
Super Majority Vote Requirements. Under Illinois law, the affirmative
vote of the holders of at least two-thirds of outstanding shares entitled to
vote is required in order to effectuate certain mergers, consolidations,
mandatory share exchanges, sales of substantially all assets and charter
amendments, unless the articles of incorporation supersede that requirement by
specifying a smaller or larger vote requirement. The Articles of Incorporation
of Celtic Illinois supercedes the two-thirds majority requirement and such
actions may be approved by shareholders owning a majority of the shares issued
and outstanding. Under Delaware law, the affirmative vote of the holders of a
majority of outstanding shares entitled to vote is required in order to approve
such transactions, unless the Certificate of Incorporation provides for a larger
vote requirement. The Certificate of Incorporation of Celtic Delaware does not
so provide.
Preemptive Rights. Under Illinois law and Delaware law, shareholders do
not have preemptive rights to subscribe for additional shares, except to the
extent provided in the Articles of Incorporation or Certificate of
Incorporation. Neither the Certificate of Incorporation of Celtic Delaware nor
the Articles of Incorporation of Celtic Illinois grants preemptive rights to
shareholders.
Indemnification. Under Illinois law and Delaware law, a corporation may
indemnify directors and officers who are or are threatened to be made parties to
civil, criminal, administrative or investigative proceedings by reason of the
fact that such person was a director or officer of the corporation against
expenses, judgments, fines and amounts paid in settlement, if such person acted
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation and with respect to criminal proceedings,
had no reasonable cause to believe that the conduct was unlawful. Both Illinois
and Delaware law provide that their statutory provisions shall not be deemed to
be exclusive of any rights to which a person seeking indemnification may be
entitled under any by-law, agreement, vote of shareholders of disinterested
directors or otherwise. Both Illinois and Delaware law provide that a
corporation may purchase insurance on behalf of any director or officer against
liability incurred by such person in such capacity whether or not the
corporation would have the power to indemnify such person against such liability
under the relevant statutory provisions.
Under Illinois law, expenses incurred by a director or officer in
defending a proceeding may be advanced by the corporation prior to final
disposition of the matter if such person undertakes to repay such amount unless
it shall ultimately be determined that such person is entitled to be indemnified
by the corporation pursuant to the statute. Under Delaware law, expenses
incurred by a director or officer in defending a proceeding may be advanced by
the corporation prior to final disposition of the matter if such person
undertakes to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation pursuant to the
statute.
The Articles of Incorporation and Bylaws of Celtic Illinois and the
Certificate of Incorporation of Celtic Delaware provide for indemnification of
directors and officers in accordance with the foregoing statutory provisions;
however, both provide that, notwithstanding anything therein to the contrary, no
director or officer shall be indemnified or insured against any liability to the
Company or to its shareholders to which
15
such person would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence with respect to the duties involved in the conduct of
such person's office. Under Illinois law, a corporation is required to notify
its shareholders when indemnity has been paid or expenses advanced. There is no
similar provision under Delaware law.
Limitation of Damages. Under Delaware and Illinois law, a corporation
may adopt a provision in its charter eliminating or limiting the personal
liability of directors to the corporation or its shareholders for monetary
damages for violations of their duties of care. The Articles of Incorporation of
Celtic Illinois includes such a provision. The Certificate of Incorporation of
Celtic Delaware does not contain such a provision.
Preferred Shares. As permitted by Delaware law, the Certificate of
Incorporation of Celtic Delaware and the Articles of Incorporation of Celtic
Illinois grant power to the Board of Directors to provide for the issuance of
preferred shares in one or more series, with such distinctive designations as
the Board determines, and to fix the designation, rights, preferences and
limitations of the shares of any series, including the number of shares of any
series the dividend rate, the redemption right and price, the rights in respect
of a liquidation, dissolution or winding up, the voting rights, the obligation
to retire any such shares, the conversion terms and conditions and any other
rights, preferences or limitations.
Board of Directors Vacancy. As permitted by Delaware law and Illinois
law, the Bylaws of Celtic Delaware and the Bylaws of Celtic Illinois provide
that vacancies in the Board of Directors may be filled by the remaining
Directors. A director so appointed would, however, serve only until the next
meeting of shareholders at which directors for that class are to be elected.
Amendments to Bylaws. As permitted by Delaware law and Illinois law,
the Bylaws of the Company and of Celtic Illinois provide that the Bylaws may be
amended, repealed or new Bylaws adopted by the affirmative vote of the
shareholders or by the Board of Directors. No Bylaws adopted or amended by the
shareholders may be amended or repealed by the Board of Directors.
Interested Shareholder Provisions. Delaware and Illinois each have a
law that is similar in concept that prevents an "interested shareholder"
(defined as a holder who acquires 15% or more of a target company's stock) from
entering into a business combination with the target company within three years
after the date it acquired such stock. However, a business combination is
permitted (i) if prior to the date the shareholder became an interested
shareholder, the board of directors of the target company approved either the
business combination or such acquisition of stock, (ii) if at the time the
interested shareholder acquired such 15% interest, it acquired 85% or more of
the outstanding stock of the corporation, excluding shares held by directors,
who are also officers, and shares held under certain employee stock plans, or
(iii) if the business combination is approved by the target company's board of
directors and two-thirds of the outstanding shares voting at an annual meeting
of shareholders, excluding shares held by the interested shareholder. This
provision applies automatically, except in the case of corporations with less
than 2,000 shareholders of record and without voting stock listed on a national
exchange or authorized for quotation with a registered national securities
association. Additional exceptions allow corporations, in certain instances, to
adopt charters or bylaws that elect not to be governed by these provisions.
