<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-24581
CAPROCK COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
TEXAS 75-2765572
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Two Galleria Tower
13455 Noel Road, Suite 1925
Dallas, Texas 75240
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 982-9500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
COMMON STOCK, $0.01 PAR VALUE 1,000
(Title of Each Class) (Number of Shares Outstanding at August 7, 1998)
<PAGE>
CAPROCK COMMUNICATIONS CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART 1. FINANCIAL INFORMATION 3
Item 1. Balance Sheet at June 30, 1998 3
Notes to Balance Sheet 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
PART 2. OTHER INFORMATION 8
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURE PAGE 11
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAPROCK COMMUNICATIONS CORP.
BALANCE SHEET
JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets
Investment in affiliates $2,000
------
------
Stockholder's Equity:
Preferred stock; $.01 par value; 20,000,000 authorized, none issued $ -
Common stock; $.01 par value; 200,000,000 authorized;
1,000 issued and outstanding 10
Additional paid-in capital 1,990
------
Total stockholder's equity $2,000
------
------
</TABLE>
See accompanying Notes to Balance Sheet
3
<PAGE>
CAPROCK COMMUNICATIONS CORP.
Notes to Balance Sheet
(1) BASIS OF PRESENTATION
The accompanying balance sheet, which should be read in conjunction with
the balance sheet and footnotes of CapRock Communications Corp. ("CapRock"
or the "Company") as of March 31, 1998, which were included in the
Registration Statement (SEC Registration No. 333-57365) filed on Form S-4
by CapRock in July 1998, are unaudited, but have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end.
CapRock was incorporated as a Texas corporation on February 3, 1998, to
serve as a holding company for the operations of CapRock Telecommunications
Corp. ("Telecommunications"), CapRock Fiber Network Ltd. ("Partnership")
and IWL Communications, Incorporated ("IWL") after completion of their
business combination (note 2) in conformance with the provisions of their
Agreement and Plan of Merger dated February 16, 1998.
Effective February 3, 1998, IWL purchased 1,000 shares of the common stock
of the Company for an aggregate purchase price of $2,000, for the purpose
of completing the organization of the Company. On June 2, 1998, the
Company committed to purchase (i) from IWL Acquisition Corp., a Texas
corporation, 1,000 shares of the common stock, par value $.01 per share of
IWL Acquisition Corp. for an aggregate purchase price of $1,000 and (ii)
from CapRock Acquisition Corp., a Delaware corporation, 1,000 shares of the
common stock, par value $.01 per share of CapRock Acquisition Corp., for an
aggregate purchase price of $1,000.
The Company's original stock issuance consisted of 1,000 shares of $.01 par
value common stock. The amount of shares authorized were 100,000,000. On
June 18, 1998, the Company amended the Articles of Incorporation to adjust
the number of authorized shares from 100,000,000 to 200,000,000 shares. On
June 3,1998, IWL funded the initial capital contribution of $2,000.
The accompanying balance sheet presents the financial position of the
Company as of June 30, 1998. The Company has not commenced operations and
does not have any contingent liabilities or commitments, other than its
commitments to enter into the transactions related to the business
combination described above (and in note 2) and the contingent liabilities
in connection with the senior note offering (note 3).
(2) BUSINESS COMBINATION
On February 16,1998, the Company entered into a definitive agreement
to combine through mergers and an interest exchange (the "Combination")
with Telecommunications, IWL and the Partnership. The Combination is
subject to, among other matters, approval by the shareholders of the IWL
and Telecommunications and the partners of the Partnership. The transaction
is expected to be accounted for as a "pooling of interests" and qualify as
a tax-free exchange of shares and partnership interests.
(3) SUBSEQUENT EVENT
In July 1998, CapRock, Telecommunications and the Partnership (with
IWL as guarantor) issued, through a private placement under Rule 144A
under the Securities Act of 1933, as amended, $150 million aggregate
principal amount of their 12% Senior Notes due 2008 (the "Notes"), which
closed on July 16, 1998. Interest on the Notes will be payable
semi-annually in arrears on January 15 and July 15 of each year,
commencing on January 15, 1999, at the rate of 12% per annum. The net
proceeds from the offering were initially placed in a segregated escrow
account and will be released only in accordance with the provisions of
an escrow agreement. Upon consummation of the Combination, (i) the
proceeds in such escrow account will be released to CapRock, (ii)
Telecommunications and the Partnership will no longer be co-obligors
under the Notes, and (iii) IWL will be released from its obligations in
connection with the special offer to purchase. If the Combination is
not consummated by August 31, 1998, CapRock, Telecommunications, and the
Partnership will be required to offer to purchase the Notes (the "Special
4
<PAGE>
Offer to Purchase") at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of such
repurchase. To the extent the amounts held in the escrow account are
insufficient to repurchase all tendered Notes, each of CapRock,
Telecommunications, the Partnership, and IWL (as guarantor) shall be
jointly and severally liable to fund any such deficiency (with an
estimated contingent liability of not more than approximately $7.0
million). There can be no assurance that CapRock, Telecommunications,
the Partnership and IWL will have sufficient funds available at the time
of such offer to purchase to repay all Notes tendered.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the balance sheet and footnotes of CapRock as of March 31, 1998, which were
included in the Registration Statement filed on Form S-4 by CapRock in July
1998. The Company believes that all necessary adjustments (consisting only
of normal recurring adjustments) have been included in the amounts stated
below to present fairly the following quarterly information. Accounting
measurements at interim dates inherently involve greater reliance on
estimates than at year-end.
Forward Looking Information
Certain information contained herein contains forward-looking statements
(as defined in the Private Securities Litigation Reform Act of 1995)
regarding future events or the future financial performance of the Company,
and are subject to a number of risks and other factors which could cause the
actual results of the Company to differ materially from those contained in
and anticipated by the forward-looking statements. Among such factors are:
the completion of the Combination, industry concentration and the Company's
dependence on major customers, competition, risks associated with
international operations and entry into new markets, government regulation,
variability in operating results, general business and economic conditions,
customer acceptance of any demand for the Company's new products, the
Company's overall ability to design, test, and introduce new products on a
timely basis, reliance on third parties and other telecommunication carriers,
the Company's ability to manage change, dependence on key personnel,
dependence on information systems and changes in technology, and possible
service interruptions. The forward-looking statements contained herein are
necessarily dependent upon assumptions, estimates and data that may be
incorrect or imprecise. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or circumstances and
may not be realized. Forward-looking statements contained herein include,
but are not limited to, forecasts, projections and statements relating to
inflation, future acquisitions and anticipated capital expenditures. All
forecasts and projections in this report are based on management's current
expectations of the Company's near term results, based on current information
available pertaining to the Company, including the aforementioned risk
factors. Actual results could differ materially.
Overview
CapRock was formed on February 3, 1998 to combine the businesses of
Telecommunications, the Partnership and IWL. Telecommunications and the
Partnership are facilities-based providers of telecommunications services to
carriers and to small and medium-sized businesses in Texas. IWL is a provider
of advanced communications solutions, primarily to customers with oil and gas
exploration operations in the Gulf of Mexico and the North Sea and remote,
difficult access regions of the world. CapRock believes that the Combination
will enable it to accelerate the implementation of its business plan and to
achieve it business objectives by enhancing its revenue opportunities,
creating greater operational depth, providing the opportunity to cross-sell
its products, enabling it to capitalize on international opportunities and
reducing its capital expenditures.
6
<PAGE>
Results of Operations
The Company has not commenced operations as of June 30, 1998.
Liquidity and Capital Resources
Upon completion of the Combination, CapRock expects to require
significant financing for capital expenditure and working capital
requirements. CapRock currently estimates that its aggregate capital
requirements will total approximately $50 million in the second half of 1998
and approximately $140 million in 1999. CapRock expects to make substantial
capital expenditures thereafter. Capital expenditures will be required to:
(i) fund the construction and operation of its fiber optic network; (ii) fund
the installation of voice and data switches, and (iii) open sales offices and
add sales support and customer service personnel in markets throughout Texas
and the Gulf Coast region.
In July 1998, CapRock, Telecommunications and the Partnership (with the
IWL as guarantor) issued through a private placement under Rule 144A under
the Securities Act of 1933, as amended, $150 million aggregate principal
amount of their Notes, which closed on July 16, 1998. Interest on the Notes
will be payable semiannually in arrears on January 15 and July 15 of each
year, commencing on January 15, 1999, at the rate of 12% per annum. The net
proceeds from the offering were initially placed in a segregated escrow
account and will be released only in accordance with the provisions of an
escrow agreement. Upon consummation of the Combination, (i) the proceeds in
such escrow account will be released to CapRock, (ii) Telecommunications and
the Partnership will no longer be co-obligors under the Notes, and (iii) IWL
will be released from its obligations in connection with the special offer to
purchase. If the Combination is not consummated by August 31, 1998, CapRock,
Telecommunications, and the Partnership will be required to offer to purchase
the Notes at a price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of such repurchase. To the
extent the amounts held in the escrow account are insufficient to repurchase
all tendered Notes, each of CapRock, Telecommunications, the Partnership, and
IWL (as guarantor) shall be jointly and severally liable to fund any such
deficiency (with an estimated contingent liability of not more than
approximately $7.0 million). There can be no assurance that CapRock,
Telecommunications, the Partnership and IWL will have sufficient funds
available at the time of such offer to purchase to repay all Notes tendered.
In the event the Combination is consummated by August 31, 1998,
Telecommunications and the Partnership will be released from their
obligations under the Notes (and IWL will be released from it obligations
under such offer to purchase), and CapRock will be the sole obligor
thereunder.
Upon completion of the Combination, CapRock may require additional
capital in the future, or sooner than currently anticipated, for new business
activities related to its current and planned businesses, or in the event it
decides to make additional acquisitions or enter into joint venture and
strategic alliances. Sources of additional capital may include cash flow
from operations and public and private equity and debt financings. There can
be no assurance, however, that CapRock will be successful in producing
sufficient cash flow or raising sufficient debt or equity capital to meet its
strategic business objectives or that such funds, if available, will be
available on a timely basis and on terms that are acceptable to CapRock and
within limitations contained in CapRock's financing arrangements. Failure to
generate or raise sufficient funds may require CapRock to delay or abandon
some or all of its future expansion plans or expenditures, which could have a
material adverse effect on CapRock's financial condition, results of
operations and cash flow.
7
<PAGE>
Credit Facility
CapRock is currently negotiating with a lender to obtain a senior credit
facility in the amount of $25 million and which CapRock expects will become
available upon consummation of the Combination with IWL. The credit facility
will replace existing credit agreements and facilities with
Telecommunications, the Partnership and IWL. The final terms and conditions
of the credit facility will depend on negotiation of definitive documentation
for the credit facility. There can be no assurance, however, as to when or if
CapRock will enter into the credit facility or as to the amount or terms of
the credit facility.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of
an Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for the manner in which business enterprises are to report
information about operating statements in its annual statements and requires
those enterprises to report selected information regarding operating segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. SFAS 131 is effective for fiscal years beginning
after December 15, 1997. Financial statement disclosures for prior periods
are required to be restated. The Company is in the process of evaluating the
disclosure requirements. The adoption of SFAS 131 will not have an impact on
the Company's results of operation, financial position or cash flows and any
effect will be limited to the presentation of its disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity" ("SFAS 133") which requires that all
derivatives be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the
provisions of SFAS No. 133. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The adoption of SFAS 133 will not have an impact on the
Company's results of operations, financial position or cash flow.
Contingencies
The Company is not currently a party to any litigation.
Year 2000
As the year 2000 approaches, the Company recognizes the need to ensure
its operations will not be adversely impacted by Year 2000 computer software
failures. The Company is addressing this issue to ensure the availability
and integrity of its financial systems and the reliability of its operational
systems. The Company has established processes for evaluating and managing
the risks and costs associated with this problem. The Company has and will
continue to make certain investments in its software systems and applications
to ensure the Company is year 2000 compliant. The financial impact to the
Company has not yet been fully determined, however such impact is not
anticipated to have a material adverse effect on the financial condition,
results of operations or cash flow of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II. OTHER INFORMATION
8
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
2.1 First Amendment to Agreement and Plan of Merger and Plan of
Exchange, dated as of April 30, 1998, by and among the Company,
CapRock, Telecommunications, the Partnership, IWL Acquisition
Corp., and CapRock Acquisition Corp. (collectively, the "Parties").
(Incorporated by reference to Exhibit 2.2 to the Registration
Statement on Form S-4, as amended, first filed by the Company with
the SEC on June 22, 1998) (SEC Registration No. 333-57365) (the
"Form S-4").
2.2 Second Amendment to Agreement and Plan of Merger and Plan of
Exchange, dated as of June 20, 1998, by and among the Parties
(incorporated by reference to Exhibit 2.3 to the Form S-4).
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Form S-4).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
the Form S-4).
4.1 Specimen certificate for the Common Stock of the Company
(incorporated by reference to Exhibit 4.3 to the Form S-4).
+27.1 Financial Data Schedule of CapRock.
+99.1 Form of Form 10-Q of CapRock Telecommunications Corp. filed pursuant
to that certain Indenture (the "Indenture") dated July 16, 1998 by
and among the Company, CapRock Telecommunications Corp.
("Telecommunications"), CapRock Fiber Network, Ltd. (the
"Partnership"), IWL Communications, Incorporated and PNC Bank,
National Association.
+99.2 Form of Form 10-Q of CapRock Fiber Network, Ltd. filed pursuant to
the Indenture.
+99.3 Articles of Incorporation of Telecommunications, as amended.
+99.4 Bylaws of Telecommunications, as amended.
+99.5 Agreement and Limited Partnership of the Partnership, as amended.
99.6 Second Amendment to Loan Agreement dated April 29, 1998 by and
between the Partnership and Bank One, Texas, N.A. ("Bank One")
(incorporated by reference to Exhibit 10.52 to the Form S-4).
99.7 License Agreement dated July 16, 1998 by and between
Telecommunications and RiverRock Systems, Ltd. (incorporated by
reference to Exhibit 10.53 to the Form S-4).
99.8 Eighth Amendment to Loan and Security Agreement dated as of June
18, 1998 by and between Telecommunications and Bank One
(incorporated by reference to Exhibit 10.56 to the Form S-4).
99.9 Renewal and Extension Promissory Note dated as of June 18, 1998
executed by Telecommunications payable to the order of Bank One in
the original principal amount of $7,000,000.00 (incorporated by
reference to Exhibit 10.57 to the Form S-4.
99.10 Intercompany Promissory Note dated as of June 18, 1998 originally
executed by the Partnership payable to the order of
Telecommunications in the principal amount of $2,500,000.00 and
endorsed by Telecommunications in favor of Bank One (incorporated
by reference to Exhibit 10.58 to the Form S-4).
9
<PAGE>
99.11 Third Amendment to Loan Agreement dated as of June 18, 1998 by and
between the Partnership and Bank One (incorporated by reference to
Exhibit 10.60 to the Form S-4).
+99.12 Computation of Earnings per share for Telecommications.
+99.13 Form of Financial Data Schedule of Telecommunications.
+99.14 Form of Financial Data Schedule of the Partnership.
(b) Reports on Form 8-K
None.
</TABLE>
- ----------------------
+ Filed herewith.
10
<PAGE>
CAPROCK COMMUNICATIONS CORP.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPROCK COMMUNICATIONS CORP.
Date: August 13, 1998 By: /s/ Kevin W. McAleer
---------------------------------------
Kevin W. McAleer
Chief Financial Officer (Duly Authorized
Officer and Principal Financial and
Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH BALANCE SHEET.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2
<TOTAL-LIABILITY-AND-EQUITY> 2
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM OF
FORM 10-Q
FILED AS EXHIBIT 99.1 TO FORM 10-Q OF CAPROCK COMMUNICATIONS CORP.
PURSUANT TO INDENTURE, DATED JULY 16, 1998 (THE "INDENTURE")
BY AND AMONG CAPROCK COMMUNICATIONS CORP.,
CAPROCK TELECOMMUNICATIONS CORP.,
CAPROCK FIBER NETWORK, LTD.
AND THE OTHER PARTIES THERETO.
/X/ Quarterly Report For the Quarterly Period Ended June 30, 1998
or
/ / Transition Report For the transition period from __________ to __________
CAPROCK TELECOMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
TEXAS 75-2361414
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Two Galleria Tower
13455 Noel Road, Suite 1925
Dallas, Texas 75240
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 982-9500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
COMMON STOCK, $0.01 PAR VALUE 10,398,954
(Title of Each Class) (Number of Shares Outstanding at August 7, 1998)
<PAGE>
CAPROCK TELECOMMUNICATIONS, CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Balance Sheets at December 31, 1997 and June 30, 1998 3
Statements of Operations for the Six Months and
Three Months Ended June 30, 1997 and 1998 4
Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1998 5
Notes to Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART 2. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE PAGE 12
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAPROCK TELECOMMUNICATIONS CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1998
----------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 2,162 $ 2,439
Accounts receivable and unbilled services, less allowance 8,325,352 10,283,720
for doubtful accounts of $1,640,722 and $292,912 at
December 31, 1997 and June 30, 1998, respectively
Due from affiliate - 1,250,000
Income taxes receivable - 300,837
Prepaid expenses and other 571,650 755,563
Deferred income taxes 624,095 88,160
----------- -----------
Total current assets 9,523,259 12,680,719
Property and equipment, net 3,692,670 4,739,115
Other assets 110,741 423,689
----------- -----------
Total assets $13,326,670 $17,843,523
----------- -----------
----------- -----------
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 42,722 $ 304,417
Accounts payable 7,320,590 9,431,424
Bank line of credit 1,152,329 2,601,685
Accrued liabilities 491,601 226,762
Current installments of obligations under capital lease 239,672 254,417
Income taxes payable 324,550 -
Unearned revenue 527,774 155,661
----------- -----------
Total current liabilities 10,099,238 12,974,366
Deferred income taxes 527,394 530,416
Obligations under capital leases and other long-term debt 452,938 264,655
----------- -----------
Total liabilities 11,079,570 13,769,437
Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized, 1,458,273 1,458,273
10,398,954 shares issued and outstanding; 9,680 shares
held in treasury
Unearned compensation (396,244) (354,532)
Retained earnings 1,185,071 2,970,345
----------- -----------
Total stockholders' equity 2,247,100 4,074,086
----------- -----------
Total liabilities and stockholders' equity $13,326,670 $17,843,523
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Interim Financial Statements
3
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Telecommunication services $20,128,426 $32,415,539 $11,446,794 $16,645,227
Cost of revenues 15,769,595 23,910,786 8,652,055 12,108,778
----------- ----------- ----------- -----------
Gross profit 4,358,831 8,504,753 2,794,739 4,536,449
Operating cost and expenses:
Selling, general, and administrative expenses 3,216,741 4,942,552 1,729,387 2,766,666
Depreciation and amortization 303,254 484,361 161,131 252,941
----------- ----------- ----------- -----------
Total operating expenses 3,519,995 5,426,913 1,890,519 3,019,607
----------- ----------- ----------- -----------
Income from operations 838,836 3,077,840 904,220 1,516,842
Interest expense, net (167,527) (158,997) (82,047) (72,887)
----------- ----------- ----------- -----------
Income before income taxes 671,309 2,918,843 822,173 1,443,955
Income taxes 242,594 1,133,570 300,677 555,922
----------- ----------- ----------- -----------
Net income $ 428,715 $ 1,785,274 $ 521,496 $ 888,033
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per common share:
Basic $ 0.04 $ 0.17 $ 0.05 $ 0.09
Diluted $ 0.04 $ 0.17 $ 0.05 $ 0.08
Weighted average shares outstanding:
Basic 10,398,954 10,398,954 10,398,954 10,398,954
Diluted 10,398,954 10,576,001 10,398,954 10,576,295
</TABLE>
See accompanying Notes to Interim Financial Statements
4
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1997 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 428,715 $ 1,785,274
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 303,254 484,361
Deferred income taxes 242,594 538,957
Compensation expense related to stock
option grants - 41,712
Allowance for doubtful accounts 595,697 337,663
Changes in operating assets and liabilities:
Accounts receivable (3,328,315) (2,296,031)
Due from affiliate - (1,250,000)
Prepaid expenses and other (190,982) (496,862)
Accounts payable and accrued liabilities 2,112,399 2,100,411
Income taxes payable 6,620 (625,387)
Unearned revenue 404,963 (372,113)
------------ ------------
Net cash provided by operating activities 574,945 247,895
Cash flows from investing activities - Purchases of
property and equipment (591,648) (1,530,715)
Cash flows from financing activities:
Principal payments on notes payable (200,000) (50,000)
Proceeds from line of credit 17,025,696 31,611,788
Principal payments on line of credit (16,431,483) (30,162,438)
Principal payments under capital lease obligations (112,636) (116,253)
------------ ------------
Net cash provided by financing activities 281,577 1,283,097
Net increase in cash 264,874 277
Cash at beginning of year - 2,162
------------ ------------
Cash at end of period $ 264,874 $ 2,439
------------ ------------
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 175,623 $ 158,997
------------ ------------
------------ ------------
Cash paid for income taxes $ 121,000 $ 1,220,000
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Interim Financial Statements
5
<PAGE>
CAPROCK TELECOMMUNICATIONS CORP.
Notes to Interim Financial Statements
(1) BASIS OF PRESENTATION
The accompanying interim financial statements, which should be read in
conjunction with the financial statements and footnotes of CapRock
Telecommunications Corp. ("Telecommunications" or the "Company") for
the fiscal year ended December 31, 1997, which were included in the
Registration Statement (SEC Registration No. 333-57365) filed on Form
S-4 by CapRock Communications Corp. ("CapRock") in July 1998, are
unaudited (the December 31, 1997 balance sheet was derived from the
Company's audited financial statements), but have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the entire fiscal
year.
(2) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (FAS 128), "Earnings Per Share". Statement 128 replaced
the previously reported primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the Statement 128 requirements.
<TABLE>
<CAPTION>
Basic Earnings Per Share
----------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
----------------------------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $ 428,715 $ 1,785,274 $ 521,496 888,033
----------- ----------- ----------- ----------
Denominator:
Denominator for basic earnings
Per share - weighted average
Shares outstanding 10,398,954 10,398,954 10,398,954 10,398,954
Effect of dilutive securities:
Employee stock options - 177,047 - 177,341
----------- ----------- ----------- ----------
10,398,954 10,576,001 10,398,954 10,576,295
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Basic earnings per share $.04 $.17 $.05 $.09
---- ---- ---- ----
---- ---- ---- ----
Dilutive earnings per share $.04 $.17 $.05 $.08
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
6
<PAGE>
(3) BUSINESS COMBINATION
On February 16,1998 the Company entered into a definitive agreement to
combine through mergers and an interest exchange (the "Combination")
with CapRock, IWL Communications, Incorporated. ("IWL") and CapRock
Fiber Network, Ltd. (the "Partnership"). The Combination is subject to,
among other matters, approval by the shareholders of the IWL and
Telecommunications and the partners of the Partnership. The transaction
is expected to be accounted for as a "pooling of interests" and qualify
as a tax-free exchange of shares and partnership interests.
(4) DEBT
In June 1998, Telecommunications increased its line of credit from $2.5
million to $7 million. The Company can advance a maximum of $2.5
million to the Partnership and has advanced $1,250,000 to the
Partnership as of June 30, 1998. The line of credit will mature on
August 31, 1998. The balance outstanding under such line of credit as
of June 30, 1998 was approximately $2.6 million. CapRock intends to use
part of the proceeds from the sale of the Notes (as defined below) to
repay indebtedness owing by Telecommunications to the bank. In the
event the Combination is not consummated by August 31, 1998 (and as a
result the net proceeds from the issuance of the Notes are not available),
Telecommunications intends to renegotiate the terms of the line of credit.
