<PAGE>
 
                                                                    Exhibit 20.1


                        APPLIED VOICE RECOGNITION, INC.
                         4615 POST OAK PLACE, SUITE 111
                              HOUSTON, TEXAS 77027


Dear Shareholder:

     Recently, the Board of Directors of Applied Voice Recognition, Inc. (the
"Company") unanimously approved (i) a change in the state of incorporation of
the Company from Utah to Delaware (the "Reincorporation") and (i) the adoption
of the Company's 1997 Incentive Plan (the "Incentive Plan") as an amendment and
restatement of the Company's previous incentive plans.  Since the Board's
approval of such actions, certain shareholders of the Company have executed
written consents approving the Reincorporation and the adoption of the Incentive
Plan.  Included with this letter is a Notice of Action by Written Consent
containing an explanation of the reasons for the actions taken and a description
thereof.

     The Reincorporation is intended to bring the Company into line with
numerous other public companies also located in Delaware.  Over the years, the
State of Delaware has developed a comprehensive and flexible body of corporate
law that is responsive to the needs of modern business. Many of the largest and
most successful corporations in the United States have either chosen Delaware as
their initial state of incorporation or reincorporated there.  Due to the large
number of corporations seeking incorporation under the laws of that state, its
government has taken steps to encourage corporations to establish themselves in
that state and have developed a comprehensive body of law which affords
corporations a degree of certainty and predictability with respect to the legal
aspects of their corporate existence, and facilitates the efforts of
corporations to attract and retain capable directors.  In addition, financial
institutions, third party lenders, and other potential sources of financing are
familiar with Delaware's corporate law, which can facilitate the acquisition of
financing when needed for corporate activities and operations.

     The improvements to the Incentive Plan are intended to update the Company's
incentive compensation plan to account for recent changes in the laws concerning
such plans, to foster and promote the long-term financial success of the Company
and its Subsidiaries, to increase stockholder value by attracting and retaining
key employees, consultants and outside directors by providing competitive
incentive compensation opportunities, and to enable key employees, consultants
and outside directors to share in the long-term growth and success of the
Company.

     Please take a moment to review the enclosed Notice of Action by Written
Consent and the Dissenters' Notice to Certain Shareholders.  We hope that you
will continue to support our efforts to improve the Company's structure and
efficiency.

                                    By Order of the Board of Directors,

                                    /S/ WILLIAM T. KENNEDY

                                    William T. Kennedy,
                                    Assistant Secretary
Houston, Texas
December 22, 1997
<PAGE>
 
                        APPLIED VOICE RECOGNITION, INC.
                         4615 POST OAK PLACE, SUITE 111
                              HOUSTON, TEXAS 77027

                         -----------------------------

                      NOTICE OF ACTION BY WRITTEN CONSENT
                            DATED DECEMBER 22, 1997

                         -----------------------------


     This Notice of Action By Written Consent (this "Notice") is being furnished
to the shareholders of Applied Voice Recognition, Inc., a Utah corporation (the
"Company"), in connection with the recently executed written consents of certain
of the Company's shareholders relating to the reincorporation of the Company in
Delaware (the "Reincorporation") and the approval of the Company's 1997
Incentive Plan (the "Incentive Plan").  The Reincorporation and the Incentive
Plan are sometimes collectively referred to herein as the "Shareholder Actions."
The Board of Directors of the Company (the "Board"), at a special meeting of the
Board held on September 26, 1997, and certain shareholders of the Company (the
"Consenting Shareholders") who own shares which together represent 54.8% of the
issued and outstanding shares of the Company's common stock, par value $.001 per
share (the "Common Stock"), by written consent dated December 3, 1997, approved
the Shareholder Actions.  Certain other shareholders of the Company (the
"Consenting Preferred Shareholders") who own shares which together represent
100% of the issued and outstanding shares of the Company's Series A Preferred
Stock, par value $.10 per share (the "Series A Preferred Stock"), approved the
Reincorporation by written consent dated November 28, 1997.  A Certificate of
Ownership and Merger in Delaware (the "Delaware Certificate") and Articles of
Merger in Utah (the "Utah Articles") will be filed with the appropriate
Secretaries of State on or about January 26, 1998.  A registration statement on
Form S-8 (the "Registration Statement") will be filed with the Securities and
Exchange Commission (the "SEC") on or about January 1, 1998 to register up to
3,000,000 shares of the Company's Common Stock to be issued under the Incentive
Plan.

     ACCORDINGLY, YOUR CONSENT IS NOT REQUIRED FOR THE APPROVAL OF THE
SHAREHOLDER ACTIONS, AND IS NOT, THEREFORE, BEING SOLICITED BY THE COMPANY.  IN
ADDITION, THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND A PROXY.  NO MEETING IS BEING HELD; THIS NOTICE IS BEING SENT TO INFORM YOU
OF THE APPROVAL OF THE SHAREHOLDER ACTIONS.

     This Notice concerning the approval of the Shareholder Actions is being
mailed on or about December 22, 1997 to all shareholders of record.  The Board
has fixed the close of business on December 3, 1997 as the record date (the
"Record Date") for the determination of shareholders entitled to receive this
Notice.  As of the Record Date, there were outstanding 13,119,800 shares of
Common Stock of the Company and 312,500 shares of Series A Preferred Stock.
<PAGE>
 
                          REINCORPORATION IN DELAWARE

     The Board of Directors of the Company has unanimously approved a change in
the state of incorporation of the Company from Utah to Delaware.  Delaware has
an extensive and flexible body of corporate law set forth in its statutes and
judicial interpretations that is familiar to many of the advisors,
professionals, and business entities with which the Company has dealings, and
management has determined that it would be advantageous for the Company to be
reincorporated under the laws of that state.  In connection with the
Reincorporation, certain changes in the governing instruments of the Company
will be effected as set forth below.  The summary set forth in this Notice of
the effects of the Merger (as defined below) and the terms and provisions of the
Utah Articles of Merger, the Delaware Certificate of Ownership and Merger, the
Plan and Agreement of Merger, and the Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
Bylaws (the "Bylaws") of the Delaware Corporation (as defined below), which will
govern the corporate affairs of the Company subsequent to the Merger, does not
purport to be complete and is qualified in its entirety by the provisions of
such documents, copies of which are available from the Assistant Secretary of
the Company, William T. Kennedy, at the offices of the Company located at 4615
Post Oak Place, Suite 111, Houston, Texas 77027, (713) 621-5678.