Neither the Company nor Celtic Illinois has so elected; any amendment to effect
such an election would not be effective for twelve months and would not apply to
those who were already interested shareholders. In addition, the Illinois law
limits its application to domestic corporations which have equity securities
registered under the Exchange Act a condition that will exist in the case of
Celtic Illinois and which either have their principal place of business in
Illinois or have certain levels of assets and resident shareholders located in
Illinois.
16
Director Decisions. Illinois law contains a provision that provides
that, in considering the best long-term and short-term interests of the
corporation, the directors may consider the effects of any action (including
without limitation action which may involve or relate to a change or potential
change in control of the corporation) upon employees, suppliers and customers of
the corporation, communities in which offices of the corporation are located and
all other pertinent factors. Delaware law does not contain a similar provision.
Fair Price Provision. Illinois law contains a fair price provision that
is designed to provide a means of obtaining substantially equal treatment of
shareholders in connection with certain business combination transactions.
Delaware law does not contain a similar provision. The Illinois law applies
automatically to a domestic corporation with a class of equity securities
registered under the Exchange Act a condition that will exist in the case of
Celtic Illinois, or to a domestic corporation which specifically adopts the
provisions of the statutory section in its charter. Illinois law provides that,
along with any affirmative vote required by law, certain business combinations
must be approved by (i) the affirmative vote of the holders of at least 80% of
the voting power of all outstanding voting stock voting together as a single
class and (ii) the affirmative vote of the holders of at least a majority of the
voting power of outstanding voting stock held by disinterested (i.e. not
"interested", as defined below) shareholders voting together as a single class.
Transactions subject to such approval include mergers, consolidations, mandatory
share exchanges, sales of assets having a fair market value equal to 10% or more
of the corporation's net worth, certain issuances of securities, liquidations,
dissolutions, reclassifications of securities or recapitalizations (each a
"Business Combination") entered into between the corporation and an "interested
shareholder" (generally the direct or indirect beneficial owner of 10% or more
of the corporation's voting stock). These provisions do not apply if (i) a
Business Combination has been approved by two-thirds of the directors of the
corporation who were directors prior to the time the interested shareholder
attained such status and are themselves neither interested shareholders nor
affiliates or associates of an interested shareholder or (ii) the Business
Combination meets certain price criteria and procedural requirements designed to
ensure that all shareholders of the corporation receive a fair price for their
shares.
Federal Income Tax Consequences of the Merger
The Company believes that for federal income tax purposes the Merger
will constitute a reorganization under Section 368(a)(1)(F) of the Internal
Revenue Code of 1954, as amended (the "Code"), and that consequently the holders
of the Delaware Common Stock will not recognize any gain or loss as a result of
the Merger. For federal income tax purposes, each shareholder of the Company
will retain the same tax basis in his Illinois Common Stock as he had in the
corresponding Delaware Common Stock held by him immediately prior to the
Effective Time of the Merger, and his holding period of the Illinois Common
Stock will include the period during which he held the corresponding Delaware
Common Stock, provided that such corresponding Delaware Common Stock was held by
him or her as a capital asset at the Effective Time of the Merger.
Although it is not anticipated that state or local income tax
consequences to shareholders will vary from the federal income tax consequences
described above, holders should consult their own tax advisors as to the effect
of the reorganization under state, local or foreign income tax laws. The Company
anticipates that it will not recognize any gain, loss or income for federal
income tax purposes as a result of the Merger, and that Celtic Illinois will
succeed, without adjustment, to the tax attributes of Celtic Delaware.
ALL COMPANY SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER.
17
Dissenting Shareholders' Rights
The Company's shareholders are entitled to dissenting shareholders'
rights pursuant to Section 262 of the Delaware General Corporation Law. Under
Delaware law, shareholders electing to exercise dissenting shareholders' rights
must comply with the procedure set forth in such laws. A shareholder exercising
his or her dissenter rights pursuant to Delaware law will be entitled to sell
his or her shares to the Company for the fair value of the shares as determined
in accordance with Delaware law. A copy of such Section 262 is attached hereto
as an exhibit.
Vote Required: Board Recommendation
The affirmative vote of a majority of the outstanding Common Stock of
the Company is required for approval of the Reincorporation Proposal. A vote for
the Reincorporation Proposal will constitute approval of all transactions and
proceedings which are included in the Reincorporation Proposal described in this
Proxy Statement. The Board of Directors has unanimously approved the
Reincorporation Proposal and unanimously recommends that you vote for the
Reincorporation Proposal. Proxies solicited by the Board of Directors will be
voted for the Reincorporation Proposal unless a vote against the Proposal or
abstention is specifically indicated.
PROPOSAL 3: RATIFICATION AND APPROVAL OF 1997 STOCK OPTION PLAN
On November 5, 1997, the Board of Directors of the Company adopted the
1997 Stock Option Plan (the "Plan"), subject to approval by the shareholders of
the Company. Incentive stock options, intended to qualify under Section 422 of
the Code, and non-qualified stock options may be granted under the Plan. The
following is a summary of the material provisions of the Plan.