If such negotiations are not successful, Telecommunications will seek
additional sources of financing. No assurance can be given that such
financing will be available or, if available, that the terms will be
satisfactory.
The Company was in technical default of a covenant requiring the lender's
consent to the Combination. The Company has obtained the lender's consent
to the Combination.
(5) SUBSEQUENT EVENT
In July 1998, CapRock, Telecommunications and the Partnership (with
IWL as guarantor) issued, through a private placement under Rule 144A
under the Securities Act of 1933, as amended, $150 million aggregate
principal amount of their 12% Senior Notes due 2008 (the "Notes"), which
closed on July 16, 1998. Interest on the Notes will be payable
semi-annually in arrears on January 15 and July 15 of each year,
commencing on January 15, 1999, at the rate of 12% per annum. The net
proceeds from the offering were initially placed in a segregated escrow
account and will be released only in accordance with the provisions of
an escrow agreement. Upon consummation of the Combination, (i) the
proceeds in such escrow account will be released to CapRock, (ii)
Telecommunications and the Partnership will no longer be co-obligors
under the Notes, and (iii) IWL will be released from its obligations in
connection with the special offer to purchase. If the Combination is not
consummated by August 31, 1998, CapRock, Telecommunications, and the
Partnership will be required to offer to purchase the Notes (the
"Special Offer to Purchase") at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
such repurchase. To the extent the amounts held in the escrow account
are insufficient to repurchase all tendered Notes, each of CapRock,
Telecommunications, the Partnership, and IWL (as guarantor) shall be
jointly and severally liable to fund any such deficiency (with an
estimated contingent liability of not more than approximately $7.0
million). There can be no assurance that CapRock, Telecommunications,
the Partnership and IWL will have sufficient funds available at the time
of such offer to purchase to repay all Notes tendered.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and footnotes of Telecommunications for the fiscal year
ended December 31, 1997, which were included in the Registration Statement filed
on Form S-4 by CapRock in July 1998. The Company believes that all necessary
adjustments (consisting only of normal recurring adjustments) have been
included in the amounts stated below to present fairly the following quarterly
information. Accounting measurements at interim dates inherently involve
greater reliance on estimates than at year-end. Quarterly operating results
have varied significantly in the past and can be expected to vary in the
future. Results of operations for any particular quarter are not necessarily
indicative of results of operations for a full year.
Forward Looking Information
Certain information contained herein contains forward-looking statements
(as defined in the Private Securities Litigation Reform Act of 1995)
regarding future events or the future financial performance of the Company,
and are subject to a number of risks and other factors which could cause the
actual results of the Company to differ materially from those contained in
and anticipated by the forward-looking statements. Among such factors are:
completion of the Combination, industry concentration and the Company's
dependence on major customers, competition, risks associated with
international operations and entry into new markets, government regulation,
variability in operating results, general business and economic conditions,
customer acceptance of any demand for the Company's new products, the
Company's overall ability to design, test, and introduce new products on a
timely basis, reliance on third parties and other telecommunication carriers,
the Company's ability to manage change, dependence on key personnel,
dependence on information systems and changes in technology, and possible
service interruptions. The forward-looking statements contained herein are
necessarily dependent upon assumptions, estimates and data that may be
incorrect or imprecise. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or circumstances and
may not be realized. Forward-looking statements contained herein include,
but are not limited to, forecasts, projections and statements relating to
inflation, future acquisitions and anticipated capital expenditures. All
forecasts and projections in this report are based on management's current
expectations of the Company's near term results, based on current information
available pertaining to the Company, including the aforementioned risk
factors. Actual results could differ materially.
Overview
Telecommunications is a facilities-based provider of voice, data and
broadband communications services to interexchange carriers, to other
communications entities and to businesses and consumers ("Telecommunications
Services"). Revenue from Telecommunications Services is recognized primarily on
a minutes-of-use basis. Telecommunications experiences slight seasonal
reductions of revenues around the Thanksgiving and Christmas holidays.
TELECOMMUNICATIONS SERVICES. Telecommunications Services includes switched
services over owned and leased network facilities to interexchange carriers and
other telecommunications providers, as well as voice and data services to
businesses and consumers. Telecommunications plans to expand its presence in the
market by developing its brand identity and aggressively marketing its existing
and planned voice, data and other products and services. Telecommunications also
plans to further build direct, end-user relationships by significantly
increasing the size of its direct and agent sales forces, providing competitive
pricing and superior network quality and offering enhanced, market-driven
services to businesses and consumers. Telecommunications' ability to grow its
revenues will be dependent upon a number of factors, many of which are not
within its control and as a result no assurance can be given that such
objectives will be met.
RESULTS OF OPERATIONS:
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1998
REVENUE. Total revenues increased $5.2 million from $11.4 million for
the three months ended June 30, 1997 to $16.6 million for the same period in
1998. The 46% increase was due to increases in both domestic and
international switched services and to growth in switched services provided
to small and medium-sized businesses as a result of continued expansion of
Telecommunications' direct and agent sales channels. For the three months
ended
8
<PAGE>
June 30, 1997, revenues from international operations increased $1.9 million, or
59%, from $3.2 million and representing 28% of total revenues to $5.1 million
for the same period in 1998, representing 31% of total revenues for such period.
Domestic revenues increased $3.3 million, or 40% from $8.2 million to $11.5
million for the same period in 1998.
OPERATING COSTS AND EXPENSES. Telecommunications' principal operating
costs and expenses consist of cost of revenues, SG&A, and depreciation.
Total operating costs and expenses increased from approximately
$10.5 million for the three months ended June 30, 1997 to $15.1 million for the
same period in 1998. Cost of revenues increased from $8.7 million for the three
months ended June 30, 1997 to $12.1 million for the same period in 1998. The
growth in cost of revenues was primarily attributable to the continued growth in
switched services and network operations. The increase in gross margin % from
24% to 27% resulted from, among other things, favorable pricing attributable to
the higher traffic and new vendors, as well as a more favorable mix of
international and domestic traffic. Gross margins may vary in the future periods
as a result of these factors.
SG&A includes the cost of salaries, benefits, occupancy costs, commissions,
sales and marketing expenses and administrative expenses. SG&A increased from
$1.6 million for the three months ended June 30, 1997 to $2.8 million for the
same period in 1998. The increase resulted from the expanded administrative and
information activities needed to support Telecommunications' growth, recruitment
of additional personnel and additional sales commission payments. SG&A expenses,
in terms of absolute costs, will increase in subsequent periods as
Telecommunications continues to expand its telecommunications services, expand
its agent and direct sales operations, open additional commercial sales offices
in selected Texas markets, and recruit experienced telecommunications industry
personnel to implement Telecommunications' strategy.
Telecommunications' depreciation and amortization expense increased from
$161,000 for the three months ended June 30, 1997 to $253,000 for the same
period in 1998. The increase resulted primarily from purchases of additional
equipment and other fixed assets to accommodate Telecommunications' growth.
Telecommunications expects that depreciation and amortization expense will
continue to increase in subsequent periods as Telecommunications continues to
expand its facilities.
INTEREST EXPENSE. For the three months ended June 30, 1997,
Telecommunications' interest expense was $83,000 as compared to $73,000 for the
same period in 1998.
INCOME TAXES. Telecommunications' income tax expense was $301,000 for the
three months ended June 30, 1997, as compared to income tax expense of $556,000
for the same period in 1998.
NET INCOME. Telecommunications reported net income of $521,000 for the
three months ended June 30, 1997, compared to net income of $888,000 for the
three months ended June 30, 1998 as a result of the factors discussed above.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1998
REVENUE. Total revenues increased $12.3 million from approximately $20.1
million during the six months ended June 30, 1997 to approximately $32.4 million
in 1998. The 61% increase was due to increases in revenues from both domestic
and international switched services and to growth in switched services provided
to small and medium-sized businesses and to consumers as a result of continued
expansion of Telecommunications' direct and agent sales channels. For the six
months ended June 30, 1997, revenues from international operations increased
$5.3 million, or 98%, from $5.4 million and representing 27% of total revenues
to $10.7 million for the same period in 1998, representing 33% of total
revenues for such period. Domestic revenues increased $7 million, or 48% from
$14.7 million to $21.7 million for the same period in 1998.
OPERATING COSTS AND EXPENSES. Telecommunications' principal operating
costs and expenses consist of cost of revenues, SG&A, and depreciation.
Total operating costs and expenses increased from approximately $19.3
million during the six months ended June 30, 1997 to approximately $29.3 million
during the corresponding period in 1998. Cost of revenues increased from
approximately $15.8 million for the six months
9
<PAGE>
ended June 30, 1997 to approximately $23.9 million for the same period in
1998. The growth in cost of revenues was primarily attributable to the
continued growth in switched services and network operations. The increase in
gross margin from 22% to 26% resulted from, among other things, favorable
pricing attributable to the higher traffic and the efficient utilization of
Telecommunications' switching network.
SG&A includes the cost of salaries, benefits, occupancy costs, commissions,
sales and marketing expenses and administrative expenses. SG&A increased from
$3.2 million for the six months ended June 30, 1997 to approximately $4.9
million for the six month ended June 30, 1998. The increase resulted from the
expanded administrative and information activities needed to support
Telecommunications' growth, recruitment of additional personnel and additional
sales commission payments.
Telecommunications' depreciation and amortization expense increased from
approximately $303,000 during the six months ended June 30, 1997 to
approximately $484,000 for the same period in 1998. This increase resulted
primarily from purchases of additional equipment and other fixed assets to
accommodate Telecommunications' growth. Telecommunications expects that
depreciation and amortization expense will continue to increase in subsequent
periods as Telecommunications continues to expand its facilities.
INTEREST EXPENSE. For the six months ended June 30, 1997,
Telecommunications' interest expense was approximately $168,000 as compared to
approximately $159,000 for the same period in 1998.
INCOME TAXES. Telecommunications' income tax expense was approximately
$242,000 during the six months ended June 30, 1997 as compared to income tax
expense of approximately $1.1 million for the same period in 1998. This increase
was attributable to the improved profitability of Telecommunications in 1998.
NET INCOME. Telecommunications realized net income of approximately
$429,000 in the six months ended June 30, 1997, as compared to net income of
approximately $1.8 million in the corresponding period of 1998 as a result of
the factors discussed above.
Liquidity and Capital Resources
In June 1998, Telecommunications increased its bank line of credit to $7
million, subject to a borrowing base based on accounts receivable and
property, plant and equipment. Telecommunications can advance a maximum of
$2.5 million to the Partnership. The line of credit will mature on August 31,
1998. CapRock intends to use part of the proceeds from the sale of the Notes
to repay indebtedness owing by Telecommunications to the bank. If the
Combination is not consummated by August 31, 1998 (and as a result, the net
proceeds from the issuance of the Notes are not available to CapRock),
Telecommunications intends to renegotiate the terms of its loans with the
bank. If such negotiations are not successful, Telecommunications will seek
additional sources of financing. No assurance can be given that such
financing will be available or, if available, that the terms will be
satisfactory.
Total cash expended during the six months ended June 30, 1998 to fund
capital expenditures and repayments of long-term debt was approximately $1.5
million and $50,000, respectively. Total cash generated from operations was
approximately $248,000 for the same period. Total cash provided during this
same period from revolving loans was approximately $1.5 million.
Telecommunications believes that its capital needs at the end of such
period will continue to be significant and, therefore, Telecommunications may
continue to seek additional sources of capital. Further, in the event
Telecommunications' plans or assumptions change or prove to be inaccurate, or if
Telecommunications consummates any unplanned acquisitions of businesses or
assets, Telecommunications may be required to seek additional sources of capital
sooner than currently anticipated. Sources of additional capital may include
public and private equity and debt financings, sales of non-strategic assets and
other financing arrangements.
10
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
requires classification of items of other comprehensive income by nature in a
financial statement and a breakout of the accumulated balance of other
comprehensive income separately from retained earnings and additional paid in
capital in the equity section of a statement of financial position. Reporting
comprehensive income provides a measure of all changes in equity that result
from recognized transactions and other economic events of the period other
than transactions with owners in their capacity as owners. Adoption of this
statement did not have a material effect on the Company's consolidated
financial position or results of operation because there are no material
differences between net income and comprehensive income in the Company's
circumstances.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes standards
for the manner in which business enterprises are to report information about
operating statements in its annual statements and requires those enterprises to
report selected information regarding operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for fiscal years beginning after December 15, 1997.
Financial statement disclosures for prior periods are required to be restated.
The Company is in the process of evaluating the disclosure requirements. The
adoption of SFAS 131 will not have an impact on the Company's results of
operation, financial position or cash flows and any effect will be limited to
the presentation of its disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity" ("SFAS 133") which requires that all
derivatives be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the
provisions of SFAS No. 133. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The adoption of SFAS 133 will not have an impact on the
Company's results of operations, financial position or cash flow.
CONTINGENCIES
The Company is not currently a party to any litigation. However, the
Company is from time to time a party to ordinary litigation incidental to its
business, none of which is expected to have a material adverse effect on the
results of operation, financial condition or cash flow of the Company.
YEAR 2000
As the year 2000 approaches, the Company recognizes the need to ensure its
operations will not be adversely impacted by Year 2000 computer software
failures. The Company is addressing this issue to ensure the availability and
integrity of its financial systems and the reliability of its operational
systems. The Company has established processes for evaluating and managing the
risks and costs associated with this problem. The Company has and will continue
to make certain investments in its software systems and applications to ensure
the Company is year 2000 compliant. The financial impact to the Company has not
yet been fully determined, however such impact is not anticipated to have a
material adverse effect on the financial condition, results of operations or
cash flow of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Item 6(a)(Exhibits) to the Form 10-Q of CapRock Communications Corp.
for the period ended June 30, 1998 of which this document is an exhibit.
(b) Reports on Form 8-K
None.
11
<PAGE>
CAPROCK TELECOMMUNICATIONS, CORP.
Pursuant to the requirements of the Indenture, Telecommunications has
duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CAPROCK TELECOMMUNICATIONS, CORP.
Date: August 13, 1998 By: /s/ Kevin W. McAleer
----------------------
Kevin W. McAleer
Chief Financial Officer (Duly Authorized
Officer and Principal Financial and Accounting
Officer)
12
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM OF
FORM 10-Q
FILED AS EXHIBIT 99.2 TO
FORM 10-Q OF CAPROCK COMMUNICATIONS CORP.
PURSUANT TO INDENTURE, DATED
JULY 16, 1998 (THE "INDENTURE") BY AND AMONG
CAPROCK COMMUNICATIONS
CORP., CAPROCK TELECOMMUNICATIONS
CORP., CAPROCK FIBER
NETWORK, LTD. AND THE
OTHER PARTIES THERETO.
[X] Quarterly Report For the Quarterly Period Ended June 30, 1998
or
[ ] Transition Report For the transition period from __________ to __________
CAPROCK FIBER NETWORK, LTD.
(Exact name of registrant as specified in its charter)
TEXAS 75-2457966
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Two Galleria Tower
13455 Noel Road, Suite 1925
Dallas, Texas 75240
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 982-9500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
<PAGE>
CAPROCK FIBER NETWORK, LTD.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Balance Sheets at December 31, 1997 and June 30, 1998 3
Statements of Operations for the Six Months and
Three Months Ended June 30, 1997 and 1998 4
Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1998 5
Notes to interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART 2. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE PAGE 12
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAPROCK FIBER NETWORK, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1998
----------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 172,543 $ 378,028
Trade receivables 206,404 39,292
Costs and estimated earnings in excess of billings - 1,355,000
Prepaid expenses and other 3,602 3,602
----------------- -------------
Total current assets 382,549 1,775,922
Property and equipment, net 9,299,859 11,893,870
Other assets 96,797 54,656
----------------- -------------
Total assets $ 9,779,205 $13,724,448
----------------- -------------
----------------- -------------
Liabilities and partners' capital (deficit)
Current liabilities:
Current portion of long-term debt $ 886,304 $ 8,877,101
Due to affiliate - 1,250,000
Accounts payable 81,904 1,559,834
Accrued commitment and guarantor fees 406,010 431,131
Accrued liabilities 67,337 356,493
Income taxes payable - 374,862
Unearned revenue - 161,700
----------------- -------------
Total current liabilities 1,441,555 13,011,121
Deferred income taxes - 169,961
Long-term debt, excluding current portion 8,664,588 -
----------------- -------------
Total liabilities 10,106,143 13,181,082
Partners' capital (deficit)
General partner (3,273) 5,433
Limited partners (323,665) 537,933
----------------- -------------
(326,938) 543,366
----------------- -------------
Total liabilities and partners' capital (deficit) $ 9,779,205 $13,724,448
----------------- -------------
----------------- -------------
</TABLE>
See accompanying Notes to Interim Financial Statements
3
<PAGE>
CAPROCK FIBER NETWORK LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------ ----------------------
1997 1998 1997 1998
--------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Telecommunication services $ 845,013 $ 1,196,337 $ 485,100 $ 608,804
Network construction services - 1,355,000 - 1,355,000
--------- ------------ ---------- ----------
Total Revenues 845,013 2,551,337 485,100 1,963,804
Operating costs and expenses:
Network access expenses 21,526 12,857 6,057 6,219
Cost of network construction services - 114,339 - 114,339
Selling, general, and administrative expenses 125,704 203,281 34,803 131,261
Depreciation and amortization 348,435 396,853 182,868 211,926
--------- ------------ ---------- ----------
Total operating costs and expenses 495,665 727,330 223,728 463,745
--------- ------------ ---------- ----------
Income from operations 349,348 1,824,007 261,372 1,500,059
Interest expense, net (370,832) (408,880) (205,491) (199,275)
--------- ------------ ---------- ----------
Income (loss) before income taxes (21,484) 1,415,127 55,881 1,300,784
Income taxes - 544,823 - 500,801
--------- ------------ ---------- ----------
Net income (loss) $ (21,484) $ 870,304 $ 55,881 $ 799,983
--------- ------------ ---------- ----------
--------- ------------ ---------- ----------
</TABLE>
See accompanying Notes to Interim Financial Statements
4
<PAGE>
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (21,484) $ 870,304
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 348,435 396,853
Deferred income taxes - 169,961
Changes in operating assets and liabilities:
Accounts receivable - 167,112
Due to affiliate - 1,250,000
Costs in excess of billings - (1,355,000)
Prepaid expenses and other (128,317) 42,141
Accounts payable and accrued liabilities (1,549,418) 1,792,206
Income taxes payable - 374,862
Unearned revenue - 161,700
----------- -----------
Net cash provided by (used in) operating activities (1,350,784) 3,870,139
Cash flows from investing activities - Purchases of
property and equipment (1,373,738) (2,947,723)
Cash flows from financing activities:
Proceeds from long-term note agreement 2,961,859 -
Principal payments on long-term note agreement - (716,931)
----------- -----------
Net cash provided by (used in)
financing activities 2,961,859 (716,931)
Net increase in cash 237,337 205,485
Cash at beginning of year 25,415 172,543
----------- -----------
Cash at end of period $ 262,752 $ 378,028
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 184,390 $ 389,414
----------- -----------
----------- -----------
Cash paid for income taxes $ - $ -
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Interim Financial Statements
5
<PAGE>
CAPROCK FIBER NETWORK, LTD.
Notes to Interim Financial Statements
(1) BASIS OF PRESENTATION
The accompanying interim financial statements, which should be read in
conjunction with the financial statements and footnotes of CapRock Fiber
Network, Ltd. (or the "Partnership") for the fiscal year ended December
31, 1997, which were included in the Registration Statement (SEC
Registration No. 333-57365) filed on Form S-4 by CapRock Communications
Corp. ("CapRock") in July 1998, are unaudited (the December 31, 1997
balance sheet was derived from the Partnership's audited financial
statements), but have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary
for a fair presentation have been included. Accounting measurements at
interim dates inherently involve greater reliance on estimates than at
year-end.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the entire
fiscal year.
(2) CONSTRUCTION OF FIBER NETWORK
The Partnership is constructing a fiber optic network between San
Antonio and Laredo, and Corpus Christi, McAllen, Harlingen, and
Brownsville, Texas. The total construction costs incurred relating to
the fiber optic network for the three months ended June 30, 1998 were
approximately $2.8 million. The Partnership capitalizes all network
construction costs, which include all direct material and labor costs
and those indirect costs related to contract performance.
On February 6, 1998, the Partnership entered into an indefeasible right
to use contract ("IRU") for dark fiber. The contract provided for an
IRU for a specified number of fiber strands with and option to acquire
an IRU for additional fiber strands. The customer exercised the
option to acquire the IRU for the additional fiber strands in July 1998.
The Partnership recognizes the revenue associated with the IRU under the
percentage of completion method and measures the progress based upon
construction costs incurred to the total estimated construction costs.
Revenue recognized for three months ended June 30, 1998 relating to the
IRU was approximately $1.4 million. The contract costs are estimated
using allocations of the total cost of constructing the network.
(3) BUSINESS COMBINATION
On February 16,1998 the Partnership entered into a definitive agreement
to combine through mergers and an interest exchange (the "Combination")
with CapRock, IWL Communications, Incorporated. ("IWL") and CapRock
Telecommunications Corp. ("Telecommunications"). The Combination is
subject to, among other matters, approval by the shareholders of the IWL
and Telecommunications and the partners of the Partnership. The
transaction is expected to be accounted for as a "pooling of interests"
and qualify as a tax-free exchange of shares and partnership interests.
(4) DEBT
The Partnership has a loan agreement with a bank whereby it borrowed $10
million used for the construction, start-up and related expenses of the
Houston to Corpus Christi fiber optic network. Approximately $8.9
million was outstanding as of June 30, 1998. Principal payments began
on March 31, 1997. The debt will mature on August 31, 1998. The
Partnership anticipates that the proceeds from the Notes (as defined
below) will be used to repay such loan (see note 5). In the event the
Combination is not consummated by August 31, 1998 (and as a result the
net proceeds from the issuance of the Notes are not available), the
Partnership intends to renegotiate the terms of the construction loan. If
such negotiations are not successful, the Partnership will seek
additional sources of financing. No assurance can be given that such
financing will be available or, if available, that the terms will be
satisfactory.
6
<PAGE>
The Partnership was in violation of certain covenants requiring
maintenance of debt as a percentage of adjusted net income as of
December 31, 1996, 1997 and April 30, 1998, and was also in technical
default of a covenant requiring the lender's consent to the Combination.
The Partnership has obtained a waiver of these covenant violations and
has obtained the lender's consent to the Combination and has executed an
amendment revising these covenants.
(5) SUBSEQUENT EVENT
In July 1998, CapRock, Telecommunications and the Partnership (with
IWL as guarantor) issued, through a private placement under Rule 144A
under the Securities Act of 1933, as amended, $150 million aggregate
principal amount of their 12% Senior Notes due 2008 (the "Notes"),
which closed on July 16, 1998. Interest on the Notes will be payable
semi-annually in arrears on January 15 and July 15 of each year,
commencing on January 15, 1999, at the rate of 12% per annum. The net
proceeds from the offering were initially placed in a segregated escrow
account and will be released only in accordance with the provisions of an
escrow agreement. Upon consummation of the Combination, (i) the proceeds
in such escrow account will be released to CapRock, (ii)
Telecommunications and the Partnership will no longer be co-obligors
under the Notes, and (iii) IWL will be released from its obligations in
connection with the special offer to purchase. If the Combination is not
consummated by August 31, 1998, CapRock, Telecommunications, and the
Partnership will be required to offer to purchase the Notes (the "Special
Offer to Purchase") at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of such
repurchase. To the extent the amounts held in the escrow account are
insufficient to repurchase all tendered Notes, each of CapRock,
Telecommunications, the Partnership, and IWL (as guarantor) shall be
jointly and severally liable to fund any such deficiency (with an
estimated contingent liability of not more than approximately $7.0
million). There can be no assurance that CapRock, Telecommunications,
the Partnership and IWL will have sufficient funds available at the time
of such offer to purchase to repay all Notes tendered.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and footnotes of the Partnership for the fiscal year
ended December 31, 1997, which were included in the Registration Statement
filed on Form S-4 by CapRock in July 1998.