     In order to accomplish the change in the state of incorporation in
accordance with the laws of the States of Utah and Delaware, the Company
proposes to merge (the "Merger") with and into Applied Voice Recognition, Inc.,
a Delaware corporation and a wholly-owned subsidiary of the Company (the
"Delaware Corporation") pursuant to the terms and provisions of the Plan and
Agreement of Merger (the "Merger Plan").  Under the terms of the Merger Plan,
the Delaware Corporation will be the surviving corporation; the separate
corporate existence of the Company will cease; the Delaware Corporation will
succeed to all of the business, properties, assets, and liabilities of the
Company; the directors, officers, and employees of the Company will become the
directors, officers, and employees of the Delaware Corporation; each outstanding
share of the Company's Common Stock and each outstanding share of the Company's
Series A Preferred Stock will automatically be converted into one share of the
Delaware Corporation's Common Stock and Series A Preferred Stock, respectively.
On completion of the change of domicile, the Company will be governed by the
Certificate of Incorporation and the Bylaws of the Delaware Corporation.

     According to Delaware and Utah law, the Merger will become effective (the
"Effective Date") immediately upon filing of the Delaware Certificate and the
Utah Articles.  Immediately following the Merger at the Effective Time, all
stock certificates which represented shares of Common Stock or Series A
Preferred Stock of the Company shall automatically represent and evidence
ownership of shares of Common Stock or Series A Preferred Stock of the Delaware
Corporation, respectively. Each shareholder will be entitled to submit his or
her old certificates to the transfer agent of the Company, American Stock
Transfer & Trust Company, 6201 15th Avenue, 3rd Floor, Brooklyn, New York 11219;
telephone number (718) 921-8200, and be issued in exchange therefor new Delaware
Corporation certificates representing the same number of shares represented by
the old certificates.  THERE IS NO REQUIREMENT THAT THE SHAREHOLDERS SUBMIT
THEIR CURRENT CERTIFICATES FOR CANCELLATION AND ISSUANCE OF NEW CERTIFICATES.
THE NAME OF THE COMPANY SUBSEQUENT TO THE MERGER WILL CONTINUE TO BE APPLIED
VOICE RECOGNITION, INC., AND THE OLD STOCK CERTIFICATES REPRESENTING SHARES OF
STOCK IN THE COMPANY WILL 

                                       2
<PAGE>
 
AUTOMATICALLY REPRESENT A CORRESPONDING NUMBER OF SHARES IN THE DELAWARE
CORPORATION. FOLLOWING THE MERGER, THE SHARES OF COMMON STOCK OF THE COMPANY
WILL CONTINUE TO BE TRADED, WITHOUT INTERRUPTION.

REASONS FOR REINCORPORATION

     Over the years, the State of Delaware, through legislative action and court
decisions, has developed a comprehensive and flexible body of corporate law that
is responsive to the needs of modern business.  Many of the largest and most
successful corporations in the United States have either chosen Delaware as
their initial state of incorporation or reincorporated there.  Due to the large
number of corporations seeking incorporation under the laws of the State of
Delaware, the legislative, executive, and judicial branches of the state
government have taken affirmative steps to encourage corporations to establish
themselves in the State of Delaware and have developed a comprehensive body of
law which affords corporations a degree of certainty and predictability with
respect to the legal aspects of their corporate existence.  In addition, the
Delaware legislature has enacted amendments to the Delaware law regarding the
limitation of liability of directors in certain circumstances (as discussed
below) to facilitate the efforts of corporations to attract and retain capable
directors.  Due to the large number of corporations incorporated in Delaware,
financial institutions, third party lenders, and other potential sources of
financing are familiar with the Delaware corporation law, which can facilitate
the acquisition of financing when needed for corporate activities and
operations.

EFFECT OF REINCORPORATION

     As previously noted, the Certificate of Incorporation of the Delaware
Corporation will be the governing instrument of the surviving corporation
following the Merger with the Company, resulting in several changes from the
current Articles of Incorporation of the Company.  Some of these changes are
purely procedural in nature, such as a change in the registered office and agent
of the Company. Some changes, however, will be substantive in nature.  Set forth
below is a discussion of all effects of the Reincorporation of the Company in
the State of Delaware that management deems to be material.  In most other
respects, the Certificate of Incorporation of the Delaware Corporation is
essentially the same as the Company's present Articles of Incorporation.  The
summary of the provisions of the Certificate of Incorporation and changes to the
existing Articles of the Company set forth below is not intended to be complete
and is qualified in its entirety by the provisions of the Certificate of
Incorporation and the Articles of Incorporation.

AUTHORIZATION OF STOCK

     The Articles of Incorporation of the Company currently authorize 50,000,000
shares of common stock, par value $.001 per share (the "Common Stock").  The
authorized but unissued Common Stock may be issued from time to time by the
Board of Directors without further shareholder action.  In addition, the
Articles of Incorporation of the Company currently authorize 2,000,000 shares of
preferred stock, par value $.10 per share (the "Preferred Stock").  The shares
of Preferred Stock may be designated and issued by the Board of Directors, from
time to time, without further shareholder action.  Currently, the Articles of
Incorporation establish and designate 

                                       3
<PAGE>
 
the rights, privileges and preferences for one series of Preferred Stock, Series
A Preferred Stock. As of the date hereof, there are currently outstanding
13,119,800 shares of Common Stock and 312,500 shares of Series A Preferred
Stock.

     The Certificate of Incorporation of the Delaware Corporation provides for
the same capital structure and authorizes 50,000,000 shares of common stock, par
value $.001 per share, and 2,000,000 shares of Preferred Stock, par value $.10
per share.  The authorized and unissued Common and Preferred Stock can be issued
from time to time without further shareholder action.  The shares of Preferred
Stock are issuable in such series as the Board of Directors determines from time
to time. The Board of Directors will also have the right to designate the
rights, privileges, and preferences of each series.  The Certificate of
Incorporation currently establishes and designates the rights, privileges and
preferences for one series of preferred stock, the Series A Preferred Stock.
The Delaware Corporation's Series A Preferred Stock has the same rights,
privileges and preferences as the Company's current Series A Preferred Stock.

LIMITATION ON LIABILITY OF DIRECTORS

     The Certificate of Incorporation of the Delaware Corporation contains a
provision limiting the liability of directors as permitted under the Delaware
General Corporation Law (the "DGCL"). The pertinent provision is designated to
limit the personal liability of directors to the Company or its stockholders
under certain circumstances involving a breach of the director's fiduciary duty
of care. No officer or director of the Company has been involved in any
litigation that would have been affected by a provision such as the one
proposed.  However, the proposed provision is clearly in the interests of the
directors as it would limit their personal liability in certain circumstances at
the potential expense of the Company and its shareholders.

