MAURICE J. BATES, L.L.C.
ATTORNEY AT LAW
8214 WESTCHESTER SUITE, 500
DALLAS , TEXAS 75225
Telephone (214) 692-3566
Fax (214) 987-2091
July 10, 1998
Securities and Exchange Commission
450 5th Street N. W.
Washington, DC. 20549
Re: Holloman Corporation
Ladies/Gentlemen:
On behalf of Hollomanr Corporation, we transmit for filing under the
Securities Act of 1933, a registration statement on Form SB-2 with respect
to a firm commitment offering of an initial public offering.
The registration statement covers 1,000,000 Units, each Unit consisting of
one share of Common Stock and One Redeemable Common Stock Purchase Warrant.
The underwriter will be named in the first amendment.
Please direct any questions or comments with respect to the filing to the
undersigned.
Very truly yours,
Maurice J. Bates
<PAGE>
As filed with the Securities and Exchange Commission on , 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
Holloman Corporation
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
Texas 1623 75-2771541
<S> <C> <C>
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
</TABLE>
Holloman Corporation
5257 West Interstate 20
P.O. Box 69410
Odessa, Texas 79769-9410
(915) 381-2000
(Address and telephone number of principal
executive offices and principal place of business)
Sam Holloman
Holloman Corporation
5257 West Interstate 20
P.O. Box 69410
Odessa, Texas 79769-9410
(915) 381-2000
(Name, address and telephone number of agent for service)
Copies of all communications to:
Maurice J. Bates, Esq. Norman R. Miller, Esq.
Maurice J. Bates, L.L.C. Wolin, Ridley & Miller LLP
8214 Westchester Suite 500 1717 Main Street
Dallas, Texas 75225 Dallas, Texas 75201
(214) 692-3544 (214) 939-4900
(214) 987-2091 FAX (214) 939-4949 FAX
Approximate date of proposed sale to public: As soon as practicable after
the effective date of the Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Share Aggregate Offering Price Registration Fee
<S> <C> <C> <C> <C>
(1) (1) (1)
Units 1,150,000 $10.00 $11,500,000 $3,450
Common Sock, par
value0.01 (2) 1,150,000 (2) (2) (2)
Redeemable Common Stock
Purchase Warrants (2) 1,150,000 (2) (2) (2)
Common Stock, par
value $0.01 (3) 1,150,000 $12.00 $13,800,000 $4,140
Underwriter's Warrants (4) 100,000 $ 0.01 $100.00 $100
Units Underlying the
Underwriter's Warrants 100,000 $12.00 $1,200,000 $360
Common Stock, par
value $0.01 (5) 100,000 (5) (5) (5)
Redeemable Common Stock
Purchase Warrants 100,000 (5) (5) (5)
Common Stock, par
value $0.01 (6) 100,000 $12.00 $1,200,000 $360
Total $27,700,100 $8310
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Included in the Units. No additional registration fee is required.
(3) Issuable upon the exercise of the Redeemable Common Stock Purchase Warrants.
Pursuant to Rule 416 there are also registered an indeterminate number of shares
of Common Stock which may be issued pursuant to the antidilution provisions
applicable to the Redeemable Common Stock Purchase Warrants, the Underwriter's
Warrants and the Redeemable Common Stock Purchase Warrants issuable under the
Underwriters Warrants. (4) Underwriters' Warrants to purchase up to 100,000
Units, consisting of an aggregate of 100,000 shares of Common Stock and 100,000
Redeemable Common Stock Purchase Warrants. (5) Included in the Units underlying
the Underwriters' Warrants. No additional registration fees are required. (6)
Issuable upon exercise of Redeemable Common Stock Purchase Warrants underlying
the Underwriters' Units.
<PAGE>
SUBJECT TO COMPLETION, DATED July 2, 1998
Holloman Corporation
1,000,000 Units
Consisting of 1,000,000 Shares of Common Stock and
1,000,000 Redeemable Common Stock Purchase Warrants
Holloman Corporation (the "Company") is hereby offering 1,000,000 Units,
each unit (the "Unit") consisting of one share (the "Shares") of Common Stock,
$0.01 par value (the " Common Stock"), and one Redeemable Common Stock Purchase
Warrant (the "Warrants") . The Units, the Shares and the Warrants offered hereby
are referred to collectively as the "Securities." The Shares and Warrants
included in the Units may not be separately traded until [twelve months after
the date of this Prospectus], unless earlier separated upon ten days' prior
written notice fromCapital West Securities, Inc(the "Representative") to the
Company. Each Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $12.00 per share, commencing at any time
after the Common Stock and Warrants become separately tradable and until [five
years from the date of this Prospectus]. Commencing on [12 months from the date
of this Prospectus], the Warrants are subject to redemption by the Company at
$0.05 per Warrant at any time on thirty days prior written notice, provided that
the closing price quotation for the Common Stock has equalled or exceeded $20.00
for ten consecutive trading days. The Warrant exercise price is subject to
adjustment under certain circumstances. See "Description of Securities."
Prior to this offering, there has been no public market for the Securities,
and there can be no asssurance that an active market will develop. It is
currently anticipated that the initial public offering price of the Units will
be $10.00 per Unit. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. The Company has
applied to list the Units , Common Stock and Warrants on the American Stock
Exchange under the symbols "HMC.U " , "HMC" and "HMC.W", respectively. There can
be no assurance that the application for listing on the American Stock Exchange
will be approved.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 6 HEREOF CONCERNING THE COMPANY AND THIS OFFERING.
PROSPECTIVE INVESTORS SHOULD ALSO CONSIDER THE FACT THAT THEIR INVESTMENT WILL
RESULT IN IMMEDIATE SUBSTANTIAL DILUTION. SEE "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Price
to Discounts and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
Per Unit............................ $10.00 $1.00 $9.00
Total (2)(3)....................... $10,000,000 $1,000,000 $9,000,000
</TABLE>
(1) In addition, the Company has agreed to pay the Representative, a 2.00%
nonaccountable expense allowance and to sell to the Underwriter warrants
exerciseable for four years commencing one year from the date of this
Prospectus to purchase 100,000 Units at 120% of the public offering price
(the "Underwriter's Warrants"). The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 , as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $500,000 payable by the Company,
including the Representative's 2.00% nonaccountable expense allowance. (3) The
Company has granted to the Underwriters an option, exercisable within 45 days
from the date of this Prospectus, to purchase up to 150,000 Units, on the same
terms set forth above, solely for the purpose of covering over-allotments, if
any. If the Underwriters' over-allotment option is exercised in full, the total
Price to the Public will be $ , $ , and $ , respectively. See "Underwriting"
The Securities are being offered, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and subject to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offering
without notice and to reject any order, in whole or in part. It is expected that
delivery of Common Stock and Warrant certificates will be made against payment
therefor at the offices of the Underwriter in ____, _____ on or about , 1998.
Capital West Securities
The date of this Prospectus is , 1998.
<PAGE>
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2. (including any amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Securities, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus regarding the contents of
any contract or document filed as an exhibit to the Registration Statement are
not necessarily complete and, in each instance, reference is hereby made to the
copy of such contract or document so filed. Each such statement is qualified in
its entirety by such reference. The Registration Statement and the exhibits and
the schedules thereto filed with the Commission may be inspected, without
charge, at the Commission's public reference facilities located at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the public
reference facilities in the Commission's regional offices located at:
Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661; and Suite 1300, Seven World Trade Center, New York, New York
10048. Copies of such materials also may be obtained at prescribed rates by
writing to the Commission, Public Reference Section, 450 Fifth Street, NW,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission at http://www.sec.gov.
As a result of this offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith will
file periodic reports, proxy statements and other information with the
Commission. The Company will furnish its shareholders with annual reports
containing audited consolidated financial statements certified by independent
public accountants following the end of each fiscal year, proxy statements and
quarterly reports containing unaudited consolidated financial information for
the first three quarters of each fiscal year following the end of such fiscal
quarter.
The Company has applied for listing of the Securities on the American
Stock Exchange ("Amex"). There can be no assurance that the Company's securities
will be accepted for listing. Reports, proxy statements and other information
concerning the Company will be available for inspection at the principal office
of the Amex at 86 Trinity Place, New York, New York 10006.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES, INCLUDING
OVERALLOTMENT, ENTERING STABILIZATION BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE SECURITIES ON AMEX IN ACCORDANCE WITH
RULE 103 OF REGULATION M. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information in this Prospectus
(i) assumes that the acquisition (the "Acquisition") of Holloman Construction
Company has been consummated upon the closing of this offering (the "Closing"),
including the issuance of 200,000 shares of the Common Stock to the Sellers, and
(ii) does not give effect to the exercise of the Underwriters' over-allotment
option or the Underwriters Warrants. Reference to the "Company" herein means
Holloman Corporation and Holloman Construction Company and assumes that the
Acquisition has been consummated.
.
The Company
The Company was organized in May 1998 to acquire all of the outstanding
stock of Holloman Construction Company. The Company specializes in pipeline
construction, plant construction, and engineering services. These services are
used by municipal, and state governments, commercial and industrial building
sites, and residential, commercial, and industrial subdivisions. The majority of
the Company's business is transacted in the state of Texas, but the Company has
authorization to work in numerous other states that have activities relating to
the oil and gas industry. The majority of the Company's work is obtained through
an open bid process, and the Company has a marketing department to search for
potential work opportunities.
The Company's operations are separated into three divisions. The Plant
Division constructs plant facilities for the oil and gas industry. Due to the
mature nature of this industry, most of the division's projects involve
modifications or additions to existing facilities. The division's projects
generally consist of earthwork, concrete foundations, equipment installations,
and piping fabrication and installation. The division has the capability of
working throughout the southeastern and southwestern states; however, most of
the projects are in Texas, New Mexico, Oklahoma and Louisiana. The Plant
Division employs approximately 80 employees.
The Pipeline Division provides a variety of construction services. In
addition to mainline, cross-country gas pipelines, the division installs gas and
oil gathering systems, and installs injection systems for secondary oil
recovery. The repair and upgrade of existing pipelines has become a substantial
portion of the division's work as government regulations for maintenance of
older pipelines have been initiated. The division also performs small plant and
compressor installation work for certain clients, and utility work that includes
the installation of water, sewer and drainage lines for local area
municipalities and developers. The recent acquisition of trenchless-technology
pipeline installation methods has provided a new, highly profitable type of work
to the company. This division employs approximately 100 full-time field
construction workers and 50 temporary workers.
The Engineering Division provides design, drafting, project management
and construction services for the oil and gas industry. The emphasis for the
division is on the engineering and construction of gas plant modifications and
gas compressor installations. The division has particular expertise in the area
of acid gas removal and handling. The division performs some engineering-only
projects, but prefers projects that include engineering, procurement, project
management and construction work. There are approximately 90 employees in the
division.
The Company's strategy will be to capitalize on the demand for oilfield
construction and engineering services by continuing to expand its workforce and
geographic presence in the marketplace. To accomplish these objectives, the
Company intends to (i) continue to enhance its indigenous new employee hiring,
training and retention programs as a method for attracting, training and
retaining new, highly skilled workers, and (ii) seek to acquire other companies
engaged in the engineering and construction business that have good reputations
for quality service and highly skilled workers.
The Company's principal operations are in Texas. The Company's
headquarters are located at 5257 West Interstate 20, Odessa, Texas 79763. The
telephone number at that location is (915) 381-2000, and its fax number is (915)
381-381 6200.
<PAGE>
The Acquisition
Pursuant to a Stock Purchase Agreement dated May 16, 1998 (the "Stock
Purchase Agreement") , the Company agreed to acquire all of the outstanding
common stock of Holloman Construction Company, a Texas corporation
("Construction"), from Sam Holloman and other entities owned, controlled by, or
affiliated with, Mr. Holloman, including the Holloman Construction Company
Employees Stock Ownership Plan (the "Sellers") for a total consideration of
$8,000,000. At the closing of this offering (the "Closing"), the Company will
pay the Sellers $6,000,000 cash from the net proceeds of this offering and issue
to the Sellers 200,000 shares of the Company's Common Stock (assumes an initial
public offering price of $10 per share attributable to the Common Stock in this
offering The number of shares could be more of less if the offering price were
changed). See "The Acquisition" and "Certain Relationships and
Related Transactions."
The Offering
Securities offered hereby................... 1,000,000 Units, each Unit
consisting of one share of Common Stock and one Warrant, each Warrant entitling
the holder to purchase one share of Common Stock at a price of $ 12.00 per share
until ____________, 2003 (five years from the date of this Prospectus) See
"Description of Securities."
Description of the Warrants................. The Warrants are not immediately
exercisable and are not transferable separately from the Shares until
____________, 1999 (one year from the date of this Prospectus). The Warrants are
redeemable by the Company at $0.05 per Warrant under certain conditions. See
"Description of Securities."
Common Stock to be outstanding
after the Offering........................ 2,400,000 shares (1)
Warrants to be outstanding
after the Offering........................ 1,000,000 Warrants (1)(2)
Use of Proceeds............................. Purchase of Construction, working
capital and other general corporate purposes. See "Use of Proceeds."
Risk Factors................................ The Securities offered hereby are
speculative and involve a high degree of risk and should not be purchased by
investors who cannot afford the loss of their entire investment. See "Risk
Factors."
Proposed American Stock Exchange Symbols
Units.................................... "HLM.U"
Common Stock............................. "HLM"
Warrants................................. "HLM.WS"
- ---------------------
(1) Does not include (i) up to 1,000,000 shares issuable upon exercise of the
Warrants, (ii) 300,000 shares issuable upon exercise of the Underwriters'
over-allotment option and the Warrants thereunder, iii) 200,000 shares
issuable upon exercise of the Underwriters' Warrants and the shares
underlying such Warrants, and (iv) 240,000 shares reserved for issuance
under the Employee Stock Option Plan. Includes 200,000 shares to be issued
to the Sellers to consummate the Acquisition. See "The Acquisition."
(2) Does not include up to 150,000 Warrants issuable upon exercise of the
over-allotment option or the 100,000 Warrants underlying the Underwriters'
Warrants.
<PAGE>
Selected Consolidated Financial Information
The following selected financial data has been derived from the audited
balance sheet of Construction as of November 1, 1997, audited income statements
for the two years ended November 1, 1997 and November 2, 1996 and unaudited
financial statements for the six months ended April 30, 1997 and 1998. This
selected financial data should be read in conjunction with the financial
statements of the Company and the related notes thereto included elsewhere in
this Prospectus. See "Financial Statements."
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
November 2, November 1, April 30, April 30,
1996 1997 1997 1998
<S> <C> <C> <C> <C>
Operating Data:
Construction revenues $12,067,920 $19,366,683 $8,347,210 $12,000,425
Costs of construction 10,771,775 16,389,974 6,782,141 10,421,012
General and administrative 1,215,319 1,997,914 639,649 626,902
------------ ------------ ----------- ------------
Earnings before income tax 293,765 1,158,048 834,008 922,594
Income tax 106,414 413,063 283,563 313,682
------------ ------------ ----------- ------------
Net income 187,351 744,985 550,445 608,912
Earnings per share $ 0.13 $ 0.53 $ 0.39 $ 0.44
</TABLE>
<TABLE>
<CAPTION>
November 1, April 30, April 30,
1997 1998 1998
------------ ----------- ------
<S> <C> <C> <C>
Balance Sheet Data:
Working capital $1,749,721 2,545,311 5,630,553
Current assets 5,773,892 5,294,482 8,066,043
Current liabilities 4,024,171 2,749,171 2,435,490
Total assets 6,924,512 6,233,312 8,733,313
Total liabilities 4,154,597 2,854,485 2,540,803
Shareholder's equity 2,769,915 3,378,827 6,192,510
Shares outstanding 1,200,000 1,400,000 2,400,000
</TABLE>
- -------
(1) Adjusted to reflect the sale of the Units offered by this prospectus at an
offering price of $ 10.00 per Unit and application of the net proceeds of
$8,500,000 , and the consummation of the Acquisition.
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree
of risk. Prospective investors should consider the following factors in addition
to other information set forth in the prospectus before purchasing the
securities offered hereby. Prospective investors should note that this
Prospectus contains certain "forward-looking statements," including without
limitation, statements containing the words "believes," "anticipates,"
"expects," "intends," "plans," "should," "seeks to," and similar words.
Prospective investors are cautioned that such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors, including but not limited to, the risk factors set
forth in this Prospectus. The accompanying information contained in this
Prospectus identifies important factors that could cause such differences.
Risk of the Acquisition
The Company will commence operations upon the consummation of the
Acquisition at the closing of this offering. There can be no assurance, however,
that any benefits will be achieved or that the results of Construction prior to
the Acquisition which will be improved upon. In addition, Sam Holloman, the
President and Chief Executive Officer of Construction, has resigned from those
positions but will continue serving as Chairman of the Board. Although Mr.
Holloman's position will be filled by Mark Stevenson, Construction's Executive
Vice President and Chief Operating Officer since 1983, there can be no assurance
that the management of the Company and Construction will be successfully
combined, or that new management will have the necessary experience to operate
the Company.
Dependence On The Oil and Gas Industry
The Company is dependent upon the continued growth, viability and
financial stability of its customers, which are in turn substantially dependent
on the continued growth, viability and financial stability of the oil and gas
industry. The oil and gas industry is very sensitive to pricing levels for oil
and gas, supply conditions, weather, and general economic conditions. Examples
of fluctuating pricing include the 31% decline in benchmark Brent crude oil
prices during the first quarter of 1997 relative to the same period in 1996.
Lower crude oil prices could negatively impact the profitability of the oil and
gas industry, which in turn could reduce the demand for the Company's services.
An example of the impact of general economic conditions affecting the industry
is the recent economic downturn in Asia that subsequently reduced demand for oil
products in that region. This event caused many of the domestic participants in
the industry to report lower revenues for their products, thereby reducing the
demand for the Company's services. Any downturn or other disruption in the oil
and gas industry caused by general economic conditions, pricing, weather or
other factors would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Dependence Upon Key Personnel
The business of the Company is substantially dependent on the efforts
of Mark Stevenson, Executive Vice President, and Sam Holloman, Chairman of the
Board. The Company does not have an employment contract with Mr. Stevenson or
Mr. Holloman and the loss of either could have a material adverse effect on the
Company's operations. Mr. Holloman will not devote full time to the business of
the Company. The Company currently maintains key-man insurance in the face
amount of $500,000 on the life of Mr. Holloman, although there can be no
assurance that such amount will be sufficient to compensate the Company for the
loss of his services. See "Management."
Acquisitions
The Company plans to grow through acquisitions. The success of this
strategy is strongly affected by personnel in the acquired organization
satisfactorily continuing employment with the Company after the acquisition. The
Company plans to utilize employment agreements in connection with acquisitions.
However, there can be no assurance that employees of an acquired enterprise will
remain with the Company or perform satisfactorily as employees of the Company.
At present, the Company is not engaged in the negotiation of any such
acquisitions and there is no assurance and no representation is made that the
Company will be successful in the negotiations of any acquisitions and, if so,
on terms that will be beneficial to the Company.