Purpose
The purpose of the Plan is to advance the interests of the Company by
encouraging and enabling the acquisition of a larger personal proprietary
interest in the Company by key employees, consultants and independent
contractors who are employed by, or perform services for, the Company and its
subsidiaries and upon whose judgment and keen interest the Company is largely
dependent for the successful conduct of its operations. It is also expected that
the opportunity to acquire such a proprietary interest will enable the Company
and its subsidiaries to attract and retain desirable personnel, directors and
other service providers. Officers or directors of the Company may not be granted
options under the Plan.
Administration
The Plan is administered by a Committee (the "Committee") of the Board
of Directors, which must consist of two or more directors of the Company.
Initially, the Committee will consist of the entire Board of Directors of the
Company. The Committee may grant options to key employees, consultants and
independent contractors to the Company. The term of each option may not exceed
ten years from the date of grant. The exercise price of an option shall be
determined by the Committee, but in the case of an incentive stock option (as
described below), the per share exercise price may not be less than 100% of the
fair market value of a share of Common Stock on the date of grant. The options
generally vest at a rate determined by the Committee at the time of grant.
18
Determinations of the Committee as to any question which may arise with
respect to the interpretation of the provisions of the Plan and options are
final. The Committee may authorize and establish such rules, regulations and
revisions thereof not inconsistent with the provisions of the Plan, as it may
deem advisable to make the Plan and options effective, or provide for their
administration, and may take such other action with regard to the Plan and
options as it deems desirable to effectuate their purpose.
Major Provisions of the Plan
Types of Options to Be Granted. Under the Plan, the Committee may grant
either an "incentive stock option" ("ISO") within the meaning of Section 422 of
the Code or options which do not satisfy Section 422 of the Code ("non-qualified
stock options" or "NSOs"). Options with respect to which no designation is made
by the Committee are deemed to ISOs to the extent they meet the requirements for
ISOs. No option which is intended to qualify as an ISO may be granted under the
Plan to any individual who, at the time of such grant, is not an employee of the
Company.
Eligibility. The potential recipients of options under the Plan are key
employees (excluding officers and directors) of the Company (and its
subsidiaries), and consultants and independent contractors used by the Company
and its subsidiaries (collectively the "Eligible Participants") each
individually as determined by the Committee in its sole discretion. At November
5, 1997, approximately 25 persons were eligible to participate in the Plan. No
option which is intended to qualify as an ISO may be granted under this Plan to
any employee who, at the time the option is granted, owns shares possessing more
than ten percent of the total combined voting power or value of all classes of
stock of the Company, unless the exercise price under such option is at least
110% of the fair market value of a share of Common Stock on the date such option
is granted and the duration of such option is no more than five years.
Shares of Common Stock Subject to the Plan. The Board of Directors
proposes for shareholder approval that the Plan provide that the number of
shares of Common Stock that may be the subject of Options may not exceed
1,000,000 in the aggregate, which Common Stock may be held in treasury or
authorized but unissued. The maximum number of shares which may be the subject
of options granted to any individual during any calendar year shall not exceed
100,000 shares. If any Option shall expire, be canceled or terminate for any
reason without having been exercised in full, the unpurchased shares subject
thereto may again be made subject to options under the Plan; however, any option
granted to a "covered employee" as defined under Section 162(m) of the Code
which is canceled or repriced shall continue to be counted against the maximum
number of shares subject to options granted to such employee, in accordance with
Section 162(m) of the Code.
Grant of Options. The Committee, in its sole discretion (subject to the
Plan) determines the number of shares of Common Stock subject to each option
granted to any eligible participant under the Plan. The terms of the Plan do not
prohibit the issuance of options at different times to the same person.
Option Exercise Price and Duration. The Committee fixes the price per
share of the Common Stock to be purchased pursuant to the exercise of any
option; however, the per share exercise price under an ISO may not be less than
the Fair Market Value (as defined in the Plan) of a share of Common Stock on the
day on which the option is granted. Under the Plan, the option price for an NSO
granted may not be less than the 50% of Fair Market Value. The Committee fixes
the duration of an option up to a maximum of ten years from the date of grant.
19
Payment for Shares. The Company must obtain such consideration for the
grant of an option as the Committee in its discretion may request. The
Committee, in its discretion, may permit a particular optionee to pay all or a
portion of the option price and/or the tax withholding liability with respect to
the exercise of an option either by surrendering shares of stock already owned
by such optionee or by withholding shares of option stock, provided that the
Committee determines that the Fair Market Value of such surrendered stock or
withheld option stock is equal to the corresponding portion of such option price
and/or tax withholding liability, as the case may be, to be paid for therewith.
If the Committee permits an optionee to pay any portion of the option price
and/or tax withholding liability with shares of stock with respect to the
exercise of an option (the "Underlying Option") then the Committee, in its
discretion, may grant to such optionee (but only if optionee remains an Eligible
Participant at that time) additional NSOs, the number of shares of option stock
called for thereunder to be equal to all or a portion of the Common Stock so
surrendered or withheld (a "Replacement Option"). Each Replacement Option will
be evidenced by an option agreement. Unless otherwise set forth therein, each
Replacement Option will be immediately exercisable upon such grant (without any
vesting period) and will be coterminous with the Underlying Option. The
Committee, in its sole discretion, may establish such other terms and conditions
for Replacement Options as it deems appropriate.