     The provision in the Certificate of Incorporation is included under a
Delaware law which is primarily intended to permit corporations and their
stockholders to remove directors' exposure to liability for certain breaches of
a director's fiduciary duty, either in a suit or by or on behalf of the
corporation or in an action by stockholders of the corporation.  The directors'
liability has been eliminated to the fullest extent permitted under paragraph
(7) of subsection (b) of (S)102 of the DGCL. The law represents a legislative
response to changes in the market for directors' liability insurance. The
difficulty of obtaining such insurance and the significantly increased cost of
such insurance were viewed by the Delaware legislature as threatening the
quality and stability of corporate governance in Delaware because many directors
became unwilling to serve without insurance protection, and those who did serve
may have been inhibited, because of the unavailability of insurance, from making
business decisions which may be in the best interests of the corporation.  The
law thus provides that a certificate of incorporation may contain provisions to
limit directors' liability and thereby provide additional protection to
directors.

     Neither the law nor the pertinent provisions in the Certificate of
Incorporation of the Delaware Corporation limits the liability of officers of
the Delaware Corporation who are not directors or of a director while acting in
his capacity as an officer.  The Certificate of Incorporation, in conformity
with the law, eliminates each director's liability to stockholders or to the
corporation for monetary damages arising out of the director's breach of his
fiduciary duty of care.  The duty of care refers to the fiduciary duty of
directors to be sufficiently diligent and careful in considering a transaction
or taking or refusing to take some corporate action.  A breach of the duty of
care by a 

                                       4
<PAGE>
 
director ordinarily gives rise to liability for monetary damages caused to the
corporation or stockholders of the corporation. The provision in the Certificate
of Incorporation of the Delaware Corporation does not eliminate the duty of
care, it only eliminates monetary damage awards occasioned by a breach of that
duty. Thus, a breach of the duty of care would remain a valid basis for a suit
seeking injunctive relief or rescission.

     This provision does not limit or eliminate liability based on other claims,
such as violation of federal or state securities laws.  In addition, it would
not eliminate director liability or monetary damages based on the following six
types of claims: (i) liability based on a breach of the duty of loyalty to the
Company or the stockholders; (ii) liability based on the payment of an improper
dividend or an improper repurchase of the Company's stock under Section 174 of
the DGCL; (iii) liability for actions which the director knows are in violation
of a law, (iv) liability arising out of intentional misconduct by the director;
(v) liability for actions or omissions pursuant to which the director will
receive some improper personal benefit; and (vi) liability for a director's
actions not taken in good faith.  Thus, liability for monetary damages still
exists under the provision if liability is based on one of the foregoing six
grounds.

     Under the Certificate of Incorporation, Director liability will be limited
for future conduct and for past conduct which predates the change of domicile of
the Company to the extent such liability is limited pursuant to the Company's
Articles of Incorporation and Utah law.  The Company is not aware of any pending
or threatened claims which would be covered by the subject provision in the
Certificate of Incorporation.  It should be noted that the provision does limit
the remedies available to a shareholder dissatisfied with a board decision which
is protected by the provision.  An aggrieved shareholder's only remedy in such a
circumstance may be to sue to stop the completion of the board's action.  In
many situations this remedy may not be effective.  Shareholders, for example,
may not be aware of a transaction or an event until it is too late to prevent
it.  In these cases, the shareholders and the Company could be injured by a
board decision and yet have no effective remedy.

     The Board of Directors believes that this provision is in the best
interests of the shareholders and the Company, as it should enhance the
Company's ability to attract and retain qualified individuals to serve as
directors of the Company by assuring directors (and potential directors) that
their good faith decisions will not be second-guessed by a court evaluating
decisions with the benefit of hindsight.  In fact, most companies adopt such
provisions limiting the liabilities of their directors. While the Company has
been able to attract directors in the past, the limitation on the potential
liability of directors of the Company should help facilitate attracting
qualified directors in the future. The Board of Directors believes that the
diligence exercised by directors stems primarily from their desire to act in the
best interests of the Company and not from a fear of monetary damage awards.
Consequently, the board believes that the level of scrutiny and care exercised
by directors will not be lessened by this provision in the Certificate of
Incorporation.

     Utah has a similar statute which permits the limitation of money damages
for breach of a director's fiduciary duty, except for breaches of loyalty to the
corporation or its shareholders, for acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law, for improper
payments of dividends, distribution of assets, or redemption of stock, or from
any transaction from which the director derived an improper personal benefit.
As discussed above, the Certificate of Incorporation of the Delaware Corporation
contains a provision limiting the liability of directors and the Articles of
Incorporation of the Company now in effect also contain such a provision.

                                       5
<PAGE>
 
SHAREHOLDER ACTION WITHOUT A MEETING

     Under the Company's Articles of Incorporation and Utah law, any action
required by the URBCA to be taken at any annual or special meeting of
shareholders, or any action which may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice, and
without a vote, if one or more consents in writing, setting forth the action so
taken, shall be signed by the holders of shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.  To
be effective, all of such consents with respect to any shareholder action must
be signed within sixty (60) days of one another.  Notice of the taking of any
action by shareholders without a meeting by less than unanimous written consent
shall be given to those shareholders who did not consent in writing to the
taking of such action at least 10 days before the consummation of the
transactions, action, or event authorized by the shareholder action.

     The Certificate of Incorporation of the Delaware Corporation initially
allows the stockholders from taking action by written consent, however, it
prohibits such action by written consent by the shareholders after such time as
the Delaware Corporation has a class or series of capital stock registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Therefore, after any registration of the Delaware Corporation's capital stock
under the Exchange Act, any action required or permitted to be taken by the
stockholders of the Delaware Corporation must be effected at an annual or
special meeting of stockholders of the Delaware Corporation and may not be
effected by any consent in writing by such stockholders.

FEDERAL TAX CONSEQUENCES

     The Reincorporation of the Company in the State of Delaware pursuant to the
terms of the Merger Plan is intended to qualify as a "tax-free" reorganization
under (S)368 of the Internal Revenue Code.  Under such provisions, the
Reincorporation, for federal income tax purposes, will not result in any gain or
loss recognized by the Company, the Delaware Corporation or the shareholders.
The tax basis of the stock of the Delaware Corporation received by each
shareholder will be equal to the basis of the stock of the Company currently
held by that shareholder, and the holding period for the Delaware stock will
include the period during which he or she held the stock of the Company,
provided that such stock was held as a capital asset as of the Effective Date of
the Merger.

     WHILE THE FOREGOING SETS FORTH THE MATERIAL TAX CONSEQUENCES OF THE MERGER
FOR FEDERAL INCOME TAX PURPOSES, EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN
TAX ADVISOR AS TO THE TAX EFFECTS OF THE MERGER ON THEIR PARTICULAR TAX
SITUATION AND ANY POTENTIAL TAX EFFECT OF THE MERGER PURSUANT TO THE PROVISIONS
OF STATE, LOCAL, OR FOREIGN INCOME TAX LAWS TO WHICH HE OR SHE MAY BE SUBJECT.