The Partnership believes that all necessary adjustments (consisting only of
normal recurring adjustments) have been included in the amounts stated below
to present fairly the following quarterly information. Accounting
measurements at interim dates inherently involve greater reliance on
estimates than at year-end. Quarterly operating results have varied
significantly in the past and can be expected to vary in the future. Results
of operations for any particular quarter are not necessarily indicative of
results of operations for a full year.
Forward Looking Information
Certain information contained herein contains forward-looking statements
(as defined in the Private Securities Litigation Reform Act of 1995)
regarding future events or the future financial performance of the
Partnership, and are subject to a number of risks and other factors which
could cause the actual results of the Partnership to differ materially from
those contained in and anticipated by the forward-looking statements. Among
such factors are: the completion of the Combination, industry concentration
and the Partnership's dependence on major customers, competition, risks
associated with international operations and entry into new markets,
government regulation, variability in operating results, general business and
economic conditions, customer acceptance of any demand for the Partnership's
new products, the Partnership's overall ability to design, test, and
introduce new products on a timely basis, reliance on third parties and other
telecommunication carriers, the Partnership's ability to manage change,
dependence on key personnel, dependence on information systems and changes in
technology, and possible service interruptions. The forward-looking
statements contained herein are necessarily dependent upon assumptions,
estimates and data that may be incorrect or imprecise. Accordingly, any
forward-looking statements included herein do not purport to be predictions
of future events or circumstances and may not be realized. Forward-looking
statements contained herein include, but are not limited to, forecasts,
projections and statements relating to inflation, future acquisitions and
anticipated capital expenditures. All forecasts and projections in this
report are based on management's current expectations of the Partnership's
near term results, based on current information available pertaining to the
Partnership, including the aforementioned risk factors. Actual results could
differ materially.
Overview
The Partnership is a facilities-based provider of broadband
Telecommunications Services to interexchange carriers, other communications
entities and businesses.
The Partnership began operations in 1992 to design, manage the
construction of, operate, maintain and market a 185 route mile fiber optic
network in South Texas. In 1996, the Partnership entered into a ten-year
contract for the lease of dark fiber over a 260 route mile fiber network
between Houston and Corpus Christi, Texas. The Partnership completed
construction of the network in January 1997. As of July 1998, the Partnership
entered into an additional contract totaling approximately $1.3 million
(total contract value is $5.1 million) for the sale of dark fiber between San
Antonio and Laredo, Texas. The Partnership expects to complete the
construction of approximately 590 additional route miles of fiber network
from San Antonio to Laredo, McAllen, Harlingen, Brownsville and Corpus
Christi, Texas by the end of 1998. The Partnership intends to expand its
regional fiber network to approximately 4,300 route miles throughout Texas
and the Gulf Coast region by the end of 2000. The Partnership's ability to
expand its network and increase its revenues will be dependent upon a number
of factors, including the availability of financing, and as a result no
assurance can be given that its expansion plans will be met.
The Partnership provides dedicated line services over the Partnership's
owned fiber network to interexchange carriers and other telecommunications
providers for terms of one year or longer. High volume capacity service
agreements and dedicated line service agreements generally provide for "take
or pay" monthly payments at fixed rates based on the capacity term and length
of circuit used. Customers are typically billed on a monthly basis and also
may incur an installation charge or certain ancillary charges for equipment.
After contract expiration, the contracts may be renewed or the services may
be provided on a month-to-month basis. The
8
<PAGE>
Partnership is expanding its network to increase its revenue stream and
reduce per unit costs, targeting capacity sales on a segment-by-segment basis
as the Partnership's network is deployed and activated, and is increasingly
seeking longer-term, high-volume capacity agreements from major carriers. In
addition to traditional telecommunications carriers, the Partnership is
marketing to internet service providers and other data service companies
RESULTS OF OPERATIONS:
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1998
REVENUE. Total revenues increased approximately $1.5 million from
$485,000 for the three months ended June 30, 1997 to $2.0 million for the
same period in 1998. The increase in revenue for this period is primarily
attributed to Network Construction Services revenue of approximately $1.4
million. Telecommunications Services revenues represented 100% of the
revenue for the same period in 1997. As of June 30, 1998, the Partnership has
entered into a contract for the sale of dark fiber for approximately $3.8
million. In July 1998, the customer exercised the option to acquire the IRU
for additional fiber strands for approximately $1.3 million resulting in a
total contract of $5.1 million. The agreement requires the purchaser to pay
the aggregate contract price, by making installment payments during the
construction period based upon the achievement of certain milestones, with
final payment made at the time of acceptance.
OPERATING EXPENSES. The Partnership's principal operating expenses
consist of expenses for Network Construction Costs, SG&A, and depreciation
and amortization. Total operating expenses increased from approximately
$224,000 for the three months ended June 30, 1997 to $464,000 for the same
period in 1998. The 1998 operating expenses include the Costs of Network
Construction Services of approximately $114,000 associated with the contract
for the sale of dark fiber.
SG&A includes cost of salaries, benefits, occupancy costs, commissions,
sales and marketing expenses and administrative expenses. SG&A increased from
approximately $35,000 for the three months ended June 30, 1997 to $131,000
for the same period in 1998. SG&A expenses will increase as the Partnership
continues to expand its Telecommunications Services, initiate its direct
sales operations and recruit experienced telecommunications industry
personnel to implement the Partnership's network expansion strategy.
The Partnership's depreciation and amortization expense increased from
approximately $182,000 for the three months ended June 30, 1997 as compared
to $212,000 for the same period in 1998. The Partnership expects that
depreciation and amortization expense will continue to increase in subsequent
periods as the Partnership continues to activate additional segments of the
Partnership's planned fiber network.
INTEREST EXPENSE. For the three months ended June 30, 1997, the
Partnership's interest expense was $205,000 as compared to $199,000 for the
same period in 1998.
INCOME TAXES. Effective January 1, 1998, the Partnership elected to be
taxed as a corporation and as such has recorded income tax expense of
$501,000 relating to the three months ended June 30, 1998. Prior to January
1, 1998, the Partnership allocated net income and net losses to its
Partnership Interests and therefore no income taxes were recorded for periods
ended prior to January 1, 1998.
NET INCOME. The Partnership reported net income of $56,000 for the three
months ended June 30, 1997, compared to net income of $800,000 for the three
months ended June 30, 1998 as a result of the factors discussed above.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1998
REVENUE. Total revenues increased approximately $1.8 million from
$845,000, during the six months ended June 30, 1997, as compared to
approximately $2.6 million for the same period in 1998. The increase in
revenue for this period is primarily attributed to Network Construction
Services revenue of approximately $1.4 million. Telecommunications Services
revenues represented 100% of the revenue for the same period in 1997. The
Partnership has entered into a contract for the sale of dark fiber for
approximately $3.8 million. In July 1998, the customer exercised the option
to acquire the IRU for the additional fiber strands for approximately $1.3
million resulting in a total contract of $5.1 million. The agreement requires
the purchaser to pay the aggregate contract price, consisting of installments
during the construction period based upon the achievement of certain
milestones, with final payment made at the time of acceptance.
9
<PAGE>
OPERATING EXPENSES. The Partnership's principal operating expenses
consist of expenses for network construction costs, network access expenses,
SG&A, and depreciation and amortization. Total operating expenses increased
from approximately $496,000 during the six months ended June 30, 1997 as to
approximately $727,000 in the corresponding period in 1998. The 1998 operating
expenses include the Costs of Network Construction Services of approximately
$114,000 associated with the contract for the sale of dark fiber.
SG&A includes the cost of salaries, benefits, occupancy costs,
commissions, sales and marketing expenses and administrative expenses. SG&A
increased from approximately $126,000 in the six months ended June 30, 1997
to approximately $204,000 for the same period in 1998.
The Partnership's depreciation and amortization expense increased from
approximately $348,000 during the six months ended June 30, 1997 to
approximately $396,000 for the same period in 1998. This increase resulted
primarily from activating segments of the Partnership's fiber network during
1997, purchases of additional equipment used in constructing the
Partnership's fiber network and purchases of other fixed assets to
accommodate the Partnership's growth.
INTEREST EXPENSE. For the six months ended June 30, 1997, the
Partnership's net interest expense increased from approximately $370,000 to
approximately $409,000 for the same period in 1998.
INCOME TAXES. Effective January 1, 1998, the Partnership elected to be
taxed as a corporation and as such has recorded income tax expense of
$545,000 relating to the six months ended June 30, 1998. Prior to January 1,
1998, the Partnership allocated net income and net losses to its Partnership
Interests and therefore no income taxes were recorded for periods ended prior
to January 1, 1998.
NET INCOME (LOSS). The Partnership realized a net loss of approximately
$21,000 in the six months ended June 30, 1997, as compared to net income of
approximately $870,000 in the corresponding period of 1998 as a result of the
factors discussed above.
Liquidity and Capital Resources
The Partnership funded capital expenditures and cash used in operations
with the proceeds from a $10 million long term loan with a bank. The
Partnership intends to finance its operations in the future through
internally and externally generated funds, without relying on contributions
or guarantees from its general and limited partners. As of July 31, 1998, the
Partnership had obtained approximately $5.1 million of contracts for sales of
dark fiber, which amounts will be paid as the Partnership completes certain
milestones under the contracts (which is expected to occur in the fourth
quarter of 1998).
Total cash expended during the six months ended June 30, 1998 to fund
capital expenditures and repayments of long-term debt to third parties was
approximately $3 million and $717,000, respectively. Total cash generated
from operations was approximately $3.9 million for the same period.
The Partnership obtained a loan agreement with a bank to borrow up to
$10 million for the construction, start-up and related expenses of the
Houston to Corpus Christi fiber optic network. The Partnership was in
violation of certain covenants requiring maintenance of debt as a percentage
of adjusted net income as of December 31, 1996, 1997 and April 30, 1998, and
was also in technical default of a covenant requiring the lender's consent to
the Combination. The Partnership has obtained a waiver of these covenant
violations and has obtained the lender's consent to the Combination and has
executed an amendment revising these covenants. Approximately $8.9 million
was outstanding thereunder at June 30, 1998. The debt will mature on August
31, 1998. CapRock intends to use part of the proceeds from the sale of the
Notes to repay indebtedness owing by the Partnership to the bank. If the
Combination is not consummated by August 31, 1998 (and as a result, the net
proceeds from the issuance of the Notes are not available to CapRock), the
Partnership intends to renegotiate the terms of its loans with the bank. If
such negotiations are not successful, the Partnership will seek additional
sources of financing. No assurance can be given that such financing will be
available or, if available, that the terms will be satisfactory.
10
<PAGE>
New Accounting Pronouncements
The Partnership has adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
requires classification of items of other comprehensive income by nature in a
financial statement and a breakout of the accumulated balance of other
comprehensive income separately from retained earnings and additional paid in
capital in the equity section of a statement of financial position.
Reporting comprehensive income provides a measure of all changes in equity
that result from recognized transactions and other economic events of the
period other than transactions with owners in their capacity as owners.
Adoption of this statement did not have a material effect on the Partnership's
consolidated financial position or results of operation because there are no
material differences between net income and comprehensive income in the
Partnership's circumstances.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes standards
for the manner in which business enterprises are to report information about
operating statements in its annual statements and requires those enterprises to
report selected information regarding operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS 131 is effective for fiscal years beginning after December 15, 1997.
Financial statement disclosures for prior periods are required to be restated.
The Partnership is in the process of evaluating the disclosure requirements.
The adoption of SFAS 131 will not have an impact on the Partnership's results of
operation, financial position or cash flows and any effect will be limited to
the presentation of its disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity" ("SFAS 133") which requires that all
derivatives be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the
provisions of SFAS No. 133. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The adoption of SFAS 133 will not have an impact on the
Partnership's results of operations, financial position or cash flow.
Contingencies
The Partnership is not currently a party to any litigation. However, the
Partnership is from time to time a party to ordinary litigation incidental to
its business, none of which is expected to have a material adverse effect on the
results of operation, financial condition or cash flow of the Partnership.
Year 2000
As the year 2000 approaches, the Partnership recognizes the need to ensure
its operations will not be adversely impacted by Year 2000 computer software
failures. The Partnership is addressing this issue to ensure the availability
and integrity of its financial systems and the reliability of its operational
systems. The Partnership has established processes for evaluating and managing
the risks and costs associated with this problem. The Partnership has and will
continue to make certain investments in its software systems and applications to
ensure the Partnership is year 2000 compliant. The financial impact to the
Partnership has not yet been fully determined, however such impact is not
anticipated to have a material adverse effect on the financial condition,
results of operations or cash flow of the Partnership.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Item 6(a) (Exhibits) to the Form 10-Q of CapRock Communications
Corp. for the period ended June 30, 1998 of which this document is an exhibit.
(b) Reports on Form 8-K
None.
11
<PAGE>
CAPROCK FIBER NETWORK, LTD.
Pursuant to the requirements of the Indenture, the Partnership has duly
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CAPROCK FIBER NETWORK, LTD.
Date: August 13, 1998 By: CAPROCK SYSTEMS, INC., its general
partner
By: /s/ JERE W. THOMPSON, JR.
-----------------------------------
Jere W. Thompson, Jr.
President (Duly Authorized Officer
and Principal Financial and Chief
Accounting Officer)
12
<PAGE>
[LOGO]
THE STATE OF TEXAS
SECRETARY OF STATE
IT IS HEREBY CERTIFIED that the attached is/are true and correct copies
of the following described document(s) on file in this office:
CAPROCK TELECOMMUNICATIONS CORP.
FORMERLY: CAPROCK COMMUNICATIONS CORP.
FILE NO. 1180758
<TABLE>
<S> <C>
ARTICLES OF INCORPORATION JANUARY 30, 1991
ASSUMED NAME CERTIFICATE OCTOBER 25, 1993
CHANGE OF REGISTERED OFFICE AND/OR AGENT OCTOBER 25, 1993
FORFEITURE FEBRUARY 15, 1994
REINSTATEMENT MARCH 10, 1994
ASSUMED NAME CERTIFICATE APRIL 25, 1994
CHANGE OF REGISTERED OFFICE AND/OR AGENT MAY 27, 1994
ARTICLES OF AMENDMENT NOVEMBER 14, 1994
CHANGE OF REGISTERED OFFICE AND/OR AGENT NOVEMBER 12, 1996
ARTICLES OF AMENDMENT OCTOBER 2, 1997
</TABLE>
IT IS HEREBY FURTHER CERTIFIED THAT THE RECORDS OF THIS OFFICE REVEAL THE
SUBSEQUENT FILING OF AN AMENDMENT WHICH WAS FILED ON JUNE 18, 1998. A COPY OF
THE DOCUMENT IS UNAVAILABLE AT THIS TIME BECAUSE IT IS BEING PROCESSED FOR
PERMANENT RETENTION AS A PUBLIC RECORD.
IN TESTIMONY WHEREOF, I HAVE HEREUNTO
[SEAL OF TEXAS] SIGNED BY NAME OFFICIALLY AND CAUSED TO BE IMPRESSED
HEREON THE SEAL OF STATE AT MY OFFICE IN THE CITY OF
AUSTIN, ON JULY 14, 1998
/s/ Alberto R. Gonzales
-----------------------------------
Alberto R. Gonzales
Secretary of State
<PAGE>
ARTICLES OF INCORPORATION
OF
Synergy Telemanagement, Inc.
The undersigned natural person of the age of eighteen (18) years or
more, acting as a incorporator of a corporation under the Texas Business
Corporation Act, hereby adopts the following Articles of Incorporation for
such corporation:
ARTICLE ONE - NAME
The name of the corporation is Synergy Telemanagement, Inc.
ARTICLE TWO - DURATION
The period of its duration is perpetual.
ARTICLE THREE - PURPOSE
The purpose or purposes for which this corporation is organized, subject
to the provisions of Part Four of the Texas Miscellaneous Corporation Law
Act, are: to buy, sell, lease and deal in services, personal property and
real property of every nature and description, and to transact any or all
lawful business for which corporations may be incorporated under the Texas
Business Corporation Act.
ARTICLE FOUR - SHARES
The aggregate number of shares which the corporation has authority to
issue is One Hundred Thousand (100,000) shares
(1)
<PAGE>
of One Dollar ($1.00) par value per share. The shares are designated as
common stock and have identical rights and privileges in every respect.
ARTICLE FIVE - NONCUMULATIVE VOTING
Director(s) shall be elected by majority vote. No shareholder of this
corporation shall have the right to cumulate his, her or its votes.
ARTICLE SIX - COMMENCEMENT OF BUSINESS
The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand Dollars
($1,000), consisting of money, labor done, or property actually received.
ARTICLE SEVEN - REGISTERED OFFICE AND AGENT
The post office address of the initial registered office of the corporation
and the name of its initial registered agent at such address are:
Tim Terrell
14565 Tamerisk
Farmers Branch, TX 75234
ARTICLE EIGHT - INITIAL DIRECTOR(S)
The number of director(s) constituting the initial Board of Directors is
three (3) and the name(s) and address(es) of the person(s) who shall serve as
director(s) until the first
(2)
<PAGE>
annual meeting of the shareholders, or until a successor or successors are
elected and qualified are:
Tim Terrell 14565 Tamerisk
Farmers Branch, TX 75234
Tim Rogers 1208 Thorean Ln.
Allen, TX 75002
Scott Roberts 2604 Winding Creek
Carrollton, TX 75007
ARTICLE NINE - INCORPORATOR
The name and address of the incorporator is:
Dennis L. Baker
3636 N. MacArthur Blvd.,
Suite 120
Irving, TX 75062
IN WITNESS WHEREOF, I have hereunto set my hand this the 29th day of
January, 1991.
/s/ Dennis L. Baker
-------------------------------
Dennis L. Baker
STATE OF TEXAS )
COUNTY OF DALLAS )
I, the undersigned Notary Public, do hereby certify that on the 29th
day of January, 1991, personally appeared Dennis L. Baker, who, being by me
duly sworn, declared that he is the person who signed the foregoing document
as incorporator, and that the statements contained therein are true.
/s/ Marla Ruth Carter
[SEAL OF NOTARY] ----------------------------------
Notary Public in and for
State of Texas
My Commission Expires: Notary's Name Printed:
7-24-91 Marla Ruth Carter
- ---------------------- ----------------------------------
(3)
<PAGE>
ASSUMED NAME CERTIFICATE FOR AN
INCORPORATED BUSINESS OR PROFESSION
1. The assumed name under which the business or professional service is or
is to be conducted or rendered is NTS Communications - Dallas.
2. The name of the incorporated business or profession as stated in its
Articles of Incorporation or comparable document is Synergy
Telemanagement, Inc., and the charter number or certificate of authority
number, if any is 01180758.
3. The state, country, or other jurisdiction under the laws of which it was
incorporated is Texas and the address of its registered or similar office
in that jurisdiction is 17103 Preston Road, Suite 190, Dallas, Texas
75248.
4. The period not to exceed ten years, during which the assumed name will be
used is Ten Years.
5. The corporation is a (circle one) BUSINESS CORPORATION, non-profit
corporation, professional association or other type of corporation,
(specify) _________, or other type of incorporated business, professional
or other association or legal entity (specify) ________.
6. The corporation is required to maintain a registered office in Texas, the
address of the registered office is 17103 Preston Road Suite 190,
Dallas, Tx 75248, the name of its registered agent at such address is
Timothy Terrell. The address of the principal office (if not the same as
the registered office) is _____________________________________.
7. If the corporation is not required to or does not maintain a registered
office in Texas, the office address in Texas is N/A; and if the corporation
is not incorporated, organized or associated under the laws of Texas,
the address of its place of business in Texas is N/A and the office
address elsewhere is N/A.
8. The county or counties where business or professional services are being
or are to be conducted or rendered under such assumed name are (if
applicable, use the designation "all" or "all except") All.
SYNERGY TELEMANAGEMENT, INC.
By: /s/ Tim Terrell
------------------------------
Title: Treasurer
---------------------------
Before me on this 6th day of October, 1993, personally appeared Tim
Terrell the Treasurer of NTS a Corporation and acknowledged to me that
he/she executed the foregoing certificate for the purposes therein expressed.
/s/ Carolyn Stuart
--------------------------------------------
Notary Public in and for State of Texas
My Commission Expires: Notary's Name Printed:
CAROLYN STUART
- --------------------- --------------------------------------------
[SEAL OF NOTARY]
<PAGE>
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH BY
A CORPORATION
1. The name of the corporation is SYNERGY TELEMANAGEMENT, INC.
----------------------------
The corporation's charter number is 01180758-0
-----------------------
2. The address of the registered office as PRESENTLY shown in the records
of the Texas secretary of state is: (Please provide street address,
city, state and zip code. The address must be in Texas).
14565 Tamerisk
--------------------------------------
Farmers Branch, TX 75234
--------------------------------------
3. A. The address of the NEW registered office is: (Please
--- provide street address, city, state and zip code. The address must
be in Texas.)
17103 Preston Rd., Suite 190
--------------------------------------
Dallas, TX 75248
--------------------------------------
OR B. The registered office address will not change.
---
4. The name of the registered agent as PRESENTLY shown in the records of the
Texas secretary of state is TIMOTHY TERRELL.
5. A. The name of the NEW registered agent is ___________________________.
---
OR B. XX The registered agent will not change.
---
6. Following the changes shown above, the address of the registered office and
the address of the office of the registered agent will continue to be
identical, as required by law.
7. The changes shown above were authorized by:
(Profit corporations may select A or B)
(Non-Profit corporations may select A, B, or C)
A. The board of directors; OR
---
B. XX An officer of the corporation so authorized by the board of
--- directors; OR
C.---The members of the corporation in whom management
of the corporation is vested pursuant to article 2.14C of the
Texas Non-Profit Corporation Act.
/s/ TIMOTHY W. ROGERS
_________________________________
An Authorized Officer
Please submit this form IN DUPLICATE with the appropriate filing fee.
PROFIT corporations: $15.00; NON-PROFIT corporations: $5.00
<PAGE>
SECRETARY OF STATE
AUSTIN, TEXAS
DETERMINATION OF FORFEITURE PURSUANT TO SECTION 171.309, TEXAS TAX CODE
ANNOTATED
CAME TO BE CONSIDERED ON THE DATE SHOWN HEREON, FORFEITURE OF THE CHARTER
OR CERTIFICATE OF AUTHORITY OF THE FOLLOWING CORPORATION; THE SECRETARY
OF STATE FINDS AND DETERMINES THE FOLLOWING:
CORPORATION NAME
SYNERGY TELEMANAGEMENT, INC.
CERTIFICATE/CHARTER
CHARTER NO.-TYPE [ILLEGIBLE] FORFEITED FORFEITED
1180758-0 08/16/1993 02/15/1994
THAT THE COMPTROLLER OF PUBLIC ACCOUNTS HAS NOTIFIED THIS OFFICE THAT SAID
CORPORATION HAS FAILED TO FILE A CURRENT YEAR FRANCHISE TAX REPORT TO
ESTABLISH THE EXISTENCE OF ASSETS FROM WHICH A JUDGEMENT FOR THE FRANCHISE
TAXES, PENALTIES AND COURT COSTS MAY BE SATISFIED.