Additional Capital Requirements
A substantial portion of the proceeds of this offering will be utilized
to pay the cash portion of the purchase price of the Acquisition. As a result,
the Company may require additional capital to expand its operations. The Company
contemplates that it may seek to expand its operations and acquire other
compatible businesses, which may require the Company to raise additional
financing, either in the form of debt or equity. There can be no assurance that
any such financing will be available on favorable terms to the Company or at
all. If the Company were to seek to raise additional equity, its then existing
shareholders would suffer dilution to their interests. See "Use of Proceeds."
Benefits to Current Shareholders
The current shareholders of the Company acquired their shares of Common
Stock at a cost per share substantially less than that at which the Company
intends to sell its Common Stock included in the Units. Consummation of the
offering will result in a substantial increase in the value of the current
shareholders' holdings and a resulting dilution in the price paid by the public
shareholders. See ""Dilution." In addition, the Sellers will receive
consideration for the sale of their stock in Construction and membership
interests in Leasing which they might not otherwise receive if the offering is
not consummated.
Competition
The general pipeline construction, replacement, rehabilitation and
repair business is highly competitive. The Company faces conceptual and
practical competition both from a number of contractors employing traditional
methods of pipeline construction, replacement and repair and from contractors
offering alternative trenchless products and technologies. Management is unaware
of any publicly-held comparable companies that are direct competitors.
Nonetheless, there could be privately-held competitors with financial resources
substantially greater than these of the Company.
Regulation; General
The transportation of oil and gas through pipelines is regulated by the
Federal Energy Regulatory Commission ("FERC"). Through the current
rate-of-return policy, the FERC regulates the allowed return on pipeline
investments. Historically, the FERC has determined the allowed investment return
on a case-by-case basis. If the current regulatory environment as administered
by the FERC were to become more stringent in establishing return criteria, it
could reduce the appeal of such pipeline investments. This situation could
reduce the growth opportunities in the industry, and thereby reduce the demand
for the Company's services. There can be no assurance that the FERC will not
adopt or change regulations or take other actions that would adversely affect
the industry and the Company's business, financial condition and results of
operations.
Regulation; Environmental
The Company is subject to numerous laws and regulations governing the
discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations may require the acquisition
of a permit before installing pipelines, restrict the types, qualities and
concentration of various substances that can be released into the environment in
connection with installation and repair activities, limit or prohibit
installation activities on certain lands lying within wilderness, wetlands and
other protected areas, and impose substantial liabilities for pollution
resulting from the Company's operations. Moreover, the recent trend toward
stricter standards in environmental legislation and regulation is likely to
continue. Although the Company generally attempts to pass on such costs to the
customer in its billing, such standards could have an impact on the operating
costs of the Company.
Business Concentration
The Company's customers are concentrated in the oil and gas industry. Sales
to customers in the oil and gas industry accounted for 78% of the Company's
revenues during the fiscal year ended November 1, 1997. The Company is also
dependent on a core of customers for the majority of its revenues. Sales to five
customers accounted for 63.2% of total revenues in 1997. The Company expects
that sales to relatively few customers will continue to account for a high
percentage of its net sales in the foreseeable future and believes that its
financial results will depend, in significant part, upon the success of these
few customers. The loss of a significant customer or any reduction in orders by
any significant customers, including reductions due to economic and pricing
conditions in the oil and gas industry, may have a material adverse effect on
the Company's business, financial condition and results of operations.
Influence on Voting by Principal Shareholders
Upon completion of this offering, the directors and principal
shareholders, will own approximately 44.1% of the outstanding Common Stock of
the Company. As a result, these shareholders will be able to impact the vote on
most matters submitted to shareholders, including the election of directors. See
"Principal Shareholders."
Absence of Prior Public Market - American Stock Exchange Listing
Prior to this offering, there has been no public market for the
Securities. The Company has applied for listing of the Securities on the
American Stock Exchange. There can be no assurance that the Company's listing
application will be approved. Such listing, if approved, does not imply,
however, that a meaningful, sustained market for the Common Stock or Warrants
will develop. There can be no assurance that an active trading market for the
Securities offered hereby will develop or, if it should develop, will continue.
Risk of Redemption of Warrants
Commencing twelve months from the date of this Prospectus, the Company
may redeem the Warrants for $.05 per Warrant, provided that the closing sale
price of the Common Stock on the American Stock Exchange has been at least
$25.00 for ten consecutive trading days ending within fifteen days of the notice
of redemption. Notice of redemption of the Warrants could force the holders
thereof: (i) to exercise the Warrants and pay the exercise price at a time when
it may be disadvantageous or difficult for the holders to do so, (ii) to sell
the Warrants at the current market price when they might otherwise wish to hold
the Warrants, or (iii) to accept the redemption price, which is likely to be
less than the market value of the Warrants at the time of the redemption. See
"Description of Securities - Warrants."
Investors May Be Unable to Exercise Warrants
For the life of the Warrants, the Company will use its best efforts to
maintain a current effective registration statement with the Commission relating
to the shares of Common Stock issuable upon exercise of the Warrants. If the
Company is unable to maintain a current registration statement the Warrant
holders would be unable to exercise the Warrants and the Warrants may become
valueless. Although the Underwriters have agreed to not knowingly sell the
Warrants in any jurisdiction in which the shares of Common Stock issuable upon
exercise of the Warrants are not registered, exempt from registration or
otherwise qualified, a purchaser of the Warrants may relocate to a jurisdiction
in which the shares of Common Stock underlying the Warrants are not so
registered or qualified. In addition, a purchaser of the Warrants in the open
market may reside in a jurisdiction in which the shares of Common Stock
underlying the Warrants are not registered, exempt or qualified. If the Company
is unable or chooses not to register or qualify or maintain the registration or
qualification of the shares of Common Stock underlying the Warrants for sale in
all of the states in which the Warrant holders reside, the Company would not
permit such Warrants to be exercised and Warrant holders in those states may
have no choice but to either sell their Warrants or let them expire. Prospective
investors and other interested persons who wish to know whether or not shares of
Common Stock may be issued upon the exercise of Warrants by Warrant holders in a
particular state should consult with the securities department of the state in
question or send a written inquiry to the Company. The Company has applied for
listing of the Warrants and the Underlying Common Stock on the American Stock
Exchange which provides an exemption from registration in most states. See
"Description of Securities Warrants."
<PAGE>
Arbitrary Determination of Offering Price
The public offering price for the Units offered hereby was determined
by negotiation between the Company and the Representatives, and should not be
assumed to bear any relationship to the Company's asset value, net worth or
other generally accepted criteria of value. Recent history relating to the
market prices of newly public companies indicates that the market price of the
Securities following this offering may be highly volatile. See "Underwriting."
Immediate Substantial Dilution
The Company's current shareholders acquired their shares of Common
Stock at a cost substantially below the price at which such shares are being
offered in this offering. In addition, the initial public offering price of the
shares of Common Stock included in the Units being offered in this offering will
be substantially higher than the current book value per share of Common Stock.
Consequently, investors purchasing shares of Common Stock included in the Units
being offered in this offering will incur an immediate and substantial dilution
of their investment of approximately $7.42 per share or approximately 74.2%
insofar as it relates to the resulting book value of Common Stock after
completion of this offering. See "Dilution."
Payment of Dividends
The Company has never paid cash dividends on the Common Stock, and does
not anticipate that it will pay cash dividends in the foreseeable future. The
payment of dividends by the Company will depend on its earnings, financial
condition and such other factors as the Board of Directors of the Company may
consider relevant. The Company currently plans to retain any earnings to provide
for the development and growth of the Company. See "Dividend Policy."
Shares Eligible for Future Sale
Upon completion of this offering, the Company's current shareholders
will own 1,200,000 shares of Common Stock, which will represent 50.0% of the
then issued and outstanding shares of Common Stock (47.1% if the over-allotment
option is exercised in full). In addition, the Sellers will own 200,000 shares,
or 8.3% of the outstanding Common Stock ( 7.8% if the over-allotment option is
exercised in full). The shares held by the current shareholders and by the
Sellers are "restricted securities" as that term is defined in the Rules and
Regulations under the Securities Act, and as such, may be publicly sold only if
registered under the Securities Act or sold pursuant to an applicable exemption
from registration, such as that provided by Rule 144 under the Securities Act.
The shares held by the current shareholders, and the shares to be
issued to the Sellers will not be eligible for sales under Rule 144 for at least
one year from the effective date of this Prospectus. The current shareholders
and the Sellers have agreed with the Representatives that they will not sell or
otherwise dispose of their shares for a period of one year after the date of
this Prospectus without the prior written consent of the Representative. Sales
of significant amounts of Common Stock by current shareholders and the Sellers
in the public market after this offering could adversely affect the market price
of the Common Stock. See "Shares Eligible for Future Sale" and "Principal
Shareholders."
Use of Proceeds for Unspecified Acquisitions
The Company intends to utilize a portion of the net proceeds of this
offering for the purpose of acquisitions, joint ventures and other similar
business opportunities. Under Texas law, transactions of this nature do not
require shareholder approval except when accomplished through a merger or
consolidation. Accordingly, purchasers in this offering will necessarily rely to
a large degree upon the judgment of management of the Company in the utilization
of the net proceeds of this offering applied to acquisitions. The Company does
not now have any agreements or commitments with respect to any specific
transactions, and management has not established specific criteria to be used in
making the determination as to how to invest these proceeds. See
"Business-Recent Developments" and "Use of Proceeds."
Shares of Common Stock Reserved Under Stock Option Plan
The Company has reserved 240,000 shares of Common Stock for issuance to
key employees, officers, directors and consultants pursuant to the Company's
Stock Option Plan. To date no options have been granted under the Stock Option
Plan. The existence of these options and any other options or warrants may prove
to be a hindrance to future equity financing by the Company. Further, the
holders of such options may exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "Management - Stock Option Plan."
Effect of Outstanding Warrants and Underwriters' Warrants.
Until the date five years following the date of this Prospectus, the
holders of the Warrants and Underwriters' Warrants are given an opportunity to
profit from a rise in the market price of the Common Stock, with a resulting
dilution in the interests of the other shareholders. Further, the terms on which
the Company might obtain additional financing during that period may be
adversely affected by the existence of the Warrants and Underwriters' Warrants.
The holders of the Warrants and Underwriters' Warrants may exercise the Warrants
and Underwriters' Warrants at a time when the Company might be able to obtain
additional capital through a new offering of securities on terms more favorable
than those provided herein. The Company has agreed that, under certain
circumstances, it will register under federal and state securities laws the
Underwriters' Warrants and/or the securities issuable thereunder. Exercise of
these registration rights could involve substantial expense to the Company at a
time when it could not afford such expenditures and may adversely affect the
terms upon which the Company may obtain financing. See "Description of
Securities" and "Underwriting."
Representatives' Influence on the Market
A significant amount of the Securities offered hereby may be sold to
customers of the Representatives. Such customers subsequently may engage in
transactions for the sale or purchase of such Securities through or with the
Representatives. Although it has no obligation to do so, the Representatives may
otherwise effect transactions in such securities. Such market making activity
may be discontinued at any time. If they participate in the market, the
Representatives may exert a dominating influence on the market, if one develops,
for the Securities described in this Prospectus. The price and the liquidity of
the Securities may be significantly affected by the degree, if any, of the
Representatives' participation in such market.
In addition, the Company has agreed to solicit exercises of the
Warrants solely through the Representatives and to pay the Representatives
certain compensation in connection therewith. Solicitation of the exercise of
the Warrants by the Representatives will not be made during the restricted
periods of Regulation M under the Securities Exchange Act of 1934, as amended.
See "Description of Securities-Warrants" and "Underwriting."
<PAGE>
THE ACQUISITION
At the Closing, the Company will use a portion of the proceeds of this
offering to consummate the Acquisition of Construction. The Company will pay
the Sellers $6,000,000 cash from the net proceeds of the offering and issue to
the Sellers 200,000 shares of Common Stock. In exchange therefor, the Sellers
will deliver to the Company all of the outstanding common stock of
Construction. (The number of shares of Common Stock to be issued to the
Sellers is determined by dividing $2,000,000 by the offering price attributable
to the Common Stock in the final Prospectus used in this offering Thus, the
Sellers could receive more or fewer shares if the offering price were to
change.)
The Stock Purchase Agreement provides for customary representations and
warranties by Construction and the Sellers, including without limitation, as to
the organization and good standing of Construction, the financial statements of
Construction and certain representations as to the business contracts and
commitments of Construction. Although the Company agrees that it will not take
any action after the Closing which would result in a change in the benefits to
the employees covered by the current benefit plans of Construction, there are no
commitments or provisions as to consulting or employment agreements, stock
options or registration of the Company stock delivered to the Sellers at the
Closing. Pursuant to the Stock Purchase Agreement, Mr. Holloman and the Sellers
agree that, for a period of five years, they will not compete with the Company
in any business in which Construction is engaged within any state or province
and maintain an office at the time of execution thereof. The Stock Purchase
Agreement provides for indemnification by the Sellers as to misrepresentation,
breach of warranty or non-fulfillment of any agreement or covenant or
misrepresentation or omission of material information in the Stock Purchase
Agreement or Schedules attached thereto. Such indemnification, except as to
taxes, is limited to four years from the Closing and the aggregate purchase
price for the Construction stock.
After the Closing, Construction will operate as a wholly owned
subsidiary of the Company. Mr. Holloman, who has been Chairman, President, and
principal owner of Construction since it was founded in 1967 will continue as
Chairman of the Company but will not devote full time to the business of the
Company.
<PAGE>
USE OF PROCEEDS
The net proceeds of this offering to the Company, are expected to be
approximately $8,500,000 ($9,820,000 if the over-allotment option is exercised
in full), assuming an initial public offering price of $10.00 per Unit, after
deducting the Underwriters' discount and $500,000 of expenses relating to the
offering, including the Underwriters' non-accountable expense allowance. No
value has been assigned to the Warrants included in the Units. The Company
intends to use the net proceeds as follows:
Amount %
Payment to Sellers (1) $ 6,000,000 70.6%
Working capital (2) 2,500,000 29.4%
----------- --------
$ 8,500,000 100.0%
=========== ======
- ---------------
(1) The cash portion of the purchase price of the Acquisition due to. the
Sellers at the Closing. See "The Acquisition" and "Certain Relationships
and Related Transactions".
(2) The Company may also use a portion of the proceeds from this offering to
take advantage of future business opportunities as a part of its expansion
plans, although the Company has not identified any specific businesses it
intends to acquire and has not entered into negotiations with respect to
any acquisitions.
Pending application of the net proceeds of this offering, the Company may
invest such net proceeds in interest-bearing accounts, United States Government
obligations, certificates of deposit or short-term interest-bearing securities.
DIVIDEND POLICY
The Company does not anticipate paying dividends on the Common Stock at
any time in the foreseeable future. The Company's Board of Directors plans to
retain earnings for the development and expansion of the Company's business. The
Board of Directors also plans to regularly review the Company's dividend policy.
The Company's ability to pay dividends will be dependent, in large measure, on
its ability to receive dividends and management fees from its life insurance
subsidiaries. The ability of these corporations to pay dividends and management
fees, in turn, is limited pursuant to applicable insurance laws. Any future
determination as to the payment of dividends will be at the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including future earnings, capital requirements, financial condition and such
other factors as the Board of Directors may deem relevant.
<PAGE>
DILUTION
As of April 30, 1998, the net tangible book value of the Company and
Construction, as if they were combined on such date, was $(2,307,490) or $(1.65)
per share of Common Stock. The net tangible book value of the Company is the
aggregate amount of its tangible assets less its total liabilities. The net
tangible book value per share represents the total tangible assets of the
Company, less total liabilities of the Company, divided by the number of shares
of Common Stock outstanding. After giving effect (i) to the sale of 1,000,000
Units (1,000,000 shares of Common Stock and 1,000,000 Warrants) at an assumed
offering price of $10.00 per Unit, or $10.00 per share of Common Stock (no value
assigned to the Warrants), (ii) the application of the estimated net proceeds
therefrom, the pro forma net tangible book value per share would increase from
$(1.65) to $2.58. This represents an immediate increase in net tangible book
value of $4.23 per share to current shareholders and an immediate dilution of
$7.42 per share to new investors or, 74.29% as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Public offering price per Share $10.00
Net tangible book value per Share before this offering $(1.65)
Increase per share attributable to new investors 4.23
------
Adjusted net tangible book value per share after this offering $ 2.58
Dilution per share to new investors $ 7.42
------
Percentage dilution 74.29%
</TABLE>
The following table sets forth as of April 30, 1998, (i) the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid by the current shareholders,
and (ii) the number of shares of Common Stock included in the Units to be
purchased from the Company and total consideration to be paid by new investors
(before deducting underwriting discounts and other estimated expenses) at an
assumed offering price of $10 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
<S> <C> <C> <C> <C> <C>
Number Percent Amount Percent Per Share
Current shareholders 1,400,000 (2)(4) 58.3% $ 2,325,000 18.9% $ .44
New investors 1,000,000 (2) 41.7% 10,000,000 81.1% $10.00 (3)
--------- ------ ----------- ------
Total 2,400,000 (1) 100.0% $12,325,000 (2) 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Does not include a total of 1,500,000 shares of Common Stock issuable upon
the exercise of: (i) the Warrants or the Underwriters' Warrants, (ii) the
over-allotment option, or (iii) employee stock options. To the extent that
these options and warrants are exercised, there will be further share
dilution to new investors.
(2) Upon exercise of the over-allotment option, the number of shares held by
new investors would increase to 1,150,000 or 45.1% of the total number of
shares to be outstanding after the offering and the total consideration
paid by new investors will increase to $11,500,000. See "Principal
Shareholders."
(3) This amount assumes the attribution of the Unit purchase price solely to
the Common Stock included in each Unit. See "Use of Proceeds."
(4) Assumes the issuance of 200,000 shares to the Sellers to consummate the
Acquisition. If the offering price attributable to the Common Stock were more or
less than $10.00 per share the number of shares to be issued to the Sellers
would change proportionately. See "The Acquisition."
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company
and Construction as if they were combined as of April 30, 1998, including the
issuance of 200,000 shares of the Common Stock to the Sellers to consummate the
Acquisition and (ii) on a pro forma as adjusted basis to give effect to the sale
of 1,000,000 Units offered hereby and the application of the estimated net
proceeds therefrom See "Use of Proceeds."
<TABLE>
<CAPTION>
April 30, 1998
(Unaudited) As Adjusted
<S> <C> <C>
Short-term debt:
Current portion of notes payable ................... $ 297,827 $ 297,827
--------------- ---------------
Total short-term debt............................... $ 297,827 $ 297,827
Long-term debt:
Notes payable....................................... $ 34,587 $ 34,587
Notes payable - Sellers............................. 6,000,000 0
------------- -------------
Total long-term debt................................... $ 6,034,587 $ 34,587
============== =============
Shareholders' equity:
Common Stock, $0.01 par value,
20,000,000 shares authorized,
1,200,000 shares issued and outstanding,
2,400,000 as adjusted (1) (2) .................... 14,000 24,000
Additional paid in capital.......................... 0 8,490,000
Retained earnings................................... (2,321,490) (2,321,490)
-------------- -------------
Total shareholders' equity........................ (2,307,490) 6,192,510
-------------- -------------
Total capitalization ............................. $ 3,727,097 $ 6,227,097
============= =============
</TABLE>
- ------
(1) Does not include 240,000 shares of Common Stock reserved for issuance under
the Company's Stock Option Plan. See "Management - Stock Option Plan."