CHANGE IN BYLAWS

     In connection with the Reincorporation, the Bylaws of the Delaware
Corporation will become the Bylaws of the Company and will thereafter govern the
corporate affairs of the Company.  The material differences between the Bylaws
of the Company and the Bylaws of the Delaware Corporation are discussed below.
The summary of the provisions of the Bylaws of the Delaware 

                                       6
<PAGE>
 
Corporation and the changes from the current Bylaws of the Company is qualified
in its entirety by reference to the exact provisions of the Delaware Corporation
Bylaws.

SHAREHOLDERS' MEETINGS

     The Bylaws of the Company provide that a majority of the outstanding shares
of the Company entitled to vote at a meeting of shareholders, whether
represented in person or by proxy, constitute a quorum.  Under current Utah law,
a special meeting of shareholders may be called by the holders of ten (10%)
percent of all shares entitled to vote thereat.  The Bylaws of the Company also
allow for the president, any vice president or the secretary to call a special
meeting.  The Bylaws of the Delaware Corporation, by their reference to the
Delaware Corporation's Certificate of Incorporation, provide that (i) a majority
of the outstanding shares entitled to vote at a meeting of shareholders, and
(ii) a majority of the holders of the shares of Series A Preferred Stock (for
purposes of class voting) constitute a quorum and further provide that a special
meeting may only be called by the Chairman of the Board, the Chief Executive
Officer, the President or the Board of Directors by written order of a majority
of the entire Board.  Therefore, under the Certificate of Incorporation and
current Delaware law, the shareholders of the Delaware Corporation will not be
able to call a special meeting of the shareholders.

MEETINGS OF DIRECTORS

     The Bylaws of the Company provide that a majority of the Board of Directors
constitutes a quorum.  The Bylaws further provide that a special meeting of the
Board of Directors must be called upon the request of the president, any vice
president or by any two members of the Board.  Notice of a special meeting must
be given by mail at least five days prior thereto.  The Bylaws of the Delaware
Corporation provide that unless otherwise provided in the Delaware Corporation's
Certificate of Incorporation, a majority of the Board of Directors constitutes a
quorum.  A special meeting of the Board of Directors may be called at the
request of the Chairman of the Board, the President, any vice president or any
two members of the Board.  Notice of a special meeting must be reasonable and in
any event at least 24 hours before the meeting is scheduled to commence.

TRANSFER BOOKS AND RECORD DATE

     The transfer books of the Company may be closed or a record date may be set
up to 50 days prior to the date of any meeting of shareholders or prior to the
date for payment of any dividend.  The Bylaws of the Delaware Corporation
provide for a 60-day period for these actions.

AMENDMENT OF BYLAWS

     The Bylaws of the Company provide that the Bylaws may be amended or
repealed by a majority of the entire board and that any Bylaw adopted by the
Board of Directors may be altered or repealed by action of the shareholders.
The Bylaws of the Delaware Corporation provide that the Bylaws may be amended by
the Board or by the affirmative vote of at least two-thirds of the then
outstanding shares entitled to vote generally in the election of directors,
voting together as a single class.

                                       7
<PAGE>
 
CORPORATE LAWS OF DELAWARE

     The Delaware General Corporation Law, as amended (the "DGCL"), differs from
the Utah Revised Business Corporation Act, as amended (the "URBCA") in certain
respects in addition to those set forth above.  It is impractical to state all
such differences, but the changes which management of the Company deems to be
material are set forth below:

          (1) Delaware law provides that proxies are valid for three years
     unless otherwise provided in the proxy; Utah law provides that proxies may
     not be valid for longer than 11 months unless otherwise provided in the
     proxy.

          (2) Under Delaware law, dividends to the shareholders may be paid
     either out of surplus, or if there is no surplus, the net profits of the
     corporation in the preceding and current fiscal years.  Current Utah law
     provides that dividends may be paid only out of unreserved and unrestricted
     earned surplus, with certain limited exceptions.

          (3) For corporations, like the Company, which were in existence prior
     to July 1, 1992, Utah law grants shareholders the preemptive right to
     acquire unissued shares of the corporation, except as limited by the
     Articles of Incorporation.  However, the Company's Articles of
     Incorporation have eliminated this provision of Utah law.  Delaware law
     denies preemptive rights to shareholders unless the Certificate of
     Incorporation provides otherwise. The Company's current Articles of
     Incorporation deny any preemptive rights of shareholders and the
     Certificate of Incorporation of the Delaware Corporation does not provide
     for such rights.

          (4) Utah law provides appraisal rights for any shareholder who
     dissents from a merger, consolidation, or sale or exchange of all or
     substantially all of a corporation's assets. However, appraisal rights are
     not available if the shares are registered on a national securities
     exchange or held of record by not less than 2,000 stockholders.  The shares
     of the Company are not traded on a national securities exchange and, the
     Company believes, are not held of record by more than 2,000 shareholders.
     Delaware law provides for appraisal rights for shareholders dissenting from
     a merger of consolidation which requires the vote of the shareholders, but
     does not provide for appraisal rights for a sale of substantially all of
     the corporation's assets; provided, that no appraisal rights are available
     to holders of a class or series of stock that is listed on a national
     securities exchange or that is held of record by more than 2,000
     stockholders.  The Company believes that if the shareholders of the Company
     approve the Merger, immediately following the Merger, the Common Stock of
     the Delaware Corporation will not be listed on a national stock exchange
     and will not be held of record by more than 2,000 stockholders.  Under such
     circumstances, holders of the Common Stock who in the future dissent from a
     merger will be entitled to appraisal rights under the Delaware statute.

          (5) Delaware law prohibits a business combination with an interested
     shareholder for a period of three years following the date that such
     stockholder became an interested stockholder unless (1) the transaction
     that resulted in the stockholder becoming an interested stockholder was
     approved by the Board of Directors of the corporation prior to the

                                       8
<PAGE>
 
     transaction; (2) the stockholder owns at least 85% of the issued and
     outstanding stock not held by officers and directors or employee stock
     plans; or (3) the combination is approved by the board and the affirmative
     vote of at least 66 2/3% of the outstanding voting stock not owned by the
     interested stockholder.  This provision does not apply to a corporation if
     the original certificate of incorporation contains a provision expressly
     electing not to be governed by the provision, which the Certificate of
     Incorporation of the Delaware Corporation does not.

RIGHTS OF DISSENTING SHAREHOLDERS

     Shareholders who oppose the proposed Merger will have the right to receive
payment for the value of their shares as set forth in Sections 16-10a-1302 and
16-10a-1320 of the URBCA.  A copy of these sections and related sections are
attached to the Dissenters' Notice to Certain Shareholders enclosed herewith as
Appendix "A" thereto.  The requirements for a shareholder to properly exercise
his rights under these provisions are very technical in nature, and the
following summary is qualified in its entirety by the actual statutory
provisions which should be carefully reviewed by any shareholder wishing to
assert such rights.