THAT THE COMPTROLLER OF PUBLIC ACCOUNTS HAS FURTHER STATED THAT THE SAID
CORPORATION HAS FAILED OR REFUSED TO REVIVE ITS RIGHT TO DO BUSINESS.
IT IS THEREFORE ORDERED THAT THE CHARTER OR CERTIFICATE OF AUTHORITY OF
THE ABOVE NAMED CORPORATION BE AND THE SAME IS HEREBY FORFEITED WITHOUT
JUDICIAL ASCERTAINMENT AND MADE NULL AND VOID, AND THAT THE PROPER ENTRY
BE MADE UPON THE PERMANENT FILES AND RECORDS OF SUCH CORPORATION TO SHOW
SUCH FORFEITURE AS OF THE DATE HEREOF.
<PAGE>
APPLICATION FOR REINSTATEMENT AND
REQUEST TO SET ASIDE REVOCATION OR FORFEITURE
Name of organization Synergy Telemanagement, Inc.
-----------------------------------
File No. 01180758 Taxpayer Id. No. 1-75-2361414-1
------------------ ----------------
WHEREAS, the organization named above was forfeited or the certificate of
authority for the organization revoked on 02-15-94 for:
--------------
(check one)
1. failure to maintain a registered agent, or
------
2. failure to pay state franchise tax, or
------
3. X (other) Franchise Tax Report not filed
------- Public Information Report not filed
WHEREAS, the organization has corrected the default noted above
and has paid all fees, taxes, and penalties due;
NOW THEREFORE, the organization hereby applies for reinstatement of its articles
or certificate of authority, and requests that the secretary of state set
aside the forfeiture of revocation of its articles or certificate of
authority.
By: /s/ Timothy W. Rogers Pres.
-----------------------------------------
(signature) (title)
[FRANCHISE TAXES PAID THRU 05/16/94]
INSTRUCTIONS FOR FILING APPLICATION FOR REINSTATEMENT
1. CORPORATIONS - An application for reinstatement by a corporation
forfeited for failure to pay state franchise tax must be signed by an
officer, director or shareholder of the corporation. All other
applications must be signed by an officer or director of the corporation.
LIMITED LIABILITY COMPANIES - An application for reinstatement for a
limited liability company must be signed by a manager or member of the
limited liability company.
PRIOR TO SIGNING, PLEASE READ THE STATEMENTS ON THIS FORM CAREFULLY. A
PERSON COMMITS AN OFFENSE UNDER THE TEXAS BUSINESS CORPORATION ACT, THE
TEXAS LIMITED LIABILITY COMPANY ACT OR THE TEXAS NON-PROFIT CORPORATION
ACT IF THE PERSON SIGNS A DOCUMENT THE PERSON KNOWS IS FALSE IN ANY
MATERIAL RESPECT WITH THE INTENT THAT THE DOCUMENT BE DELIVERED TO THE
SECRETARY OF STATE FOR FILING. THE OFFENSE IS A CLASS A MISDEMEANOR.
2. Submit two copies of the application.
3. The filing fee for an application for reinstatement of a corporation
following a tax forfeiture is $75.00. The filing fee for reinstatement of
a corporation following a non-tax forfeiture is $50.00. The filing fee for
a Texas limited liability company is $10.00. The filing fee for a foreign
limited liability company is $50.00.
Non-profit corporations are assessed a filing fee of $25.00 for non-tax
reinstatements. No fee is required for non- profit corporations forfeited
for tax reasons.
<PAGE>
[SEAL] ASSUMED NAME CERTIFICATE
1. The name of the corporation, limited liability company, limited
partnership, or registered limited liability partnership as stated in
its articles of incorporation, articles of organization, certificate of
limited partnership, application or comparable document is
Synergy Telemanagement, Inc. .
2. The assumed name under which the business or professional service is or
is to be conducted or rendered is Caprock Communications, Inc.
3. The state, country, or other jurisdiction under the laws of which it was
incorporated, organized or associated is Texas , and the
address of its registered or similar office in that jurisdiction is
17103 Preston Rd. #190, Lock Box 121, Dallas, Tx 75248.
4. The period, not to exceed 10 years, during which the assumed name will be
used is 10 yrs.
5. The entity is a (circle one) BUSINESS CORPORATION, non-profit corporation,
professional corporation, professional association, limited liability
company, limited partnership, registered limited liability partnership or
some other type of incorporated business, professional or other
association (specify)
---------------------------------------------------------------------
6. If the entity is required to maintain a registered office in Texas, the
address of the registered office is 17103 Preston Rd. #190, Lock Box 121
Dallas, Tx. 75248 and the name of its registered agent at such address
is Timothy W. Rogers. The address of the principal office (if not the
same as the registered office) is Same.
7. If the entity is not required to or does not maintain a registered office
in Texas, the office address in Texas is N/A and if the entity is
not incorporated, organized or associated under the laws of Texas, the
address of its place of business in Texas is ______________________ and
the office address elsewhere is ____________.
8. The county or counties where business or professional services are being or
are to be conducted or rendered under such assumed name are (if applicable,
use the designation "ALL" or "ALL EXCEPT"):
All .
(Certificate must be executed and notarized on the back of this form.)
<PAGE>
/s/ TIMOTHY W. ROGERS
-------------------------------------------
SIGNATURE OF OFFICER, GENERAL PARTNER,
MANAGER, REPRESENTATIVE OR ATTORNEY-IN-FACT
OF THE ENTITY
BEFORE ME ON THIE 21 DAY OF APRIL, 1994, PERSONALLY APPEARED
TIMOTHY W. ROGERS AND ACKNOWLEDGED TO ME THAT _____ HE
EXECUTED THE FOREGOING CERTIFICATE FOR THE PURPOSES THEREIN EXPRESSED.
/s/ CAROLYN STUART
[NOTARY SEAL] --------------------------------------------
Notary Public, State of Texas
INSTRUCTIONS FOR FILING ASSUMED NAME CERTIFICATE
1. A corporation, limited liability company, limited partnership or
registered limited liability partnership, which regularly conducts
business or renders a professional service in this state under a name
other than the name contained in its articles of incorporation, articles
of organization, certificate of limited partnership or application, must
file an assumed name certificate with the secretary of state and with the
appropriate county clerk in accordance with section 36.11 of the Texas
Business and Commerce Code.
2. The information provided in paragraph 6 as regards the registered agent
and registered office address in Texas must match the information on file
in this office. To verify the information on file with this office, you
may contact our corporate information unit at (512) 463-5555. Forms to
change the registered agent/office are available from this office should
you require to update this information.
3. A certificate executed and acknowledged by an attorney-in-fact shall
include a statement that the attorney-in-fact has been duly authorized in
writing by his principal to execute and acknowledge the same.
4. For purposes of filing with the secretary of state, the assumed name
registrant should submit an originally executed assumed name certificate
accompanied by the filing fee of $25 to the Secretary of State, Statutory
Filings Division, Corporations Section, P.O. Box 13697, Austin, Texas
78711-3697. The phone number is (512) 463-5582, TDD: (800) 735-2989,
FAX: (512) 463-5709.
5. All assumed name certificates to be filed with the county clerk must be
forwarded directly to the appropriate county clerk by the assumed name
registrant.
6. Whenever an event occurs that causes the information in the assumed name
certificate to become materially misleading (eg. change of registered
agent/office or a change of name), a new certificate must be filed within 60
days after the occurrence of the events which necessitate the filing.
7. A registrant that ceases to transact business or render professional
services under an assumed name for which a certificate has been filed may
file an abandonment of use pursuant to the Texas Business and Commerce
Code, Section 36.14. Forms for this purposes are available from this
office.
<PAGE>
[SEAL] STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH BY
A CORPORATION
1. The name of the corporation is Synergy Telemanagement, Inc.
---------------------------------------------
The corporation's charter number is 01180758-0
2. The address of the registered office as PRESENTLY shown in the records of
the Texas secretary of state is: (Please provide street address, city,
state and zip code. The address must be in Texas).
17103 Preston Road Suite 190, Lock Box 121
---------------------------------------------------------------------------
Dallas, Texas 75249
---------------------------------------------------------------------------
3. A. The address of the NEW registered office is: (Please
---- provide street address, city, state and zip code. The address
must be in Texas.)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
OR B X The registered office address will not change.
----
4. The name of the registered agent as PRESENTLY shown in the records of the
Texas secretary of state is Tim Terrell
-----------------------------------------------------
5. A. X The name of the NEW registered agent is Tim Rogers
---- -----------------------------
OR B. The registered agent will not change.
----
6. Following the changes shown above, the address of the registered office and
the address of the office of the registered agent will continue to be
identical, as required by law.
7. The changes shown above were authorized by:
(Profit corporations may select A or B)
(Non-Profit corporations may select A, B, or C)
A. The board of directors; OR
----
B. X An officer of the corporation so authorized by the board of
---- directors; OR
C. The members of the corporation in whom management of the
---- corporation is vested pursuant to article 2.14C of the Texas
Non-Profit Corporation Act.
/s/ Tim Rogers
----------------------------------------
An Authorized Officer
Please submit this form IN DUPLICATE with the appropriate filing fee.
PROFIT corporations: $15.00; NON-PROFIT corporations: $5.00
<PAGE>
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
SYNERGY TELEMANAGEMENT, INC.
Pursuant to the provisions or Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to the Articles of Incorporation of Synergy Telemanagement, Inc.
ARTICLE ONE
The name of the corporation is Synergy Telemanagement, Inc.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by
the shareholders of the corporation on October 26, 1994. The amendment alters
Article One of the Original Articles of Incorporation to read as follows:
"The name of the corporation is CapRock Communications Corp."
ARTICLE THREE
The number of shares of common stock of the corporation outstanding at
the time of the adoption was 3,996, and the number of shares entitled to vote
on the amendment was 3,996.
ARTICLE FOUR
The number of shares that voted for the amendment was 3,996; and the
number of shares that voted against the amendment was 0.
Dated: October 26, 1994.
SYNERGY TELEMANAGEMENT INC.
By: /s/ Jere W. Thompson, Jr.
---------------------------------
Jere W. Thompson, President
<PAGE>
SECRETARY OF STATE
CORPORATIONS SECTION [SEAL]
P.O. Box 13697
Austin, Texas 78711-3697
STATEMENT OF CHANGE OF REGISTERED OFFICE OR
REGISTERED AGENT OR BOTH BY A CORPORATION,
LIMITED LIABILITY COMPANY OR LIMITED PARTNERSHIP
1. The name of the entity is CapRock Communications Corporation
--------------------------------------------------
The entity's charter/certificate of authority/file number is 1180758-00.
2. The registered office address as PRESENTLY shown in the records of the
Texas secretary of state is: 17103 Preston Road, Suite 190, Dallas, Texas
-----------------------------------------------
75252 .
---------------------------------------------------------------------------
3. A X The address of the NEW registered office is: (Please provide
---- street address, city, state and zip code. The address must be in
Texas.)
13455 Noel Road, Suite 1925, LB 46, Dallas, Texas, 75240
---------------------------------------------------------------------------
OR B. The registered office address will not change.
----
4. The name of the registered agent as PRESENTLY shown in the records of the
Texas secretary of state is TIM ROGERS .
------------------------------------------------
5. A. The name of the NEW registered agent is
---- ---------------------.
OR B. X The registered agent will not change.
----
6. Following the changes shown above, the address of the registered office and
the address of the office of the registered agent will continue to be
identical, as required by law.
<TABLE>
<CAPTION>
7. The changes shown above were authorized by:
<S> <C>
Business Corporations may SELECT A OR B Limited Liability Companies may SELECT D OR E
Non-Profit Corporations may SELECT A, B, OR C Limited Partnerships SELECT F
A. The board of directors; OR
--
B. X An officer of the corporation so authorized by the board of directors; OR
--
C. The members of the corporation in whom management of the corporation
-- is vested pursuant to article 2.14C of the Texas Non-Profit
Corporation Act.
D. Its members
--
E. Its managers
--
F. The limited partnership
--
</TABLE>
/s/ Tim Rogers
----------------------------------------
(Authorized Officer of Corporation)
(Authorized Member or Manager of LLC)
(General Partner of Limited Partnership)
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF INCORPORATION OF
CAPROCK COMMUNICATIONS CORP.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE 1
The name of the Corporation is CapRock Communications Corp.
ARTICLE 2
The following amendments to the Articles of Incorporation were adopted
by the shareholders of the corporation as of September 30, 1997;
1. This amendment alters ARTICLE FOUR of the Articles of Incorporation
to read as follows:
"ARTICLES FOUR -- SHARES
The aggregate number of shares to which the Corporation has
authorized to issue is One Hundred Million (100,000,000) shares with no
par value. The shares are designated as Common Stock and have identical
rights and privileges in every respect."
2. This amendment adds a new ARTICLE TEN to the Articles of
Incorporation to read as follows:
"ARTICLE TEN -- SHAREHOLDER CONSENT ELECTION
It is hereby provided that, in accordance with Article 9.10A of the
Texas Business Corporation Act, any action required to be taken at any
annual or special meeting of shareholders, or any action which may be
taken at any annual or special
Page 1
<PAGE>
meeting of shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents, in writing, setting
forth the action so taken, shall be signed by the holder or holders of
shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all
shares entitled to vote on the action were present and voted."
ARTICLE 3
This amendment does not change the existing amount of stated capital of
the corporation. Pursuant to this amendment all holders of shares of Common
Stock having a par value of $1.00 shall have their shares exchanged,
effective as of the filing of this amendment, for an equal number of shares
of Common Stock having no par value.
ARTICLE 4
The number of shares of the Corporation outstanding at the time of the
adoption was 4297, all of which were of one class; and the number of shares
entitled to vote on this amendment was 4297.
ARTICLE 5
The holders of all of the shares outstanding and entitled to vote on
this amendment have signed a consent in writing pursuant to Article 9.10
adopting this amendment and any written notice required by Article 9.10 has
been given.
DATED: September 30 , 1997.
-----------------------------
CAPROCK COMMUNICATIONS CORP.
By: /s/ Jere Thompson, Jr.
-----------------------------
Its President
------------------------
Page 2
<PAGE>
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CAPROCK TELECOMMUNICATIONS CORP.
FORMERLY: CAPROCK COMMUNICATIONS CORP.
CHARTER NO. 1180758-0
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Articles of Amendment for the above named entity have been received
in this office and are found to conform to law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Amendment.
Dated: June 18, 1998
Effective: June 18, 1998
/s/ Alberto R. Gonzales
-------------------------------------
Alberto R. Gonzales
Secretary of State
[SEAL]
<PAGE>
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF RESERVATION OF
CORPORATE NAME OF
CAPROCK TELECOMMUNICATIONS CORPORATION
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS,
HEREBY CERTIFIES THAT THE ABOVE CORPORATE NAME HAS BEEN RESERVED IN THIS OFFICE
FOR THE EXCLUSIVE USE OF
MUNSCH HARDT KOPF HARR & DINAN
FOR A PERIOD OF ONE HUNDRED TWENTY DAYS, PURSUANT TO THE PROVISIONS OF
ARTICLE 2.06 OF THE TEXAS BUSINESS CORPORATION ACT.
THIS NAME RESERVATION DOES NOT AUTHORIZE THE USE OF A NAME IN THIS STATE
IN VIOLATION OF THE RIGHTS OF ANOTHER UNDER THE FEDERAL TRADEMARK ACT OF
1946, THE TEXAS TRADEMARK LAW, THE ASSUMED BUSINESS OR PROFESSIONAL NAME ACT
OR THE COMMON LAW.
DATED APR. 27, 1998
[SEAL] /s/ Alberto R Gonzales
----------------------------------------------
Alberto R Gonzales, Secretary of State
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
CAPROCK COMMUNICATIONS CORP.
(the "Corporation")
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the Corporation adopts the following Articles of Amendment
to its Articles of Incorporation.
ARTICLE ONE
The name of the Corporation is CapRock Communications Corp.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by
the shareholders of the Corporation on May 1, 1998, so as to amend the name
of the Corporation. Article 1 of the Articles of Incorporation is hereby
amended to read in its entirety as follows;
"The name of the Corporation is CapRock Telecommunications Corp."
ARTICLE THREE
The number of shares of the Corporation outstanding at the time of such
adoption was 10,398,954, and the number of shares entitled to vote thereon
was 10,398,954.
ARTICLE FOUR
The holders of all shares outstanding and entitled to vote on said
amendment have signed a consent in writing adopting said amendment and any
written notice required by Article 9.10 has been given.
ARTICLE FIVE
The amendment does not involve any exchange, reclassification or
cancellation of issued shares of the Corporation.
ARTICLE SIX
The amendment does not effect a change in the amount of stated capital
of the Corporation.
<PAGE>
Dated May 31 , 1998
CAPROCK COMMUNICATIONS CORP.
a Texas Corporation
By: /s/ Jere Thompson
---------------------------------------
Its: Chief Executive Financial Officer
---------------------------------------
2
<PAGE>
BY-LAWS
OF
Synergy Telemanagement, Inc.
("The Corporation")
* * * * *
TABLE OF CONTENTS
ARTICLE I. OFFICES
1. Principal Office
2. Other Offices
ARTICLE II. MEETINGS OF SHAREHOLDERS
1. Place of Meetings
2. Annual Meetings
3. List of Shareholders
4. Special Meetings
5. Notice
6. Quorum
7. Majority Vote
8. Voting Procedure
9. Action Without Meeting; Telephone Meeting
ARTICLE III. DIRECTORS
1. Management
2. Number; Election
3. Change in Number
4. Removal and Vacancies
5. Election of Directors
6. Place of Meetings
7. First Meetings
8. Regular Meetings
9. Special Meetings
10. Quorum
11. Action Without Meeting; Telephone Meeting
12. Chairman of the Board
13. Compensation
14. Executive Committee
15. Other Committees
ARTICLE IV. NOTICES
1. Method
2. Waiver
<PAGE>
ARTICLE V. OFFICERS
1. Officers
2. Election
3. Compensation
4. Removal and Vacancies
5. President
6. Vice President
7. Secretary
8. Assistant Secretaries
9. Treasurer
10. Assistant Treasurers
ARTICLE VI. CERTIFICATES REPRESENTING SHARES
1. Certificates
2. Lost Certificates
3. Transfer of Shares
4. Registered Shareholders
ARTICLE VII. GENERAL PROVISIONS
1. Dividends
2. Reserves
3. Checks
4. Fiscal Year
5. Seal
6. Indemnification
7. Transactions With Directors and Officers
8. Amendments
9. Table of Contents; Headings
<PAGE>
BY-LAWS
OF
Synergy Telemanagement, Inc.
("The Corporation")
* * * * *
ARTICLE 1.
OFFICES
Section 1. PRINCIPAL OFFICE. The principal business office of the
Corporation shall be at 14565 Tamerisk, Flower Mound, Texas 75234.
Section 2. OTHER OFFICES. The corporation may also have offices at
such other places, both within and without the State of Texas, as a Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders for all
purposes may be held at such time and place, within or without the State of
Texas, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Provided however, that no meeting of shareholders
shall be held at any place outside of Dallas County Texas unless all
shareholders agree to the place and time in writing before the meeting is
held.
Section 2. ANNUAL MEETING. An annual meeting of the shareholders,
commencing with the year 1992, shall be held on the first monday in February
of each year; but if such date shall fall on a legal holiday, then on the
next regular business day following, at 10:00 a.m., at which they shall elect
a Board of Directors, and transact such other business as may properly be
brought before the meeting.
Section 3. LIST OF SHAREHOLDERS. At least ten (10) days before each
meeting of the shareholders, a complete list of the shareholders entitled to
vote at said meeting, arranged in alphabetic order with the address of and
the number of voting shares held by each, shall be prepared by the officer or
agent having charge of the stock transfer books. Such list, for a period of
ten (10) days prior to such meeting, shall be subject to inspection by any
shareholder at any time during usual business hours. Such list shall be
produced and kept open at
<PAGE>
the time and place of the meeting during the whole time thereof, and shall be
subject to the inspection of any shareholder who may be present.
Section 4. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, or by these By-Laws, may be called by the
President, the Board of Directors, or the holders of not less than fifty
percent (50%) of all shares entitled to vote at the meetings shall be
confined to the purposes stated in the notice of the meeting.
Section 5. NOTICE. Written or printed notice stating the place, day
and hour of the meeting, and in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than
(10) nor more than fifty (50) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the
Secretary, or the officer or person calling the meeting, to each shareholder
of record entitled to vote at the meeting.
Section 6. QUORUM. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at all meetings of
the shareholders for the transaction of business except as otherwise provided
by statute, by the Articles of Incorporation or by these By-Laws. If,
however, such quorum shall not be present or represented at any meeting of
the shareholders, the shareholders entitled to vote thereat, present in
person or represented by proxy, shall have the power to adjourn the meeting,
until a quorum shall be present or represented. At such adjourned meeting at
which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 7. MAJORITY VOTE. When a quorum is present at any meeting, the
vote of the holders of a majority of the shares having voting power present
in person or represented by proxy shall decide any question brought before
such meeting, unless the question is one upon which by statute or by the
Articles of Incorporation or these By-Laws, a different vote is required, in
which case such express provision shall govern and control the decision of
such question.
Section 8. VOTING PROCEDURE. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Articles of
Incorporation. At any meeting of the shareholders, every shareholder having
the right to vote shall be entitled to vote in person, by proxy appointed by
an instrument in
<PAGE>
writing subscribed by such shareholder, or by his duly authorized
attorney-in-fact, and bearing a date not more than eleven (11) months prior
to said meeting, unless said instrument provides for a longer period. Each
proxy shall be revocable unless expressly provided therein to by irrevocable
and unless otherwise made irrevocable by law. Such proxy shall be filed with
the Secretary of the Corporation prior to or at the time of the meeting. The
Board of Directors may fix in advance a record date to be not less than ten
(10) nor more then fifty (50) days prior to such meeting. In the absence of
any action by the Board of Directors, the date upon which the notice of the
meeting is mailed shall be the record date.
Section 9. ACTION WITHOUT MEETING; TELEPHONE MEETINGS. Any action
required or permitted to be taken at a meeting of the shareholders of the
Corporation may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof, and such consent
shall have the same force and effect as a unanimous vote of the shareholders.
Subject to applicable notice provisions and unless otherwise restricted by
the Articles of Incorporation, shareholders may participate in and hold a
meeting by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other, and participation in such meeting shall constitute presence in person
at such meeting, except where a person's participation is for the express
purpose of objecting to the transaction of any business on the ground that
the meeting is not lawfully called or convened.
ARTICLE III.
DIRECTORS
Section 1. MANAGEMENT. The business and affairs of the Corporation
shall be managed by its Board of Directors who may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these By-Laws, directed or
required to be exercised or done by the shareholders. The Board of Directors
shall keep regular minutes of its proceedings.
Section 2. NUMBER; ELECTION. The Board of Directors shall consist of
Three (3) director(s), who need not be shareholder(s) or resident(s) of the
State of Texas. The Directors shall be elected at the annual meeting of the
shareholders, except as hereinafter provided, and each Director elected shall
hold office until his successor shall be elected and shall qualify.
<PAGE>
Section 3. CHANGE IN NUMBER. The number of Directors may be increased
or decreased from time to time by amendment to these By-Laws but no decrease
shall have the effect of shortening the term of any incumbent Director. Any
Directorship to be filled by reason of an increase in the number of Directors
shall be filled by election at an annual meeting or at a special meeting of
shareholders called for that purpose.