(2) Does not include an aggregate of up to 1,500,000 shares issuable upon
exercise of (i) the Warrants, (ii) the over-allotment option, or (iii) the
Underwriters' Warrants.
20,000,000 shares of common stock with a par value of $0.01 per share with
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in connection with the Company's
Consolidated Financial Statements, related notes and other financial information
included elsewhere in this Prospectus.
Results of Operations
Over the two years ended November 1, 1997, the Company increased net
revenues by 60% to $19.4 million from $12.7 million, decreased costs of revenues
as a percentage of revenues by 4.7% while general and administrative expenses as
a percentage of revenues rose from 10.1% to 10.3%. Until this offering, the
Company was a private corporation and declared large bonuses to management which
were primarily income tax motivated.
The following table presents, as a percentage of net revenues, certain
financial data for the Company for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended Six months Ended 4/30
11/01/97 11/02/96 1998 1997
-------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Contract revenues 100.0% 100.0% 100.0% 100.0%
Costs of revenues 84.6 89.3 86.8 81.3
Gross profit 15.4 10.7 13.2 18.7
General and
administrative expenses 10.3 10.1 5.2 7.7
Operating income 5.1 0.7 7.9 11.1
Interest expense 0.3 0.7 0.2 0.4
Income taxes 2.1 0.9 3.4 2.6
Net income 3.9 1.6 6.6 5.1
</TABLE>
Comparison of the Six months Ended April 30, 1997 and April 30, 1998
Net revenues for the six month period ending April 30, 1998 increased
43.7% or $3,653,215 from the same period in the previous year. The increase was
due primarily to growth in the Engineering and Pipeline Divisions, whose
revenues increased 200.5% and 35.6%, respectively. The Company experienced
greater demand for its services due to the general increase in capital
expenditures made by the Company's customer base.
Gross profit for the period increased to $1,579,413, a 0.9% increase
from the previous year. The gross profit margin as a percentage of revenues
declined to 13.2% versus 18.7% in the prior year due to a 53.6% increase in cost
of revenues. The increase in the cost of revenues as a percentage of revenues
was primarily due to the increased use of non-bidded hourly work performed at
pre-determined rates relative to the same period in 1997. Although such work is
guaranteed to the Company and does not involve bidding against competitors, it
is performed at generally less profitable rates that do not allow the Company to
build in a markup on materials at a level comparable to open-bid work.
General and Administrative Expenses for the period declined by 2.0%
compared to the same period last year. The Company made no additions to
personnel in its administrative base during the period. The current general and
administrative support base was generally able to absorb the increased volume
without significant additional expenses.
Operating income increased to $952,511 for the six months ended April
30, 1998, an increase of 2.9% from the same period in 1997. As a percentage of
revenues, operating income decreased to 7.9% from 11.1% in the prior year. On an
absolute basis, the increase in operating income reflects the increase in
revenues for the six months ended April 30, 1998 relative to the same period in
1997. The decline in operating income as a percentage of revenues was due
primarily to the significant increase in the cost of revenues as explained
above.
Interest expense decreased by 41.8% to $20,429 during the period from
$35,091 in the prior year, reflecting a decrease in notes payable. The Company
increased the use of capital leases versus the outright purchase of equipment
financed with bank debt.
Comparison of the Years Ended November 2, 1996 and November 1, 1997
Total revenues in 1997 increased 60.4% or $7,298,763 from the previous
fiscal year. This increase is attributable to growth in all of the Company's
operating divisions, with the largest increase in Engineering Division revenues.
The Company experienced greater demand for its services consistent with the
general increase in capital spending made by oil and gas companies during the
year.
Gross profit for 1997 increased 129.6% over 1996, reflecting the higher
sales volume in 1997. Gross margin increased from 10.7% in 1996 to 15.4% in
1997. The increased demand for the Company's services allowed the Company to be
more aggressive in its bidding, and this condition allowed the Company to be
awarded bids with higher markups for its cost of services.
General and administrative expenses increased by 64.4% from $1,296,145
in 1996 to $1,997,914 in 1997, reflecting the increase in revenues. As a
percentage of revenues, these expenditures were relatively stable at 10.3% in
1997 versus 10.1% in 1996.
Interest expense decreased by 28.6% from $80,702 in 1996 to $57,632 in
1997, reflecting a decrease in notes payable. The Company increased the use of
capital leases versus the outright purchase of equipment financed with bank
debt.
Prior to this offering, the Company was privately held. The Company
reduced income by declaring and paying bonuses to its employees. Net earnings
for 1997 were reduced by bonuses of $565,710 ($857,135 before tax benefit of
$291,425), and are included in Costs of Services and General and Administrative
Expenses.
Liquidity and Capital Resources
The Company has financed its working capital requirements through the
use of bank debt and related party operating leases. Since 1994, the Company has
increased the use of related party operating leases versus bank debt as a mean
of financing its equipment. Going forward, management anticipates that it will
use similar operating leases to replace notes payables as they mature.
As of April 30, 1998, the Company had a $2,000,000 working capital
credit facility with a bank . The facility is secured by accounts receivable. As
of April 30, 1998, the credit facility had an outstanding balance of $200,000
and available credit of $1,800,000. The Company is currently in compliance with
all of the loan covenants governing the credit facility.
As of April 30, 1998, the Company had working capital of $3,130,553 and
a working capital ratio of 2.3 times. Cash from operations for the fiscal year
ended November 1, 1997 was $1,485,724, compared to $64,682 during the same
period in 1996. The change is due to the increase in net income and changes in
current assets and liabilities.
The Company's cash requirements for fiscal 1998 and in the future will
depend upon the level of sales, acquisitions, sales and marketing expenditures
and capital expenditures. The Company believes that the net proceeds from this
offering, the use of operating leases, and anticipated revenue from operations
should be adequate for the Company's working capital requirements over the
course of the next twelve months. In the event that the Company's plans or
assumptions change or if its requirements to meet unanticipated changes in
business conditions or the proceeds of this offering prove to be insufficient to
fund operations, the Company could be required to seek additional financing
prior to such time.
Accounting Standards
The Financial Accounting Standards Board ("FASB") periodically issues
statements of financial accounting standards. In April 1997, FASB issued
Statement of Financial Accounting Standards (SFAS) No. 128. The new standard
replaces primary and fully diluted earnings per share with basic and diluted
earnings per share. SFAS No. 128 is required to be adopted by the Company in the
year ending November 1, 1998. Had the Company been required to adopt SFAS No.
128 for the periods presented, the adoption would not have impacted reported
earnings per share.
In June 1997, the FASB issued SFAS No. 130 and 131. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. SFAS No. 131 establishes standards for reporting about operating
segments, products and services, geographic areas, and major customers. The
standards become effective for fiscal years beginning after December 15, 1997.
Management plans to adopt these standards in the year ending November 1, 1999.
Management believes that provisions of SFAS No. 130 and 131 will not have a
material effect on its financial condition or reported results of operation.
In February 1998, the Financial Accounting Standards Board issued SFAS
132, Employers' Disclosures about Pensions and Other Postretirement Benefits -
An Amendment of FASB Statements No. 87,88, and 106. This Statement revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. Rather, it
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful. This Statement becomes effective February 1998, for the Company, and the
Company believes it will not have a material effect on its financial condition
or results of operations.
<PAGE>
BUSINESS
General
The Company was organized in May 1998 to acquire all of the outstanding
stock of Construction.
The Company specializes in pipeline construction, plant construction,
and engineering services. These services are used by municipal and state
governments, commercial and industrial building sites, and residential,
commercial, and industrial subdivisions. The majority of the Company's business
is transacted in the state of Texas although the Company performs work in
adjoining states and is authorized to do business in other states that have
activities relating to the oil and gas industry, particularly in the
southeastern and southwestern parts of the country. The Company's operations are
separated into three divisions.
The Industry
The Company's success is directly related to the demand for fuel and
the repair and maintenance of existing pipelines. Originally the Company focused
on plant and pipeline activities for the oil and gas industry. While customers
in the oil and gas industry continue to contribute a majority of the Company's
revenues, the Company has recently expanded into utilities, including the
construction of water, sanitary sewer, and storm and drainage systems.
Industry sources estimate that worldwide pipeline construction will be
23,232 miles for 1998, a 9.0% increase from the 20,465 miles built in 1997. This
above-average increase in pipeline construction is primarily due to domestic and
Canadian operating companies and producers planning to re-configure the North
American network to move natural gas to East Coast markets.
Outside the United States, total pipeline construction surpassed
original 1997 estimates, reaching 13,867 miles. Industry sources project that
international construction in 1998 will increase 8.8% to 15,091 miles of
pipeline. For example, competition in Europe for traditional gas markets is
spurring additional construction by established and new gas companies in an
effort to secure growth in established and new markets.
Strategy
The Company's strategy will be to capitalize on the demand for oilfield
construction and engineering services by continuing to expand its workforce and
geographic presence in the marketplace. To accomplish these objectives, the
Company intends to (i) continue to enhance its new employee hiring, training and
retention policies as a method of attracting, training and retaining new, highly
skilled workers, and (ii) to seek to acquire other companies engaged in the
engineering and construction of pipeline and plants that have good reputations
for quality service and highly skilled workers.
The Plant Division
The Plant Division constructs plant facilities for the oil and gas
industry. Typical projects for this division include : mainline gas compressor
stations, which include multiple 1000 plus horsepower compressor units,
associated equipment and piping systems, that are used in the transportation of
natural gas through the country's gas pipeline system; petroleum product pump
stations, consisting of the installation of electrically driven pumps and
related equipment and piping systems that pump petroleum liquids such as
gasoline, jet fuel and propane through pipeline systems from refineries to sales
outlets; and oil production facilities, where crude oil is gathered and
processed before shipment through pipelines. Due to the mature nature of this
industry, most of the division's projects involve modifications or additions to
existing facilities. The division's projects generally consist of earthwork,
concrete foundations, equipment installations, piping system fabrication and
installation and electrical instrumentation systems. Most of the projects are in
Texas, New Mexico, Oklahoma and Louisiana.
The Pipeline Division
The Pipeline Division provides a variety of construction services. The
division's primary emphasis has been on the construction of, cross-country,
mainline pipelines for the natural gas industry, but as this industry has
matured and the demand for new pipelines has diminished, the division has
diversified into other related areas of pipeline construction. The installation
of gas gathering lines that connect new gas wells to a mainline are a
significant portion of this division's work. Increases in the drilling of gas
wells in the West Texas area have provided an increase in the division's
business. The division also installs high pressure pipelines used to inject
water and carbon dioxide into existing wells to enhance the production of mature
oil fields such as those found in West Texas. The division also constructs the
associated gathering systems, using pipe capable of withstanding the corrosive
nature of the produced water, carbon dioxide and oil mixture. The repair and
upgrade of existing pipelines has become a substantial portion of the division's
work as government regulations for maintenance of older pipelines have been
initiated. The division also performs small plant and compressor installation
work for certain clients, and utility work that includes the installation of
water, sewer and drainage lines for local area municipalities and developers.
The division also provides utility construction services for government
entities and private developers. This work includes the installation of water
pipelines, sewer pipelines, storm sewers lines, highway drainage projects and
gas distribution systems. The Company recently acquired the equipment and
technology for trenchless pipeline installation which offers new and additional
opportunities for expansion of this division's capabilities.
The Company plans to increase the capabilities of this division by
opening a new office in Austin, Texas to expand its work in commercial and
industrial concrete projects such as highways and bridges, drainage facilities
and related work and has assigned an experienced supervisor to head this office.
The Company's first successful bid in this area was a $250,000 dam repair
project.
The Engineering Division
The Engineering Division provides design, drafting, project management
and construction services for the oil and gas industry. The emphasis for the
division is on the engineering and construction of gas plant modifications and
gas compressor installations. The division has particular expertise in the area
of acid gas removal and handling, which involves the removal of hydrogen
sulfide, a poisonous and highly corrosive gas that occurs in natural gas, from
the gas stream of certain production facilities. The division performs some
"engineering-only" projects, but emphasizes projects that include engineering,
procurement, project management and construction work. The Company intends to
expand this division through the hire of a process engineer to enable the
Company to provide design services for more complicated process systems in gas
and chemical plants and refineries.
Recent Developments
Demand for the Company's services continues to be strong. The Company
has a current backlog of approximately $2,500,000.
The Company believes the growth in demand for pipeline construction,
plant construction, and engineering services will continue as the industry
continues to expand due to regulatory changes, new technology, global demand
dynamics, and new trends in the oil and gas industry. Recently, government
regulations regarding the maintenance of older pipelines have been enhanced.
Stricter regulatory guidelines provide further opportunities for the Company in
the repair and upgrade of existing pipelines. Because of environmental concerns,
the demand for natural gas as a clean-burning fuel has increased the need for
natural gas pipeline construction.
Recent technological developments in the area of trenchless-technology
pipe installation methods have opened new markets for pipeline engineering
services. For example, a new process involving the injection of liquid resin
into existing pipelines has recently been developed as a procedure to repair
existing pipelines. The technology relies extensively on pipeline engineering
services similar to the Company's activities. This procedure is typically
performed on smaller pipelines not typical to the Company's existing work base,
and it has therefore opened a new niche for the Company's services.
Requirements of the Department of Transportation and technological
innovations in the area of testing are expected to lead to increased spending on
pipeline maintenance and repair. An increasing number of pipelines are using
"smart pig" technology to inspect for pipeline damage, including loss of wall
thickness and signs of general wear. This technology involves inserting an
electronic device (the "pig") into the pipeline that travels the length of the
pipe to detect anomalies. Although these inspection vehicles have been in use
since 1965, it has only been recently that improvements in sensors and computing
power have allowed pigs to detect other types of defects such as cracks, coating
disbondment, dents and gouges. This process has been able to detect pipeline
defects with greater accuracy than traditional methods of detection such as
hydrotesting. Increased use of "smart pig" technology could increase the level
of pipeline repair and maintenance expenditures, and thereby increase demand for
pipeline construction and engineering services.
Companies in the oil and gas industry have tended to limit their
management and engineering staffs to compensate for the cyclicality of the
industry. For example, when oil prices are below their historical levels, oil
and gas companies tend to decrease their capital expenditures. Companies have
tended to utilized outside engineering and construction firms rather than employ
full time staffs of their own. This trend has increased the demand for
third-party engineering and construction services.
Marketing
A substantial portion of the Company's business is from repeat
customers and referrals. Approximately half of the Company's work is obtained
through the open bid process, although more recently a substantial number of
projects have been negotiated contracts. The Company utilizes a full time
marketing employee to search for potential work opportunities and also utilizes
its officers and project managers to call on repeat customers who are often
large oil and gas companies with changing personnel.
Worker Safety
Worker safety is an important part of the construction business. The
Company's oil and gas clients require that their contractors maintain a good
safety record. The Company believes that its safety training program and safety
record are well recognized in the industry. In two of the last five years (1994
and 1995) the company had no lost time because of accidents and in 1993 and 1994
completed over 1,300,000 man hours of work with no injuries.
Competition
The general pipeline construction, replacement, rehabilitation and
repair business is highly competitive. The Company faces conceptual and
practical competition both from a number of contractors employing traditional
methods of pipeline construction, replacement and repair and from contractors
offering alternative trenchless products and technologies. Management is unaware
of any publicly-held comparable companies that are direct competitors.
Nonetheless, there could be privately-held competitors with financial resources
substantially greater than these of the Company.
Regulation; General
The transportation of oil and gas through pipelines is regulated by the
Federal Energy Regulatory Commission ("FERC"). Through the current
rate-of-return policy, the FERC regulates the allowed return on pipeline
investments. Historically, the FERC has determined the allowed investment return
on a case-by-case basis. If the current regulatory environment as administered
by the FERC were to become more stringent in establishing return criteria, it
could reduce the appeal of such pipeline investments. This situation could
reduce the growth opportunities in the industry, and thereby reduce the demand
for the Company's services. There can be no assurance that the FERC will not
adopt or change regulations or take other actions that would adversely affect
the industry and the Company's business, financial condition and results of
operations.
Regulation; Environmental
The Company is subject to numerous laws and regulations governing the
discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations may require the acquisition
of a permit before installing pipelines, restrict the types, qualities and
concentration of various substances that can be released into the environment in
connection with installation and repair activities, limit or prohibit
installation activities on certain lands lying within wilderness, wetlands and
other protected areas, and impose substantial liabilities for pollution
resulting from the Company's operations. Moreover, the recent trend toward
stricter standards in environmental legislation and regulation is likely to
continue. Although the Company attempts to pass on such costs to its customers
in its billings, such standards could have an impact on the operating costs of
the Company.
Customers
The Company's customers are concentrated in the oil and gas industry. Sales
to customers in the oil and gas industry accounted for 78% of the Company's
revenues during the fiscal year ended November 1, 1997. The Company is also
dependent on a core of customers for the majority of its revenues. Sales to two
customers accounted for 37.5% of total revenues in 1997. As of November 1, 1997,
three customers accounted for 64% of the Company's accounts receivable. The
Company expects that sales to relatively few customers will continue to account
for a high percentage of its net sales in the foreseeable future and believes
that its financial results will depend, in significant part, upon the success of
these few customers. The loss of a significant customer or any reduction in
orders by any significant customers, including reductions due to economic and
pricing conditions in the oil and gas industry, may have a material adverse
effect on the Company's business, financial condition and results of operations.
Employees
At June 30, 1998, the Company had approximately 228 employees including
4 executive and 15 administrative personnel. The Plant Division and the
Engineering Division each employ approximately 50 employees, the Pipeline
Division employs approximately 109 full-time field construction workers and 50
temporary workers. The number of employees in the Plant, Engineering and
Pipeline Divisions may vary depending on the work load but generally run between
200 to 250. None of the Company's employees are covered by a collective
bargaining agreement and the Company considers its relations with its employees
to be good.
Property
The Company leases a 38,000 square foot office and shop facility on
approximately six acres of land in Odessa, Texas from an unaffiliated third
party at an annual rental of $18,000, plus utilities and taxes. The original
lease term was for a term of five years ending April 1, 1997, but has been
extended for an additional five years under the terms of the lease. The Company
deems this facility adequate for its needs for at least several years.
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the
Company's directors and executive officers:
Name Age Position
Sam E.Holloman 68 Chairman of the Board
John E. Holdridge 59 President, Chief Executive
Officer and Director
Mark E. Stevenson 43 Executive Vice President,
Chief Operating
Officer and Director
Peter Lucas 44 Senior Vice President,
Chief Financial Officer,
Secretary, Treasurer and
Director
Sam E. Holloman founded Construction in 1967 and, as President and
Chairman of the Board of Construction and Manager of Leasing, managed the growth
and development of the business. He was elected a Director and Chairman of the
Company in May 1998. Mr. Holloman has 47 years of experience in the oil field
construction industry. Prior to the founding of Construction, he was a partner
in another utility and oil field construction company from 1960 to 1967. Prior
to 1967, he had ten years experience with other construction companies in the
Permian Basin. He studied business at Sul Ross University and University of
Texas of the Permian Basin.