     Under the Utah statutes, such appraisal rights will be available only to
those shareholders of the Company who (i) do not consent to the proposed action;
(ii) file a written demand with the Company within thirty (30) days after notice
has been sent to the shareholders that the Merger has been or will be effected,
requesting payment of the fair value of the shares of capital stock which they
hold; (iii) were shareholders as of the date ten (10) days after the action by
written consent approving the Reincorporation; and (iv) meet the other
requirements of the governing Utah provisions.

     Within sixty (60) days after the later of the Effective Date of the Merger
or the due date for shareholder payment demands, the Company shall pay the
amount the Company estimates to be the fair value of the dissenters' shares,
plus interest to each dissenter who has complied with the procedures for
demanding payment.  If the dissenting shareholder is not satisfied with the fair
value that the Company has determined for the dissenter's shares, the dissenter
must notify the Company within thirty (30) days after he or she received the
Company's offer of payment.  After receipt of any such notice, the Company and
the dissenting shareholder shall try to agree on fair value of the dissenter's
shares for a period of sixty (60) days.

     If the Company and the shareholder are unable to agree on the payment for
such shares during such 60 day period, then the Company shall commence a
proceeding in the county in Utah in which its registered office is located to
determine the fair value of the shareholder's shares.  Upon the commencement of
such proceeding, the Company is required to file with the court a list of names
of all of the dissenting shareholders with whom the Company has not agreed to a
price for the purchase of their shares whom shall be joined in the suit.  All of
such shareholders shall be bound by the fair value determination made by the
court.

     As long as the Company complies with the procedures for appraisal rights
described above, this will be the sole remedy that a shareholder will have for
the recovery of the value of his or her shares.  The loss or forfeiture of
appraisal rights simply means the loss of the right to receive cash payment from
the Company in exchange for shares; in such event the shareholder would still
hold the appropriate number of shares of the Delaware Corporation.

                                       9
<PAGE>
 
     Under the Merger Plan, the Board of Directors may terminate the Merger at
any time prior to the Effective Date for any reason if it determines that the
Merger is not in the best interests of the Company including, without
limitation, the receipt of payment demands under the dissenters' rights
provisions discussed above.

VOTE REQUIRED

     The affirmative vote of a majority of the Company's issued and outstanding
shares of Common Stock was required to approve the proposed Reincorporation in
the State of Delaware.

     THE COMPANY RESERVES THE RIGHT TO WITHDRAW THE REINCORPORATION PROPOSAL AND
TERMINATE THE MERGER PLAN AT ANY TIME PRIOR TO THE EFFECTIVE DATE IN THE EVENT
THAT A MAJORITY OF THE BOARD OF DIRECTORS DETERMINES THAT THE MERGER IS NO
LONGER IN THE BEST INTERESTS OF THE COMPANY TO CONSUMMATE THIS TRANSACTION.

APPROVAL OF THE PLAN OF MERGER AND THE REINCORPORATION

     By written consents dated November 28 and December 3, 1997, the Consenting
Preferred Shareholders and the Consenting Shareholders, respectively, have given
their written consent to the approval of the Plan of Merger, the Reincorporation
and the subsequent filing of the appropriate documents with Secretaries of State
of Utah and Delaware on or about January 26, 1998. THEREFORE, NO FURTHER
SHAREHOLDER CONSENTS ARE REQUIRED.


                             APPROVAL AND ADOPTION
                                OF THE COMPANY'S
                              1997 INCENTIVE PLAN


     On September 26, 1997, the Board of Directors unanimously adopted the
Company's 1997 Incentive Plan effective as of October 1, 1997 (the "Plan") as an
amendment and restatement of the Company's 1996 Stock Option Plan (the "1996
Employee Plan") and 1996 Director Stock Option Plan (the "1996 Director Plan").
The Plan was approved and adopted by the Consenting Shareholders by written
consents dated December 3, 1997.

     The Plan is summarized below.  The full text of the Plan is available from
the Assistant Secretary of the Company, William T. Kennedy, at the offices of
the Company located at 4615 Post Oak Place, Suite 111, Houston, Texas 77027,
(713) 621-5678.

                                PLAN DESCRIPTION

     The Plan is intended to foster and promote the long-term financial success
of the Company and its Subsidiaries and to increase stockholder value by: (a)
encouraging the commitment of selected key Employees, Consultants and Outside
Directors, (b) motivating superior performance of key Employees, Consultants and
Outside Directors by means of long-term performance related incentives, (c)
encouraging and providing key Employees, Consultants and Outside Directors with
a program 

                                       10
<PAGE>
 
for obtaining ownership interests in the Company which link and align their
personal interests to those of the Company's stockholders, (d) attracting and
retaining key Employees, Consultants and Outside Directors by providing
competitive incentive compensation opportunities, and (e) enabling key
Employees, Consultants and Outside Directors to share in the long-term growth
and success of the Company.

     Under the Plan, the Company may grant the following awards to key
employees, directors who are not employees ("Outside Directors") and consultants
of the Company, its controlled subsidiaries, and its parent corporation, if any:
(i) incentive stock options ("ISOs") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) "nonstatutory" stock options
("NSOs"), (iii) stock appreciation rights ("SARs"), (iv) shares of restricted
stock, (v) performance shares and performance units, (vi) other stock-based
awards and (vii) supplemental tax bonuses (collectively, "Incentive Awards").
ISOs and NSOs are sometimes referred to collectively herein as "Options." The
Company may grant Incentive Awards covering an aggregate of the greater of (a)
3,000,000 shares of the Company's common stock, par value $.001 per share
("Common Stock") and (b) 20% of the number of shares of Common Stock issued and
outstanding on the last day of each calendar quarter, of which an aggregate of
no more than 1,000,000 shares of Common Stock shall be available for Incentive
Awards granted to Outside Directors and the remainder shall be available for
Incentive Awards to Employees and Consultants.  No more than 3,000,000 shares of
Common Stock shall be available for Incentive Stock Options.

     Any shares of Common Stock which were issued and have been forfeited or
were subject to Incentive Awards under the Plan which have expired or terminated
for any reason will remain available for issuance with respect to the granting
of Incentive Awards during the term of the Incentive Plan, except as may
otherwise be provided by applicable law.  Shares of Common Stock issued under
the Plan may be either newly issued or treasury shares, including shares of
Common Stock received by the Company in connection with the exercise of an
Incentive Award.  The number and kind of securities which may be issued under
the Incentive Plan and pursuant to then outstanding Incentive Awards are subject
to adjustments to prevent enlargement or dilution of rights resulting from stock
dividends, stock splits, recapitalizations, reorganizations or similar
transactions.