Exercise of Options. An option, once granted, will be exercisable by
the holder (or if deceased, by his estate) at such rate and times as may be
fixed by the Committee.
Termination of Options. To the extent not previously exercised, each
option will terminate upon the expiration of the option period specified in the
option agreement; provided, however, that an option will terminate (a) ninety
days after the date that the optionee ceases to be an Eligible Participant for
any reason, other than by reason of death or disability or a Just Cause
Termination; (b) twelve months after the date that the optionee ceases to be an
Eligible Participant by reason of such person's death or disability; or, (c)
immediately as of the date that the optionee ceased to be an Eligible
Participant by reason of a Just Cause Termination. For purposes of the Plan, the
term "Just Cause Termination" shall mean a termination by the Company of an
optionee's employment by and/or service to the Company in connection with the
good faith determination of the Company's Board that the optionee has engaged in
any acts involving dishonesty or moral turpitude or in any acts that materially
and adversely affect the business, affairs or reputation of the Company or its
subsidiaries.
Adjustment of Shares. The Plan contains usual anti-dilution provisions
in the event of certain corporate transactions.
Amendment and Termination of the Plan. The Board of Directors or the
Committee may at any time withdraw or from time to time amend the Plan and any
options not theretofore granted. With respect to any outstanding option, the
Board of Directors or the Committee, with the consent of the affected holder of
an option, may at any time withdraw or from time to time amend the Plan and the
terms and conditions of any outstanding option. Notwithstanding the foregoing,
any amendment by the Board of Directors or the Committee which would increase
the number of shares of Common Stock issuable under options, increase the number
of options which may be granted to any individual during a calendar year, or
change the class of persons to whom options may be granted, shall be subject to
the approval of the stockholders of the Company. No option shall be granted
under the Plan after November 5, 2006.
20
Federal Income Tax Considerations
The following general discussion of federal income tax consequences is
only a summary of principal considerations based upon the tax laws and
regulations of the United States existing as of the date hereof, all of which
may be subject to modification or change at any time, in some cases
retroactively. This discussion is also qualified by certain exceptions and the
particular circumstances of individual optionees, which may substantially alter
or modify the consequences herein discussed. Optionees, in addition, may be
subject to state, estate or other taxation.
The 1997 Plan does not constitute a qualified retirement plan under
Section 401(a) of the Code (which generally covers trusts forming part of a
stock bonus, pension or profit sharing plan funded by the employer and/or
employee contributions which are designed to provide retirement benefits to
participants under certain circumstances) and is not subject to the Employee
Retirement Income Security Act of 1974 (the pension reform law which regulates
most types of privately funded pension, profit sharing and other employee
benefit plans).
Incentive Stock Options. With respect to ISOs granted under the 1997
Plan, an optionee generally will not recognize any income upon the grant or the
exercise of the option. Upon a subsequent disposition of the stock, the optionee
will generally recognize long-term capital gain or loss equal to the difference
between the amount paid for the stock and the amount realized on its
disposition, provided that the stock is not disposed of for at least two years
from the date the option is granted and for at least one year from the date the
stock is transferred to the optionee.
If the stock received pursuant to the exercise of an ISO is disposed of
prior to the aforementioned two-year or one-year periods (a "disqualifying
disposition"), the optionee will generally recognize ordinary compensation
income upon the making of such disqualifying disposition, in an amount equal to
the lesser of (i) the fair market value of the option shares on the exercise
date, minus the exercise price, and (ii) the amount realized on the disposition,
minus the exercise price. Any amount realized upon disposition in excess of the
fair market value of the shares on the date of exercise will generally be
treated as long-term or short-term capital gain, depending upon whether the
shares have been held for more than one year.
If an optionee exercises an ISO, in whole or in part, with previously
acquired stock of the Company, the exchange will not affect the ISO treatment of
the exercise. Upon such exchange, and except as otherwise described herein, no
gain or loss is recognized by the optionee upon delivering previously acquired
stock to the Company, and the shares of stock received by the optionee, equal in
number to the previously-acquired shares of stock exchanged therefor, will have
the same tax basis and holding period for long-term capital gain purposes as
such previously-acquired stock. (The optionee will not, however, be able to
utilize the prior holding period for the purpose of satisfying the ISO statutory
holding period requirements.) Shares of stock received by an optionee in excess
of the number of such previously-acquired shares of stock will have a tax basis
of zero and a holding period which commences as of the date of exercise. If the
exercise of an ISO is effected using stock previously-acquired through the
exercise of an ISO, the exchange of such previously acquired shares of stock
will be considered a disposition of such stock for the purpose of determining
whether a disqualifying disposition has occurred.
When the optionee exercises an ISO granted under the 1997 Plan, the
difference between the exercise price paid and the then-fair market value of the
stock will constitute an "item of adjustment" which may subject the optionee to
the alternative minimum tax ("AMT") imposed by Section 55 of the Code. However,
21
if a disqualifying disposition occurs in the year in which the option is
exercised, the maximum amount that will be included as AMT income is the gain
realized on the disposition of the stock. If there is a disqualifying
disposition in a year other than the year of exercise, the income on the
disposition will not be considered income for AMT purposes. In addition, the
basis of the stock for determining gain or loss for AMT purposes will be the
exercise price for the stock, increased by the amount that the AMT income was
increased due to the earlier exercise of the ISO.