John E. Holdridge was elected a Director and President and Chief
Executice Officer of the Company in May 1998 He also serves as Chairman of
Odessa Babbitt Bearing Company ("OBBCO"), and previously served as President of
that company from 1963 to 1992. OBBEC is a bearing manufacturing company
headquartered in Odessa, Texas. During his tenure at OBBCO, Mr. Holdridge was
responsible for the purchase and sale of several companies including D&F Machine
(1973-1981), Zimco Electric Corporation (1975-1988), and Westfork Developement
Company (1975-1980). He has broad experience in various phases of the oil and
gas industry.
Mark E. Stevenson was elected Executive Vice President and Chief
Operating Officer of the Company in May 1998. From 1983 to present he has been
Vice President and General Manager of the Pipeline Division. Mr. Stevenson
received a BS in Engineering Technology, focusing on Construction Management,
from Texas Tech University in 1976.
Peter Lucas was elected Senior Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company in May 1998. Since April 1997 he has
served as Senior Vice President and Chief Financial Officer of Westower
Corporation. From August 1995 to April 1997, Mr. Lucas served as Chief Financial
Officer of Cotton Valley Resources Corporation, a Dallas based public oil and
gas company. From May 1992 to July 1995, he served as Chief Financial Officer of
Canmax Inc., a Dallas based public company that develops software for gas
stations and convenience stores. Mr. Lucas is a member of the Canadian Institute
of Chartered Accountants. He received his professional training at Coopers &
Lybrand, which he left in 1984 to form his own tax practice. Six years later,
Mr. Lucas's practice merged with Coopers & Lybrand, with whom he was a partner
until 1992. Mr. Lucas passed the AICPA reciprocity examination in 1993, and is
experienced in domestic taxation, accounting and securities matters. He received
a bachelor of commerce degree from the University of Alberta in 1978.
Directors of the Company are elected at each annual meeting of shareholders. The
officers of the Company are elected annually by the Board of Directors. Officers
and directors hold office until their respective successors are elected and
qualified or until they're earlier resignation or removal. Outside Directors
The Company has agreed to appoint two directors who are not officers, employees
or 5% shareholders or related to an officer, employee or 5% shareholder upon
conclusion of the offering. One of those directors will be appointed by the
Representatives of the Underwriters. The other director has not been selected.
Compensation of Directors
Directors who are employees of the Company will not receive any remuneration in
their capacity as directors. Outside directors will receive $12,000 annually,
and $500 per meeting attended and related travel
expenses.
Indemnification and Limitation on Liability
If available at reasonable cost, the Company intends to maintain
insurance against any liability incurred by its officers and directors in
defense of any actions to which they are made parties by any reason of their
positions as officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to its Articles of Incorporation and By-laws, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Executive Compensation
The following table sets forth the compensation awarded to, earned by,
or paid to Sam Holloman and all executive officers (the "Named Executive
Officers")who earned over $100,000 for services rendered to Construction delete
for the fiscal years ended November 2, 1997, November 1, 1996, and October 28,
1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Annual Compensation All Other
Principal Position Fiscal Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Sam Holloman November 2, 1997 $166,080 $500,000 -
Chief Executive Officer November 1, 1996 90,000 0 -
October 28, 1995 79,800 27,534- -
Mark Stevenson
Vice President November 2, 1997 $ 70,000 $83,000 -
</TABLE>
Prior to this offering, the Company was a privately held corporation and
distributed much of its income to shareholders by way of bonuses for income tax
planning purposes. In the future, the Company intends to compensate its officers
in accordance with the recommendations of a compensation committee consisting
entirely of
outside directors.
Employment Agreements
The Company has no employment agreements.
Stock Option Plan
The 1998 Stock Option Plan, (the "Stock Option Plan") provides for the
grant to employees, officers, directors, and consultants to the Company or any
parent, subsidiary or affiliate of the Company of up to 240,000 shares of the
Company's Common Stock, subject to adjustment in the event of any subdivision,
combination, or reclassification of shares. The Stock Option Plan will terminate
in 2008. The Stock Option Plan provides for the grant of incentive stock options
("ISO's") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and non-qualified options at the discretion of the Board of
Directors or a committee of the Board of Directors (the "Committee"). The
exercise price of any option will not be less than the fair market value of the
shares at the time the option is granted. The options granted are exercisable
within the times or upon the events determined by the Board or Committee set
forth in the grant, but no option is exercisable beyond ten years from the date
of the grant. The Board of Directors or Committee administering the Stock Option
Plan will determine whether each option is to be an ISO or non-qualified stock
option, the number of shares, the exercise price, the period during which the
option may be exercised, and any other terms and conditions of the option. The
holder of an option may pay the option price in (1) cash, (2) check, (3) other
shares of the Company, (4) authorization for the Company to retain from the
total number of shares to be issued that number of shares having a fair market
value on the date of exercise equal to the exercise price for the total number
of shares, (5) irrevocable instructions to a broker to deliver to the Company
the amount of sale or loan proceeds required to pay the exercise price, (6)
delivery of an irrevocable subscription agreement for the shares which
irrevocably obligates the option holder to take and pay for shares not more than
12 months after the date of the delivery of the subscription agreement, (7) any
combination of the foregoing methods of payment, or (8) other consideration or
method of payment for the issuance of shares as may be permitted under
applicable law. The options are nontransferable except by will or by the laws of
descent and distribution. Upon dissolution, liquidation, merger, sale of stock
or sale of substantially all assets, outstanding options, notwithstanding the
terms of the grant, will become exercisable in full at least 10 days prior to
the transaction. The Stock Option Plan is subject to amendment or termination at
any time and from time to time, subject to certain limitations. The plan is
administered by the Compensation Committee of the Board of Directors, which is
composed entirely of directors who are "disinterested persons" as defined in
Rule 16b-3 of the Securities Exchange Act of 1934, as amended.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership as of May 31, 1998 of the Common Stock by (a) each person
known by the Company to be a beneficial owner of more than 5% of the outstanding
shares of Common Stock, (b) each director of the Company, (c) each Named
Executive Officer, and (d) all directors and executive officers of the Company
as a group. Unless otherwise noted, each beneficial owner named below has sole
investment and voting power with respect to the Common Stock shown below as
beneficially owned by him. The table assumes the issuance of 200,000 shares to
the Sellers to consummate the Acquisition.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering After Offering
Name and Address of Number of Percent Number of Percent
Beneficial Owner Shares Owned Owned Shares Owned Owned
<S> <C> <C> <C> <C>
Sam E. Holloman (1) 200,000 - 200,000 8.3%
John E. Holdridge (1) 57,600 4.1 57,600 2.4
Peter Lucas (2) 100,000 7.1 100,000 4.2
Mark E. Stevenson (1) - - - - -
Peter Jeffrey Family Trust (3) 100,000 7.1 100,000 4.2
Calvin J. Payne Family Trust (4) 100,000 7.1 100,000 4.2
S. Roy Jeffrey Family Trust (5) 100,000 7.1 100,000 4.2
Revere Financial Group, Inc. (6) 160,000 11.4 160,000 6.7
Robert A. Shuey, III (7) 80,000 5.7 80,000 3.3
John J. Gorman (7) 80,000 5.7 80,000 3.3
Maurice J. Bates (8) 80,000 5.7 80,000 3.3
All Executive Officers and Directors
as a group (4 persons) 357,600 25.5% 357,600 14.9%
</TABLE>
- -----------
(1) The addresses of Messrs. Holloman, Holdridge and Stevenson is 5257 West
Interstate 20, Odessa, Texas 79769.
(2) The address of Mr. Lucas is 670 South Pekin Road, Woodland Washington 98674.
Includes 100,000 shares held by the Lucas
Family Trust, beneficial ownership of which is disclaimed by Mr. Lucas.
(3) The address of Peter Jeffrey is P. O. Box 390 Thorsby, Alberta, Canada TOC
OVO.
(4) The address of Mr. Payne is 5264 Drayton Harbour Road, Blaine, Washington
98230.
(5) The address of S. Roy. Jeffrey is 18375-67 Avenue, Surrey, British Columbia,
Canada V3S 8E7.
(6) The address of Revere Financial Group, Inc. is 8214 Westchester, Dallas,
Texas,75225.
(7) The address of Messrs. Shuey, III and. Gorman is Two Cielo Center, 1250
Capitol of Texas Hwy, South, Suite 500 Austin, Texas 78746.
(8) The address of Mr. Bates is 8214 Westchester, Dallas, Texas 75225.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At the Closing, the Company will use a portion of the proceeds
of this offering to consummate the Acquisition of Construction. The Company will
pay Mr. Holloman and the other Sellers $6,000,000 cash from the net proceeds of
the offering and issue to Mr. Holloman and the Sellers 200,000 shares of Common
Stock. In exchange therefore, the Sellers will deliver to the Company all of the
outstanding common stock of Construction.
See "The acquisition."
The Company leases substantially all of the equipment used in its business from
T. Sisters Leasing, L. L. C. ("Leasing"), a Texas limited liability company
owned directly and indirectly by Mr. Holloman. For the 12 months ended December
31, 1996 and December 31, 1997 and the six months ended June 30, 1998, the
Company paid Leasing $210,113, $395,506 and $360,605, respectively for the lease
of the equipment. The Company believes that the rental is on terms at least as
favorable as it could obtain from an independent leasing company.
<PAGE>
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of Common Stock and one Warrant. The Shares and
the Warrants included in the Units may not be separately traded until January
15, 1999, unless earlier separated upon ten day's written notice from the
Representatives to the Company.
Common Stock
The Company is authorized to issue 20,000,000 shares of Common Stock,
$0.01 par value. As of June 24, 1998 there were 1,200,000 shares of Common Stock
issued. There were 16 holders of record of the Common Stock. The holders of the
Common Stock are entitled to share ratably in any dividends paid on the Common
Stock when, as and if declared by the Board of Directors out of legally
available funds. Each holder of Common Stock is entitled to one vote for each
share held of record. The Common Stock is not entitled to cumulative voting or
preemptive rights and is not subject to redemption. Upon liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in the net assets legally available for distribution.
All outstanding shares of Common Stock are fully paid and non-assessable.
Warrants
The Warrants will be issued in registered form under, governed by, and
subject to the terms of a warrant agreement (the "Warrant Agreement") between
the Company and American Stock Transfer & Trust Company as warrant agent (the
"Warrant Agent"). The following statements are brief summaries of certain
provisions of the Warrant Agreement. Copies of the Warrant Agreement may be
obtained from the Company or the Warrant Agent and have been filed with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part.
Each Warrant entitles the holder thereof to purchase at any time one
share of Common Stock at an exercise price of $12.00 per share at any time after
the Common Stock and Warrants become separately tradable until _______, 2003.
The right to exercise the Warrants will terminate at the close of business on
______, 2003. The Warrants contain provisions that protect the Warrant holders
against dilution by adjustment of the exercise price in certain events,
including but not limited to stock dividends, stock splits, reclassification or
mergers. A Warrant holder will not possess any rights as a shareholder of the
Company. Shares of Common Stock, when issued upon the exercise of the Warrants
in accordance with the terms thereof, will be fully paid and non-assessable.
Commencing twelve months after the date of this Prospectus, the Company
may redeem some or all of the Warrants at a call price of $0.05 per Warrant,
upon thirty (30) day's prior written notice if the closing sale price of the
Common Stock on the American Stock Exchange has equaled or exceeded $20 for ten
(10) consecutive days.
The Warrants may be exercised only if a current prospectus relating to
the underlying Common Stock is then in effect and only if the shares are
qualified for sale or exempt from registration under the securities laws of the
state or states in which the purchaser resides. So long as the Warrants are
outstanding, the Company has undertaken to file all post-effective amendments to
the Registration Statement required to be filed under the Securities Act, and to
take appropriate action under federal law and the securities laws of those
states where the Warrants were initially offered to permit the issuance and
resale of the Common Stock issuable upon exercise of the Warrants. However,
there can be no assurance that the Company will be in a position to effect such
action, and the failure to do so may cause the exercise of the Warrants and the
resale or other disposition of the Common Stock issued upon such exercise to
become unlawful. The Company may amend the terms of the Warrants, but only by
extending the termination date or lowering the exercise price thereof. The
Company has no present intention of amending such terms. However, there can be
no assurances that the Company will not alter its position in the future with
respect to this matter. Transfer Agent and Registrar
If the Securities are accepted for trading on the American Stock
exchange, the Transfer Agent and Registrar for the Units, the Common Stock and
the Warrants will be American Stock Transfer & Trust Company, 40 Wall Street,
New York, New York 10005.
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 2,400,000
shares of Common Stock issued and outstanding. Of these shares, the 1,000,000
shares sold in this offering (1,150,000 if the over-allotment option is
exercised in full) will be freely tradable in the public market without
restriction under the Securities Act, except shares purchased by an "affiliate"
(as defined in the Securities Act) of the Company. The remaining 1,400,000
shares, including the 200,000 shares issued to the Sellers at the Closing in
connection with the Acquisition, (the "Restricted Shares"), will be "restricted
shares" within the meaning of the Securities Act and may be publicly sold only
if registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as those provided by Rule 144 under the
Securities Act.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) is entitled to sell Restricted Shares if at
least one year has passed since the later of the date such shares were acquired
from the Company or any affiliate of the Company. Rule 144 provides, however
that within any three-month period such person may only sell up to the greater
of 1% of the then outstanding shares of the Company's Common Stock
(approximately 24,000 shares following the completion of this offering) or the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding the date on which the notice of the sale is
filed with the Commission. Sales pursuant to Rule 144 also are subject to
certain other requirements relating to manner of sale, notice of sale and
availability of current public information. Any person who has not been an
affiliate of the Company for a period of 90 days preceding a sale of Restricted
Shares is entitled to sell such shares under Rule 144 without regard to such
limitations if at least two years have passed since the later of the date such
shares were acquired from the Company or any affiliate of the Company. Shares
held by persons who are deemed to be affiliated with the Company are subject to
such volume limitations regardless of how long they have been owned or how they
were acquired.
After this offering, executive officers, directors and senior
management will own 357,600 shares of the Common Stock. The Company's
shareholders and directors and the Sellers will enter into an agreement with the
Representatives providing that they will not sell or otherwise dispose of any
shares of Common Stock held by them for a period of one year after the date of
this Prospectus without the prior written consent of the Representatives.
The Company can make no prediction as to the effect, if any, that offer
or sale of these shares would have on the market price of the Common Stock.
Nevertheless, sales of significant amounts of Restricted Shares in the public
markets could adversely affect the fair market price of Common Stock, as well as
impair the ability of the Company to raise capital through the issuance of
additional equity securities.
<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions contained in the
Underwriting Agreement, the Company has agreed to sell to the Underwriters named
below, and each of the Underwriters, for whom Capital West Securites, Inc(the
"Representatives") are acting as Representatives, have severally agreed to
purchase the number of Units set forth opposite its name in the following table.
Underwriters Number of Units
Capital West Securities
Total..................................... 1,000,000
=========
The Representatives have advised the Company that the Underwriters
propose to offer the Units to the public at the initial public offering price
per share set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession of not more than $___ per Unit, of which $____
may be reallowed to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable
during the 45-day period after the date of this Prospectus, to purchase up to
150,000 additional Units to cover over-allotments, if any, at the same price per
share as the Company will receive for the 1,000,000 Units that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional Units that the number of
Units to be purchased by it shown in the above table represents as a percentage
of the 1,000,000 Units offered hereby. If purchased, such additional Units will
be sold by the Underwriters on the same terms as those on which the 1,000,000
Units are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
The holders of approximately 1,400,000 shares of the Common Stock after
the offering have agreed with the Representatives that, until one year after the
date of this Prospectus, subject to certain limited exceptions, they will not
sell, contract to sell, or otherwise dispose of any shares of Common Stock, any
options to purchase shares of Common Stock, or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock, owned directly by
such holders or with respect to which they have the power of disposition,
without the prior written consent of the Representatives. Substantially all of
such shares will be eligible for immediate public sale following expiration of
the lock-up periods, subject to the provisions of Rule 144. In addition, the
Company has agreed that until 365 days after the date of this Prospectus, the
Company will not, without the prior written consent of the Representatives,
subject to certain limited exceptions, issue, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock, any options to purchase any
shares of Common Stock or any securities convertible into, exercisable for or
exchangeable for shares of Common Stock other than the Company's sales of shares
in this offering, the issuance of Common Stock upon the exercise of outstanding
options or warrants or the issuance of options under its employee stock option
plan. See "Shares Eligible for Future Sale."
The Underwriters have the right to offer the Securities offered hereby
only through licensed securities dealers in the United States who are members of
the National Association of Securities Dealers, Inc. and may allow such dealers
such portion of its ten (10%) percent commission as the Underwriters may
determine.
The Underwriters will not confirm sales to any discretionary accounts
without the prior written consent of their customers.
The Company has agreed to pay the Representatives a non-accountable
expense allowance of 2.00% of the gross amount of the Units sold ($200,000 on
the sale of the Units offered) at the closing of the offering. The Underwriters'
expenses in excess thereof will be paid by the Representatives. To the extent
that the expenses of the underwriting are less than that amount, such excess
shall be deemed to be additional compensation to the Underwriters. In the event
this offering is terminated before its successful completion, the Company may be
obligated to pay the Representatives a maximum of $25,000 on an accountable
basis for expenses incurred by the Underwriters in connection with this
offering.
The Company has agreed that for a period of five years from the closing
of the sale of the Units offered hereby, it will nominate for election as a
director a person designated by the Representative, and during such time as the
Representatives have not exercised such right, the Representatives shall have
the right to designate an observer, who shall be entitled to attend all meetings
of the Board and receive all correspondence and communications sent by the
Company to the members of the Board. The Representatives have not yet identified
to the Company the person who is to be nominated for election as a director or
designated as an observer.
The Underwriting Agreement provides for indemnification among the
Company and the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. In addition, the Underwriters' Warrants
provide for indemnification among the Company and the holders of the
Underwriters' Warrants and underlying shares against certain civil liabilities,
including liabilities under the Securities Act, and the Exchange Act.
Underwriters' Warrants
Upon the closing of this offering, the Company has agreed to sell to
the Underwriters for nominal consideration, the Underwriters' Warrants. The
Underwriters' Warrants are exercisable at 120% of the public offering price for
a four-year period commencing one year from the effective date of this offering.
The Underwriters' Warrants may not be sold, transferred, assigned or
hypothecated for a period of one year from the date of this offering except to
the officers of the Underwriters and their successors and dealers participating
in the offering and/or their partners or officers. The Underwriters' Warrants
will contain antidilution provisions providing for appropriate adjustment of the
number of shares subject to the Warrants under certain circumstances. The
holders of the Underwriters' Warrants have no voting, dividend or other rights
as shareholders of the Company with respect to shares underlying the
Underwriters' Warrants until the Underwriters' Warrants have been exercised.