     The maximum number of shares of Common Stock subject to Incentive Awards
that may be granted or that may vest, as applicable, to any one Covered Employee
during any calendar year shall be 2,000,000 shares, subject to adjustment under
the provisions of the Plan.  The maximum aggregate cash payout subject to
Incentive Awards (including SARs, performance units and performance shares
payable in cash, or other stock-based awards payable in cash) that may be
granted to any one Covered Employee during any calendar year shall be
$5,000,000.  For purposes of the Plan, "Covered Employee" means a named
executive officer who is one of the group of covered employees as defined in
Section 162(m) of the Code and the regulations promulgated thereunder (i.e.,
generally the chief executive officer and the other four most highly compensated
executives for a given year).

     No participants shall have any rights as a stockholder with respect to
shares relating to an Incentive Award until the date of issuance of a stock
certificate or certificates representing such shares.  Nothing contained in the
Plan or an Incentive Award shall confer any right with respect to continuation
of employment or adjustment of compensation to a participant.  Furthermore, no
person shall have a right to claim an Incentive Award under the Plan.

                                       11
<PAGE>
 
     The Company shall not be required to effect registration pursuant to the
Securities Act of 1933, as amended (the "Securities Act") or state law of any
shares of Common Stock.  In addition, the Company shall not be required to issue
or deliver certificates evidencing shares of Common Stock under the Plan until
the Company is advised by its counsel that the issuance and delivery of such
certificates is in compliance with all applicable laws, regulations of
governmental authorities and the requirements of any securities exchange on
which shares of Common Stock are traded.

ADMINISTRATION

     The Plan is administered by the Committee appointed by the board of
directors consisting of directors each of whom is (i) an "outside director"
under Section 162(m) of the Code and (ii) a "non-employee director" under Rule
16b-3 of the Exchange Act.  Subject to the express provisions of the Plan, the
Committee is authorized to, among other things, determine those eligible
individuals to whom Incentive Awards may be granted, grant Incentive Awards to
individuals eligible to participate in the Incentive Plan and determine the
terms and conditions (which need not be identical) of each Incentive Award.  The
Plan does not prescribe any factors to be considered by the Committee in
determining the individual participants and types of Incentive Awards granted.

     The Committee also interprets, construes and administers the Plan and any
related incentive agreements; and makes all of the determinations necessary or
advisable with respect to the Incentive Plan or any Incentive Award granted
thereunder.  All decisions and determinations of the Committee are final and
binding on all parties.  The Company will indemnify members of the Committee
against any cost, expenses or liabilities arising out of any action, omission or
determination relating to the Incentive Plan, unless such action, omission or
determination was taken or made with gross negligence or willful misconduct.

     Subject to certain amendments which require stockholder approval, the
Committee may, in its absolute discretion (i) extend the exercisability of an
Incentive Award, (ii) accelerate the vesting or exercisability of an Incentive
Award, (iii) eliminate or reduce the restrictions contained in an Incentive
Award, (iv) waive any restriction or other provisions of an Incentive Award or
(v) otherwise amend or modify an Incentive Award in any manner that is either
not adverse to the grantee of such Incentive Award or is consented to by such
grantee.

     In addition, the Company's board of directors (the "Board") may grant
Incentive Awards under the Plan including the grant of Incentive Awards to
Outside Directors who are also members of the Committee.  In such cases, the
Board shall have all the powers and responsibilities of the Committee under the
Plan as to the Incentive Awards so granted.  However, the Board will not act in
the Committee's capacity to the extent that doing so would disqualify an
employee from an exemption under Section 16(b) of the Exchange Act, violate
applicable stock exchange rules or result in the non-deductibility of
compensation under Section 162(m) of the Code.

GENERAL TERMS AND TAX INFORMATION RELATING TO INCENTIVE AWARDS

     The material terms of each Incentive Award is reflected in an agreement
(the "Incentive Agreement") between the participant and the Company.  A summary
of the most significant features of the Incentive Awards and their tax
consequences to participants who are United States persons and the Company is
set out below.

                                       12
<PAGE>
 
     Incentive and Nonstatutory Stock Options.  Except in limited cases
involving certain 10% stockholders or where the terms of the grant specify
otherwise, ISOs and NSOs must be exercised within ten years of the grant date.
ISOs may only be granted to employees and the exercise price of each ISO granted
may not be less than 100% (110% in the case of certain 10% stockholders) of the
fair market value of a share of Common Stock on the date of grant.  The
Committee will have the discretion to determine the exercise price of each NSO
granted under the Plan; however, an NSO that is intended to qualify as
performance based compensation to an officer subject to Section 162(m) of the
Code must be granted with an exercise price equal to 100% of the fair market
value of a share of Common Stock on the grant date.  To the extent that the
aggregate fair market value of shares of Common Stock with respect to which ISOs
are exercisable for the first time by any employee during calendar year exceeds
$100,000, such options must be treated as NSOs.

     The exercise price of each Option is payable in cash upon the exercise of
the Option or, in the discretion of the Committee and upon such terms and
conditions as it may deem appropriate, through the delivery of shares of Common
Stock owned by the Option holder and valued at their fair market value, by
withholding shares which would otherwise be acquired on the exercise of the
Option and having an aggregate fair market value equal to the total exercise
price or in a combination of the following.

     If a participant's employment or other service with the Company is
terminated other than for Cause (as defined in the Plan), or by reason of
Disability (as defined in the Plan) or death, his vested Options, whether ISOs
or NSOs, shall remain exercisable for 60 days after such termination.  If a
participant's employment or other service with the Company is terminated by
reason of Disability or death, his vested Options, whether ISOs or NSOs, shall
remain exercisable for one year following such termination.  If an employee's
employment with the Company is terminated due to his retirement at or after
attaining age 65, his vested NSOs shall remain exercisable for six months, and
his vested ISOs shall remain exercisable for three months, following such
termination.  No Option shall be exercisable after the expiration of its term,
in any case.  If a participant's employment or other service with the Company is
terminated for Cause, all outstanding Options, whether vested or otherwise,
shall expire at the commencement of business on the date of such termination.
The Committee, in its discretion, may prescribe time periods different than
those set out in the foregoing provisions of this paragraph for the exercise of
Options following a participant's termination of employment or other service.
Such rights shall be reflected in the Incentive Agreement evidencing the
participant's Incentive Award.

     Upon a Change in Control of the Company (as defined in the Plan) all
outstanding Options become immediately exercisable.  The Plan defines Change in
Control generally to mean (i) a change in control as contemplated in the federal
securities laws, (ii) the acquisition by any person of 20% or more of the shares
of voting securities of the Company, (iii) certain changes in the composition of
the Board (existing as of the effective date of the Plan) as a result of a
contested election for positions on the Board, or (iv) any other event which the
Board determines to constitute a change in the control of the Company.  The
Board may determine in its discretion, if it deems to be in the best interest of
the Company, that an event otherwise constituting a Change in Control of the
Company shall not be considered a Change in Control.