Section 4. REMOVAL AND VACANCIES. Any Director may be removed either
for or without cause, at any annual or special meeting of shareholders by the
affirmative vote of a majority in number of shares of the shareholders
present in person or by proxy at such meeting and entitled to vote for the
election of such Director, if notice of the intention to act upon such matter
shall have been given in the notice calling such meetings. If any vacancies
occur in the Board of Directors caused by death, resignation, retirement,
disqualification or removal from office of any Director or otherwise, a
majority of the Directors then in office, though less than a quorum, may
choose a successor or successors, or a successor or successors may be chosen
at a special meeting of the shareholders called for that purpose; and each
successor Director so chosen shall be elected for the unexpired term of this
predecessor in office.
Section 5. ELECTION OF DIRECTORS. At every election of Directors, each
shareholder shall have the right to vote in person or by proxy in the number
of voting shares owned by him for as many persons as there are Directors to
be elected and for whose election he has a right to vote. Cumulative voting
shall be prohibited.
Section 6. PLACE OF MEETINGS. The Directors of the Corporation may
hold their meetings, both regular and special, either within or without the
State of Texas. Provided however, that no meeting of Directors shall be held
at any place outside of Dallas County, Texas unless all shareholders agree to
the place and time in writing before the meeting is held.
Section 7. FIRST MEETINGS. The first meeting of each newly elected
Board shall be held without further notice immediately following the annual
meeting of shareholders; and at the same place, unless by unanimous consent
of the Directors then elected and serving, such time or place shall be
changed.
Section 8. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from
time to time be determined by the Board.
Section 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President on three
<PAGE>
(3) days notice to each Director, either personally or by mail or by
telegram. Special meetings may be called in like manner and on like notice
on the written request of a majority of the Directors. Except as may be
otherwise expressly provided by statute, or by the Articles of Incorporation,
or by these By-Laws, neither the business to be transacted at, nor the
purpose of, any special meeting need be specified in a notice or waiver of
notice.
Section 10. QUORUM. At all meetings of the Board of Directors, the
presence of a majority of the directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a
majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, or by the Articles of Incorporation or by
these By-Laws. If a quorum shall not be present at any meeting of Directors,
the Directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall
be present.
Section 11. ACTION WITHOUT MEETING; TELEPHONE MEETINGS. Any action
required or permitted to be taken at a meeting of the Board of Directors or
members of any committee designated by the Board, may be taken without a
meeting if a consent in writing, setting forth the action so taken, is signed
by all of the members of the Board of Directors or committee, as the case may
be. Such consent shall have the same force and effect as a unanimous vote at
the meeting. Subject to applicable notice provisions and unless otherwise
restricted by the Articles of Incorporation, members may participate in and
hold a meeting by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such meeting shall constitute presence in
person at such meeting, except where a person's participation is for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section 12. CHAIRMAN OF THE BOARD. The Board of Directors may elect a
chairman of the Board to preside at their meetings and perform such other
duties as the Board may from time to time assign to him.
Section 13. COMPENSATION. Directors, as such, shall not receive any
stated salary for their services, but, by resolution of the Board a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board; provided that nothing herein
contained shall be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
Members of any
<PAGE>
committee designated by the Board may, by resolution of the Board of
Directors, be allowed like compensation for attending committee meetings.
Section 14. EXECUTIVE COMMITTEE. The Board of Directors may, by
resolution adopted by a majority of the whole Board, designate an Executive
Committee, to consist of two or more of the Directors of the Corporation.
The Executive Committee, to the extent provided in said resolution, shall
have and may exercise all of the authority of the Board of Directors in the
management of the business and affairs of the Corporation, except where
action of the full Board of Directors is required by statute, or by the
Articles of Incorporation, and shall have power to authorize the seal of the
Corporation to be affixed to all papers which may require it. Any member of
the Executive Committee may be removed by the Board of Directors by the
affirmative vote of a majority of the Board, whenever in its judgment the
best interests of the Corporation will be served thereby. The Executive
Committee shall keep regular minutes of its proceedings and report the same
to the Board when required.
Section 15. OTHER COMMITTEES. The Board of Directors may, by
resolution adopted by a majority of the whole Board, may designate other
committees, other than an Executive Committee, to the extent provided in such
resolution.
ARTICLE IV.
NOTICES
Section 1. METHOD. Whenever by statutes, the Articles of
Incorporation, or these By-Laws, notice is required to be given to any
Director or shareholder, and no provision is made as to how such notice shall
be given, it shall not be construed to mean personal notice, but any such
notice may be given in writing, by mail, postage prepaid, addressed to such
Director or shareholder at such address as appears on the books of the
Corporation or in any other method permitted by law. Any notice required or
permitted to be given by mail shall be deemed to be given at the time when
the same shall be thus deposited in the United States mails as aforesaid.
Section 2. WAIVER. Whenever any notice is required to be given to any
shareholder or Director of the Corporation by statute, the Articles of
Incorporation, or these By-Laws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated in such notice, shall be deemed equivalent to the giving of such
notice. Attendance of a shareholder or director at a meeting shall constitute
a waiver of notice of such meeting, except where a shareholder or director
attends for the express purpose of objecting to the transaction of
<PAGE>
any business on the ground that the meeting is not lawfully called or
convened. Consent in writing by a shareholder or director to any action
taken or resolution adopted by the shareholders or directors of the
Corporation shall constitute a waiver of any and all notices required to be
given in connection with such action or resolution.
ARTICLE V.
OFFICERS
Section 1. OFFICERS. The officers of the Corporation shall be elected
by the Directors and shall be a President, a Vice President, a Secretary, and
a Treasurer. The Board of Directors May also choose a Chairman of the Board,
additional Vice Presidents and one or more Assistant Secretaries and
Assistant Treasurers. Any two or more offices such as President and
Secretary may be held by the same person.
Section 2. ELECTION. The Board of Directors at its first meeting after
each annual meeting of shareholders shall choose a President, one or more
Vice Presidents, a Secretary, and a Treasurer, none of whom need be a member
of the Board, a shareholder or a resident of the State of Texas. The Board
of Directors may appoint such other officers and agents as it shall deem
necessary, who shall be appointed for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by
the Board.
Section 3. COMPENSATION. The compensation of all officers and agents
of the Corporation shall be fixed by the Board of Directors.
Section 4. REMOVAL AND VACANCIES. Each officer of the corporation
shall hold office until his successor is chosen and qualified in his stead or
until his death or until his resignation or removal from office. Any officer
or agent elected or appointed by the Board of Directors may be removed either
for or without cause by a majority of the Board members represented at a
meeting of the Board at which a quorum is represented, whenever in its
judgment the best interests of the corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of
the person so removed. If the office of any officer becomes vacant for any
reason, the vacancy may be filled by the Board of Directors.
Section 5. PRESIDENT. The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the shareholders and the
Board of Directors unless the Board shall choose to elect a chairman of the
Board, in which event the President shall preside at Board meetings in the
absence of the Board Chairman. The President shall have general and active
management of the
<PAGE>
orders and resolutions of the Board and shall be responsible to see that such
orders and resolutions are carried into effect, as the Directors shall
prescribe.
Section 6. VICE PRESIDENT. Each Vice President shall have only such
powers and perform only such duties as the Board of Directors may from time
to time prescribe or as the President may from time to time delegate to him.
Section 7. SECRETARY. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the shareholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose and
shall perform like duties for the Executive Committee when required. He
shall give, or cause to be given, notice of all meetings of the shareholders
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or President, under
whose supervision he shall be. He shall keep in safe custody the seal of the
corporation and, when authorized by the Board, affix the same to any
instrument requiring it, and, when so affixed, it shall be attested by his
signature or by the signature of the Treasurer or an Assistant Secretary.
Section 8. ASSISTANT SECRETARIES. Each Assistant Secretary shall
have only such powers and perform only such duties as the Board of Directors
may from time to time prescribe or as the President may from time to time
delegate.
Section 9. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements of the corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the corporation
in such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and Directors, at the regular meetings of the Board, or
whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the corporation, and shall perform such
other duties as the Board of Directors may prescribe. If required by the
Board of Directors, he shall give the corporation a bond in such form, in
such sum, and with surety or sureties as shall be satisfactory to the Board
for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money, and other
property of whatever kind in his possession or under his control belonging to
the corporation.
<PAGE>
Section 10. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
only such powers and perform only such duties as the Board of Directors may
from time to time prescribe.
ARTICLE VI.
CERTIFICATES REPRESENTING SHARES
Section 1. CERTIFICATES. Certificates in such form as may be
determined by the Board of Directors shall be delivered representing all
shares to which shareholders are entitled. Such certificates shall be
consecutively numbered and shall be entered in the books of the corporation
as they are issued. Each certificate shall state on the face thereof the
holder's name, the number and class of shares, and the par value of such
shares or a statement that shares are without par value. They shall be
signed by the President or a Vice President and Secretary or an Assistant
Secretary and may be sealed with the seal of the corporation or a facsimile
thereof. If any certificate is countersigned by a transfer agent, or an
assistant transfer agent or registered by a registrar, other than the
corporation or an employee of the corporation, the signature of any such
officer may be facsimile.
Section 2. LOST CERTIFICATES. The Board of Directors may direct a new
certificate representing shares to be issued in place of any certificate
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may require the owner of such lost or
destroyed certificate, or his legal representative, to advertise the same in
such manner as it shall require and/or give the corporation a bond in such
form, in such sum, and with surety or sureties as it may direct as indemnity
against any claim that may be made against the corporation with respect to
the certificate alleged to have been lost or destroyed.
Section 3. TRANSFER OF SHARES. Shares of stock shall be transferable
only on the books of the corporation by the holder thereof in person or by
his duly authorized attorney. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation or the
transfer agent of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
<PAGE>
Section 4. REGISTERED SHAREHOLDERS. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder
in fact thereof, and, accordingly, shall not be bound to recognize any
equitable or other claim or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the outstanding shares of the
corporation, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property, or in shares of the
corporation, subject to the provisions of the statutes, and the Articles of
Incorporation. The Board of Directors may fix in advance a record date for
the purpose of determining shareholders entitled to receive payment of any
dividend, such record date to be not more than fifty (50) days prior to the
payment date of such dividend, or the Board of Directors may close the stock
transfer books for such purpose for a period of not more than fifty (50) days
prior to the payment date of such dividend. In the absence of any action by
the Board of Directors, the date upon which the Board of Directors adopt the
resolutions declaring such dividend shall be the record date.
Section 2. RESERVES. There may be created by resolution of the Board
of Directors out of the earned surplus of the corporation such reserve or
reserves as the Directors from time to time, in their discretion, think
proper to provide for contingencies, or to equalize dividends, or to repair
or maintain any property of the corporation, or for such other purposes as
the Directors shall think beneficial to the corporation, and the Directors
may modify or abolish any such reserve in the manner in which it was created.
Section 3. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. SEAL. The corporate seal shall have inscribed thereon the
name of the corporation. Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
<PAGE>
Section 6. INDEMNIFICATION. Any person made a party to, or involved
in, any civil, criminal or administrative action, suit or proceeding by
reason of the fact that he, his Executor or Administrator is or was a
director or officer of the Corporation, or of any corporation which he, his
Executor or Administrator is or was a director or officer of the Corporation,
or of any corporation which he, his Executor or Administrator, served as such
at the request of the corporation, shall be indemnified by the Corporation
against expenses actually and reasonable incurred by or imposed on him in
connection with, or resulting from the defense of such action, suit or
proceeding, or in connection with, or resulting from, any appeal therein,
except with respect to matters as to which it is adjudged in such action,
suit or proceeding that such officer or director has committed or allowed
some act or omission (i) otherwise than in good faith in what he considered
to be the best interests of the corporation, or (ii) without reasonable cause
to believe that such act or omission was proper and legal. As used herein,
the term "expenses" shall include all obligations incurred by such person for
the payment of money including, without limitation, attorney's fees,
judgments, awards, fines, penalties, and amounts paid in satisfaction of
judgment or in settlement of any such action, suit or proceeding. A
conviction or judgement (whether based on a plea of guilty or NOLO CONTENDERE
or its equivalent, or after trial), shall not by itself be deemed an
adjudication that such director or officer has committed or allowed some act
or omission as hereinabove provided. Determination of the right to such
indemnification and the amount thereof may be made, at the option of the
person to be indemnified, by any of the following procedures: (a) order of
the court or administrative body or agency having jurisdiction of the action,
suit or proceeding, (b) resolutions adopted by a majority of a quorum of the
board of Directors of the corporation without counting in any such majority
or quorum any directors who have incurred expenses in connection with such
action, suit or proceeding, (c) resolution adopted by a majority of a quorum
of the stockholders entitled to vote at any meeting, or (d) order of any
court having jurisdiction over the corporation. Any such determination that
a payment by way of indemnity should be made shall be binding upon the
corporation. Such right of indemnification shall not be exclusive of any
other right which such directors and officers of the corporation, and the
other persons above mentioned, may have or hereafter acquire and without
limiting the generality of such statement, they shall be entitled to their
respective rights of indemnification under any By-Law, agreement, vote of
stockholders, provision of law or otherwise, as well as their rights under
this section. The provisions of this section shall apply to any member of
any committee appointed by the Board of Directors and the Board of Directors
shall have power in its discretion (but shall not be required) to indemnify
any person made a party to, or involved in, any civil, criminal or
administrative action,
<PAGE>
suit or proceeding by reason of the fact that he, his Executor or
Administrator, is or was an employee of the corporation or any subsidiary
thereof, to the same extent that indemnification would be authorized with
respect to an officer or directors.
Section 7. TRANSACTION WITH DIRECTORS AND OFFICERS. No contract or
other transaction between the corporation and any other corporation and no
other act of the corporation shall, in the absence of fraud, be invalidated
or in any way affected by the fact that any of the directors of the
corporation are pecuniarily or otherwise interested in such contract,
transaction or other act, or are directors or officers of such other
corporation. Any director of the corporation, individually, or any firm or
association of which any such director may be a member, may be a party to, or
may be pecuniarily or otherwise interested in, any contract or transaction of
the corporation, provided that the fact that he individually or such firm or
association is so interested shall be disclosed or shall have been known to
the Board of Directors or a majority of such members thereof as shall be
present at any annual meeting or at any special meeting, called for that
purpose, of the Board of directors at which action upon any such contract or
transaction shall be taken; and any director of the corporation who is so
interested may be counted in determining the existence of quorum at any such
annual meeting or any such special meeting of the Board of Directors which
shall authorize any such contract or transaction, and may vote thereat to
authorize any such contract or transaction with like force and effect as if
he were not such director or officer of such other corporation or not so
interested; every director of the corporation being hereby relieved from any
disability which might otherwise prevent him from carrying out transactions
with or contracting with the corporation for the benefit of himself or any
firm, corporation, association, trust or organization in which or with which
he may be in anywise interested or connected.
Section 8. AMENDMENTS. These By-Laws may be altered, amended, or
repealed at any meeting of the Board of Directors at which a quorum is
present or represented, by the affirmative vote of a majority of the
Directors present at such meeting unless such power is reserved to the
shareholders by the Articles of Incorporation.
Section 9. TABLE OF CONTENTS; HEADINGS. The Table of Contents and
headings used in these By-Laws have been inserted for convenience only and do
not constitute matters to be construed in interpretations.
<PAGE>
CERTIFICATE OF SECRETARY
The undersigned, being the Secretary of the Corporation, hereby
certifies that the foregoing code of By-Laws was duly adopted by the initial
director(s) of said corporation effective on February 1, 1991.
In Witness Whereof, I have signed this certificate as of the 1st day of
February, 1991.
/s/ Timothy M. Terrell
------------------------------
Secretary
<PAGE>
AMENDMENT
Effective the 26th day of October, 1994, the name of the corporation
changed from Synergy Telemanagement, Inc. to CapRock Communications
Corporation and its bylaws are hereby to reflect the corporate name change.
CAPROCK COMMUNICATIONS CORPORATION
By: /s/ Timothy M. Terrell
-------------------------------
Timothy M. Terrell
Secretary
<PAGE>
AMENDMENTS TO BYLAWS
The following amendment was adopted on April 1, 1994 by the shareholders and
directors of CapRock Communications Corp. (now known as CapRock
Telecommunications Corp.) (the "Company") to Article II, Section 9 of the
Bylaws of the Company so that such section reads in its entirety as follows:
"Section 9. ACTION WITHOUT MEETING. Any action required by statutes
to be taken at a meeting of the shareholders may be taken without a
meeting, without prior notice, and without a vote, if a consent in
writing, setting forth the actions so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of
votes that would be necessary to take such action at a meeting at which
the holders of all shares entitled to vote on the action were present
and voted. The signed consent, or a signed copy shall be placed in the
minute book. Prompt notice of the taking of any action by shareholders
without a meeting by less than unanimous consent shall be given to those
shareholders who did not consent in writing to the action."
The following amendment was adopted on September 31, 1997 by the shareholders
and directors of the Company to Article III, Section 2 of the Bylaws of the
Company so that such section reads in its entirety as follows:
"Section 2. NUMBER; ELECTION. The Board of Directors shall consist
of six (6) directors, who need not be shareholders or residents of the
State of Texas. The Directors shall be elected at the annual meeting of
the shareholders, except as hereinafter provided, and each Director
elected shall hold office until his successor shall be elected and shall
qualify."
/s/ Timothy M. Terrell
------------------------------
Timothy M. Terrell, Secretary
<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CAPROCK FIBER NETWORK, LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.01 Terms Defined . . . . . . . . . . . . . . . . . . . . . . . .2
1.02 Number and Gender . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE II
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.01 Continuation; Admission . . . . . . . . . . . . . . . . . . .5
2.02 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.03 Principal Place of Business; Registered Office; Registered
Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.04 Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.05 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE III
CAPITAL CONTRIBUTIONS - PARTNERSHIP INTERESTS. . . . . . . . . . . . . . . .6
3.01 Initial Capital Contributions . . . . . . . . . . . . . . . .6
3.02 Additional Capital Contributions. . . . . . . . . . . . . . .6
3.03 Failure to Make Required Contributions. . . . . . . . . . . .6
3.04 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . .6
3.05 Partner Loans . . . . . . . . . . . . . . . . . . . . . . . .7
3.06 Other Matters Relating to Capital Contributions . . . . . . .7
3.07 Deficit Capital Account Balances. . . . . . . . . . . . . . .7
ARTICLE IV
RIGHTS AND POWERS OF THE GENERAL PARTNER . . . . . . . . . . . . . . . . . .8
4.01 Duties of General Partner . . . . . . . . . . . . . . . . . .8
4.02 Reliance by Third Parties . . . . . . . . . . . . . . . . . .8
4.03 Management of Business. . . . . . . . . . . . . . . . . . . .8
4.04 Operating Reserve Account . . . . . . . . . . . . . . . . . .9
4.05 Payment of Costs and Expenses . . . . . . . . . . . . . . . .9
4.06 Exercise of Rights and Powers . . . . . . . . . . . . . . . .9
4.07 Compensation. . . . . . . . . . . . . . . . . . . . . . . . .9
4.08 Liability . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.09 Indemnification . . . . . . . . . . . . . . . . . . . . . . .9
4.10 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . 10
4.11 Guaranty of Debt; Guaranty and Commitment Fees. . . . . . . 11
4.12 Construction Management . . . . . . . . . . . . . . . . . . 11
-i-
<PAGE>
4.13 Network Administration. . . . . . . . . . . . . . . . . . . 12
ARTICLE V
LIMITED PARTNER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.01 Limitation of Liability . . . . . . . . . . . . . . . . . . 12
5.02 Management. . . . . . . . . . . . . . . . . . . . . . . . . 12
5.03 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.04 Power of Attorney . . . . . . . . . . . . . . . . . . . . . 12
5.05 Death, Bankruptcy, Etc. . . . . . . . . . . . . . . . . . . 13
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . 13
6.01 Allocation of Net Income and Loss from Operations . . . . . 13
6.02 Distributions of Cash Flow from Operations
and Major Capital Events. . . . . . . . . . . . . . . . . . 14
6.03 Limitations on Allocations. . . . . . . . . . . . . . . . . 14
6.04 Distributions Upon Liquidation of Partnership . . . . . . . 16
6.05 Liquidation of Partners Interest. . . . . . . . . . . . . . 16
6.06 In-Kind Distributions . . . . . . . . . . . . . . . . . . . 17
6.07 Additional Tax Allocation Provisions. . . . . . . . . . . . 17
ARTICLE VII
FISCAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.01 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 18
7.02 Books and Records . . . . . . . . . . . . . . . . . . . . . 18
7.03 Reports and Statements. . . . . . . . . . . . . . . . . . . 18
7.04 Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.05 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . 19
7.06 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 19
7.07 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.01 Restriction on Transfers. . . . . . . . . . . . . . . . . . 19
8.02 Permitted Sales after Right of First Refusal Is Given . . . 19
8.03 Permitted Transfers . . . . . . . . . . . . . . . . . . . . 20
8.04 Assumption by Transferee. . . . . . . . . . . . . . . . . . 21
8.05 Cost of Transfers . . . . . . . . . . . . . . . . . . . . . 21
8.06 Effect of Attempted Disposition in Violation of this
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 21
-ii-
<PAGE>
ARTICLE IX
RESIGNATION, WITHDRAWAL AND REMOVAL OF GENERAL PARTNER:
ADMISSION OF NEW GENERAL PARTNER . . . . . . . . . . . . . . . . . . . . . 21
9.01 Voluntary Resignation or Withdrawal of the General Partner. 21
9.02 Substitute and Additional General Partners. . . . . . . . . 21
9.03 Admission of a Successor General Partner. . . . . . . . . . 21
ARTICLE X
DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.01 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . 22
10.02 Wind-Up of Affairs. . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.01 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 23
11.02 Other Activities. . . . . . . . . . . . . . . . . . . . . . 23
11.03 Partition . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.05 Provisions Severable. . . . . . . . . . . . . . . . . . . . 23
11.06 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 23
11.07 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.08 Successors and Assigns. . . . . . . . . . . . . . . . . . . 24
11.09 APPLICABLE LAW. . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CAPROCK FIBER NETWORK, LTD.
This Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. (the "Agreement") is entered into by and among
CapRock Systems, Inc., a Texas corporation ("CapRock") as the general partner
(the "General Partner"), and Jere W. Thompson, Sr. ("Jere Thompson"),
Margaret Dunlap Thompson ("Peggy Thompson"), Michael D. Thompson ("Michael
Thompson"), Patrick J. Thompson ("Pat Thompson"), Kimberly A. Thornton ("Kim
Thornton"), Margaret D. Nelson ("Debbie Nelson"), Christopher D. Thompson
("Chris Thompson"), David E. Thompson ("David Thompson") (collectively, the
"Thompson Family"), Mark Langdale ("Langdale"), Jere W. Thompson, Jr.
("Thompson"), The Hayden Company, a Texas corporation ("Hayden"), Joe C.
Thompson, Jr. ("Jodie Thompson"), and The Florida Company, a Texas
corporation ("Florida") as the limited partners (the "Limited Partners").
R E C I T A L S:
A. CapRock Fiber Network, Ltd., a Texas limited partnership (the
"Partnership") was formed by that certain Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. (the "Original Agreement).
B. The Original Agreement was amended and restated by that certain
Amended and Restated Agreement of Limited Partnership of CapRock Fiber
Network, Ltd. dated May 31, 1993 (the "Amended Agreement").
C. The General Partner and the Limited Partners desire to amend the
Amended Agreement to (i) admit Hayden, Florida and Jodie Thompson as Limited
Partners, (ii) increase the interests in the Partnership of Thompson and
Langdale, (iii) amend the allocation and distribution provisions to account
for a construction loan which has been guaranteed by certain of the Partners,
(iv) modify the purposes of the Partnership, and (v) otherwise amend the
Amended Agreement as set forth herein.