The Company has agreed, during the four year period commencing one year
from the date of this offering, to give advance notice to the holders of the
Underwriters' Warrants or underlying securities of its intention to file a
registration statement, other than in connection with employee stock options,
mergers, or acquisitions, and in such case the holders of the Underwriters'
Warrants and underlying securities shall have the right to require the Company
to include their securities in such registration statement at the Company's
expense.
For the term of the Underwriters' Warrants, the holders thereof will be
given the opportunity to profit from a rise in the market value of the Company's
shares, with a resulting dilution in the interest of other shareholders. The
holders of the Underwriters' Warrants can be expected to exercise the
Underwriters' Warrants at a time when the Company would, in all likelihood, be
able to obtain needed capital by an offering of its unissued shares on terms
more favorable to the Company than those provided by the Underwriters' Warrants.
Such facts may adversely affect the terms on which the Company can obtain
additional financing. Any profit realized by the Underwriters on the sale of the
Underwriters' Warrants or shares issuable upon exercise of the Underwriters'
Warrants may be deemed additional underwriting compensation.
If the Representatives, at their election, at any time one year after
the date of this Prospectus, solicit the exercise of the Warrants, the Company
will be obligated, subject to certain conditions, to pay the Representatives a
solicitation fee equal to 5% of the aggregate proceeds received by the Company
as a result of the solicitation. No warrant solicitation fees will be paid
within one year after the date of this Prospectus. No solicitation fee will be
paid if the market price of the Common Stock is lower than the then exercise
price of the Warrants, no solicitation fee will be paid if the Warrants being
exercised are held in a discretionary account at the time of exercise, except
where prior specific approval for exercise is received from the customer
exercising the Warrants, and no solicitation fee will be paid unless the
customer exercising the Warrants states in writing that the exercise was
solicited and designates in writing the Representative or other broker-dealer to
receive compensation in connection with the exercise. The Representatives may
reallow a portion of the fee to soliciting broker-dealers.
Determination of Offering Price
The initial public offering price was determined by negotiations
between the Company and the Representatives. The factors considered in
determining the public offering price include the Company's revenue growth since
its organization, the industry in which it operates, the Company's business
potential and earning prospects and the general condition of the securities
markets at the time of the offering. The offering price does not bear any
relationship to the Company's assets, book value, net worth or other recognized
objective criteria of value.
Prior to this offering, there has been no public market for the
Securities, and there can be no assurance than an active market will develop.
American Stock Exchange
The Company intends to apply for listing of the Units, Common Stock and
Warrants on the American Stock Exchange under the trading symbols "HLM.U," "HLM"
and "HLM.WS," respectively. The listing is contingent, among other things, upon
the Company obtaining 400 shareholders.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by Maurice J. Bates L.L.C., Dallas, Texas . Maurice
J. Bates, Esq. owns 80,000 shares of the Company's Common Stock.. Certain legal
matters in connection with the sale of the Securities offered hereby will be
passed upon for the Underwriters by Wolin, Ridley & Miller L.L.P., Dallas,
Texas.
EXPERTS
The financial statements included in this Prospectus, for of the fiscal
ended November 1, 1997 have been included in reliance on the report of Johnson,
Miller, & Company, independent accountants, and for the fiscal year ended
November 2, 1996 have been included in reliance on the report of Green & Frost,
Inc. independent accountants, given on the authority of said firms as experts in
auditing and accounting.
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-1
Consolidated Balance Sheet for the years ended
November 1, 1997 and November 2, 1996. F-2
Consolidated Statements of Earnings for the years
ended November 1, 1997 and November 2, 1996. F-4
Consolidated Statements of Stockholders Equity
for the years ended November 1, 1997 and
November 2, 1996. F-5
Consolidated Statements of Cash Flows for the
Year Ended November 1, 1997 and November 2, 1996. F-6
Notes to Consolidated Financial Statements. F-8
Consolidated Balance Sheet for the
six months ended April 30, 1997 and 1996. F-17
Consolidated Statement of Earnings for the
six months ended April 30, 1997 and 1996. F-19
Consolidated Statements of Stockholders Equity
for the six months ended April 30, 1997 and 1996. F-20
Consolidated Statements of Cash Flows
for the six months ended April 30, 1997 and 1996. F-21
Notes to Consolidated Financial Statements for the
six month period ended April 30, 1997 and 1996. F-22
See accompaning notes to these consolidated finacial statements.
32
<PAGE>
Report of Independent Certified Public Accountants
To the Directors and Stockholders of
Holloman Construction Co.
We have audited the accompanying balance sheet of Holloman Construction Co., a
Texas corporation, as of November 1, 1997 and the related statements of
earnings, stockholders' equity, and cash flows for the period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Holloman Construction Co. as of and for
the period ended November 2, 1996, were audited by other auditors whose report
dated February 10, 1997, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the November 1, 1997 financial statements referred to above
present fairly, in all material respects, the financial position of Holloman
Construction Co. at November 1, 1997, and the results of its operations and cash
flows for the period then ended, in conformity with generally accepted
accounting principles.
Odessa, Texas
January 13, 1998
F-1
<PAGE>
Holloman Construction Co.
BALANCE SHEETS
November 1, 1997 and November 2, 1996
ASSETS
<TABLE>
<S> <C> <C>
1997 1996
CURRENT ASSETS
Cash $ 636,449 14,847
Accounts receivable
Trade (note B) 4,253,273 2,669,749
Employees 62,994 12,680
Current portion of related party notes receivable 38,690 -
Receivable - other (note K) - 302,929
Costs and estimated earnings in excess of billings (note C) 665,358 519,595
Inventories, at lower of cost or market (note A2) 42,165 59,833
Prepaid expenses 74,963 238,698
Total current assets 5,773,892 3,818,331
PROPERTY, PLANT AND EQUIPMENT (notes A4 and F)
Equipment 3,483,992 3,701,162
Leasehold improvements 341,790 341,790
Land 17,217 17,217
3,842,999 4,060,169
Less: accumulated depreciation and amortization 2,885,181 2,818,478
957,818 1,241,691
OTHER ASSETS
Receivable from related parties 192,802 170,913
$ 6,924,512 5,230,935
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
Holloman Construction Co.
BALANCE SHEETS
(CONTINUED)
November 1, 1997 and November 2, 1996
LIABILITIES
<TABLE>
<S> <C> <C>
1997 1996
CURRENT LIABILITIES
Notes payable (note D) $ - 366,125
Current maturities of long-term debt (note E) 148,423 367,218
Accounts payable
Trade 2,091,166 1,476,153
Related party payable 24,218 -
Accrued expenses 725,235 426,076
Accrued expenses, related parties 518,479 -
Federal income tax payable (notes A5 and G) 516,650 45,529
Total current liabilities 4,024,171 2,681,101
LONG-TERM DEBT, less current maturities (note E) 59,700 157,354
DEFERRED INCOME TAXES (notes A5 and G) 70,726 217,534
4,154,597 3,055,989
COMMITMENTS AND CONTINGENCIES (notes F and J) - -
STOCKHOLDERS' EQUITY
Common stock - $1.00 par, 200,000 shares authorized.
85,000 shares issued and outstanding in 1997 and
1996, respectively 85,000 85,000
Retained earnings 2,923,243 2,178,258
3,008,243 2,263,258
Less Treasury shares totaling 7,411 in 1997
and 2,238 in 1996 - at cost (238,328) (88,312)
2,769,915 2,174,946
$ 6,924,512 5,230,935
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Holloman Construction Co.
STATEMENT OF EARNINGS
For the Periods Ended November 1, 1997 and
November 2, 1996,
<TABLE>
<S> <C> <C>
1997 1996
Revenues
Pipeline construction $ 9,974,648 6,762,182
Plant construction 4,057,256 3,568,810
Special projects 5,334,779 1,736,928
Total revenues 19,366,683 12,067,920
Costs of Services and Construction 16,389,974 10,771,775
Gross profit 2,976,709 1,296,145
General and Administrative Expenses 1,997,914 1,215,319
Income from operations 978,795 80,826
Other Income (Expense)
Gain on sale of equipment 35,595 48,774
Interest income 12,581 16,813
Interest expense (57,632) (80,702)
Other income 188,709 228,055
Earnings before income taxes 1,158,048 293,765
Income Tax Expense (Benefit) (notes A5 and G)
Current 559,871 45,529
Deferred (146,808) 60,885
413,063 106,414
NET EARNINGS $ 744,985 187,351
Weighted average common shares outstanding 80,176 82,850
Net earnings per common share $ 9.29 2.26
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Holloman Construction Co.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Periods Ended,
November 1, 1997 and November 2, 1996
<TABLE>
<CAPTION>
Common Stock Retained Treasury
Shares Amount Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Balance at October 29, 1995 85,000 85,000 1,990,907 (81,909) 1,993,998
Net earnings for the fifty-three
week period - - 187,351 -
187,351
Purchase of common stock
for treasury (note I) - - - (6,403) (6,403)
Balance at November 2, 1996 85,000 85,000 2,178,258 (88,312) 2,174,946
Net earnings for the fifty-two
week period - - 744,985 - 744,985
Purchase of common stock
for treasury (note I) - - - (150,016) (150,016)
Balance at November 1, 1997 85,000 $ 85,000 2,923,243 (238,322) (769,915)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Holloman Construction Co.
STATEMENTS OF CASH FLOWS
For the Periods Ended November 1, 1997 and
November 2, 1996
<TABLE>
<S> <C> <C>
1997 1996
Increase (Decrease) in Cash
Cash flows from operating activities
Net earnings $ 744,985 187,351
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 290,421 401,886
(Gain) from sale of assets (35,595) (48,774)
Deferred income tax (benefit) expense (146,808) 60,885
Changes in current assets and current liabilities
(Increase) decrease in accounts receivable, trade (1,583,524) 74,679
(Increase) decrease in receivable from employees (50,314) 1,850
Decrease (increase) in other receivables 302,929 (114,668)
(Increase) in costs and estimated earnings in excess of billings (145,763) (342,329)
Decrease (increase) in inventories 17,668 (46,882)
Decrease (increase) in prepaid expenses 163,735 (238,698)
Increase in accounts payable, trade 639,231 34,682
Increase in accrued expenses 817,638 150,664
(Decrease) increase in federal income tax payable 471,121 (55,964)
Net cash provided by operating activities 1,485,724 64,682
Cash flows from investing activities
Purchase of equipment (43,577) (141,804)
Proceeds from sale of equipment 72,624 99,206
Collections on receivables from related parties and affiliates 246,544 -
Advances to affiliates (307,123) (55,317)
Collections on real estate notes - 14,133
Net cash (used in) provided by investing activities (31,532) 26,852
Cash flows from financing activities
Proceeds from long-term debt borrowings 250,800 366,125
Repayment of long-term debt (933,374) (468,982)
Purchase of treasury stock (150,016) (6,403)
Net cash used in financing activities (832,590) (109,260)
Net increase (decrease) in cash 621,602 (17,726)
Cash, beginning of year 14,847 32,573
Cash, end of year $ 636,449 14,847
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Holloman Construction Co.
STATEMENT OF CASH FLOWS
(CONTINUED)
For the Periods Ended November 1, 1997 and
November 2, 1996
1997 1996
Supplemental Disclosures of Cash Flow Information:
Interest expense $ 57,632 80,702
Income taxes paid $ 88,750 106,796
Supplemental Non-cash Investing and Financing Activities
In 1996, the Company sold selected equipment to an affiliate for $41,731
resulting in the recognition of a $41,731 receivable.
In 1996, the Company exchanged various real estate installment notes
receivable valued at $207,843 for land and leasehold improvements. The property
is capitalized at $207,843. The exchange was made with a related party.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
Holloman Construction Co.
NOTES TO FINANCIAL STATEMENTS
November 1, 1997 and November 2, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Operations
Holloman Construction Co. (the "Company") is a general contractor
specializing in the construction of refineries, pipelines and other
manufacturing plants throughout the United States. The Company's fiscal
year ends on the Saturday closest to October 31. The fiscal year ending
November 1, 1997 is comprised of 52 weeks, and the fiscal year ending
November 2, 1996 is comprised of 53 weeks. 2. Inventories
Inventories consist of small tools, parts, materials and fuel stated
at the lower of cost, as determined using the first-in, first-out method,
or market.
3. Construction in Progress
Unfinished jobs in progress at the end of the year are accounted for
using the percentage of completion method. Under this method profit or loss
is recognized as the job progresses as determined by direct labor hours.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts", represents revenues recognized in excess of amounts
billed. Contract retainage by customers is an asset included in accounts
receivable, while the retainage withheld from subcontractors, suppliers and
materialmen is shown as a liability as part of accounts payable.
The percentage of completion method applies to all bid contract jobs
as well as to those hourly rate jobs which are expected to last more than
six months. Revenue and costs of hourly jobs of less than six months are
recognized as the job progresses.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repair costs and other indirect overhead. Selling, general
and administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions and
estimated profitability, including those arising from contract penalty
provisions and final contract settlements, may result in revisions to costs
and income and are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be
reliably estimated.
F-8
<PAGE>
Holloman Construction Co.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
November 1, 1997 and November 2, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
4. Property, Plant and Equipment
Property, plant and equipment are reported at cost less accumulated
depreciation. Depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets (equipment: 3 to 10
years and leasehold improvements: 6 to 10 years). Major renewals and
betterments are capitalized whereas the cost of repairs and maintenance is
charged to expense as incurred. As assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is reflected in income.
5. Income Taxes
Income taxes have been provided in accordance with the Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Statement No. 109 requires the use of the liability method of accounting
for income taxes. This method accounts for deferred income taxes by
applying statutory tax rates in effect at the balance sheet date to the
temporary differences between the recorded financial statement balances and
the related tax basis of assets and liabilities.
Accordingly, deferred income taxes are provided to reflect the tax
effect of timing differences between financial and tax reporting methods.
These differences result primarily from loss recovery (note G) and
differences between financial and tax basis of property, plant and
equipment and the related depreciation.
6. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to use estimates and
assumptions. Those estimates and assumptions affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities,
and reported revenues and expenses. Actual results could differ from those
estimates.
F-9
<PAGE>
Holloman Construction Co.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
November 1, 1997 and November 2, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
7. Net Income Per Share
Net income per share is based on the weighted average number of shares
outstanding during the period.
8. Cash Equivalents
For purposes of the statement of cash flows, cash includes all of the
Company's cash on hand, cash in the bank, certificates of deposits and
similar instruments, if any, with original maturities of three months or
less.
9. Certain Reclassifications
Certain reclassifications have been made to conform to the 1997 presentation.
NOTE B - ACCOUNTS RECEIVABLE-TRADE
Trade accounts receivable consists of contract receivables as follows:
<TABLE>
<CAPTION>
November 1, November 2,
1997 1996
<S> <C> <C>
Billed on completed jobs $ 1,511,122 1,831,703
Billed on jobs in progress (net of retainage) 2,308,440 768,685
Retainage on jobs in progress 433,711 82,567
Total 4,253,273 2,682,955
Less: Allowance for bad debts - 13,206
Total accounts receivable - trade $ 4,253,273 2,669,749
</TABLE>
F-10
<PAGE>
Holloman Construction Co.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
November 1, 1997 and November 2, 1996
NOTE C - CONSTRUCTION IN PROGRESS
Costs and estimated earnings in excess of billings on uncompleted
contracts at the end of the periods follow:
<TABLE>
<CAPTION>
November 1, November 2,
1997 1996
<S> <C> <C>
Cost incurred on uncompleted contracts 5,635,693 1,173,419
Estimated earnings 1,371,300 197,428
Costs and estimated earnings 7,006,993 1,370,847
Less: Billings to date 6,341,635 851,252
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 665,358 519,595
</TABLE>
NOTE D - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
November 1, November 2,
1997 1996
<S> <C> <C>
Note payable to a bank, interest payable monthly at prime + 1%
secured by equipment, inventory and accounts
receivable, matures August 1997 $ - 200,000
Note payable to an insurance premium finance company, $19,110
payable monthly including interest at 8.40%,
matures August 1997 - 166,125
Total notes payable $ - 366,125
</TABLE>
F-11
<PAGE>
Holloman Construction Co.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
November 1, 1997 and November 2, 1996
NOTE E - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
November 1, November 2,
1997 1996
<S> <C> <C>
Note payable to a bank, at $1,630 per month
including interest at prime + 1.25%, secured
by vehicles, matures December 1999 $ 36,928 -
Note payable monthly to a bank, at $5,465
per month including interest at prime + 1.5%,
secured by vehicles, matures March 2000 97,972 150,929
Note payable monthly to a credit corporation, at
$3,601 per month plus interest at 8.25%,
secured by equipment, matures June 1998 29,613 68,417
Note payable monthly to a bank, at $4,949
per month including interest at prime + 1.5%,
secured by vehicles, matures March 1998 23,610 87,875
Note payable monthly to a bank, at $2,500 per month plus
interest at prime + 1%, secured by equipment and accounts
receivable, matures
May 1998 20,000 50,000
Other - 167,351
208,123 524,572
Less current maturities 148,423 367,218
Net long-term debt $ 59,700 157,354
</TABLE>
F-12
<PAGE>
Holloman Construction Co.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
November 1, 1997 and November 2, 1996
NOTE E - LONG-TERM DEBT (Continued)
The Company's maturities of long-term debt are as follows:
November 1,
1997
Year ending
1998 $ 148,423
1999 57,360
2000 2,340
$ 208,123
NOTE F - LEASE OBLIGATIONS
The Company leases equipment and office space under operating leases
that expire over the next five years. The following is a schedule by year
of future minimum rental payments required under these operating leases as
of November 1, 1997:
<TABLE>
<CAPTION>
Related
<S> <C> <C> <C>
Parties Others Total
Year ending
1998 $ 487,290 32,289 519,579
1999 477,432 26,064 503,496
2000 328,891 24,798 353,689
2001 117,784 21,000 138,784
2002 50,702 8,750 59,452
Totals $ 1,462,098 112,901 1,574,999
</TABLE>
For the periods ended November 1, 1997 and November 2, 1996 the lease
payments under these contracts aggregated $375,206 and $224,000 to related
parties and $48,413 and $35,680 to others, respectively. In addition the
Company has negotiated various other leases for equipment under
month-to-month operating lease agreements. These lease payments aggregated
$491,000 and $712,000 for the years ended November 1, 1997 and November 2,
1996.
F-13
<PAGE>
Holloman Construction Co.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
November 1, 1997 and November 2, 1996
NOTE G - INCOME TAXES
The following is a reconciliation between the Company's effective tax
rate and the U.S. statutory rate:
<TABLE>
<CAPTION>
November 1, November 2,
1997 1996
<S> <C> <C>
Income tax expense at statutory rates $ 393,736 99,880
Permanent differences resulting primarily from
nondeductible expenses 23,763 22,999
Other (4,436) (16,465)
$ 413,063 106,414
</TABLE>
Deferred income tax liability results primarily from differences
between financial and tax basis of property and related depreciation due to
accumulated timing differences in the recognition of expenses for income
tax and financial reporting purposes.