                                       13
<PAGE>
 
     An employee who is a participant in the Plan will not recognize any income
at the time an ISO is granted, nor on the qualified exercise of an ISO.  If a
participant does not dispose of the shares acquired by exercise of an ISO within
two years after the grant date of the ISO and one year after the exercise of the
ISO, the exercise is qualified and the gain or loss (if any) on a subsequent
sale will be a long-term capital gain or loss.  Such gain or loss equals the
difference between the sum of the sales proceeds and the exercise price of the
Common Stock sold.  The Company is not entitled to a tax deduction as a result
of the grant or qualified exercise of an ISO.  However, if the shares acquired
upon the exercise of an ISO are disposed of at a gain prior to the above one-
year and two-year holding periods and the fair market value of the shares at the
time of exercise exceeds the exercise price, the exercise is not qualified and
special rules apply that acquire the participant to recognize ordinary income
(at least in part) at the time of such disposition.  The Company is generally
entitled to a tax deduction at the same time and in the same amount as the
ordinary income recognized by the participant from such disposition.

     Although the qualified exercise of an ISO will not produce ordinary taxable
income to the participant, it will produce an increase in the participant's
alternative taxable income and may result in an alternative minimum tax
liability.

     An optionee will not recognize any income for federal income tax purposes
at the time a NSO is granted, nor will the Company be entitled to a deduction at
that time.  However, when any part of a NSO is exercised, the optionee will
recognize ordinary income in an amount equal to the difference between the fair
market value of the shares received and the exercise price of the NSO, and the
Company will generally recognize a corresponding tax deduction in the same
amount at the same time.

     Stock Appreciation Rights (SARs).  Upon exercise of an SAR, the holder
thereof will receive a number of shares of the Common Stock or cash, or a
combination thereof, as the Committee determines in the Incentive Agreement, the
aggregate value of which equals the amount by which the fair market value per
share of the Common Stock on the date of exercise exceeds the exercise price of
the SAR, multiplied by the number of shares underlying the exercised portion of
the SAR.  An SAR may be granted in tandem with an Option or granted
independently of an Option.  The grant price per share of any SAR will be
established by the Committee but must equal at least 100% of the fair market
value of a share of Common Stock on the date the SAR is granted.  The term of
each SAR will be fixed by the Committee, but not extending beyond ten years from
the date of grant. SARs will be subject to such terms and conditions and will be
exercisable at such times as determined by the Committee.  The value of an SAR
may be paid in cash, in shares of Common Stock, or in some combination, as
determined by the Committee.  The Committee, in its discretion, will establish a
participant's right to exercise an SAR in the event the participant's employment
is terminated, such rights to be reflected in the participant's Incentive
Agreement.  Upon a Change in Control of the Company, all outstanding SARs which
have not vested will fully vest automatically.

     The exercise of an SAR will result in the recognition of ordinary income by
the participant on the date of exercise in the amount of cash, and/or the fair
market value on such date of the shares of Common Stock, acquired pursuant to
the exercise.  The Company will generally be entitled to a tax deduction at the
same time and in the same amount as the ordinary income recognized by the
participant upon exercise of the SAR.  The tax treatment of an SAR is the same
whether the SAR is exercised in conjunction with an ISO or an NSO.

                                       14
<PAGE>
 
     Restricted Stock.  A restricted stock award consists of a grant of Common
Stock to a participant, which is subject to substantial risk of forfeiture and
the transfer of which is subject to restrictions which lapse upon the passage of
time, the achievement of performance goals or upon the occurrence of other
events as determined by the Committee.  This period of restriction is
established by the Committee at the time of grant.  Unless otherwise designated
by the Committee, during the period of restriction a stockholder of restricted
shares will have all other rights of a stockholder, including the right to vote
the shares and receive the dividends paid thereon.  The Committee, in its
discretion, will establish a participant's rights to receive restricted stock in
the event the participant's employment is terminated prior to vesting, such
rights to be reflected in the participant's Incentive Agreement.  If vesting
does not occur, shares of restricted stock are forfeited.  Upon a Change in
Control of the Company, all shares of restricted stock which have not vested or
been forfeited will vest automatically.

     A participant will not recognize any income for federal tax purposes at the
time shares of restricted stock are granted or issued, nor will the Company be
entitled to a tax deduction at that time.  However, when either the transfer
restriction or the forfeiture risk lapses, such as on vesting, the participant
will recognize ordinary income in an amount equal to the fair market value of
the shares of restricted stock on the date on which they vest.  A participant
may file an appropriate election under Section 83(b) of the Code with the
Internal Revenue Service within 30 days of the issue date of the restricted
stock (the "Election"), which results in the participant's receipt of deemed
ordinary income in an amount equal to the fair market value of the shares of
restricted stock on the date on which they are issued.  However, if a
participant files the Election and the restricted stock is subsequently
forfeited, such participant is not allowed a tax deduction for the amount
previously reported as ordinary income due to the Election.  Gain or loss (if
any) from a disposition of restricted stock after the participant recognizes any
ordinary income (whether by vesting or an Election) will generally constitute
short- or long-term capital gain or loss.  The Company will generally be
entitled to a corresponding tax deduction at the time the participant recognizes
ordinary income on the restricted stock, whether by vesting or an Election, in
the same amount as the ordinary income recognized by the participant.

     Performance Units and Performance Shares.  Performance units and
performance shares may be granted to eligible individuals at any time as
determined by the Committee.  The Committee will have discretion to establish
the initial number and value of such units and shares, the performance period,
and the other material terms of the units or shares as reflected in the
participant's Incentive Agreement.  The Committee will establish performance
goals in its discretion which, depending on the level of performance achieved,
will determine the number and/or value of performance units/shares earned.
Where an award is intended to meet the requirements for the performance-based
exception to the deductibility limit imposed by Section 162(m) of the Code, the
performance goals will be based on the performance measures prescribed in
regulations issued under Section 162(m). The value of a performance share or
unit (whether or not vested) is paid immediately on the occurrence of a Change
in Control of the Company.

     There are no tax consequences to the Company or the participant upon the
grant of performance shares or units.  Upon payout of the shares or units, the
participant will recognize taxable ordinary income in the amount of the payout
and the Company will receive a corresponding tax deduction in the same amount
and at the same time.