AGREEMENT:
NOW THEREFORE, in consideration of the mutual covenants set forth in
this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the General Partner and the
Limited Partners agree as follows:
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ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED. When used in this Agreement, the following terms
shall have the meanings set forth below:
"Act" shall mean the Texas Revised Limited Partnership Act as set
forth in Vernon's Revised Civil Statutes Annotated Article 6132a-1, as
subsequently amended.
"Affiliate" shall mean a Person who is (i) directly or indirectly,
through one or more intermediaries, controlling, controlled by, or under
common control with the Person in question, or (ii) a spouse, child,
grandchild, parent, sibling or any Person controlled by any of the
foregoing, of the Person in question, or in case of a Person other than an
individual, the individual who controls the Person in question. For
example, a trust for the benefit of the grandchild of the controlling
shareholder of a Partner that is a corporation, would be treated as an
Affiliate. The term "control," as used in the immediately preceding
sentence, means, with respect to an entity that is a corporation, the right
to exercise, directly or indirectly, more than 50% of the voting rights
attributable to the shares of such corporation and, with respect to a
Person that is not a corporation, the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies
of such Person.
"Capital Contribution" shall mean the cash and the fair market value
of property other than cash (net of liabilities which the Partnership
assumes or takes the property subject to) contributed to the capital of the
Partnership by a Partner.
"Cash Flow" shall mean, for the period in question, or in the case of
a Major Capital Event, the event in question, the amount by which the
aggregate cash receipts of the Partnership from any source (including loans
and Capital Contributions) exceed the sum of the cash expenditures of the
Partnership plus a cash reserve in the amount determined by the General
Partner to be sufficient to meet the working capital requirements of the
Partnership.
"Certificate" shall mean the Amended and Restated Certificate of
Limited Partnership to be filed upon behalf of the Partnership with the
Secretary of State of Texas in accordance with all applicable statutes.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations thereunder.
"Commitment Fee" shall mean a fee payable to each Guarantor in an
amount equal to 1% of such Guarantor's Guaranty.
"Construction Lender" shall mean Bank One, Texas, National
Association, or such other Person who refinances the Construction Loan or
becomes a successor in interest to Bank One, Texas, National Association
with respect to the Construction Loan.
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"Construction Loan" shall mean the loan made by the Construction
Lender to the Partnership in an amount sufficient to construct, and
initiate operations of, the Network.
"General Partner" shall mean CapRock, so long as such Person shall
continue as a general partner hereunder, and any other Person who has been
admitted as and continues to be, a general partner of the Partnership.
"Guarantors" shall mean Jere Thompson, Hayden, Florida, Jodie Thompson
and Mark Langdale.
"Guaranty" shall mean with respect to each Guarantor, the limited and
several amount of the Construction Loan which has been personally
guaranteed by such Guarantor in accordance with Section 4.11.
"Guaranty Fee" shall mean an annual amount payable to each Guarantor
equal to 7% (pro-rated for partial years) of the product of (i) the amount
of such Guarantor's Guaranty multiplied by (ii) a fraction, the numerator
of which is the lesser of (A) $8,000,000, or (B) the average outstanding
daily principal under the Construction Loan during the applicable period
and the denominator of which is $8,000,000.
"Limited Partners" shall mean Jere Thompson, Peggy Thompson, Michael
Thompson, Pat Thompson, Debbie Nelson, Kim Thornton, Chris Thompson, David
Thompson, Langdale, Thompson, Hayden, Florida and Jodie Thompson so long as
each such Person shall continue as a limited partner hereunder, and any
other Person who has been admitted as, and who continues to be, a limited
partner of the Partnership.
"Liquidating Event" shall mean the sale, condemnation or exchange of
all or substantially all of the Network or other transaction which,
individually or together with any similar transaction or transactions,
results in the disposition of all or substantially all of the Network and
occurs in the course of liquidation of the Partnership, or upon and with
respect to which event the Partnership is wound up and all payments,
including payments on any promissory notes, have been received.
"Major Capital Event" shall mean any event (excluding a Liquidating
Event) arising other than in the ordinary course of the Partnership's
business, including, without limitation, (i) the sale, exchange or
disposition of less than substantially all of the Network; (ii) a
condemnation or disposition of less than substantially all of the Network;
(iii) the recovery of damage awards or settlements or insurance proceeds
from the loss of or damage to the Network, and (iv) a borrowing or
refinancing by the Partnership. The General Partner's designation of an
event as a Major Capital Event shall be binding upon the Partners and the
Partnership absent manifest error.
"Majority in Interest" shall mean Partners (or Partners of a
designated class) owning more than 50% of the Partnership Interests (or
Partnership Interests of the designated class).
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"Network" shall mean the fiber optic telecommunications network to be
constructed, maintained and operated by the Partnership and initially
located between Corpus Christi and Houston, Texas, as may be expanded or
modified by agreement among the General Partner and a Majority in
Interest of the Limited Partners.
"Operations" shall mean all activities arising in the ordinary course
of the Partnership's business not constituting a Major Capital Event or a
Liquidating Event.
"Partners" shall mean the General Partner and the Limited Partners.
"Partner" shall mean any one of the Partners.
"Partnership" shall mean the limited partnership created and existing
pursuant hereto.
"Partnership Interest" shall mean a Partner's interest, expressed as a
percentage in Exhibit "A" in the income, gains, losses, deductions, tax
credits, voting rights and distributions of the Partnership as may be
affected by the provisions of this Agreement and as may thereafter be
adjusted.
"Person" shall mean an individual, partnership, joint venture,
corporation, limited liability company, trust, estate or other entity or
organization.
"Preferred Return" shall mean, with respect to each Guarantor, a
cumulative rate of return equal to twelve percent (12%) per annum,
compounded annually, on such Guarantor's Unreturned Capital Contributions.
"Proceeding" means any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit or proceeding, and any
inquiry or investigation that could lead to such an action, suit or
proceeding.
"Section" shall mean any section or subsection in this Agreement.
"Service" shall mean the Internal Revenue Service.
"The Thompson Family" shall mean Jere Thompson, Peggy Thompson,
Michael Thompson, Pat Thompson, Debbie Nelson, Kim Thornton, Chris Thompson
and David Thompson.
"Transfers" shall mean the sale, transfer, conveyance, assignment,
pledge, hypothecation, mortgage or other encumbrance or disposition of all
or any part of a Partnership Interest.
"Unpaid Preferred Return" shall mean, as to each Guarantor, an amount
equal to such Guarantor's Preferred Return less distributions previously
made to such Guarantor pursuant to Section 6.02 (a)from and after the date
of this Agreement.
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"Unreturned Capital Contributions" shall mean, as to each
Guarantor, the aggregate Capital Contributions made to the Partnership
by such Guarantor from and after the date of this Agreement pursuant to
Section 3.02(b), reduced by the aggregate distributions to such
Guarantor from and after the date of this Agreement from the Partnership
pursuant to Section 6.02(b).
1.02 NUMBER AND GENDER. Whenever the context requires, references in
this Agreement to the singular number shall include the plural, and the
plural number shall include the singular, and words denoting gender shall
include the masculine, feminine and neuter.
ARTICLE II
GENERAL
2.01 CONTINUATION; ADMISSION.
(a) The Partners hereby continue the Partnership as a limited
partnership pursuant to the Act for the purposes described in Section
2.04. The General Partner shall execute and file on behalf of the
Partners and the Partnership a Certificate in accordance with applicable
statutory requirements in such offices and places as may be required by
the laws of the State of Texas.
(b) As of the effective date of this Agreement, Hayden, Florida
and Jodie Thompson are admitted to the Partnership as Limited Partners,
and the Partnership Interests of the Partners shall be as set forth in
Exhibit "A".
2.02 NAME. The business of the Partnership shall be conducted under the
name "CapRock Fiber Network, Ltd."
2.03 PRINCIPAL PLACE OF BUSINESS; REGISTERED OFFICE; REGISTERED AGENT. The
principal place of business, the principal office and the registered office of
the Partnership shall be at 13455 Noel Road, Suite 1925, Lockbox 46, Dallas,
Texas 75240. The General Partner may change the principal place of business of
the Partnership to any other place upon ten (10) days written notice to the
Limited Partners. The registered agent shall be Jere W. Thompson, Jr.
2.04 PURPOSES. The purposes of the Partnership shall be:
(a) to finance, construct, own and operate the Network;
(b) to perform all acts which are appropriate or necessary in
conjunction with the Partnership financing, constructing, owning
and operating the Network; and
(c) to do any and all other acts and things necessary,
incidental or convenient to carry on the Partnership business as
contemplated under this Agreement.
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2.05 TERM. The Partnership shall continue until terminated pursuant to
Section 10.01.
ARTICLE III
CAPITAL CONTRIBUTIONS - PARTNERSHIP INTERESTS
3.01 INITIAL CAPITAL CONTRIBUTIONS. As of the effective date of this
Agreement, the Partnership has issued Partnership Interests to each of the
Guarantors in consideration of their Guaranties. Each of the other Partners,
or their predecessor's in interest, has previously contributed cash or
property to the Partnership.
3.02 ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) No Partner shall be obligated to make any Capital Contributions
to the Partnership.
(b) If a Guarantor makes payments to the Construction Lender pursuant
to its obligation under the applicable Guaranty, such payment shall be
treated as a Capital Contribution to the Partnership.
3.03 FAILURE TO MAKE REQUIRED CONTRIBUTIONS. Any Guarantor who fails or
refuses to make any payment to the Construction Lender required under such
Guarantor's Guaranty by any applicable due date (including all extensions and
cure periods) shall forfeit its Partnership Interest (but in the cases of
Langdale and Jere Thompson, only the portion of their respective Partnership
Interest received as consideration for their Guaranty) to the remaining
Guarantors, who shall be entitled to receive such interest pro rata based
upon the amount of such Guarantors' Guaranties. Such forfeiture will occur
automatically upon such failure or refusal to pay without necessity of any
further action.
3.04 CAPITAL ACCOUNTS. The Partnership shall establish and maintain a
capital account ("Capital Account") for each Partner in accordance with Section
704(b) of the Code and Treasury Regulations Section 1.704-1(b)(2)(iv). Except as
otherwise provided in this Agreement, the Capital Account balance of each
Partner shall be credited (increased) by (i) the amount of cash contributed or
deemed contributed by such Partner to the capital of the Partnership, (ii) the
fair market value of property contributed or deemed contributed by such Partner
to the capital of the Partnership (net of liabilities secured by such property
that the Partnership assumes or takes subject to), (iii) such Partner's
allocable share of Partnership income and gain (or items thereof) including
income and gain exempt from federal taxation, and (iv) such Partner's share of
any increase in basis of Partnership "Section 38" property pursuant to Section
48(q) of the Code, and the Capital Account balance of each Partner shall be
debited (decreased) by (i) the amount of cash distributed to such Partner, (ii)
the fair market value of property distributed to such Partner (net of
liabilities secured by such property which the Partner assumes or takes subject
to), (iii) such Partner's share of Partnership losses, depreciation and other
deductions, including such Partner's share of expenditures of the Partnership
described in Section 705(a)(2)(B) of the Code and (iv) such Partner's share of
any
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reduction in basis of Partnership "Section 38" property pursuant to Section
48(q) of the Code. A Partner's share of any basis reduction or increase
pursuant to Section 48(q) of the Code shall be determined in the manner
prescribed by Treasury Regulations Section 1.46-3(f). Notwithstanding the
foregoing, a Partner's Capital Account shall not be adjusted to reflect gain
or loss attributable to the disposition of property contributed by such
Partner to the extent such Partner's Capital Account reflected such inherent
gain or loss in the property on the date of its contribution to the
Partnership.
3.05 PARTNER LOANS. A Partner, or an Affiliate of a Partner, may, but is
not obligated to, loan or cause to be loaned to the Partnership such
additional sums as the General Partner deems appropriate or necessary for the
conduct of the Partnership's business. Loans made by a Partner, or an
Affiliate of a Partner, shall be upon such terms and for such maturities as
the General Partner deems reasonable in view of all the facts and
circumstances and the repayment of which may be designated in priority to
distributions of Cash Flow.
3.06 OTHER MATTERS RELATING TO CAPITAL CONTRIBUTIONS.
(a) Loans by any Partner to the Partnership shall not be
considered contributions to the capital of the Partnership.
(b) No Partner shall be required to make contributions to the
capital of the Partnership except to the extent expressly provided by
this Article III.
(c) No Partner shall be entitled to withdraw, or to obtain a return
of, any part of his or her contribution to the capital of the
Partnership, or to receive property or assets other than cash in return
thereof, and no Partner shall be liable to any other Partner for a
return of his or her contributions to the capital of the Partnership,
except as provided in this Agreement.
(d) No Partner shall be entitled to priority over any other
Partner, either with respect to a return of his or her contributions to
the capital of the Partnership, or to allocations of taxable income,
gains, losses or credits, or to distributions, except as provided in
this Agreement.
(e) No interest shall be paid on any Partner's Capital Contributions.
3.07 DEFICIT CAPITAL ACCOUNT BALANCES. Upon liquidation of the
Partnership, no Limited Partner with a deficit balance in his or her Capital
Account shall have any obligation to restore such deficit balance, or to make
any contribution to the capital of the Partnership. Upon liquidation of the
Partnership, the General Partner shall be obligated to contribute to the
capital of the Partnership within ninety (90) days after the date of such
liquidation an amount equal to the lesser of its deficit Capital Account
balance or 1.01% of the aggregate Limited Partner Capital Contributions less
the aggregate Capital Contributions previously made by the General Partner
which amount shall be paid to the creditors of the Partnership or distributed
to the other Partners in accordance with their positive Capital Account
balances.
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ARTICLE IV
RIGHTS AND POWERS OF THE GENERAL PARTNER
4.01 DUTIES OF GENERAL PARTNER. The General Partner shall have full,
exclusive and complete discretion to manage and control the business and
affairs of the Partnership, to make all decisions affecting the business and
affairs of the Partnership, and to take all actions it deems necessary or
appropriate to accomplish the purposes of the Partnership. The rights, powers
and authorities of the General Partner shall include, without limitation,
absolute authority to (i) perform all acts, make all decisions and perform
all duties which are appropriate or necessary in conjunction with the
fulfillment of the Partnership purposes, and (ii) negotiate, execute and
deliver any and all documents appropriate or necessary to accomplish any of
the foregoing. The rights, powers and authorities of the General Partner
pursuant to this Agreement shall be liberally construed to encompass all acts
and activities in which a Limited Partnership may engage under the act. The
expression of any power, authority or right of the General Partner in this
Agreement shall not limit or exclude any other power, authority or right
which is not specifically or expressly set forth in this Agreement or the act.
4.02 RELIANCE BY THIRD PARTIES. Notwithstanding any other provision of
this Agreement to the contrary, no lender or purchaser, including any
purchaser of property from the Partnership or any other person dealing with
the Partnership, shall be required to look to the application of proceeds
hereunder or to verify any representation by the General Partner as to the
extent of the interest in the assets of the Partnership that the General
Partner is entitled to encumber, sell or otherwise use, and any such lender
or purchaser shall be entitled to rely exclusively on the representations of
the General Partner as to its authority to enter into such financing or sale
arrangement and shall be entitled to deal with the General Partner as to its
authority to enter into such financing or sale arrangement and shall be
entitled to deal with the General Partner as if it were the sole party in
interest therein, both legally and beneficially. In no event shall any Person
dealing with the General Partner's representative with respect to any
business or property of the Partnership be obligated to ascertain that the
terms of this Agreement have been complied with, or be obligated to inquire
into the necessity or expedience of any act or action of the General Partner
or the General Partner's representative. Every contract, agreement, deed,
mortgage, security agreement, promissory note or other instrument or document
executed by the General Partner or the General Partner's representative with
respect to the business or property of the Partnership shall be conclusive
evidence in favor of any and every Person relying thereon or claiming
thereunder that (a) at the time of the execution and/or delivery thereof;
this Agreement was in full force and effect, (b) such instrument or document
was duly executed in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership, and (c) the General Partner or
the General Partner's representative was duly authorized and empowered to
execute to deliver any and every such instrument or document for and on
behalf of the Partnership.
4.03 MANAGEMENT OF BUSINESS. The General Partner shall operate and
manage the business of the Partnership on a day-to-day basis. Notwithstanding
the foregoing, the General Partner shall have the right, in its sole
discretion, to employ any competent management company as it shall select to
perform said management services.
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4.04 OPERATING RESERVE ACCOUNT. To the extent funds of the Partnership
are sufficient therefor, the General Partner shall maintain an adequate
reserve for operating expenses and capital expenditures as deemed necessary
by the General Partner for the proper conduct of the business of the
Partnership.
4.05 PAYMENT OF COSTS AND EXPENSES. The Partnership shall be responsible
for paying all costs and expenses of forming and continuing the Partnership,
and conducting the business of the Partnership, including, without
limitation, costs of utilities, costs of furniture, fixtures, equipment and
supplies, insurance premiums, property taxes, accounting costs, legal
expenses and office supplies. If any such costs and expenses are or have been
paid by the General Partner, or any of its Affiliates, on behalf of the
Partnership, then such General Partner (or its Affiliates) shall be entitled
to be reimbursed for such payment so long as such cost or expense was
reasonably necessary and was reasonable in amount.
4.06 EXERCISE OF RIGHTS AND POWERS. The General Partner shall endeavor
to operate and manage the business of the Partnership to the best of its
ability, in a careful and prudent manner and in accordance with good industry
practice. The authority of the General Partner to take any action required or
permitted under the provisions of this Agreement shall in all respects be
exercised in its sole and absolute discretion, and the General Partner shall
be required to devote only such time to the performance of its duties and
obligations hereunder as it shall, in its sole and absolute discretion,
determine to be necessary or advisable. The General Partner shall be entitled
to deal with its Affiliates in the performance of its duties and obligations
under this Agreement, so long as the material terms and conditions of such
dealings are not substantially different from the prevailing market terms,
conditions and prices available from non-Affiliated third parties.
4.07 COMPENSATION. Except as otherwise expressly provided in this
Agreement, the General Partner and its Affiliates shall not be entitled to
receive any compensation from the Partnership. This Section 4.07 does not in
any way limit the General Partner's right to reimbursement pursuant to
Section 4.05.
4.08 LIABILITY. The General Partner shall endeavor to perform its duties
under this Agreement with ordinary prudence and in a manner reasonable under
the circumstances. The General Partner shall not be liable to the Partnership
or the Limited Partners for any loss or liability caused by any act, or by
the failure to do any act, unless such loss or liability arises from the
General Partner's intentional misconduct, gross negligence or fraud. In no
event shall the General Partner be liable by reason of a mistake in judgment
made in good faith, or action or lack of action based on the advice of legal
counsel. Further, the General Partner shall in no event be liable for its
failure to take any action unless it is specifically directed to take such
action under the terms of this Agreement.
4.09 INDEMNIFICATION. Upon the determInation as set forth in Section
11.06 of the Act that such indemnification is permissible under Section 11.02
of the Act, the Partnership (but not the Limited Partners) hereby indemnifies
and holds harmless any person or entity who is or was a General Partner (and
its Affiliates) against any and all losses, costs, expenses (including
reasonable attorneys' fees), penalties, taxes, fines, settlements, damages
and judgments resulting from the fact
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the General Partner was, is or is threatened to be named a defendant or
respondent in a Proceeding because such person was or is a General Partner in
the Partnership, even if such losses, costs, expenses etc. were the result of
the General Partner's own negligence. This indemnification shall only be
effective if the General Partner (i) acted in good faith, (ii) reasonably
believed that in instances that the General Partner was acting in its
official capacity that its conduct was in the Partnership's best interest and
in all other instances that the General Partner's conduct was not opposed to
the Partnership's best interests, and (iii) in a criminal proceeding, had no
cause to believe its conduct was unlawful. Notwithstanding the foregoing,
this indemnification shall in no event be applicable to a Proceeding in which
the General Partner has been found to be liable for intentional misconduct,
gross negligence or fraud in the performance of the General Partner's duty to
the Partnership or the Limited Partners.
4.10. TAX MATTERS PARTNER.
(a) The General Partner is hereby designated as the "tax matters
partner" of the Partnership (as defined in the Code) and is authorized and
required to represent the Partnership (at the Partnership's expense) in
connection with all examinations of the Partnership's affairs by tax
authorities, including resulting administrative and judicial proceedings,
and to expend Partnership finds for professional services and costs
associated therewith. The Limited Partners agree to cooperate with the
General Partner and to do or refrain from doing any or all things
reasonably required by the General Partner to conduct such proceedings.
(b) The General Partner is authorized to:
(i) enter into a settlement agreement with the Service with
respect to any tax audit or judicial review, in which agreement the
General Partner may expressly state that the agreement will bind all
Partners;
(ii) file a petition for judicial review of a final
administrative adjustment pursuant to section 6226 of the Code;
(iii) intervene in any action brought by any other Partner
for judicial review of a final administrative adjustment;
(iv) file a request for an administrative adjustment with
the Service at any time and, if any part of the request is not allowed
by the Service, to file a petition for judicial review with respect to
the request; and
(v) take any other action on behalf of the Partners or the
Partnership in connection with any administrative or judicial tax
proceeding to the extent permitted by applicable law or regulations.
(c) The Partnership will reimburse the General Partner for all
expenses incurred by it in connection with any administrative or judicial
proceeding with respect to the tax liabilities of the Partners.
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4.11. GUARANTY OF DEBT; GUARANTY AND COMMITMENT FEES.
(a) The Guarantors shall severally guaranty the Construction Loan
in the following amounts:
<TABLE>
<S> <C>
Jere Thompson $1,000,000
Hayden 2,000,000
Jodie Thompson 1,000,000
Florida 1,000,000
Langdale 3,000,000
</TABLE>
If, for any reason, the Guarantors make payments to the
Construction Lender in satisfaction of all or a portion of their
obligation under their Guarantees, then each Guarantor making such
payment shall receive an additional Partnership Interest in the
Partnership as a Limited Partner equal to 3.00% (after issuance) for
each $1 million paid to the Construction Lender pursuant to such
Guaranty, pro rated for lesser amounts. The additional Partnership
Interest issuable to the Guarantors pursuant to this Section 4.11(a)
shall be derived solely out of the Partnership Interests of the Limited
Partners, including the Partnership Interests of the Guarantors existing
as of the date immediately prior to the effective date of this
Agreement, other than from the Partnership Interests of Jodie Thompson,
Hayden and Florida. In accordance with Section 3.02(b), amounts paid
pursuant to the Guaranties will be treated as Capital Contributions to
the Partnership.
(b) The Partnership shall pay to the Guarantors the Guaranty Fee.
The Guaranty Fee shall be payable quarterly in arrears commencing
September 30, 1996. The accrued but unpaid Guaranty Fee shall accrue
interest at a rate equal to 12% per annum commencing from and after July
1, 1997. Such interest rate will increase 2% per annum commencing on
July 1, 1998 and each subsequent anniversary date.
(c) The Partnership shall pay the Commitment Fee to each Guarantor.
The accrued but unpaid Commitment Fee shall accrue interest at a rate
equal to 12% per annum commencing from and after July 1, 1997. Such
interest rate will increase 2% per annum commencing on July 1, 1998 and
each subsequent anniversary date.