<TABLE>
<CAPTION>
November 1, November 2,
1997 1996
<S> <C> <C>
Excess of financial book value of depreciable
property over tax book value at applicable rates $ 70,726 71,534
Loss recovery (note K) - 146,000
Total deferred income tax payable $ 70,726 217,534
</TABLE>
F-14
<PAGE>
Holloman Construction Co.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
November 1, 1997 and November 2, 1996
NOTE H - MAJOR CUSTOMERS AND RISK CONCENTRATION
During the periods ended November 1, 1997 and November 2, 1996 the Company
recognized revenues of $4,663,000 (21% of total revenues) and $1,385,000 (11.4%
of total revenues) from a customer in the oil and gas exploration and refining
industry and $2,851,000 (14.7% of total revenues) and $1,378,000 (11.4% of total
revenues) from another customer in that industry. Customers in the oil and gas
industry account for 78% of the Company's revenues during the period ended
November 1, 1997.
Including the customers above, the Company recognized revenues of $12,230,000
(63.2% of total revenues) and $6,417,000 (53% of total revenues) from five (5)
customers in 1997 and from six (6) customers in 1996.
The Company grants credit, generally without collateral, to its customers, which
are located primarily within the forty-eight contiguous United States. These
customers are principally involved in production or refining of oil and gas.
Management believes that it's contract acceptance, billing and collection
policies are adequate to minimize potential credit risks. As of November 1,
1997, three (3) customers accounted for 64% of the Company's trade receivables.
At various times during the course of a year, the Company will have cash
deposits with a bank that exceed the Federal Deposit Insurance Corporation's
insurance coverage.
NOTE I - EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company established an Employee Stock Ownership Plan (ESOP) as part of an
employee incentive program. The ESOP plan covers substantially all employees who
meet the eligibility requirements. Participants become fully vested after ten
(10) years of participation. Distribution may be made in cash or in the form of
Company stock with the Company retaining the right of first refusal to buy back
the stock. At October 30, 1993, the ESOP plan was fully funded. The Company set
up a $10,400 contribution payable at November 1, 1997 to reimburse the Plan for
current year plan administration fees.
During the periods ended November 1, 1997 and November 2, 1996, the
following shares of Company stock were purchased:
Number
Year of Shares Cost
1996 173 6,403
1997 5,173 150,016
F-15
<PAGE>
Holloman Construction Co.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
November 1, 1997 and November 2, 1996
NOTE J - CONTINGENCIES
The Company reached an agreement in full settlement of the portion of a lawsuit
brought against it and other defendants by the Texas Workers' Compensation
Insurance Facility. The action was filed in a prior year and involved alleged
errors in the premium computations of covered employees provided to the Company
by an employee leasing company. The settlement amount is included in the
November 2, 1996 financial statements. NOTE K - OTHER DISCLOSURES
In 1996 the Company discovered misappropriations of assets by a former employee.
In May 1997, $538,242 was repaid by that individual. Included in this amount is
$188,261 attributed to years prior to the period ended November 2, 1996 and
accordingly retained earnings at October 29, 1995 were restated net of the
related income tax effects. Restitution of $114,668 was attributed to the period
ended November 2, 1996. These two amounts totalling $302,929 are shown as a
receivable on the balance sheet as of November 2, 1996. The remainder, $235,313,
was attributed to the period ending November 1, 1997. Additionally, other
parties related to the Company recovered from that individual other property
estimated at a value of $565,000. The total amount of the loss to the Company or
its related parties cannot be determined and no further recovery is expected.
F-16
<PAGE>
HOLLOMAN CONSTRUCTION CO.
BALANCE SHEETS
(UNAUDITED)
For the Six Months ended April 30, 1998 and April 30, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $ 327,973 $ 117,100
Accounts Receivable
Trade 4,160,972 2,281,207
Costs and Estimated Earnings
in Excess of Billings 455,992 695,031
Employees (Note D) 20,445 293,180
Other - Related Party 281,126 146,213
Inventories, at lower of cost (principally
first-in, first-out) or market (Note A) 37,319 79,384
Prepaid Expenses 10,655 164,645
------------- -------
TOTAL CURRENT ASSETS 5,294,482 3,776,760
---------- ----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS 3,789,348 4,007,843
Less Accumulated Depreciation and Amortization (2,850,518) (2,901,834)
----------- ----------
NET EQUIPMENT AND LEASEHOLD IMPROVEMENTS 938,830 1,106,009
------------ ---------
TOTAL ASSETS $6,233,312 $4,882,769
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-17
<PAGE>
HOLLOMAN CONSTRUCTION CO.
BALANCE SHEETS - CONTINUED
(UNAUDITED)
For the Six Months ended April 30, 1998 and April 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
------------ -------
<S> <C> <C>
CURRENT LIABILITIES
Notes Payable $ 221,250 200,000
Current Installments of Long-Term Debt 76,577 229,682
Accounts Payable 1,546,875 981,864
Accrued Expenses 506,137 260,462
Federal Income Taxes Payable - Note (A) 398,332 304,092
------- -------
TOTAL CURRENT LIABILITIES 2,749,171 1,976,100
LONG-TERM DEBT 34,587 115,979
DEFERRED INCOME TAXES 70,727 71,534
------------ -----------
TOTAL LIABILITIES 2,854,485 2,163,613
----------- -----------
CONTINGENCIES - Note (C), (D) - -
STOCKHOLDERS' EQUITY
Common Stock of $1.00 Par Value. Authorized 200,000 Shares;
Issued and Outstanding 85,000 Shares 85,000 85,000
Retained Earnings 3,532,155 2,728,703
---------- -----------
3,617,155 2,813,703
Less Treasury Shares at cost (238,328) (94,547)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY 3,378,827 2,719,156
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,233,312 4,882,769
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-18
<PAGE>
HOLLOMAN CONSTRUCTION CO.
STATEMENTS OF EARNINGS
(UNAUIDITED)
For the Six Months ended April 30, 1998 and April 30, 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
REVENUES
Pipeline Construction $ 5,731,686 $ 4,321,871
Plant Construction 2,394,487 2,646,989
Special Projects 3,874,252 1,378,350
--------- ---------
TOTAL REVENUES 12,000,425 8,347,210
COST OF SERVICES AND CONSTRUCTION 10,421,012 6,782,141
----------- ----------
GROSS PROFIT 1,579,413 1,565,069
GENERAL AND ADMINISTRATIVE EXPENSES 626,902 639,649
OTHER INCOME (EXPENSE)
Other Income & Expense (9,488) (56,320)
Interest Expense (20,429) (35,092)
INCOME BEFORE INCOME TAXES 922,594 834,008
INCOME TAX BENEFIT (313,682) (283,563)
NET INCOME (LOSS) $ 608,912 550,445
=========== ==========
Weighted Average Number of Common Shares Outstanding 1,400,000 1,400,000
========= =========
Income Per Common Share $ 0.44 0.39
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-19
<PAGE>
HOLLOMAN CONSTRUCTION CO.
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUIDITED)
For the Six Months ended April 30, 1998 and April 30, 1997
<TABLE>
<CAPTION>
Common Stock
Number Retained Treasury
of Shares Amount Earnings Stock Total
<S> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1997 85,000 $85,000 $2,923,243 $(238,328) $2,769,915
Net Earnings April 30, 1998 - - 608,912 608,912
Purchase of common stock
for Treasury (note B) - - - - -
-------- ---------- -------------- -------------- --------------
BALANCE, APRIL 30, 1998 85,000 85,000 2,178,258 (88,312) 2,174,946
Net Earnings April 30, 1997 - - 550,445 - 550,445
Purchase of common stock
for treasury (note b) - - - (6,235) (6,235)
-------- ---------- -------------- --------- ------------
BALANCE, OCTOBER 28, 1995 85,000 $85,000 $2,728,703 $(94,547) $2,719,156
====== ======= ========== ========= ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-20
<PAGE>
HOLLOMAN CONSTRUCTION CO.
STATEMENTS OF CASH FLOWS
(UNAUIDITED)
For the Periods Ended April 30, 1998 and April 30, 1997
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 608,912 $ 550,445
Adjustments to Reconcile Net Income to Net Cash
From Operating Activities
Depreciation and Amortization ( 34,663) 83,356
Deferred Income Tax (Benefit) Provision - 83,356
Changes in Current Assets and Liabilities
(Increase) in Accounts Receivable 92,301 388,542
(Increase) Decrease in Receivables from employees 42,549 22,429
(Increase) Decrease in Other Receivables (49,634) 24,700
(Increase) Decrease in Costs in Excess of Billings 209,366 (175,436)
(Increase) Decrease in Inventories 4,846 (19,551)
Decrease in Prepaid Expenses 64,308 74,053
Increase in Accounts Payable (568,509) (494,289)
(Decrease) in Accrued Expenses (737,577) (165,614)
Increase in Federal Income Tax Payable (118,318) 258,563
-------------- ------------
NET CASH FLOW (USED IN) PROVIDED BY OPERATING
ACTIVITIES (486,419) 401,198
------------- --------
CASH FLOW FROM INVESTING ACTIVITIES
PROCEEDS FROM EQUIPMENT SALES 53,652 52,326
------------ ----------
NET CASH FLOW PROVIDED IN
INVESTING ACTIVITIES 53,652 52,326
------------ -------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from Note Borrowings 221,250 -
Repayments of Note Borrowings (96,959) (345,036)
Purchase of Treasury Stock - (6,235)
-------------- -----------
NET CASH FLOW PROVIDED (USED) BY
FINANCING ACTIVITIES 124,291 (351,271)
---------- ---------
NET INCREASE (DECREASE) IN CASH (308,476) 102,253
CASH, BEGINNING OF YEAR NOVEMBER 1, 1997 636,449
-------------
CASH, BEGINNING OF YEAR NOVEMBER 2, 1996 14,847
------
CASH, END OF YEAR $ 327,973 $ 117,100
=========== ============
The accompanying notes are an integral
part of these financial statements.
F-21
</TABLE>
<PAGE>
HOLLOMAN CONSTRUCTION CO.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
For the Six Months ended April 30, 1998 and April 30, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.ab Nature of Operations
Holloman Construction Co. (the "Company") is a general contractor
specializing in the construction of refineries, pipelines and other
manufacturing plants throughout the United States.
2.ab Inventories
Inventories consist of small tools, parts, materials and fuel stated at the
lower of cost, as determined using the first-in, first-out method, or market.
3.ab Construction in Progress
Unfinished jobs in progress are accounted for using the percentage of
completion method. Under this method profit or loss is recognized as the job
progresses as determined by direct labor hours.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts", represents revenues recognized in excess of amounts billed.
Contract retainage by customers is an asset included in accounts receivable,
while the retainage withheld from subcontractors, suppliers and materialmen
is shown as a liability as part of accounts payable.
The percentage of completion method applies to all bid contract jobs as well
as to those hourly rate jobs which are expected to last more than six months.
Revenue and costs of hourly jobs of less than six months are recognized as
the job progresses.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies,
tools, repair costs and other indirect overhead. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions and
estimated profitability, including those arising from contract penalty
provisions and final contract settlements, may result in revisions to costs
and income are recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be
reliably estimated.
4.ab Property, Plant and Equipment
Property, plant and equipment are reported at cost less accumulated
depreciation. Depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets (equipment: 3 to 10
years and leasehold improvements: 6 to 10 years). Major renewals and
betterments are capitalized whereas the cost of repairs and maintenance is
charged to expense as incurred. As assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is reflected in income.
F-22
<PAGE>
5.ab Income Taxes
Income taxes have been provided in accordance with the statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. Statement No. 109
requires the use of the liability method of accounting for income taxes. This
method accounts for deferred income taxes by applying statutory tax rates in
effect at the balance sheet date to the temporary differences between the
recorded financial statement balances and the related tax basis of assets and
liabilities.
Accordingly, deferred income taxes are provided to reflect the tax effect of
timing differences between financial and tax reporting methods. These
differences result primarily from loss recovery and differences between
financial and tax basis of property, plant and equipment and the related
depreciation.
6.ab Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to use estimates and assumptions.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and reported
revenues and expenses. Actual results could differ from those estimates.
7.ab Net Income Per Share
+
Net income per share is based on the weighted average number of shares
outstanding during the period.
8.ab Cash Equivalents
For purposes of the statement of cash flows, cash includes all of the
Company's cash on hand, cash in the bank, certificates of deposits and
similar instruments, if any, with original maturities of three months or
less.
9.ab Certain Reclassifications
Certain reclassifications have been made to conform to Interim Financial
Statements.
NOTE B-EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company established an Employee Stock Ownership Plan (ESOP) as part of an
employee incentive program. The ESOP plan covers substantially all employees
who meet the eligibility requirements. Participants become fully vested after
ten (10) years of participation. Distribution may be made in cash or in the
form of Company stock with the Company retaining the right of first refusal
to buy back the stock. At October 30, 1993, the ESOP plan was fully funded.
The Company set up a $10,400 contribution payable at November 1, 1997 to
reimburse the Plan for current year plan administration fees.
NOTE C-CONTINGENCIES
The Company reached an agreement in full settlement of the portion of a lawsuit
brought against it and other defendants by the Texas Workers' Compensation
Insurance Facility. The action was filed in a prior year and involved alleged
errors in the premium computations of covered employees provided to the Company
by an employee leasing company. The settlement amount is included in the
November 2, 1996 financial statements.
F-23
<PAGE>
NOTE D-OTHER DISCLOSURES
In 1996 the Company discovered misappropriations of assets by a former employee.
In May 1997, $538,242 was repaid by that individual. Included in the amount is
$188,261 attributed to years prior to the period ended November 2, 1996 and
accordingly retained earnings at October 29, 1995 were restated net of the
related income tax effects. Restitution of $114,668 was attributed to the period
ended November 2, 1996. These two amounts totaling $302,929 are shown as a
receivable on the balance sheet as of November 2, 1996. The remainder, $235,313,
was attributed to the period ending November 1, 1997.
Additionally, other parties related to the Company recovered from that
individual other property estimated at a value of $565,000.
The total amount of the loss to the Company or its related parties cannot be
determined and no further recovery is expected.
F-24
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the securities to which it relates or an
offer to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstance, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information herein is
correct as of any time subsequent to the date hereof.
1,000,000 UNITS
Each Unit Consisting of
One Share of Common Stock
and
One Redeemable Common
Stock Purchase Warrant
OFFERING PRICE
$10.00
PER UNIT
TABLE OF CONTENTS
PAGE
Additional Information.................... 2
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 12
Dividend Policy........................... 12
Dilution.................................. 13
Capitalization............................ 14
Management's Discussion and
Analysis of Financial Condition
and Results of Operation................. 15
Business.................................. 18
Management................................ 22
Certain Relationships
and Related Transactions............... 26
Principal Shareholders.................... 25
Description of Securities................. 27
Shares Eligible For Future Sale........... 28
Underwriting.............................. 29
Legal Matters............................. 31
Experts................................... 31
Index to Financial Statements............. 32
Until ____ , 1998 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
Holloman
Corporation
Prospectus
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Pursuant to Section 2.02-1 of the Texas Business Corporation Act, a corporation
may indemnify an individual made a party to a proceeding because the individual
is or was a director against liability incurred in his official capacity with
the corporation including expenses and attorneys fees.
Article VII of the Articles of Incorporation provides as follows:
"The Corporation shall indemnify any director or officer, or former
director or officer of the Corporation, or any person who may have served at its
request as a director or officer of another corporation of which this
Corporation owns shares of capital stock or of which it is a creditor to the
fullest extent permitted by the Texas Business Corporation act and s provided in
the By-laws of the Corporation."
Article XI of the By -laws provides as follows:
"POWER TO INDEMNIFY AND TO PURCHASE
INDEMNITY INSURANCE; DUTY TO INDEMNIFY
Section 1. In this Article XI:
(a) "Corporation," includes any domestic or foreign
predecessor entity of the Corporation in a merger, consolidation, or other
transaction in which the liabilities of the predecessor are transferred to the
Corporation by operation of law and in any other transaction in which the
Corporation assumes the liabilities of the predecessor but does not specifically
exclude liabilities that are the subject matter of this Article.
(b) "Director" means any person who is or was a director of the
Corporation, any person who, while a director of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise.
(c) "Expenses" include court costs and attorneys'
fees.
(d) "Official capacity", means:
(1) when used with respect to a director, the
office of director in the Corporation; and
(2) when used with respect to a person other
than a director, the elective or
appointive office in the Corporation held
by the officer or the employment or
agency relationship undertaken by the
employee or agent in behalf of the
Corporation, but
(3) in both Paragraph (1) and (2) does not include
service for any other foreign or domestic corporation
or any partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or
other enterprise.
(e) "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 2. The Corporation shall indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a director of the Corporation only if it is determined in
accordance with Section 6 of this Article XI that the person:
(a) conducted himself in good faith;
(b) reasonably believed:
(1) in the case of conduct in his official
capacity as a director of the
Corporation, that his conduct was in the
Corporation's best interests; and
(2) in all other cases, that his conduct was
at least not opposed to the Corporation's
best interests; and
(c) in the case of any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 3. Except to the extent permitted by Section 5 of this Article,
a director may not be indemnified under Section 2 of this Article in respect of
a proceeding:
(a) in which the person is found to be liable on the basis that
personal benefit was improperly received by him, whether or not the benefit
resulted from an action taken in the person's official capacity; or
(b) in which the person is found liable to the Corporation.
II - 1
<PAGE>
Section 4. The termination of a proceeding by judgment, order,
settlement, or conviction, or on a plea of nolo contenders or its equivalent is
not of itself determinative that the person did not meet the requirements set
forth in Section 2 of this Article. A person shall be deemed to have been found
liable in respect of any claim, issue or matter only after the person shall have
been so adjudged by a court of competent jurisdiction after exhaustion of all
appeals therefrom.
Section 5. A person may be indemnified under Section 2 of this Article
against judgments, penalties (including excise and similar taxes), fines,
settlement, and reasonable expenses actually incurred by the person in
connection with the proceeding; but if the person is found liable to the
Corporation or is found liable on the basis that personal benefit was improperly
received by the person, the indemnification:
(a) is limited to reasonable expenses actually
incurred by the person in connection with the proceeding; and
(b) shall not be made in respect of any proceeding in which the person
shall have been found liable for willful or intentional misconduct in the
performance of his duty to the Corporation.
Section 6. A determination of indemnification under Section 2 of this
Article XI must be made:
(a) by a majority vote of a quorum consisting of
directors who at the time of the vote are not named defendants or
respondents in the proceeding;
(b) if such a quorum cannot be obtained, by a majority vote of a
committee of the Board of Directors designated to act in the matter by a
majority vote of all directors, consisting solely of two or more directors who
at the time of the vote are not named defendants or respondents in the
proceeding;
(c) by special legal counsel selected by the Board of Directors or a
committee of the Board by vote as set forth in Subsection (a) or (b) of this
Section, or, if such a quorum cannot be obtained and such a committee cannot be
established, by a majority vote of all directors; or
(d) by the shareholders in a vote that excludes the shares held by
directors who are named defendants or respondents in the proceeding.