                                       15
<PAGE>
 
     Other Stock-Based Awards.  Other stock-based awards, payable in Common
Stock, may be granted by the Committee and may be payable at such times and
subject to such conditions as the Committee determines, in its discretion, as
reflected in the participant's Incentive Agreement.  In order to enable the
Company and the Committee to respond quickly to significant developments in
applicable tax and other legislation and regulations and to trends in executive
compensation practices, the Plan also authorizes the Committee to grant other
stock-based awards to individuals eligible to participate in the Plan.  Other
stock-based awards will consist of awards that are valued in whole or in part by
reference to, or otherwise based on, the Company's Common Stock.  Subject to the
terms of the Plan, the Committee may determine any terms and conditions of other
stock-based awards. Payment or settlement of other stock-based awards will be in
cash or in shares of the Company's Common Stock or in any combination thereof as
the Committee determines in its discretion.

     Generally, a participant will not realize any income upon the grant of
other stock-based awards.  Upon the payment of other stock-based awards, a
participant will realize compensation taxable as ordinary income, and the
Company will be entitled to a corresponding tax deduction in the same amount and
at the same time.  However, if any such shares are subject to substantial
restrictions, such as a requirement of continued employment or the attainment of
certain performance objectives, the participant will not recognize income and
the Company will not be entitled to a deduction until the restrictions lapse,
unless the participant elects otherwise by filing an Election (as described
under "Restricted Stock" above).  The amount of the participant's ordinary
taxable income and the Company's deduction will generally be the fair market
value of the shares at the time the restrictions lapse.

     Supplemental Tax Bonuses.  The Committee may grant, in connection with a
grant of an Incentive Award, a supplemental tax bonus, payable when the
participant is required to recognize ordinary income for federal income tax
purposes with respect to such Incentive Award.  Receipt of any such bonus will
result in ordinary income to the participant and generally a corresponding tax
deduction to the Company at the same time and for the same amount.

     Other Tax Considerations.  Upon accelerated exercisability of Options and
accelerated lapsing of restrictions upon Restricted Stock or other Incentive
Awards in connection with a Change in Control of the Company, certain amounts
associated with such Incentive Awards could, depending upon the individual
circumstances of the recipient participant, constitute "excess parachute
payments" under the golden parachute provisions of Section 280G of the Code.
Pursuant to these provisions, a participant will be subject to a 20% excise tax
on any "excess parachute payment" (as defined in Section 280G of the Code) and
the Company will be denied any deduction with respect to such excess parachute
payment.  The limit on the deductibility of compensation under Section 162(m) of
the Code is also reduced by the amount of any excess parachute payments.
Whether amounts constitute excess parachute payments depends upon, among other
things, the value of the Incentive Awards accelerated and the past compensation
of the participant.

     Taxable compensation earned by Covered Employees subject to Section 162(m)
of the Code in respect of Options, Restricted Stock, performance shares or
units, or other applicable Incentive Awards is intended to constitute qualified
"performance-based compensation." The Company should, therefore, be entitled to
a tax deduction for compensation paid in the same amount as the ordinary income
recognized by the Covered Employees without any reduction under the limitations
of Section 162(m) on deductible compensation paid to such employees.  However,
the Committee may 

                                       16
<PAGE>
 
determine, within its sole discretion, to grant Incentive Awards to such Covered
Employees which does not qualify as performance based compensation. Under
Section 162(m), the Company is denied a deduction for annual compensation paid
to such employees in excess of $1,000,000.

     The foregoing federal income tax information is a summary only and does not
purport to be a complete statement of the relevant provisions of the Code.  The
effect of any state or local taxes is not addressed.

TRANSFER AND RESALE RESTRICTIONS

     No Incentive Award may be assigned, transferred, pledged, or otherwise
encumbered by a participant, other than by will or by the laws of descent and
distribution.  An Incentive Award may be exercised during the Participant's
lifetime only by the participant or the participant's legal representative.

     The resale of the shares of Common Stock acquired upon exercise of Options
under the Plan may be subject to the provisions of Rule 144 promulgated under
the Securities Act.  Under Rule 144, in relevant part, an affiliate of the
Company may resell unrestricted Common Stock without registration under the
Securities Act subject to Rule 144's volume limitation, aggregation, broker
transaction and notice-filing requirements, and requirements concerning
publicly-available information about the Company.  The volume limitations
provide that a person (or persons who must aggregate their sales) cannot, within
any three-month period, sell more than the greater of 1% of then outstanding
shares, or the average weekly reported trading volume during the four calendar
weeks preceding each such sale.

     Participants in the Plan may be subject to the short-swing profit liability
provisions of Section 16(b) of the Exchange Act.  Section 16(b) makes any profit
realized from any sale and purchase or purchase and sale of Common Stock within
six months recoverable by the Company. For purposes of Section 16(b), the grant
of an option under the Plan is deemed a purchase of Common Stock.  Generally,
however, under Exchange Act Rules 16b-3 and 16b-6, if the option grant is
approved by the Board, Committee or stockholders, or a Plan participant subject
to Section 16(b) does not dispose of the Common Stock issued upon exercise of an
option granted under the Plan until at least six months after the date on which
the option was granted, the participant's acquisition and disposition of such
Common Stock will be exempt from the operation of Section 16(b).  The Plan is
intended to comply with the requirements of Rule 16b-3, and the Plan will be
construed in a manner to effectuate that intent.

PLAN AMENDMENT AND TERMINATION

     The Board may amend or terminate the Plan at any time, except that the Plan
may not be modified or amended, without stockholder approval, if such amendment
would (i) increase the number of shares of Common Stock which may be issued
thereunder, except in connection with a recapitalization or reclassification of
the Common Stock, (ii) amend the eligibility requirements for individuals to
participate in the Plan, (iii) increase the maximum limits on Incentive Awards
that may be issued to certain named executive officers pursuant to Section
162(m) of the Code, (iv) extend the term of the Plan or (v) decrease the
authority granted to the Committee under the Plan in contravention of Rule 16b-3
under the Exchange Act.  No termination or amendment of the Plan shall 

                                       17
<PAGE>
 
adversely affect in any material way any outstanding Incentive Award previously
granted to a participant without his consent. No Incentive Award may be granted
under the Plan after September 30, 2007.

APPROVAL OF THE 1997 INCENTIVE PLAN

     By written consents dated December 3, 1997, the Consenting Shareholders
gave their written consent to the approval of the Plan.  THEREFORE, NO FURTHER
SHAREHOLDER CONSENTS ARE REQUIRED.

     This Notice contains, or incorporates by reference, certain statements that
may be deemed "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").  All
statements, other than statements of historical facts so included in this Notice
that address activities, events or developments that the Company expects,
projects, believes or anticipates will or may occur in the future are forward-
looking statements.  Such statements are based on certain assumptions and
analyses made by management of the Company in light of its experience and its
perception of historical trends, current conditions, expect future developments
and other factors it believes to be appropriate.  The forward-looking statements
included in this Notice are also subject to a number of material risks and
uncertainties.  Such forward-looking statements are not guarantees of future
performance and actual results, developments and business decisions may differ
from those envisaged by such forward-looking statements.

                                       18