The Company will generally not be entitled to any federal income tax
deduction with respect to ISOs granted or exercised under the 1997 Plan.
However, if the optionee makes a disqualifying disposition, then the Company
generally will be entitled to a deduction in the year of such disqualifying
disposition in an amount equal to the income includable by the optionee with
respect to the transaction.
Non-Qualified Stock Options. An optionee who is granted an option to
acquire Common Stock under the 1997 Plan that does not qualify for ISO treatment
(an NSO) will not realize any income upon the grant of such option, but
generally will realize ordinary income when the NSO is exercised. The amount of
income to be recognized by the optionee is equal to the difference between the
amount paid for the stock and the fair market value of the stock received. The
ordinary income received will constitute compensation for which tax withholding
may be required.
If, however, a profitable sale of the stock subject to an NSO under the
1997 Plan could subject the optionee to suit under Section 16(b) of the Exchange
Act, then such optionee will generally recognize ordinary income on the date
when such optionee is no longer subject to such liability (or, if earlier, six
months from the transfer of the stock to the optionee) in an amount equal to the
fair market value of the shares on such date less the exercise price. However,
the optionee may elect within thirty days of the date of exercise to recognize
ordinary income as of the date of exercise.
Shares received pursuant to the exercise of a NSO granted under the
1997 Plan will have a tax basis equal to their fair market value on the exercise
date or other relevant date on which ordinary income is recognized, and the
holding period for the shares received generally will begin on the date of
exercise or other relevant date. Upon the subsequent sale of such shares, the
optionee will generally recognize long-term or short-term capital gain or loss,
depending upon whether the shares have been held for more than one year (and
provided that the shares constitute capital assets in the hands of the selling
stockholder), in an amount equal to the difference between the selling price and
the stockholder's tax basis in the shares sold.
If an optionee exercises a NSO, in whole or in part, with
previously-acquired stock of the Company, the optionee will recognize ordinary
income in the amount by which the fair market value of the stock received by the
optionee exceeds the exercise price. The optionee will not recognize gain or
loss upon delivering such previously acquired stock to the Company. Shares of
stock received by an optionee, equal in number to the previously acquired shares
of stock exchanged therefor, will have the same tax basis and holding period as
such previously acquired stock. Shares of stock received by an optionee in
excess of the number of such previously acquired shares of stock will have a tax
basis equal to the fair market value of such additional shares of stock as of
the date ordinary income is received, and the holding period for such additional
shares of stock will commence as of the date of exercise or such other relevant
date.
With respect to the grant and exercise of NSO under the 1997 Plan, the
Company generally will be entitled to a federal income tax deduction in its tax
year within which the optionee recognizes income (that
22
is, the taxable year of the Company in which or with which the optionee's
taxable year of income recognition ends) equal to the amount of income
recognized by the optionee.
Withholding
Generally, the Company will be required to make arrangements for
withholding or reporting applicable taxes with respect to ordinary income
recognized by an optionee in connection with awards made under the 1997 Plan.
Special rules will apply in cases where the recipient of an award pays the
exercise or purchase price of the award or applicable withholding tax
obligations by delivering previously-owned shares or by reducing the number of
shares otherwise issuable pursuant to the award. Such delivery of shares will in
certain circumstances result in the recognition of income with respect to such
shares.
Section 280G of the Code
In addition to the federal income tax consequences discussed above,
Section 280G of the Code provides that if an officer, stockholder or highly
compensated individual receives a payment which, if in the nature of
compensation and which is contingent upon a change in control of the employer,
and such payment equals or exceeds three times his base salary, then any amount
received in excess of base salary shall be considered an "excess parachute
payment." An individual's base salary is equal to his average annual
compensation over the five-year period (or period of employment, if shorter)
ending with the close of the individual's taxable year immediately preceding the
taxable year in which the change in control occurs. In addition to any income
tax which would otherwise be owed on such payment, the individual will be
subject to an excise tax equal to 20% of such excess payment (and the Company
will not be allowed any deduction which might otherwise have been allowed for
such excess payment). If the taxpayer establishes, by clear and convincing
evidence, that the amount received is reasonable compensation for past or future
services, all or a portion of such amount shall be deemed not to be an excess
parachute payment.
Section 280G provides that payments made pursuant to a contract entered
into within one year of the change in control are presumed to be parachute
payments unless the individual establishes, by clear and convincing evidence,
that such contract was not entered into in contemplation of a change in control.
In addition, the General Explanation of the Tax Reform Act of 1984 prepared by
the Staff of the Joint Committee on Taxation indicates that the grant of an
option within one year of the change in control or the acceleration of an option
because of a change in control may be considered a parachute payment, in an
amount equal to the value of the option or the value of the accelerated portion
of the option, as the case may be. Pursuant to proposed regulations, the
acceleration of a NSO because of a change in control will be considered a
parachute payment. Even if the grant of an option, if any, within one year of
the change in control or the acceleration of an option, if any, is not a
parachute payment for purposes of Section 280G, the exercise of an option
granted within one year of the change in control or the exercise of the
accelerated portion of an option may result in a parachute payment, in an amount
equal to the excess of the fair market value of the shares received upon
exercise of the option over the exercise price. Payments received for the
cancellation of an option, if any, because of a change in control may also
result in parachute payments.