Section 7. Authorization of indemnification and determination as to
reasonableness of expenses must be made in the same manner as the determination
that indemnification is permissible, except that if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses must be
made in the manner specified by Subsection (c) of Section 6 of this Article XI
for the selection of special legal counsel. A provision contained in the
Articles of Incorporation, the By-laws, a resolution of shareholders or
directors, or an agreement that makes mandatory the indemnification permitted
under Section 2 of this Article XI shall be deemed to constitute authorization
of indemnification in the manner required by this Section 7 even though such
provision may not have been adopted or authorized in the same manner as the
determination that indemnification is permissible.
Section 8. The Corporation shall indemnify a director against
reasonable expenses incurred by him in connection with a proceeding in which he
is a named defendant or respondent because he is or was a director if he has
been wholly successful, on the merits or otherwise, in the defense of the
proceeding.
Section 9. If, in a suit for the indemnification required by Section 8
of this Article XI, a court of competent jurisdiction determines, that the
director is entitled to indemnification under that Section, the court shall
order indemnification and shall award to the director the expenses incurred in
securing the indemnification.
Section 10. If, upon application of a director, a court of competent
jurisdiction determines, after giving any notice the court considers necessary,
that the director is fairly and reasonably entitled to indemnification in view
of all the relevant circumstances, whether or not he has met the requirements
set forth in Section 2 of this Article XI or has been adjudged liable in the
circumstances described by Section 3 of this Article XI, the court may order the
indemnification that the court determines is proper and equitable. The court
shall limit indemnification to reasonable expenses if the proceeding is brought
by or in behalf of the Corporation or if the director is found liable on the
basis that personal benefit was improperly received by him, whether or not the
benefit resulted from an action taken in the person's official capacity.
Section 11. Reasonable expenses incurred by a director who was, is, or
is threatened to be made a named defendant or respondent in a proceeding may be
paid or reimbursed by the Corporation, in advance of the final disposition of
the proceeding and without any of the determination specified in Section 6 and 7
of this Article XI, after the Corporation receives a written affirmation by the
director of his good faith belief that he has met the standard of conduct
necessary for indemnification under this Article XI and a written undertaking by
or on behalf of the director to repay the amount paid or reimbursed if it is
ultimately determined that he has not met those requirements.
II-3
<PAGE>
Section 12. The written undertaking required by Section 11 of this
Article XI must be an unlimited general obligation of the director but need not
be secured. It may be accepted without reference to financial ability to make
repayment.
Section 13. A provision for the Corporation to indemnify or to advance
expenses to a director who was, is, or is threatened to be made a named
defendant or respondent in a proceeding, whether contained in the Articles of
Incorporation, the By-laws, a resolution of shareholders or directors, an
agreement or otherwise, except in accordance with Section 18 of this Article XI,
is valid only to the extent it is consistent with this Article XI as limited by
the Articles of Incorporation, if such a limitation exists.
Section 14. Notwithstanding any other provision of this Article XI, the
Corporation may pay or reimburse expenses incurred by a director in connection
with his appearance as a witness or other participation in a proceeding at a
time when he is not a named defendant or respondent in the proceeding.
Section 15. An officer of the Corporation shall be indemnified as, and
to the same extent, provided by Sections 8, 9, and 10 of this Article XI for a
director and is entitled to seek indemnification under those sections to the
same extent as a director. The Corporation may indemnify and advance expenses to
an officer, employee, or agent of the Corporation to the same extent that it may
indemnify and advance expenses to directors under this Article XI.
Section 16. The Corporation may indemnify and advance expenses to
persons who are not or were not officers, employees, or agents of the
Corporation who are or were serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venturer sole proprietorship, trust, employee benefit plan or other
enterprise, to the same extent that it may indemnify and advance expenses to
directors under this Article XI.
Section 17. The Corporation may indemnify and advance expenses to an
officer, employee or agent, or person who is identified in Section 16 of this
Article XI and who is not a director to such further extent, consistent with
law, as may be provided by the Articles of Incorporation, By-laws, general or
specific action of the Board of Directors, or contract or as permitted or
required by common law.
Section 18. The Corporation may purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation or who is or was serving at the request of
the Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him
and incurred by him in such a capacity or arising out of his status as such a
person, whether or not the Corporation would have the power to indemnify him
against that liability under this Article XI. If the insurance or other
arrangement is with a person or entity that is not regularly engaged in the
business of providing insurance coverage, the insurance or arrangement may
provide for payment of a liability with respect to which the Corporation would
not have the power to indemnify the person only if including coverage for the
additional liability has been approved by the shareholders of the Corporation.
Without limiting the power of the Corporation to procure or maintain any kind of
insurance or other arrangement, the Corporation may, for the benefit of persons
indemnified by the Corporation:
(a) create a trust fund;
(b) establish any form of self-insurance;
(c) secure its indemnity obligation by grant of a
security interest or other lien on the assets of
the Corporation; or
(d) establish a letter of credit, guaranty, or surety
arrangement.
The insurance or other arrangement may be procured,
maintained, or established within the Corporation or with any insurer or other
person deemed appropriate by the Board of Directors regardless of whether all or
part of the stock or other securities of the insurer `or other person are owned
in whole or part by the Corporation. In the absence of fraud, the judgment of
the Board of Directors as to the terms and conditions of the insurance or other
arrangement and the identity of the insurer or other person participating in an
arrangement shall be conclusive and the insurance or arrangement shall not be
voidable and shall not subject the directors approving the insurance or
arrangement to liability, on any ground, regardless of whether directors
participating in the approval are beneficiaries of the insurance or arrangement.
Section 19. Any indemnification of or advance of expenses to a director
in accordance with this Article XI shall be reported in writing to the
shareholders with or before the notice or waiver of notice of the next
shareholders' meeting or with or before the next submission to the shareholders
of a consent to action without a meeting pursuant to Section A, Article 9.10 of
the Texas Business Corporation Act and, in any case, within the 12-month period
immediately following the date of the indemnification or advance.
II-4
<PAGE>
Section 20. For purposes of this Article XI, the Corporation is deemed
to have requested a director to serve an employee benefit plan whenever the
performance by him of his duties to the Corporation also imposes duties on or
otherwise involves services by him to the plan or participants or beneficiaries
of the plan. Excise taxes assessed on a director with respect to an employee
benefit plan pursuant to applicable law are deemed fines. Action taken or
omitted by him with respect to an employee benefit plan in the performance of
his duties for a purpose reasonably believed by him to be in the interest of the
participants and beneficiaries of the plan is deemed to be for a purpose which
is not opposed to the best interests of the Corporation."
Item 25. Other Expenses of Issuance and Distribution
Estimated expenses in connection with the public offering by the Company of the
securities offered hereunder are as follows:
Securities and Exchange Commission Filing Fee $5,897
Blue Sky Fees and Expenses* 20,000
American Stock Exchange Application and Listing Fee 20,000
Accounting Fees and Expenses* 60,000
Legal Fees and Expenses 75,000
Printing* 40,000
Fees of Transfer Agents and Registrar* 20,000
Underwriters' Non-Accountable Expense Allowance 200,000
Miscellaneous* 59,103
----------
Total* $500,000
- ----------------
* Estimated.
Item 26. Recent Sales of Unregistered Securities
The following is a summary of transactions by the Registrant during the
last three years involving the sale of securities which were not registered
under the Securities Act:
In May 1998, the registrant sold 1,200,000 shares of its Common stock
to 16 investors for an aggregate purchase price of $12,000. All of the persons
are sophisticated investors who were familiar with the business of the
registrant and the companies to be acquired for this offering. The purchasers
agreed to take the shares for investment and not with a view to distribution.
The certificates, when issued, will be stamped with a restrictive legend
prohibiting transfer in the absence of an effective registration statement or an
opinion of counsel that registration is not necessary. No underwriter was
involved in the transaction. The transaction is exempt from registration under
the Securities Act of 1933, as amended, pursuant to the exemption provided by
Section 4(2) thereunder for transactions not involving a public offering.
In May 1998, the registrant entered into a Stock Purchase Agreement
with Sam Holloman and several entities owned, controlled by, or affiliated with,
Mr. Holloman (collectively the "Sellers") for the purchase of all of the
outstanding common stock of Holloman Construction Company for a total
consideration of $8,000,000. The registrant agreed to pay the Sellers $6,000,000
cash from the proceeds of this offering and to issue to them 200,000 shares of
the registrant's Common Stock at the Closing of this offering (the number of
shares is to be determined by dividing $2,000,000 by the public offering price
in this offering as set forth in the final Prospectus). The Sellers agreed to
take the shares for investment and not with a view to distribution. The
certificates, when issued, will be stamped with a restrictive legend prohibiting
transfer in the absence of an effective registration statement or an opinion of
counsel that registration is not necessary. No underwriter was involved in the
transaction. The transaction is exempt from registration under the Securities
Act of 1933, as amended, pursuant to the exemption provided by Section 4(2)
thereunder for transactions not involving a public offering.
II-5
<PAGE>
Item 27. Exhibits
Exhibit No. Item
Exhibit 1.1 Form of Underwriting Agreement.(2)
Exhibit 1.2 Form of Underwriters' Warrant Agreement.(2)
Exhibit 2.1 Stock Purchase Agreement Relating to the
Acquisition of Holloman Construction Company by Holloman
Corporation, including list of Schedules. (1)
Exhibit 2.2 Amendment to Stock Purchase Agreement Relating to
the Acquisition of Holloman Construction Company
by Holloman Corporation (1)
Exhibit 3.1 Articles of Incorporation of the Registrant. (1)
Exhibit 3.2 Bylaws of the Registrant (1)
Exhibit 4.1 Form of Warrant Agreement between Company and American Stock
Transfer and Trust Company. (1)
Exhibit 4.2 Specimen of Common Stock Certificate (2)
Exhibit 4.3 Specimen of Warrant Certificate. (2) Contained in
Exhibit 10.2
Exhibit 5.1 Opinion of Maurice J. Bates L.L.C.(2)
Exhibit 10.1 1998 Stock Option Plan (1)
Exhibit 10.2 Form of Equipment Lease between the Registrant and T
Sisters Leasing, LLC (1)
Exhibit 10.3 Copy of Commercial Lease for building and premises between
Holloman Construction Co. and Bob Gist (1)
Exhibit 21.1 Subsidiaries of the Registrant. (1)
Exhibit 23.1 Consent of Johnson, Miller, & Company,
LLP Certified Public Accountants.(1)
Exhibit 23.2 Consent of Maurice J. Bates, L.L.C. is contained
in his opinion to be filed as Exhibit 5.1 to
this registration statement.(2)
Exhibit 27.1 Financial Data Schedule (1)
(1) Filed herewith
(2) To be filed by amendment
Item 28. Undertakings
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in
the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(2) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement
to: (a) Include any Prospectus required by Section 10(a)(3) of the
Securities Act; (b) Reflect in the Prospectus any facts or events
which, individually or together, represent a fundamental change in the
Registration Statement; and (c) Include any additional or changed
material information on
the plan of distribution.
(3) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against
public policy, as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the shares of the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(5) For the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A
and contained in the form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Odessa, State of Texas on July __, 1998.
Holloman Corporation.
By:
John E. Holdridge, President, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose
signature appears below constitutes and appoints Sam Holloman, John Holdridge,
and Peter Lucas, and each for them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (until revoked in writing), to
sign any and all further amendments to this Registration Statement (including
post-effective amendments), and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or
their substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Sam Holloman
- ------------------------------
Sam Holloman Chairman of the Board July 7, 1998
/s/ John Holdridge
- ------------------------------
John Holdridge President and Chief Executive July 7, 1998
Officer, Director
(Principal Executive Officer)
_/s/Mark Stevenson__________ Executive Vice President, Chief July 7, 1998
Mark E. Stevenson Operating Officer, Director
/s/ Peter Lucas
- ------------------------------
Peter Lucas Senior Vice President, Chief July 7, 1998
Financial Officer, Secretary,Treasurer, Director
(Principal Financial and Accounting Officer)
STOCK PURCHASE AGREEMENT
Relating to the Acquisition of
Holloman Construction Co.
and
T. Sisters Leasing, L.L. C.
by
Holloman Corporation
THIS STOCK PURCHASE AGREEMENT is made and entered into this 16th day of
May 1998 by and among Holloman Construction Co., a corporation organized under
the laws of Texas, ("Holloman"), T. Sisters Leasing, L. L. C., a Texas limited
liability company ("Sisters"), the individuals listed on Schedule A hereto
("Stockholders") being the owners of all the issued and outstanding shares of
capital stock of Holloman and Membership Interests of Sisters and Holloman
Corporation("Newco"), a Texas corporation.
RECITALS:
A. The Stockholders own all of the outstanding capital stock of Holloman
and Membership Interests of Sisters. The number of shares of common
stock of Holloman and Membership Interests of Sisters owned by each of
the Stockholders is listed on Schedule A hereto, the aggregate amount
of such stock being sometimes referred to as the "Holloman Stock or the
"Sisters Interests" as required.
B. The Stockholders desire to sell all of the Holloman Stock and the
Sisters Interests owned by them to Newco in exchange for cash and
common stock, $.01 par value, of Newco (the "Newco Stock") upon and
subject to the terms and conditions hereinafter set forth.
1. NOW THEREFORE, in consideration of the recitals and of the respective
covenants, representations and agreements herein contained, it is
hereby covenanted and agreed by and among the parties that they shall
carry out and consummate the following Stock Purchase Agreement (the
"Agreement"):
1. Purchase and Sale of Stock. The Stockholders, in reliance upon the
representations, warranties, and covenants of Newco contained herein and subject
to the terms and conditions of this agreement, shall exchange all of the shares
of the Holloman Stock and Sisters Interests which they own for the Purchase
Price set forth below. Newco, in reliance upon the representations, warranties
and covenants of the Stockholders contained herein and subject to the terms and
conditions of this Agreement, shall purchase the Holloman Stock and the Sisters
Interests for the aggregate purchase price of $8,000,000 (the "Purchase Price"),
which shall be paid as follows: $6,000,000 in cash and $2,000,000 in common
stock of Newco. The $6,000,000 cash consideration shall be payable out of the
proceeds of a public offering of Newco units, consisting of common stock and
warrants in a firm commitment underwriting (the "Public Offering). The cash
consideration shall be due and payable at the closing of the Public Offering.
The common stock of Newco shall be issued to the Stockholders at the closing of
the Public Offering. The number of shares of common stock of Newco to be
received by the Stockholders shall be determined by dividing $2,000,000 by the
offering price of the Newco Stock in the Public Offering as reflected in the
final Prospectus of Newco filed with the Securities and Exchange Commission.
2. Closing. The execution of this Agreement shall take place at the
offices of Newco, 8214 Westchester, Suite 500, Dallas, Texas at 10:00 a. m. on
May 16, 1998. The exchange of the Holloman Stock and the Sisters Interests for
the cash consideration and Newco Stock shall take place at the closing of the
Public Offering (the "Closing").
At the Closing, the Stockholders shall deliver, free and clear of all
liens and encumbrances, claims and other charges thereon of every kind, the
certificate(s) for the shares of the Holloman Stock and the Sisters Interests in
negotiable form, duly endorsed in blank or with separate stock transfer powers
attached with signatures guaranteed by a bank or trust company, to Newco upon
delivery by Newco to the Stockholders of the cash consideration and the Newco
Common Stock on the basis as provided in Section 1 hereof.
3. Default at Closing. Notwithstanding the provisions of Section 3.1
hereof, if the Stockholders shall fail or refuse to deliver any of the Holloman
Stock and the Sisters Interests as provided in Section 2 hereof, or if the
Stockholders shall fail or refuse to consummate the transactions described in
this Agreement prior to the Closing Date, Newco at its option, may refuse to
make such acquisition and thereby terminate all of its obligations hereunder.
The Stockholders acknowledge that the Holloman Stock and the Sisters Interests
are unique and otherwise not available and agree that in addition to any other
remedies, Newco may invoke any equitable remedies to enforce performance
hereunder including, without limitation, an action for specific performance.
<PAGE>
3.1 Damages. Each of the parties hereto shall be liable to each other party for
a material breach of its representations, warranties and covenants which results
in a failure to perform under Sections 1 and 2 hereof, but then only to the
extent of the expenses incurred by the other parties in connection with the
transactions contemplated by this Agreement.
4. Representations and Warranties of Holloman and Stockholders.
Holloman and the Stockholders represent and warrant to Newco as follows:
4.1 Organization, Standing, Qualification and Capitalization. Holloman
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas and has the corporate power to perform its business
as presently conducted and to own and lease the properties used in connection
therewith. Sisters is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Texas and has the
corporate power to perform its business as presently conducted and to own and
lease the properties used in connection therewith. A complete and correct copy
of the Articles of Incorporation and all amendments thereto of Holloman and
Sisters certified by the Secretary of State of Texas and a complete and correct
copy of the By-laws of Holloman and the Regulations of Sisters and all
amendments thereto, certified by their Secretaries or counterpart, will be
delivered to Newco within ten days from the date hereof. Holloman is duly
qualified to do business and is in good standing in all jurisdictions in which
its business or the ownership of its property requires such qualification.
4.2 The total authorized capital stock of Holloman consists of 200,000
shares of common stock, $1.00 par value. There are currently 79,456 shares of
common stock issued and outstanding, all of which are validly issued, fully paid
and non-assessable. Sisters has no capital stock authorized or outstanding but
its Sisters Interests are owned by the persons listed on Schedule A hereto.
Neither Holloman nor the Stockholders, at the Closing, will be a party to or
bound by any written or oral contract or agreement which grants to any person an
option or right of first refusal or other right of any character to acquire at
any time, or upon the happening of any stated events, shares of common stock of
Holloman or membership interests of Sisters, whether or not presently issued and
outstanding.
4.2 Stock Ownership. The Stockholders are the lawful ownersof the Holloman Stock
and the Sisters Interests and own beneficially the number of shares of Holloman
Stock and Sisters Interests set forth on Schedule A hereto, free and clear of
all liens and encumbrances, claims and charges of every kind, and the
Stockholders have full legal power and all authorization required by law to
transfer and deliver said shares in accordance with this Agreement.
4.3 Subsidiaries. Holloman and Sisters have no subsidiaries.
<PAGE>
4.4 Financial Statements. The Stockholders have delivered to Newco copies of the
following financial statements, all of which have been prepared in accordance
with generally accepted accounting principles except as otherwise disclosed
therein applied on a basis consistent with that of the preceding fiscal year:
(a) Balance sheets. Balance sheets of Holloman as of October 31,
1997 and October 31, 1996, certified by Johnson Miller & Co, certified
public accountants, which balance sheets together with any notes to
the respective balance sheets present fairly the financial condition
and assets and liabilities of Holloman as of their respective dates.
The balance sheet as of October 31, 1997 is hereinafter referred to as
the "1997 Balance Sheet." Unaudited balance sheets of Sisters as of
October 31, 1996 and October 31, 1997, which balance sheets together
with any notes to the respective balance sheets present fairly the
financial condition and assets and liabilities of Holloman as of their
respective dates. The balance sheet as of October 31, 1997 is referred
to as the "Sisters Balance Sheet."