4.12 CONSTRUCTION MANAGEMENT. CapRock shall manage the construction and
development of the Network on behalf of the Partnership. The Partnership
shall pay to CapRock a fee in an amount equal to the sum of (i) 4% of the
actual cost of constructing the entire Network payable monthly at a minimum
of $15,000 per month commencing on February 1, 1996 and ending on the date
the final payment is made to C&B Associates by the Partnership under all of
its contracts for the construction of the entire Network and (ii) 5% of the
excess of the projected costs of construction and capital expenditures as set
forth in the budget submitted to the Construction Lender ($11,403,845), less
the actual construction costs and capital expenditures incurred in the
construction and start-up of the Network which amount is payable on the date
of the last payment due under (i) above, and is being paid as an inducement
to minimize the cost of the Network's construction and start-up. The
management of the construction and development of the Network shall be
conducted
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pursuant to that certain Construction Management Agreement to be entered into
between the Partnership and CapRock.
4.13. NETWORK ADMINISTRATION. The Partnership shall retain CapRock
Communications Corp., a Texas corporation, to operate and manage the Network
in accordance with that certain Management and Administration Agreement to be
entered into between the Partnership and CapRock Communications Corp.
ARTICLE V
LIMITED PARTNER MATTERS
5.01 LIMITATION OF LIABILITY. No Limited Partner shall be bound by, or
personally liable for, obligations or liabilities of the Partnership beyond
the amount of his or its required contributions to the capital of the
Partnership, and no Limited Partner shall be required to contribute any
capital to the Partnership in excess of the contributions for which he or it
is personally liable for under Article III.
5.02 MANAGEMENT. No Limited Partner shall participate in the operation
or management of the business of the Partnership, or transact any business
for or in the name of the Partnership, nor shall any Limited Partner have any
right or power to sign for or bind the Partnership in any manner. The right
of the Limited Partners to consent to and approve of certain matters under
the provisions of this Agreement shall not be deemed a participation in the
operation and management of the business of the Partnership, or the exercise
of control over the Partnership's affairs.
5.03 CONSENTS. Any action requiring the consent or approval of the
Limited Partners under the provisions of this Agreement shall be taken only
if the consent or approval of the requisite number of Limited Partners is
evidenced by written instrument executed by such Limited Partners.
5.04 POWER OF ATTORNEY
(a) Each Limited Partner hereby irrevocably severally appoints and
constitutes the General Partner, its successors and assigns hereunder as
its true and lawful attorney-in-fact, with full power and authority, on its
behalf and in its name, to execute, acknowledge, swear to, deliver and,
where appropriate, file in such offices and places as may be required by
law:
(i) the Certificate, and any amendment thereto; and
(ii) any amendment to this Agreement upon compliance with
Article VIII, Article IX or Section 11.01.
(b) The power of attorney granted by the Limited Partners to the
General Partner under paragraph (a) above is a special power coupled with
an interest and is irrevocable, and may be exercised by any Person who at
the time of exercise is a General Partner of the
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Partnership. Such power of attorney shall survive the death or legal
disability of a Limited Partner ant any Transfers or abandonment of its
Partnership Interest, or its withdrawal from the Partnership.
5.05 DEATH, BANKRUPTCY, ETC. In no event shall the death, incompetency,
bankruptcy, insolvency or other incapacity of a Limited Partner operate to
dissolve the Partnership.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.01 ALLOCATION OF NET INCOME AND LOSS FROM OPERATIONS. Net income and
loss for each fiscal year from Operations shall be determined for financial
accounting purposes in accordance with the method of accounting used for
federal income tax purposes and the books and records of the Partnership.
Except as provided in Sections 6.03 and 6.07(b), income, gain, loss and
deduction shall be allocated among the Partners as set forth below.
(a) Net income and gain shall be allocated to the Partners as
follows:
(i) First, to the Partners pro rata in accordance with,
and in an amount equal to the difference between (A) the sum of the
Cash Flow from Operations and Major Capital Events then
distributable plus the aggregate amount of Cash Flow from
Operations and Major Capital Events previously distributed to the
Partners pursuant to Section 6.02(a), over (b) the aggregate amount
of net income and gain previously allocated to such Partners
pursuant to this Section 6.01(a)(i);
(ii) Next, to the Partners pro rata in accordance with, and
in an amount equal to, the difference between the aggregate net
loss and deduction previously allocated to the partners pursuant to
Section 6.01(b) over the aggregate amount of net income and gain
previously allocated to such Partners pursuant to this Section
6.01(a)(ii);
(iii) Next, to the Partners pro rata in accordance with, and
in an amount equal to the difference between (A) the sum of the
Cash Flow from Operations and Major Capital Events then
distributable plus the aggregate amount of Cash Flow from
Operations and Major Capital Events previously distributed to the
Partners pursuant to Section 6.02(c), over (b) the aggregate amount
of net income and gain previously allocated to such Partners
pursuant to this Section 6.01(a)(iii); and
(iv) Thereafter, 1% to the General Partner, 19.5% to
Thompson, 4.5% to Langdale and the remainder among the Partners
(including Thompson and Langdale) pro rata in accordance with their
Partnership Interests.
(b) Net loss and deduction shall be allocated to the Partners as
follows:
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(i) First, to the Partners pro rata in accordance with, and
in an amount equal to, their positive Capital Account balances; and
(ii) Thereafter, to Partners pro rata in accordance with
their Partnership Interests.
(c) Notwithstanding anything to the contrary in Section 6.01(b),
any item of net loss or deduction that is attributable to a partner
nonrecourse debt must be allocated to the Partner that bears the
economic risk of loss for such debt as determined under Code Sections
704 and 752, and the Treasury Regulations thereunder. If more than one
Partner bears the economic risk of loss for a partner nonrecourse debt,
any net loss attributable to such debt must be allocated among such
Partners in accordance with the ratios in which the Partners share the
economic risk of loss for such partner nonrecourse debt.
6.02 DISTRIBUTIONS OF CASH FLOW FROM OPERATIONS AND MAJOR CAPITAL
EVENTS. The General Partner shall distribute Cash Flow from Operations and
Major Capital Events when available to the Partners. Notwithstanding the
frequency or amounts of distributions, Cash Flow shall be distributed as
follows:
(a) First, to the Guarantors pro rata in accordance with their
Unpaid Preferred Return, in such amount and until such time as each such
Guarantor's Unpaid Preferred Return has been reduced to zero;
(b) Next, to the Guarantors pro rata in accordance with their
Unreturned Capital Contributions, in such amount and until such time as
each such Guarantor's Unreturned Capital Contributions has been reduced
to zero;
(c) Next, to the Partners pro rata in accordance with their
Partnership Interests until such time as the Guaranties of each
Guarantor other than Langdale have been released in their entirety by
the Construction Lender; and
(d) Thereafter, 1% to the General Partner, 19.5% to Thompson, 4.5%
to Langdale and the remainder among the Partners (including Thompson and
Langdale) pro rata in accordance with their Partnership Interests.
6.03 LIMITATIONS ON ALLOCATIONS.
(a) MINIMUM GAIN CHARGEBACK. Notwithstanding any provision of
this Article VI, if there is a net decrease in Partnership minimum gain
during any fiscal year or other period, prior to any other allocation
pursuant hereto, each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount and manner required by Treasury Regulation Sections
1.704-1T(b)(4)(iv)(e) and (h) and Section 1.704-2. Notwithstanding any
provision of this Article VI, if there is a net decrease in partner
nonrecourse debt minimum gain, any Partner with a share of that partner
nonrecourse debt minimum gain as of the beginning of such year shall be
allocated items of
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income and gain for the year (and, if necessary, for succeeding years)
equal to that Partner's share of the net decrease in the partner
nonrecourse debt minimum gain, as provided in Treasury Regulation
Section 1.704-2(i)(4).
(b) QUALIFIED INCOME OFFSET. Any Partner who unexpectedly
receives an adjustment, allocation or distribution described in Treasury
Regulation Section 1.704-1(b)(2) (ii)(d)(4), (5) or (6) that causes or
increases a negative balance in its Capital Account beyond the sum of
the amount of such Partner's obligation to restore its deficit Capital
Account plus its share of minimum gain shall be allocated items of
income and gain sufficient to eliminate such increase or negative
balance caused thereby, as quickly as possible, to the extent required
by such Treasury Regulation.
(c) GROSS INCOME ALLOCATION. If any Partner has a deficit
Capital Account at the end of any Partnership fiscal year which is in
excess of the sum of (i) the amount such Partner is obligated to restore
pursuant to any provision of this Agreement and (ii) the amount such
Partner is deemed to be obligated to restore pursuant to Treasury
Regulation Section 1.704-2, each such Partner shall be specially
allocated items of Partnership income and gain in the amount- of such
excess as quickly as possible, provided that an allocation pursuant to
this Section 6.03(c) shall be made only if and to the extent that such
Partner would have a deficit Capital Account in excess of such sum after
all other allocations provided for in this Article VI have been made as
if this Section 6.03(c) were not in this Agreement.
(d) SECTION 704(b) LIMITATION. Notwithstanding any other
provision of this Agreement to the contrary, no allocation of any item
of income or loss shall be made to a Partner if such allocation would
not have "economic effect" pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii) or otherwise be in accordance with its interest in the
Partnership within the meaning of Treasury Regulation Sections
1.704-1(b)(3) and 1.704-2. To the extent an allocation cannot be made to
a Partner due to the application of this Section 6.03(d), such
allocation shall be made to the other Partner(s) entitled or required to
receive such allocation hereunder.
(e) CURATIVE ALLOCATIONS. Any allocations of items of income,
gain, or loss pursuant to Sections 6.03(a)-(d) shall be taken into
account in computing subsequent allocations pursuant to this Article VI,
so that the net amount of any items so allocated and the income, losses
and other items allocated to each Partner pursuant to this Article VI
shall, to the extent possible, be equal to the net amount that would
have been allocated to each Partner had no allocations ever been made
pursuant to Sections 6.03(a)-(d).
(f) MINIMUM ALLOCATIONS TO GENERAL PARTNER. If at any time the
allocation provisions of this Agreement do not result in the General
Partners being allocated at least one percent of all material items of
income, gain, loss, deduction or credit, the General Partner shall be
allocated so much of those items as will cause it at all times during the
existence of the Partnership to be allocated at least one percent of
those items.
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6.04 DISTRIBUTIONS UPON LIQUIDATION OF PARTNERSHIP.
(a) Upon liquidation of the Partnership the assets of the
Partnership shall be distributed no later than the later of 90 days
after the date of such liquidation or the end of the Partnership s
taxable year in which the liquidation occurs and shall be applied in the
following order of priority:
(i) To the payment of debts and liabilities of the
Partnership (including amounts owed to Partners or former
Partners);
(ii) Unless inconsistent with Treasury Regulation Section
1.704-1(b)(2)(ii)(b), or any successor provision, to set up any
reserves which the General Partner deems reasonably necessary for
contingent or unforeseen liabilities or obligations of the
Partnership arising out of or in connection with the business of
the Partnership; and
(iii) After all Capital Account adjustments for the
Partnership s taxable year in which the liquidation occurs
(including without limitation adjustments required under Treasury
Regulation Section 1.704-1(b)(2)(iv)(e), relating to
distributions in kind), to the Partners in accordance with each
Partner's positive Capital Account balance in the same order as
distributions are made in Section 6.02.
(b) If a transfer of an interest in the Partnership results in a
termination of the Partnership for federal income tax purposes under
Section 708(b)(1)(B) of the Code (or any successor provision thereto),
Section 6.04(a) shall not apply and a Partner's portion of the
constructive liquidating distribution of the Partnership s assets that
is deemed to occur under Treasury Regulation Section 1.708-1(b)(1)(iv)
(or any similar or successor provision) shall be determined in
accordance with the Capital Accounts of the Partners as determined after
taking into account all Capital Account adjustments for the
Partnership's taxable year ending on the date of such termination.
6.05 LIQUIDATION OF PARTNERS INTEREST. Except as may otherwise be
required in this Agreement, if a Partner's interest in the Partnership is to
be liquidated, liquidating distributions shall be made in accordance with the
positive Capital Account balance of such Partner, as determined after taking
into account all Capital Account adjustments for the Partnership's taxable
year during which such liquidation occurs, by the end of the taxable year, or
if later, within ninety (90) days after the date of such liquidation. If a
Partner's interest is to be liquidated, it has a negative Capital Account
balance and it is obligated to restore some or all of its negative Capital
Account upon liquidation of the Partnership pursuant to Section 3.06, then
such Partner shall, by the end of the taxable year or, if earlier, within
ninety (90) days of the date of such liquidation, contribute cash to the
Partnership in an amount equal to its negative Capital Account or such lesser
amount as provided in Section 3.06. Where a Partner's interest is to be
liquidated by a series of distributions, such Partner's interest shall not be
considered liquidated until the final distribution has been made. For
purposes of this Section 6.06, a liquidation of a Partner's interest in the
Partnership means the termination of the
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Partner s entire interest in the Partnership by means of a distribution or
series of distributions to the Partner by the Partnership.
6.06 IN-KIND DISTRIBUTIONS.
(a) Prior to a distribution of property (other than cash and
other than in complete liquidation of the Partnership or a Partner's
interest in the Partnership), the Capital Accounts of the Partners shall
be adjusted to reflect the manner in which the unrealized income, gain,
loss and deduction inherent in such property (that has not previously
been reflected in the Capital Accounts), would be allocated among the
Partners if there were a taxable disposition of the property on the date
of distribution.
(b) If the distribution of property (other than cash) is to a
Partner in complete liquidation of the Partner's interest in the
Partnership or in liquidation of the Partnership, prior to such
distribution, the Capital Accounts of all the Partners shall be adjusted
to reflect the manner in which the unrealized income, gain, loss and
deduction inherent in all the Partnership's property (that has not
previously been reflected in the Capital Accounts) would be allocated
among the Partners if there was a taxable disposition of all such
property on the date of the liquidating distribution.
(c) If any assets of the Partnership are distributed to the
Partners in kind, the Partners shall own and hold the same as tenants in
common.
6.07 ADDITIONAL TAX ALLOCATION PROVISIONS.
(a) For income tax purposes, allocations of income and loss (and
items thereof) shall be made in accordance with the foregoing
allocations of income, gain and loss for financial purposes.
(b) Notwithstanding anything to the contrary contained herein,
items of income, gain, loss and deduction with respect to property,
other than cash, contributed to the Partnership by a Partner or with
respect to an adjustment to the Partners' Capital Accounts to reflect a
revaluation of the Network, shall be allocated among the Partners so as
to take into account the variation between the basis of the property to
the Partnership and its fair market value at the time of contribution
or, in the case of a revaluation of the Network, the variation between
the basis of the Network to the Partnership and its fair market value as
of the date of revaluation, as provided in Section 704(c) of the Code
and Regulations thereunder and Treasury Regulations Section
1.704-1(b)(2)(iv)(g).
(c) As between a Partner who has transferred all or part of its
interest in the Partnership and its transferee, all items of income, gain,
deduction and loss, for any year shall be apportioned on the basis of the
number of days in each such year that each was the holder of such interest
(making any adjustments necessary to comply with the provisions of Section
706(d)(2) of the Code), without regard to the results of the Partnership's
operations during the period before and after the date of such transfer,
provided that if both the
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transferor and transferee consent thereto a special closing of the books
shall be had as of the effective date of such transfer and the
apportionment of items of income and gain, and deduction and loss, shall
be made on the basis of actual operating results. Notwithstanding the
above, gain or loss resulting from a Major Capital Event or a
Liquidating Event shall be allocated only to those persons who are
Partners as of the date on which such transaction is consummated.
ARTICLE VII
FISCAL MATTERS
7.01 FISCAL YEAR. The fiscal year of the Partnership shall be as
required under Section 706 of the Code.
7.02 BOOKS AND RECORDS. The General Partner shall keep, or cause to be
kept, at the expense of the Partnership, full and accurate books and records
of all transactions of the Partnership in accordance with accepted accounting
principles, consistently applied. Among such books and records the General
Partner shall keep:
(a) A current list of the following items:
(i) the name and mailing address of each Partner,
separately identifying in alphabetical order the General Partners and
the Limited Partners:
(ii) the last known street address of the business or
residence of each General Partner; and
(iii) the Partnership Interest of each Partner.
(b) Copies of the Partnership's federal, state and local tax
returns for each of the Partnership's six most recent tax years;
(c) A copy of this Agreement, the Certificate, all amendments and
restatements and executed copies of any powers of attorney under which
this Agreement, the Certificate and any and all Amendments or
restatements thereto have been executed. All of such books and records
shall, at all times, be maintained at the principal place of business of
the Partnership and the Limited Partners shall have the right to inspect
and copy any of them, at their own expense, during normal business hours.
7.03 REPORTS AND STATEMENTS.
(a) Within 90 days after the end of each fiscal year of the
Partnership, the General Partner shall, at the expense of the
Partnership, cause to be delivered to each Limited Partner such
financial statements and such other information as the General Partner
believes to be
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necessary for the Limited Partners to be advised of the financial status
and results of operations of the Partnership.
(b) The General Partner shall report to the Limited Partners any
significant development materially adversely affecting the Partnership,
its business, property or assets, as soon as practicable following the
occurrence of such development.
(c) The General Partner shall provide to the Guarantors a copy of
the financial statements which the Partnership provides to the
Construction Lender, contemporaneously with the delivery of such
documents to the Construction Lender, and such other information which
is provided to the Limited Partners.
7.04 AUDIT. A Limited Partner may require an audit of the books and
records of the Partnership to be conducted at any time (but not more
frequently than once each calendar year). Any such audit so required shall be
conducted by auditors selected by such Limited Partner at the expense of the
Partnership.
7.05 TAX RETURNS. The General Partner shall cause to be prepared and
delivered to the Partners on or before seventy-five days following the end of
each fiscal year, at the expense of the Partnership, all federal and any
required state and local income tax returns for the Partnership for the
preceding fiscal year. In the event the Partnership's income tax returns are
audited, the General Partner shall retain, at the expense of the Partnership,
accountants and other professionals to participate in such audit in order to
contest assertions by the auditing agent that may be materially adverse to
the Partners.
7.06 BANK ACCOUNTS. The General Partner, in the name of the
Partnership, shall open and maintain a special bank account or accounts in a
bank or savings and loan association, the deposits of which are insured by an
agency of the United States government, in which shall be deposited all
fluids of the Partnership. There shall be no commingling of the property and
assets of the Partnership with the property and assets of any other party.
7.07 TAX ELECTIONS. The General Partner shall be entitled to determine
all Federal income tax elections available to the Partnership.
ARTICLE VIII
TRANSFERS
8.01 RESTRICTION ON TRANSFERS. Except as expressly permitted under the
terms and provisions of this Article VIII, no Partnership Interest shall be
Transferred without the written consent of the General Partner.
8.02 PERMITTED SALES AFTER RIGHT OF FIRST REFUSAL IS GIVEN. Except for
a Transfer from one Partner to another in which case this Section does not
apply, if a Partner receives an offer (the "Offer") for the purchase of all
or a part of such Partner's Partnership Interest (the "Offered
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Interest"), then the Partner who received such Offer (the "Selling Partner")
shall, if it wishes to accept the Offer, promptly forward a true and correct
copy thereof to the other Partners (whether one or more, the "Non-Selling
Partner") within ten (10) days of the date of the Offer. The Non-Selling
Partner shall have the exclusive right and option for sixty (60) days
following the receipt of said Offer (unless extended as provided in the last
paragraph hereof) to purchase all, but not less than all, of the Offered
Interest on the terms and conditions set forth in the Offer. The Non-Selling
Partner shall exercise its option to purchase the Offered Interest by actual
delivery to the Selling Partner, within the aforesaid sixty (60) day period,
written notice of such election. The Non-Selling Partner shall be deemed to
have elected not to purchase the Offered Interest if it fails to timely
provide written acceptance. Each Non-Selling Partner who elects to so
purchase the Offered Interest pursuant to the Offer (the "Electing Partner")
shall have the right to purchase that proportion of the Offered Interest
which the amount such Electing Partner elects to purchase bears to the total
amount which the Electing Partners elected to purchase. The Electing Partner
shall be obligated to close no later than ninety (90) days after the date of
the Offer.
If the Non-Selling Partner does not elect to purchase all of the Offered
Interest, the Selling Partner may sell the Offered Interest; provided,
however, that the sale (i) shall not be made at a price lower than the price
offered to the Non-Selling Partner, (ii) is not made to any person other than
the original offeror, (iii) is on the same terms and conditions as those
specified in the Offer, and (iv) is consummated within ninety (90) days after
the lapse of all options arising in connection with the offer.
If the offeror, terms or conditions of the proposed sale are changed or
such Offered Interest has not been sold prior to the lapse of the aforesaid
ninety (90) day period, the Selling Partner must make a new offer, pursuant
to the procedures in this Section 8.02, to the Non-Selling Partner prior to
selling such Offered Interest. If the Non-Selling Partner elects to purchase
all of the Offered Interest, then the closing of said purchase shall take
place at the office of the Partnership.
Notwithstanding anything else to the contrary in this Section 8.02, if
the Selling Partner is Thompson or a member of the Thompson Family, then
Thompson and the Thompson Family shall have the first and exclusive right to
acquire the Offered Interest prior to any other Partner having such right. If
neither Thompson nor a member of the Thompson Family elects to purchase all
of the Offered Interest within sixty (60) days following receipt of the
Offer, then the remaining Partners shall have the right for twenty (20) days
following such sixty (60) day period to acquire the Offered Interest.
8.03 PERMITTED TRANSFERS. Notwithstanding anything else in this
Agreement to the contrary:
(a) a Partner may Transfer all or any portion of a Partnership
Interest to another Partner without the consent of any Partner; and
(b) a Guarantor may Transfer all or any portion of the Partnership
Interest which it receives in exchange for its Guaranty, or pursuant to
Section 3.03 or 4.11, to an Affiliate without the consent of any Partner.
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8.04 ASSUMPTION BY TRANSFEREE. Any transferee to whom all or any part
of a Partnership Interest may be Transferred pursuant to this Agreement shall
take such Partnership Interest subject to all of the terms and conditions of
this Agreement and shall not be considered to have title thereto until said
transferee shall have accepted and assumed the terms and conditions of this
Agreement by a written agreement to that effect delivered to the other
Partners, at which time such transferee shall be admitted as a substitute
Partner and shall succeed to all rights of its transferor except as such
rights may be otherwise limited by other provisions of this Agreement.
8.05 COST OF TRANSFERS. The transferor and, if it fails or refuses to
do so, then the transferee, of any Partnership Interest shall reimburse the
Partnership for all costs incurred by the Partnership resulting from any
Transfer.
8.06 EFFECT OF ATTEMPTED DISPOSITION IN VIOLATION OF THIS AGREEMENT.
Any attempted Transfer of any Partnership Interest in breach of this
Agreement shall be null and void and of no effect whatever.
ARTICLE IX
RESIGNATION, WITHDRAWAL AND REMOVAL OF
GENERAL PARTNER: ADMISSION OF NEW GENERAL PARTNER
9.01 VOLUNTARY RESIGNATION OR WITHDRAWAL OF THE GENERAL PARTNER. The
General Partner may not withdraw its interest in the Partnership, Transfer
its interest to any Person or admit any Person as a substitute General
Partner except as provided in Article VIII or this Article IX.
9.02 SUBSTITUTE AND ADDITIONAL GENERAL PARTNERS. To the extent
permitted under Texas law, the General Partner may at any time designate
additional Persons to be General Partners, whose interest in the Partnership
shall be such as shall be agreed upon by the General Partner and such
additional General Partners, so long as the Partnership Interest of the
Limited Partners shall not be affected thereby.