No Options Granted
No options have been granted under the Plan.
Vote Required for Approval
23
The affirmative vote of a majority of the votes cast on the proposal to
approve the Plan is required for approval of the Plan.
Recommendation of Board of Directors
The Board of Directors of the Company recommends a vote FOR approval of
the Plan.
PROPOSAL 4: RATIFICATION AND APPROVAL OF 1996 AND
1997 EMPLOYEE OPTION GRANTS
The Company believes it is in the best interests of the Company and its
shareholders to provide stock options to employees for the purpose of promoting
the success of the Company and to advance the interests of the Company and its
shareholders by providing an additional means, through the grant of stock
options, to attract, motivate, retain and reward employees with incentives for
high levels of individual performance and improved financial performance of the
Company.
On July 1, 1996, the Company granted stock options to Larry Meek and
Frank Lucchese, President and Chief Financial Officer, respectively, of USCF.
Such options entitle Mr. Meek and Mr. Lucchese to purchase up to 150,000 shares
of the Company's common stock at $3.00 per share. Mr. Meek is also a director of
the Company and Mr. Lucchese is the Chief Financial Officer of the Company. As
part of their Employment Agreements, Mr. Meek and Mr. Lucchese were previously
granted options to purchase 560,000 and 140,000 shares of the Company's common
stock, respectively, which were previously approved by the Company's
shareholders. The bid price the Company's Common Stock on June 30, 1996 was
approximately $3.00.
On January 31, 1997, the Company acquired SLM and in connection
therewith, entered into Employment Agreements with Reese Howell, Jr. and Roger
D. Davis. In connection therewith, Mr. Howell and Mr. Davis were each granted
stock options to purchase 500,000 shares of the Company's common stock at a
price of $3.00 per share. The bid price for the Company's common stock on
January 31, 1997 was approximately $1.87 per share.
In June 1997, the Company's Board of Directors of the Company believed
that it would be in the best interest of the Company to reduce the number of
management stock options issued and outstanding in order to reduce market
overhang. Each of the officers and directors of the Company, and its
subsidiaries agreed to reduce the number of options owned by fifty percent
(50%). In consideration of such individuals agreeing to cancel one-half of their
options, the Company agreed to reduce the exercise price of the remaining
options from $3.00 per share to $1.00 per share. The trading price of the
Company's common stock on such date of cancellation of options was $1.00. All
information set forth below as to grants of options give effect to such
cancellation of options and to the corresponding reduction in the exercise price
of the remaining options.
24
Meek - Lucchese Options
The Options granted to Mr. Meek and Mr. Lucchese are exercisable at a price
of $1.00 per share and vest in three equal portions over a period of two years
pursuant to the following vesting schedule:
Name Vesting Date Number of Shares
Larry Meek 7/1/96 25,000*
7/1/97 25,000*
7/1/98 25,000
Frank Lucchese 7/1/96 25,000*
7/1/97 25,000*
7/1/98 25,000
*Currently vested
The options are exercisable for a term of five years from the date of
vesting. However, the options are not exercisable for six months from the date
of shareholder approval. The options will terminate; (i) ninety days (180 days
for NSOs) after the date that an optionee ceases to be an employee of the
Company for any reason, other than by reason of death or disability or
termination based upon just cause; (ii) three months after the date that an
optionee ceases to be an employee by reason of death or disability; (iii)
immediately as of the date that the optionee ceases to be an employee by reason
of termination for cause.
The Company has a right to repurchase the shares of common stock issued
to an optionee pursuant to the exercise of the options. In the event an
optionee's employment is terminated for cause, the Company may repurchase, for a
period of 90 days from termination, all of the shares issued at a price of $1.00
per share plus an 8% carrying cost. In the event the optionee's employment is
terminated other than for cause, the Company shall have the first right of
refusal to purchase the shares if the Optionee desires to sell all or a portion
of the shares within 90 days from the date of termination of employment.
Howell - Davis Options
The options to purchase 250,000 shares granted to each Mr. Howell and
to Mr. Davis are exercisable at a price of $1.00 per share and include
time-based options to purchase 75,000 shares which vest over a two year period
and performance-based options to purchase 175,000 shares which vest if certain
financial results are achieved by SLM and ARI.
Time Based Options. Mr. Howell and Mr. Davis are each granted options to
purchase 75,000 shares (the "Time Based Options") which vest in two equal
installments ("Vesting Periods") each of which shall entitle each of them to
purchase 37,500 Option Shares. The time-based options for each of Mr. Howell and
Mr. Davis shall vest as follows:
Number of
Vesting Date Option Shares
January 31, 1998 37,500
January 31, 1999 37,500
25
Performance-Based Options. Mr. Howell and Mr. Davis were also each
issued options to purchase an additional 175,000 option shares (the
"Performance-Based Options"). The Performance-Based Options shall vest, if at
all, over a period of three years and five months commencing on January 31, 1999
and ending on June 30, 2002. The vesting schedule shall be based on four periods
during which the "Performance-Based Options" shall vest and such periods are as
follows:
Period 1 - Commencing January 31, 1999, ending June 30, 1999.
Period 2 - Commencing July 1, 1999, ending June 30, 2000.
Period 3 - Commencing July 1, 2000, ending June 30, 2001.
Period 4 - Commencing July 1, 2001, ending January 31, 2002.
(a) The first group ("First Option") to purchase 24,306 option shares,
shall vest, subject to the achievement of the performance criteria for the First
Option, on June 30, 1999. In order for the First Option to vest, Adjusted Pretax
Profits, as defined in the Option Agreement, for the twelve-month period ending
on June 30, 1999, must be not less than 118% of the Adjusted Pretax Profits as
stated in the June 30, 1998 fiscal year ending audited financial statements.
(b) The second group ("Second Option") to purchase 58,333 option
shares, shall vest, subject to the achievement of the performance criteria for
the Second Option, on June 30, 2000. In order for the Second Option to vest,
Adjusted Pretax Profits for the twelve-month period ending on June 30, 2000,
must be not less than 118% of the Adjusted Pretax Profits as stated in the June
30, 1999 fiscal year ending audited financial statements.
(c) The third group ("Third Option") to purchase 58,333 option shares,
shall vest, subject to the achievement of the performance criteria for the Third
Option, on June 30, 2001. In order for the Third Option to vest, Adjusted Pretax
Profits for the twelve-month period ending on June 30, 2001, must be not less
than 118% of the Adjusted Pretax Profits as stated in the June 30, 2000 fiscal
year ending audited financial statements.
(d) The fourth group ("Fourth Option") to purchase 34,028 option
shares, shall vest subject to the achievement of the performance criteria for
the Fourth Options, on June 30, 2002. In order for the Fourth Option to vest,
Adjusted Pretax Profits for the twelve-month period ending on June 30, 2002,
must be not less than 118% of the Adjusted Pretax Profits as stated in the June
30, 2001 fiscal year ending audited financial statements.
Adjusted Pretax Profits as defined in the Option Agreement means all
amounts which, in conformity with GAAP, would be included in the pre-tax net
income on a consolidated income statement of SLM and ARI for such period subject
to certain adjustments.
Each group of Performance-Based Options shall vest or be void in total
on a group basis and there shall be no prorata vesting of Options within a
group. If the performance criteria is not met for a group of Performance-Based
Options, then no options from that group shall vest except for the provisions
provided for in the employment agreement.
The options are exercisable for a term of five years from the date of
vesting. However, the options are not exercisable for six months from the date
of shareholder approval. The options will terminate; (i) ninety days (180 days
for NSOs) after the date that an optionee ceases to be an employee of the
Company for any reason, other than by reason of death or disability or
termination based upon just cause; (ii) three months after
26
the date that an optionee ceases to be an employee by reason of death or
disability; (iii) immediately as of the date that the optionee ceases to be an
employee by reason of termination for cause.
The Company has a right to repurchase the shares of common stock issued
to an optionee pursuant to the exercise of the options. In the event an
optionee's employment is terminated for cause, the Company may repurchase, for a
period of 90 days from termination, all of the shares issued at a price of $1.00
per share plus an 8% carrying cost. In the event the optionee's employment is
terminated other than for cause, the Company shall have the first right of
refusal to purchase the shares if the optionee desires to sell all or a portion
of the shares within 90 days from the date of termination of employment.
Each option shall be deemed to be an ISO to the maximum amount allowed
by the Code and an NSO to the extent not deemed to be an ISO.
Option Grant Table
The following table shows certain information with respect to the stock
options which were granted in June, 1996, and in January, 1997, subject to
shareholder approval:
NEW PLAN BENEFITS
- - --------------------------------------------------------------------------------
Plan Name
- - --------------------------------------------------------------------------------
Name and Position Dollar Value ($) Number of Units
- - --------------------------- -------------------------- -----------------------
Larry Meek (1) 75,000
Frank Lucchese (1) 75,000
Reese Howell, Jr. (1) 250,000
Roger D. Davis (1) 250,000
- - --------------------------- -------------------------- -----------------------
(1) The "Plan" is limited to written Option Agreements entered into by
the Company and each optionee. Inasmuch as the exercise price of the
options granted equaled the market price of the Company's common stock
on the date of grant there currently is no determinable value to the
options.
(2) The options granted were one-time grants of options to the four
named option holders. No other person participated in the receipt of
such options.
Transferability
The Options are not transferable by an optionee otherwise than at his
or her death by will or by the laws of descent and distribution and are
exercisable during the lifetime of the optionee only by the optionee. The shares
of the Company's common stock underlying the option have not been registered
under the Securities Act, and such common stock may not be freely transferable
and must be held indefinitely unless such common stock is either registered
under the Securities Act or an exemption from registration is available. The
Company has agreed to register the shares underlying the options and intends to
do so in the near future.
27
Tax Information
The options granted are both ISOs and NSOs. The Option Agreements
provide that each vested installment shall be deemed to be an ISO to the maximum
amount allowed by the Code and an NSO to the extent not deemed to be an ISO.