9.03 ADMISSION OF A SUCCESSOR GENERAL PARTNER. Any successor Person
shall be admitted as a General Partner of the Partnership if the following
terms and conditions are satisfied:
(a) The successor Person shall have accepted and assumed all the
terms and provisions of this Agreement and the Shareholders' Agreement
governing the General Partner;
(b) If the successor Person is a corporation, it shall have
provided counsel for the Partnership with a certified copy of a
resolution of its Board of Directors authorizing it to become a General
Partner under the terms and conditions of this Agreement; and
(c) The successor Person shall have executed this Agreement and
such other documents or instruments as may be required or appropriate in
order to effect the admission of such Person as a General Partner.
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ARTICLE X
DISSOLUTION
10.01 DISSOLUTION.
(a) It is the intention of the Partners that the business of the
Partnership be continued by the Partners, or those remaining, pursuant to the
provisions of this Agreement, notwithstanding the occurrence of any event
which would result in a statutory dissolution of the Partnership pursuant to
the laws of the State of Texas, and no Partner shall be released or relieved
of any duty or obligation hereunder by reason thereof; provided, however,
that the business of the Partnership shall be terminated, its affairs
wound-up and its property and assets distributed in liquidation on the
earlier to occur of:
(i) December 31, 2025;
(ii) a determination by the General Partner that the
business of the Partnership should be terminated;
(iii) the bankruptcy or insolvency of the Partnership;
(iv) subject to the provisions of paragraph (b) below, the
death, incompetency, bankruptcy, insolvency, withdrawal or removal
from the Partnership of the last remaining General Partner;
(vi) the date upon which a Liquidating Event occurs, and all
payments have been received;
(vii) entry of a decree of judicial dissolution; or
(viii) the date voting control of the General Partner is no
longer held by Thompson, Langdale, a family member of either one or
an Affiliate of either one.
For purposes of this Agreement, bankruptcy shall be deemed to have occurred
when the party in question files a petition under any section or chapter of
the Federal Bankruptcy Code, as amended, or becomes subject to an order for
relief under Title 11 of the United States Code Annotated or is declared
bankrupt or insolvent in a state bankruptcy or insolvency hearing.
(b) Upon the occurrence of any event set forth in subparagraph (iv)
of paragraph (a) above with respect to the last remaining General Partner,
the business of the Partnership shall be continued pursuant to the
provisions of this Agreement if, within a period of 90 days from the date
of such occurrence, each of the Limited Partners shall elect in writing
that it be so continued and shall designate one or more parties to be
admitted to the Partnership as a General Partner. Any such party shall upon
admission to the Partnership succeed to all of the rights and powers of a
General Partner hereunder, provided that the former General
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Partner shall retain and be entitled to its share of profits, losses,
distributions, and capital associated with the General Partner's
Partnership Interest.
10.02 WIND-UP OF AFFAIRS. As expeditiously as possible following the
occurrence of an event giving rise to a termination of the business of the
Partnership, the General Partner (or a special liquidator who may be
appointed by the Limited Partners if the termination results from a
circumstance described in Section 10.01 (a)(iv) above relative to the General
Partners) shall wind-up the affairs of the Partnership, sell its property and
assets for cash at the highest price reasonably obtainable, distribute the
proceeds in accordance with Section 6.04 in liquidation of the Partnership
and file a certificate of cancellation with the Secretary of State of Texas.
ARTICLE II
MISCELLANEOUS
11.01 AMENDMENTS. Unless otherwise expressly provided herein, this
Agreement may not be amended without the written consent of the General
Partner and a Majority in Interest of the Limited Partners.
11.02 OTHER ACTIVITIES. Any Partner may engage or possess an interest
in other business ventures of every nature and description, independently or
with others, including, without limitation, the acquisition, construction,
ownership, leasing, operation and management of projects similar to the
Partnership's business), and neither the Partnership nor any of the other
Partners shall have any right by virtue of this Agreement in and to such
other ventures or to the income or property derived therefrom.
11.03 PARTITION. No Partner shall be entitled to a partition of the
Network or any other property or assets of the Partnership, notwithstanding
any provision of law to the contrary.
11.04 NOTICES. Any notice required or permitted to be delivered to any
Partner under the provisions of this Agreement shall be deemed delivered,
whether actually received or not, when deposited in a United States Postal
Service depository, postage prepaid, registered or certified, return receipt
requested, and addressed to the Partner at the address specified on the
signature pages hereof, or such other address as shall be specified by
written notice delivered to the General Partner.
11.05 PROVISIONS SEVERABLE. Every provision of this Agreement is
intended to be severable and, if any term or provision hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remainder of this Agreement.
11.06 COUNTERPARTS. This Agreement, and any amendments hereto, may be
executed in counterparts, each of which shall be deemed an original, and such
counterparts shall constitute but one and the same instrument.
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11.07 HEADINGS. The headings of the various Sections are intended
solely for convenience of reference, and shall not be deemed or construed to
explain, modify or place any construction upon the provisions hereof.
11.08 SUCCESSORS AND ASSIGNS. This Agreement and any amendments hereto
shall be binding upon and, to the extent expressly permitted by the
provisions hereof, shall inure to the benefit of the Partners and their
respective heirs, legal representatives, successors and assigns.
11.09 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the Partners have executed this Agreement this 31
day of October, 1996 effective for all purposes as of July 1, 1996.
GENERAL PARTNER:
CAPROCK SYSTEMS, INC.
a Texas corporation
By: /s/ Jere W. Thompson, Jr.
---------------------------
Name: Jere W. Thompson, Jr.
Its: President
Address: 13455 Noel Road
Suite 1925
Dallas, Texas 75240
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LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Michael D. Thompson
---------------------------
Name: Michael D. Thompson
Address: 3037 Milton
Dallas, TX 75205
Facsimile: (214) 841-6590
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LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Patrick J. Thompson
-----------------------------
Name: Patrick J. Thompson
Address: 5534 Northmoor Dr.
Dallas, TX 75230
Facsimile: (817) 251-0796
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LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Margaret T. Nelson
---------------------------
Name: Margaret T. Nelson
Address: 4425 Hyer
Dallas, 75205
Facsimile:
----------------
27
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Kimberly T. Thornton
------------------------------
Name: Kimberly T. Thornton
Address: P.O. Box 1345
Telluride, CO 81435
Facsimile: (970) 728-5809
28
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Christopher D. Thompson
-----------------------------
Name: Christopher D. Thompson
Address: 3121 Amherst
Dallas, TX 75225
Facsimile:
------------------
29
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ David E. Thompson
---------------------------------
Name: David E. Thompson
Address: 4409 Shoal Creek Blvd.
-----------------------
Austin TX 78756
-----------------------
Facsimile: (512) 467-2191
-----------------------
30
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
The Florida Company, a Texas Corporation
By: /s/ Joe C. Thompson, Jr.
-----------------------------
Name: Joe C. Thompson, Jr.
----------------------------
Its: President
----------------------------
Address: 2960 Anode Lane
-----------------------
Dallas, TX 75220
-----------------------
Facsimile: 214 / 357-3490
-----------------------
31
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Joe C. Thompson, Jr.
---------------------------------
Name: Joe C. Thompson, Jr
Address: 2960 Anode Lane
-----------------------
Dallas, TX 75220
-----------------------
Facsimile: 214 / 357-3490
-----------------------
32
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
THE HAYDEN COMPANY
a Texas corporation
By: /s/ John P. Thompson
-----------------------------
Name: John P. Thompson
----------------------------
Its: President
-----------------------------
Address: Two Turtle Creek Village
------------------------
3838 Oak Lawn Ave., Suite 1850
------------------------
Dallas, TX 75219-4519
------------------------
Facsimile: (214) 443-9299
-----------------------
33
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Peggy Thompson
---------------------------------
Name: Peggy Thompson
Address: 4217 Armstrong Parkway
------------------------
Dallas, TX 75205
------------------------
Facsimile:
-----------------------
34
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Mark Langdale
---------------------------------
Name: Mark Langdale
Address: 5950 Berkshire #990
-----------------------
Dallas, TX 75225
-----------------------
Facsimile: 214-891-3175
-----------------------
35
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Jere W. Thompson, Sr.
---------------------------------
Name: Jere W. Thompson, Sr.
Address: Two Turtle Creek Village
------------------------
3838 Oak Lawn Ave. Suite 1850
------------------------
Dallas, TX 75219-4519
------------------------
Facsimile: 214 / 443-9299
-----------------------
36
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Second Amended and Restated Agreement of Limited Partnership of
CapRock Fiber Network, Ltd. By execution hereof, the undersigned agrees to be
bound by, and perform in accordance with, such Partnership Agreement.
LIMITED PARTNER:
/s/ Jere W. Thompson, Jr.
---------------------------------
Name: Jere W. Thompson, Jr.
Address: 13455 Noel Road, Ste 1925
------------------------
Dallas, TX 75240
------------------------
Facsimile: (872) 788-4243
-----------------------
37
<PAGE>
EXHIBIT "A"
THE PARTNERS; PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
The General Partner: Partnership Interests:
<S> <C>
CapRock Systems, Inc. 1.00%
The Limited Partners:
Michael D. Thompson 1.55%
Patrick J. Thompson 1.55%
Margaret T. Nelson 1.55%
Kimberly T. Thornton 1.55%
Christopher D. Thompson 1.55%
David.E. Thompson 1.55%
The Florida Company 2.67%
Joe C. Thompson, Jr. 2.67%
The Hayden Company 5.34%
Peggy Thompson 6.22%
Jere W. Thompson, Sr. 8.87%
Mark Langdale 46.79%
Jere W. Thompson, Jr. 17.14%
------
100.00%
</TABLE>
38
<PAGE>
AMENDMENT NO. 1 TO THE
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF CAPROCK FIBER NETWORK, LTD.
This Amendment No. 1 (this "AMENDMENT") to the Second Amended and
Restated Agreement of Limited Partnership (the "AGREEMENT") of CapRock Fiber
Network, Ltd., a Texas limited partnership (the "PARTNERSHIP"), is entered
into by and among CapRock Systems, Inc., a Texas corporation as the general
partner of the Partnership (the "GENERAL PARTNER"), and Michael D. Thompson,
Patrick J. Thompson, Margaret T. Nelson, Kimberly T Thornton, Christopher D.
Thompson, David E. Thompson, The Florida Company, a Texas corporation, Joe C.
Thompson, Jr., The Hayden Company, a Texas corporation, Peggy Thompson, Jere
W. Thompson, Sr., Mark Langdale, Jere W. Thompson, Jr., and Dan Jones
(individually, a "LIMITED PARTNER" and collectively, the "LIMITED PARTNERS").
The General Partner and the Limited Partners are sometimes individually
referred to herein as a "PARTNER" and sometimes collectively referred to
herein as the "PARTNERS".
BACKGROUND
The Partners entered into that certain Agreement of Limited Partnership of
CapRock Fiber Network, Ltd., which was amended effective as of May 31, 1993, and
further amended by the terms of the Agreement effective as of July 1, 1996.
The Partners recognize the dedicated service, leadership, and other
contributions of Dan Jones ("JONES") to the Partnership and, therefore, desire
to amend the Agreement, effective as of September 1, 1997, to admit Jones as a
Limited Partner upon the terms and conditions of this Amendment.
Jones desires to become a Limited Partner upon the terms and conditions of
this Amendment and the Agreement.
THEREFORE, in consideration of the foregoing, and other good and valuable
consideration, the receipt and sufficiency of which all parties acknowledge, the
parties hereto agree as follows:
AMENDMENT TO THE AGREEMENT
1. The definition of "Limited Partners" contained in SECTION 1.01 of the
Agreement is hereby deleted and replaced in its entirety by the following:
"Limited Partners" shall mean Michael D. Thompson, Patrick J.
Thompson, Margaret T. Nelson, Kimberly T. Thornton, Christopher D.
Thompson, David E. Thompson, The Florida Company, Joe C. Thompson, Jr., The
Hayden Company, Peggy Thompson, Jere W. Thompson, Sr., Mark Langdale, Jere
W. Thompson, Jr. and Dan Jones.
<PAGE>
2. SECTION 2.01(b) is hereby deleted and replaced in its entirety by the
following:
"(b) As of the effective date of this Agreement, Hayden, Florida and
Jodie Thompson are admitted to the Partnership as Limited Partners."
3. SECTION 2.01 is hereby amended by adding the following subsection (c):
"(c) As of the effective date of Amendment No 1 to this Agreement, Dan
Jones is hereby admitted to the Partnership as a Limited Partner, and the
Partnership Interests of the Partners shall be as set forth in Exhibit "A"
to the Amendment No. 1 to this Agreement."
4. The Agreement is hereby further amended by adding the following
ARTICLE XII:
"ARTICLE XII
MERGER AND EXCHANGE
12.01 MERGER. The General Partner, on behalf of and in the name
of the Partnership, may adopt a plan of merger pursuant to which the
Partnership may merge with one or more domestic or foreign partnerships or
other entities.
12.02 EXCHANGE. The General Partner, on behalf of and in the name
of the Partnership, may adopt a plan of exchange by which a domestic or
foreign partnership, or other entity acquires all of the outstanding
Partnership Interests of the Partnership in exchange for cash or securities
of the acquiring domestic or foreign partnership."
5. Each of the remaining articles, sections, terms, and provisions of the
Agreement shall remain in full force and effect, and shall be enforceable
against the Partners in accordance with their terms.
6. Capitalized terms not otherwise defined in this Amendment shall have
the meanings assigned to such terms in the Agreement.
IN WITNESS WHEREOF, the Partners have executed this Amendment to be
effective the 1st day of September, 1997.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Dated to be effective as of September 1, 1997.
GENERAL PARTNER:
CAPROCK SYSTEMS, INC.,
a Texas corporation
By: /s/ Jere Thompson, Jr.
---------------------------------------------
Name: Jere Thompson, Jr.
Title: President
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Michael D. Thompson
---------------------------
Michael D. Thompson
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Patrick J. Thompson
--------------------------------
Patrick J. Thompson
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Margaret T. Nelson
--------------------------------
Margaret T. Nelson
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Kimberly T. Thornton
-----------------------------------
Kimberly T. Thornton
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Christopher D. Thompson
------------------------------------------
Christopher D. Thompson
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ David E. Thompson
-------------------------------------
David E. Thompson
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Joe C. Thompson, Jr.
----------------------------------------
Joe C. Thompson, Jr.
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Jere W. Thompson, Jr.
------------------------------------------
Jere W. Thompson, Jr.
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Margaret Thompson
-------------------------------------
Margaret Thompson
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Jere W. Thompson, Sr
---------------------------------------
Jere W. Thompson, Sr
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Dan Jones
----------------------------------
Dan Jones
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
THE FLORIDA COMPANY,
a Texas corporation
By:/s/ Joe C. Thompson, Jr.
-----------------------------------------
Name: Joe C. Thompson, Jr.
Title: President
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
THE HAYDEN COMPANY,
a Texas corporation
By: /s/ John P. Thompson
----------------------------------
Name: John P. Thompson
Title: President
<PAGE>
LIMITED PARTNER SIGNATURE PAGE
This Limited Partner Signature Page is attached to, and made a part of,
that certain Amendment No. 1 to the Second Amended and Restated Agreement of
Limited Partnership of CapRock Fiber Network, Ltd. By execution hereof, the
undersigned agrees to be bound by, and perform in accordance with, the Second
Amended and Restated Agreement of Limited Partnership of CapRock Fiber Network,
Ltd. as amended by Amendment No. 1.
Dated to be effective as of September 1, 1997.
LIMITED PARTNER:
/s/ Mark Langdale
---------------------------------------
Mark Langdale
<PAGE>
AMENDMENT NO. 1 TO THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF CAPROCK FIBER NETWORKS LTD.
EXHIBIT A
<TABLE>
<CAPTION>
GENERAL PARTNER: PARTNERSHIP INTEREST:
<S> <C>
CapRock Systems, Inc. 1.72375%
LIMITED PARTNERS:
Mark Langdale 38.99919%
The Hayden Company 3.94493%
Joe C. Thompson, Jr 1.97246%
The Florida Company 1.97246%
Dan B. Jones 1.50000%
Jere W. Thompson, Sr. 6.55635%
Margaret D. Thompson 4.58389%
Michael D. Thompson 1.14597%
Jere W. Thompson, Jr. 31.87113%
Patrick J. Thompson 1.14597%
Margaret T. Nelson 1.14597%
Kimberly T. Thornton 1.14597%
Christopher D. Thompson 1.14597%
David E. Thompson 1.14597%
Total: 100.00000%
</TABLE>
<PAGE>
CONTRIBUTION AGREEMENT
AND AMENDMENT
This Contribution Agreement (the "Agreement") is entered into by and
among Jere W, Thompson, Jr. ("Jere"), Greenway Holdings, L.P., a Texas
limited partnership (the "Partnership"), and for a limited purpose, CapRock
Systems, Inc. ("CapRock Systems"), a Texas corporation and the general
partner of CapRock Fiber Network, Ltd., a Texas limited Partnership ("CapRock
Fiber") and a majority in interest of the limited partners in CapRock Fiber.
R E C I T A L S:
A. Jere desires to contribute his entire ownership interest (the "CapRock
Fiber Interest") in CapRock Fiber to the Partnership in exchange for a 1%
general partnership interest and a 93.7289% limited partnership interest in the
Partnership (the "Partnership Interests"). The limited partnership interest will
be issued one-half to Jere, and the balance to his wife, Carolyn C. Thompson.
B. By execution of this Agreement, CapRock Systems and a majority in
interest of the limited partners evidence their consent to the contribution of
the CapRock Fiber Interest and amend the Second Amended and Restated Agreement
of Limited Partnership of CapRock Fiber Network, Ltd. (the "CapRock Fiber
Agreement") to reflect the change in partner.
A G R E E M E N T:
IT IS THEREFORE AGREED:
1. CONTRIBUTION. For valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Jere hereby agrees to contribute, and does
hereby contribute, to the Partnership, and the Partnership hereby agrees to
accept, and does hereby accept, the CapRock Fiber Interest.
2. CONSIDERATION. For and in consideration of the contribution of the
CapRock Fiber Interest by Jere to the Partnership, the Partnership hereby issues
to Jere and Carolyn the Partnership Interests.
3. AMENDMENT. By execution of this Agreement, CapRock Systems and a
majority in interest of the limited partners in CapRock Fiber, in accordance
with Section 11.01 of the CapRock Fiber Agreement, hereby amend the CapRock
Fiber Agreement to admit the Partnership to CapRock Fiber pursuant to this
Agreement. Exhibit "A" to the CapRock Fiber Agreement is amended and restated in
the manner set forth on Exhibit "A" attached to this Agreement.
4. AGREEMENT OF THE PARTNERSHIP. The Partnership hereby accepts, assumes
and agrees to be bound by, and to perform in accordance with, all of the terms
and provisions of the CapRock Fiber Agreement.
5. MISCELLANEOUS. This Agreement (i) shall be binding upon and shall
inure to the
<PAGE>
benefit of the parties hereto and their respective heirs, representatives,
administrators, successors and assigns; (ii) may not in any way be altered,
amended, modified or upgraded except by an instrument in writing signed by
the parties hereto; (iii) and the rights of the parties hereto shall be
governed by and construed in accordance with the laws of the State of Texas;
and (iv) may be executed in multiple counterparts, each of which shall
constitute an original.
IN WITNESS WHEREOF, this Agreement is executed as of the 29th day of
December, 1997.
THE PARTNERSHIP;
GREENWAY HOLDINGS, L,P,
a Texas limited partnership
By: /s/ Jere W. Thompson, Jr.
------------------------------------
Jere W. Thompson, Jr.
Its: General Partner
/s/ Jere W. Thompson, Jr.
------------------------------------
Jere W. Thompson, Jr.
By execution hereof, the undersigned, who constitute the general partner
and a majority in interest of the limited partners in CapRock Fiber, consent to
the contribution of the Partnership interests to the Partnership, and the
amendment of the CapRock Fiber Agreement.
CapRock Systems, Inc.
/s/ Jere W. Thompson, Jr. /s/ Jere W. Thompson, Jr.
- ------------------------------------- ----------------------------------
Jere W. Thompson, Jr., President Jere W. Thompson, Jr.
/s/ Mark Langdale
- -------------------------------------
Mark Langdale
2
<PAGE>
EXHIBIT "A"
THE PARTNERS: PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
The General Partner: Partnership Interests:
<S> <C>
CapRock Systems, Inc 1.72375%
The Limited Partners:
Michael D. Thompson 1.14597%
Patrick J. Thompson 1.14597%
Margaret T. Nelson 1.14597%
Kimberly T. Thornton 1.14597%
Christopher D. Thompson 1.14397%
David E. Thompson 1.14597%
The Florida Company 1.97246%
Joe C. Thompson, Jr. 1.97246%
The Hayden Company 3.94493%
Peggy Thompson 4.58389%
Jere W. Thompson, Sr. 6.55635%
Mark Langdale 38.99919%
Greenway Holdings, L.P. 31.87113%
Dan Jones 1.50000%
---------
100.00000%
</TABLE>
3
<PAGE>
Exhibit 99.12
CapRock Telecommunications Corp.
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Basic Earnings Per Share
----------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
----------------------------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $ 428,715 $ 1,785,274 $ 521,496 888,033
----------- ----------- ----------- ----------
Denominator:
Denominator for basic earnings
Per share - weighted average
Shares outstanding 10,398,954 10,398,954 10,398,954 10,398,954
Effect of dilutive securities:
Employee stock options - 177,047 - 177,341
----------- ----------- ----------- ----------
10,398,954 10,576,001 10,398,954 10,576,295
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Basic earnings per share $.04 $.17 $.05 $.09
---- ---- ---- ----
---- ---- ---- ----
Dilutive earnings per share $.04 $.17 $.05 $.08
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
<PAGE>
ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
RESTATED
MULTIPLIER 1,000
<TABLE>
<S> <C>
PERIOD-TYPE 6-MOS
FISCAL-YEAR-END DEC-31-1998
PERIOD-START JAN-01-1998
PERIOD-END JUN-30-1998
CASH 2
SECURITIES 0
RECEIVABLES 11,833
ALLOWANCES (293)
INVENTORY 0
CURRENT-ASSETS 12,681
PP&E 4,739
DEPRECIATION (2,004)
TOTAL-ASSETS 17,844
CURRENT-LIABILITIES 12,974
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 1,459
OTHER-SE (355)
TOTAL-LIABILITY-AND-EQUITY 17,844
SALES 0
TOTAL-REVENUES 32,416
CGS 23,910
TOTAL-COSTS 29,337
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 159
INCOME-PRETAX 2,919
INCOME-TAX 1,134
INCOME-CONTINUING 1,785
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 1,785
EPS-PRIMARY .17
EPS-DILUTED .17
</TABLE>
<PAGE>
ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
RESTATED
MULTIPLIER 1,000
<TABLE>
<S> <C>
PERIOD-TYPE 6-MOS
FISCAL-YEAR-END DEC-31-1998
PERIOD-START JAN-01-1998
PERIOD-END JUN-30-1998
CASH 378
SECURITIES 0
RECEIVABLES 1,394
ALLOWANCES 0
INVENTORY 0
CURRENT-ASSETS 1,776
PP&E 11,894
DEPRECIATION (991)
TOTAL-ASSETS 13,724
CURRENT-LIABILITIES 13,011
BONDS 0
PREFERRED-MANDATORY 0
PREFERRED 0
COMMON 0
OTHER-SE 543
TOTAL-LIABILITY-AND-EQUITY 13,724
SALES 0
TOTAL-REVENUES 2,551
CGS 114
TOTAL-COSTS 727
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 409
INCOME-PRETAX 1,415
INCOME-TAX 545
INCOME-CONTINUING 870
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME 870
EPS-PRIMARY 0
EPS-DILUTED 0
</TABLE>