Under the Code, the maximum amount of ISOs which are first exercisable by an
employee in a given year may not be for stock worth more than $100,000. To the
extent the fair market value exceeds $100,000, such excess shares are deemed to
be NSOs rather than ISOs. For additional information concerning the tax
consequences of the options, see the discussion of Tax Matters in Proposal 3
above.
Recommendation of Board of Directors
The Board of Directors recommends a vote FOR the proposal to ratify
1996 grants of stock options to Larry Meek and Frank Lucchese and 1997 grants of
stock options to Reese Howell, Jr. and Roger Davis.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
McGladdery & Pullen has served as the Company's independent auditor
since 1996. It is not expected that any representative of McGladdery & Pullen
will be present at the Annual Meeting.
GENERAL
Management of the Company does not know of any matters other than the
foregoing that will be presented for consideration at the Meeting. However, if
other matters properly come before the Meeting, it is the intention of the
persons named in the enclosed proxy to vote thereon in accordance with their
judgment.
Shareholder proposals intended for presentation at the Company's 1998
Annual Meeting of Shareholders must be received by the Company at its principal
offices at 17W220 22nd Street, Suite 420, Oakbrook Terrace, IL 60181 not later
than August 23, 1998.
The entire cost of soliciting management proxies will be borne by the
Company. Proxies will be solicited by mail and may be solicited personally by
directors, officers or regular employees of the Company, who will not be
compensated for their services. The Company will reimburse banks, brokerage
firms, and other custodians, nominees and fiduciaries for reasonable expenses
incurred in sending proxy material to their proposals and obtaining their
proxies. A professional proxy solicitor will not be engaged.
28
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED, IF YOU DO NOT PLAN TO
ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY. IN THE
EVENT YOU ARE ABLE TO ATTEND, WE WILL, IF YOU REQUEST, CANCEL THE PROXY.
By Order of the Board of Directors
/s/ Douglas P. Morris
Douglas P. Morris
President
December 10, 1997
Exhibits
Celtic Illinois Articles of Incorporation
Celtic Illinois Bylaws
Delaware Dissenter's Rights Statute
Stock Option Plan
29
PROXY
CELTIC INVESTMENT, INC.
ANNUAL MEETING OF SHAREHOLDERS
January 12, 1998
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas P. Morris, President and
director of Celtic Investment, Inc., or any member of the Board of Directors,
with power of substitution, to represent and vote on behalf of the undersigned
all shares of common stock of Celtic Investment, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held on January 12,
1998, at 6:00 p.m. and at any adjournment or adjournments thereof, hereby
revoking all proxies heretofore given with respect to such stock, upon the
following proposals more fully described in the Proxy Statement for the meeting,
receipt of which is hereby acknowledged.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (2) (3) and (4).
1. ELECTION OF DIRECTORS FOR all nominees listed below NO AUTHORITY
(except as marked to the to vote for all nominees listed
contrary below) ____ below ____
Howard M. Talks, Douglas P. Morris, Larry Meek, Reese Howell, Jr. and
Pamela Davis
INSTRUCTION: To withhold authority to vote for any individual
nominee write that nominee's name on the space
provided below.
-------------------------------------------------------------------.
2. Reincorporation Merger For ____ Against ____ Abstain ____
3. 1997 Stock Option Plan: For ____ Against ____ Abstain ____
4. 1996 and 1997 Grants of Stock Options: For ____ Against ____ Abstain ____
5. IN THEIR DISCRETION, Proxy holders are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ALL PROPOSALS SET FORTH ABOVE.
Please sign exactly as the name appears on your stock certificate. When
shares are held by joint tenants, both should sign. Please return this Proxy in
the enclosed envelope.
Dated:______________________ __________________________________
Signature
____________________________ __________________________________
Number of shares owned Please print name clearly
Return Proxy To:
Celtic Investment, Inc.
17W220 22nd Street, Suite 420
Oakbrook Terrace, Illinois 60181
30
CELTIC INVESTMENT, INC.
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
To Be Held January 12, 1998
TO THE SHAREHOLDERS OF CELTIC INVESTMENT, INC.
The Annual Meeting of the Shareholders of Celtic Investment, Inc. (the
"Company") will be held at the _________________________________, _______,
Illinois ____on January 12, 1998, at 6:00 p.m. local time, for the following
purposes:
1. To elect five (5) directors each to serve until the next Annual Meeting of
Shareholders or until their successors shall have been duly elected and
qualified.
2. To consider and act upon a proposal to approve and adopt a Plan of
Reorganization and Agreement of Merger which provides for the merger of the
Company with and into its wholly-owned subsidiary in order to change the
state of incorporation of the Company from Delaware to Illinois as set
forth in the Proxy Statement.
3. To approve the adoption of the Company's 1997 Stock Option Plan;
4. To ratify and approve 1996 and 1997 grants of stock options to certain
employees of U.S. Commercial Funding Corp, Salt Lake Mortgage Corp. and
Advantage Realty, Inc., all of which are subsidiaries of the Company
5. To transact such other business as may come before the meeting or any
adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on December 10,
1997 as the record date for the determination of shareholders entitled to notice
of and to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors
/s/ Douglas P. Morris
Douglas P. Morris President
Oakbrook Terrace, Illinois
December 10, 1997
===============================================================================
All shareholders are cordially invited to attend the meeting in
person. However, to assure your representation at the meeting, you are urged to
sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she has returned a proxy.
===============================================================================