(b) Statements of Operations. Statements of operations of Holloman
for the fiscal years ended October 31, 1997 and October 31,
1996 certified by Johnson Miller & Co. which statements,
together with any notes to the respective statements of income
present fairly the results of operations of Holloman for the
said periods. Unaudited statements of operations of Sisters
for the fiscal years ended October 31, 1997 and October 31,
1996 which statements, together with any notes to the
respective statements of income present fairly the results of
operations of Sisters for the said periods.
(c) Accounts Receivable. The accounts receivable of Holloman and
Sisters as set forth on the 1997 Balance Sheet and the Sisters
Balance Sheet and all accounts receivable acquired by Holloman
and Sisters or arising subsequent to October 31, 1997 are
collectible in full in the ordinary course of business in the
aggregate reported amounts less reserves reflected on the 1997
Balance Sheet and the Sisters Balance Sheet.
(d) Inventory. All inventory of Holloman and Sisters as set forth
in the 1997 Balance Sheet, and the Sisters Balance sheet,
consisted, and all such inventory as of the Closing Date will
consist of, a quality usable or salable in the ordinary course
of business of Holloman and Sisters. The value at which
inventories were reflected in the 1997 Balance Sheet and the
Sisters Balance sheet was the lower of cost (defined as
invoice cost) or replacement market value and with adequate
provisions for obsolete material, all in accordance with
generally accepted accounting principles applied on a basis
consistent with that of the prior fiscal year.
(e) Other Assets. The prepaid expenses and other assets of
Holloman and Sisters as shown on the 1997 Balance Sheet and
the Sisters Balance sheet or arising thereafter prior to
Closing represent amounts which will benefit Holloman and
sisters in future periods. All material tangible assets owned
and used by Holloman and Sisters in their future operations
were reflected in the 1997 Balance Sheet and the Sisters
Balance sheet.
(f) Fixed Assets. The fixed assets of Holloman and Sisters are
stated at cost in the 1997 Balance Sheet and the Sisters
Balance Sheet. The reserves for depreciation and amortization
provided against these assets have been established in
accordance with the notes to the financial statements and are
adequate to reduce any idle fixed assets to net realizable
value.
4.5 Title to Properties. Holloman and Sisters have good and marketable
title to all of their properties and assets reflected in the 1997 Balance Sheet
and the Sisters Balance Sheet (except properties and assets sold or otherwise
disposed of since October 31, 1997 in the normal and ordinary course of
business), free and clear of all mortgages, liens, pledges, charges or other
encumbrances of any nature whatsoever; except (i) any mortgages, liens, pledges,
charges or other encumbrances disclosed in the 1997 Balance Sheet or the Sisters
Balance Sheet or (ii) liens for current taxes not yet due and payable. Holloman
and sisters have valid and enforceable title insurance coverage on all real
property reflected in the 1997 Balance Sheet and Sisters Balance Sheet and will
deliver a true and correct copy of any such policy or policies of such insurance
within 10 days from the date hereof. All plants, structures and equipment owned
or used by Holloman and Sisters are, with minor exceptions, in good operating
repair.
<PAGE>
4.6 Tax Matters. The amounts set up as provisions for taxes on the 1997
Balance Sheet and Sisters Balance Sheet are sufficient for the payment of all
foreign, federal, state, county and local taxes, and all employment and payroll
related taxes, including any penalties or interest thereon, whether disputed or
not, of Holloman accrued for or applicable to all periods ended on or prior to
March 31, 1998. Holloman and Sisters did not and will not realize any gain or
income of any kind with respect to activities subsequent to October 31, 1997 and
through the Closing Date except gain and income incurred in the ordinary course
of business subsequent to October 31, 1997. Holloman has duly made all deposits
required by law to be made with respect to employees' withholding taxes.
Holloman and Sisters have duly filed all income, foreign, franchise, excise,
employment and payroll related, real and personal property, sales and gross
receipts tax returns and all other tax returns which were required to be filed
by it, and has paid or set up adequate reserves for the payment of, all taxes
shown on such returns. All federal income tax returns filed by Holloman and
Sisters have been filed with the Internal Revenue Service and no agreement for
the extension of time for the assessment of any deficiencies or adjustment with
respect to any tax return filed by Holloman or Sisters has been assessed, and
the Stockholders have no knowledge of any unassessed tax deficiency proposed or
threatened against Holloman.
4.7. Litigation and Labor Matters. Except as provided for or
disclosed in the 1997 Balance Sheet or the Sisters Balance Sheet or in Schedule
B hereto:
(a) There is no litigation, proceeding or governmental
investigation pending or to the knowledge of the Stockholders
threatened, against Holloman or Sisters or their properties or
business;
(b) Holloman and Sisters are not in default with respect to any
order, writ, injunction or decree of any court or federal,
state, municipal or governmental department, commission,
board, bureau, agency or instrumentality; and
(c) Holloman and Sisters have not committed, and neither the
Stockholders nor Holloman nor Sisters has received any notice
of or claim that Holloman or Sisters has committed any unfair
labor practice under applicable federal or state law.
4.8. Insurance. Holloman and Sisters are insured under various policies of fire,
liability and other forms of insurance, as set forth in Schedule D hereto, which
policies are valid and enforceable in accordance with their terms and provide
adequate insurance for the business of Holloman and Sisters and its assets and
properties. Holloman and Sisters shall continue to carry such policies or
similar policies during the pendency of this Agreement, and all outstanding
claims under such policies are described in Schedule C. There is no liability
for retrospective insurance premium adjustments for any period prior to the date
hereof.
4.9. Patents, Trademarks, and Copyrights. Schedule E attached hereto
sets forth all patents, patent applications, registered trademarks, registered
service marks, trademarks and service mark applications, unregistered trademarks
and service marks, copyrights and copyright applications, owned or filed by
Holloman or Sisters or in which Holloman or Sisters have an interest and the
nature of such interest. No other patent, trademark, or service mark, copyright
or license is necessary to permit the business of Holloman or Sisters to be
conducted as it is now conducted or as heretofore or proposed to be conducted.
No person, firm or corporation has any proprietary, financial or other interest
in any such patents, patent applications, registered trademarks, registered
service marks, trademarks and service mark applications, unregistered trademarks
and service marks, copyrights and copyright applications, and there are no
violations by others of any rights of Holloman or Sisters thereunder. Holloman
and Sisters are not infringing on any patent, trademark, or service mark, or
copyright or otherwise violating the rights, of any third party, and no
proceedings have been instituted or are pending, or to the knowledge of the
Stockholders or Holloman orSisters are threatened, and no claim has been
received by Holloman or Sisters, alleging any such violation. Neither Holloman
nor Sisters is a party to or bound by any license agreement requiring the
payment by Holloman or Sisters of any royalty payment, except as set forth in
Schedule D hereto.
<PAGE>
4.10 Contracts and Commitments. Except as listed and identified in
Schedule F hereto or contemplated by this Agreement, Neither Holloman nor
Sisters is a party to any written or oral:
(a) contract or commitment with any person or former director or
employee or consultant; (b) contract or commitment with any labor union
or employee group; (c) contract or commitment for the future purchase
of, or payment for, raw materials, supplies or
products, involving in any case $10,000 or more;
(d) contract or commitment to sell or supply products or to
perform services for a specific price involving $10,000 or
more without the ability on the part of Holloman or Sisters to
increase such price or to cancel the contract or commitment
without any liability on the part of Holloman or Sisters;
(e) contract or commitment continuing over a period of more than
six months from the date of this Agreement;
(f) representative or sales agency contract or commitment;
(g) lease under which it is either lessor or lessee;
(h) bonus, pension, profit sharing, retirement, stock purchase,
stock option hospitalization, insurance, vacation pay or any
similar plan or practice, including but not limited to any
welfare benefit plan as defined in Section 3.1 of the Employee
Retirement Income Security Act, formal or informal, in effect
with respect to any of Holloman or Sisters's employees or
former employees;
(i) contract or commitment for the borrowing of money or other
agreement or arrangement for a line of credit;
(j) contract or commitment for any charitable contribution; (k)
contract or commitment for capital expenditures in excess of $10,000;
(l) contract or commitment for limiting or restraining it from engaging
in any lines of business
with any person, firm, corporation or any other entity; or
(m) contract not made in the ordinary course of business.
Except as stated in Schedule F hereto and for delays, minor failures to
meet specifications or other minor defaults which are normal in the conduct of
the business between Holloman and Sisters and other parties to the above
contracts, all parties to the above contracts have complied with the provisions
thereof, no party is in default thereunder, and no event has occurred which but
for the passage of time or the giving of notice would constitute a default
thereunder.
4.11. Absence of Undisclosed Liabilities. There are no liabilities or
obligations of Holloman or Sisters either accrued, absolute, contingent or
otherwise, including, but not limited to, any tax liabilities due or to become
due, except:
(a) to the extent reflected in the 1997 Balance Sheet and the sisters
Balance sheet and not heretofore paid or discharged, and
(b) those incurred, consistently with past business practice, in or as
a result of the normal and ordinary course of business since
October 31, 1997.
4.12. Absence of Default. Neither Holloman nor Sisters is in default in
the performance of, observance or fulfillment of any material obligation,
covenant or condition contained in any debenture or note, or contained in any
conditional sale or equipment trust agreement, or loan or other borrowing
agreement to which Holloman or Sisters is a party.
4.13. Existing Condition. Except as disclose in Schedule F hereto,
since October 31, 1997, there has not been (i) any material adverse change in
the financial condition or in the combined operations, business or properties of
Holloman or Sisters; (ii) any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting the operations, business or
properties of Holloman or Sisters; (iii) any declaration, setting aside or
payment of any dividend, or any distribution in respect of capital stock of
Holloman or Sisters, or any redemption, purchase of other acquisition of any
kind of any shares of Holloman or Membership Interests of Sisters; (iv) any
increase in the compensation payable by Holloman or Sisters to any of their
officers, directors or employees; (v) any change in the terms of any bonus,
insurance, pension or other benefit plan for or with any officer, directors or
employees which increase amounts paid, payable to or to become payable
thereunder; or (vi) any complaints or other concerns which have been brought to
the attention of the Stockholders and which relate to Holloman or Sisters's
labor relations.
<PAGE>
4.14. Validity of Contemplated Transactions. Neither the execution and
delivery of this Agreement nor the consummation of the transactions provided for
herein will violate any agreement to which Holloman or Sisters or the
Stockholders are a party or by which it or any of them is bound or any law,
order or decree or any provision of the Articles of Incorporation, Charter or
By-laws of Holloman or Sisters. The Stockholders has full legal authority to
execute and deliver this Agreement and to consummate and perform the
transactions contemplated hereby, and this Agreement constitutes the valid
obligation of the Stockholders legally binding upon him in accordance with its
terms.
4.15. Restrictions. Neither Holloman and Sisters is subject to any
Charter or any other corporate restriction or any judgment, order writ,
injunction or decree, which materially and adversely affects or, so far as the
Stockholders can now foresee, may in the future materially and adversely affect,
the business, operations prospect, properties, assets, or condition, financial
or otherwise, of Holloman and Sisters.
4.16. Compliance with Laws. Holloman and Sisters have complied with and
are not in default under, or in violation of, any laws, ordinances, rules,
regulations or orders (including without limitation any safety, health or trade
laws, ordinances, rules, regulations or orders) applicable to the operations,
business or properties of Holloman or Sisters which materially and adversely
affect or, so far as the Stockholders can now foresee, may in the future
materially affect, the business, operations, prospects, properties or assets or
condition, financial or otherwise, of Holloman or Sisters.
4.17. Disclosure. No representation by Holloman or Sisters or the
Stockholders in this Agreement contains any untrue statement of a material fact
or omits to state any material fact necessary to make any statement herein not
misleading.
4.18. Transactions with Affiliates. No director, officer or
Stockholders of Holloman or Sisters owns or during the last two years has owned,
directly or indirectly, or has, or during the last two years has had, an
ownership interest in any business, corporate or otherwise, which is a party to,
or in any property which is the subject of, any business arrangement or
relationship of any kind with Holloman or Sisters except as described in
Schedule G hereto.
4.19. Bank Accounts and Officers. Schedule H hereto contains a true and correct
list of the name and location of each bank in which Holloman and Sisters have an
account, each safety deposit box or custody agreement and the names of the
persons authorized to draw thereon or to withdraw therefrom, and also sets forth
the names of all directors and officers of Holloman and Sisters.
4.20. Investment Representations. The Stockholders represent and warrant to
Newco that they are acquiring the Newco Stock hereunder for their own account
for investment, with no present intention of reselling or otherwise distributing
the same, except (i) pursuant to an offering of shares duly registered under the
Securities Act of 1933, as amended, (the "Securities Act") or (ii) under other
circumstances which in the opinion of counsel to Newco at the time does not
require registration under the Securities Act. The Stockholders further covenant
and represent that none of the Newco Stock that will be issued to them pursuant
to this Agreement will be offered, sold, assigned, pledged, transferred, or
otherwise disposed of by them except after full compliance with all of the
applicable provisions of the Securities Act and the rules and regulations
thereunder. The Stockholders hereby confer full authority upon Newco to instruct
its transfer agent not to transfer any of the Newco Stock until it has received
written approval from Newco to the effect that the provisions of this Section
have been satisfied. The Stockholders acknowledge that Newco shall place a stop
transfer order against the transfer of the Newco Stock owned by them until they
satisfy one of the conditions set forth in this Section. All stock certificates
representing the Newco Stock shall be endorsed with the following restrictive
legend:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE PRIVATE
INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNTIL EITHER (i) A REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE CORPORATION HAS
RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION AND ITS
COUNSEL THAT REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQIJIRED IN CONNECTION WITH SUCH PROPOSED
OFFER, SALE OR TRANSFER."
5. Representations and Warranties of Newco. Newco represents and
warrants to the Stockholders that:
<PAGE>
5.1 Organization, Good Standing and Authority. Newco is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas and has full corporate power and authority to own its properties
and assets and to carry on its business as it has been and is conducted. The
execution of this Agreement and the consummation of the transactions
contemplated hereby are within the corporate power of Newco and have been duly
authorized by all necessary corporate and other action. This Agreement
constitutes, and will constitute when delivered in accordance with the terms
hereof, the valid obligation of Newco legally binding upon it in accordance with
its terms. The Newco Stock to be delivered to the Stockholders in payment of the
Purchase Price when issued and delivered will be validly issued, fully paid and
non assessable.
5.2. Validity of Contemplated Transaction. Neither the execution and
delivery of this Agreement nor the consummation of the transactions provided for
herein will violate any agreement to which Newco is a party or by which it is
bound, or any law, order or decree or any provisions of its Articles of
Incorporation or By-laws.
5.3. Investment Representations. The Holloman Stock and the Sisters
Interests being delivered pursuant to this Agreement will be held by Newco for
its own account and not with a view to, or for, resale in connection with a
distribution thereof.
5.4. Litigation
(a) There is no litigation, proceeding or governmental
investigation pending, or to the knowledge of the officers and
directors of Newco, against or relating to Newco, or its
properties or business, and
(b) Newco is not knowingly in default with respect to any order,
writ, injunction or decree of any court or federal, state,
provincial, municipal or governmental department, commission,
board, bureau, agency or instrumentality.
6. Conduct of Business Pending Closing. Holloman and Sisters and the
Stockholders represent, warrant and agree with respect to Holloman and Sisters
that, pending the Closing and except as otherwise approved by Newco:
6.1. Business in the Ordinary Course. Holloman and Sisters shall
refrain from engaging in transactions other than in the ordinary course of
business. Holloman and Sisters shall also refrain from entering into any
transaction involving a capital expenditure (including any borrowings in
connection with such transaction) of more than $10,000 (other than in the
ordinary course of business) or the disposal of any property or asset (other
than in the ordinary course of business) with a value of more than $10,000 or
the disposal of any property or asset (other than inventory in the ordinary
course of business) with a value of more than $10,000.
6.2. Accounting and Credit Changes. Holloman and Sisters shall not make
any changes in its accounting procedures and practices or its credit criteria
from those in existence at October 31, 1997.
6.3. Capitalization, Options and Dividends. No changes shall be made in the
Articles of Incorporation of Holloman or Articles of Organization of Sisters,
they shall not issue or reclassify or alter any shares of outstanding or
unissued shares of its capital stock; it shall not grant options, warrants, or
other rights of any kind to purchase, or agree to issue any shares of its
capital stock; it shall not purchase or redeem or otherwise acquire for a
consideration any shares of its capital stock and shall not declare, pay, set
aside or make any dividends or other distributions or payments in respect of its
capital stock.
6.4. Encumbrance of Assets. No mortgage, pledge or encumbrance of any of
the properties or assets of Holloman or Sisters shall be made.
<PAGE>
6.5. Employment Agreements. Except as contemplated by this Agreement,
Holloman and Sisters shall refrain from entering into any employment agreements,
and shall keep in effect its present salary administration program (including
pension plans and other fringe benefits).
6.6. Real Property Acquisitions, Dispositions and Leases. Holloman and
Sisters shall refrain from acquiring or agreeing to acquire, or disposing or
agreeing to dispose of, real estate and from entering into or agreeing to enter
into leases of real estate or equipment for a period in excess of one year.
6.7 Litigation During Interim Period. Holloman and Sisters will
promptly advise Newco in writing of the commencement or threat against Holloman
and Sisters of any claim, litigation, proceeding or tax audit not covered by
insurance when the amount claimed is in excess of $10,000.
6.8. Access. Newco and its officers, attorneys, accountants and
representatives shall be permitted to examine the property, books and records of
Holloman and Sisters, and their title to any real estate, and such officers,
attorneys, accountants and representatives shall be afforded access to such
property, books, records and titles, and the Stockholders will upon request
furnish Newco with any information reasonably required in respect to Holloman
and Sisters's property, assets, and business and will provide Newco with copies
of any contract, document or instrument listed in any Schedule hereto.
6.9. Good Will. Holloman and Sisters will use their best efforts to
preserve the good will of their customers and suppliers and others having
business relations with it.
7. Due Diligence; Termination. Upon execution of this Agreement, Newco will
complete its due diligence review of the books and records of Holloman and
Sisters. If the revenues and profits of Holloman and Sisters t are not as
represented to Newco by Holloman and Sisters in negotiations leading to this
Agreement, then notwithstanding any other provision of this Agreement to the
contrary, Newco shall have the right to terminate all obligations hereunder and
shall notify the Stockholders of any decision to so terminate within 3 days of
Newco's decision to terminate.
8. Covenants of Newco and the Stockholders.
8.1. Benefit Plans. Newco agrees that it will take no action after the Closing
which would result in an adverse change in the benefits to the employees covered
by Holloman and Sister's current employee benefit plans described in Schedule E.
Newco agrees to make available to Holloman and Sister's employees participation
in Newco's Employee Stock Option Plan and other benefit plans, subject to
applicable securities regulations.
8.2 Exclusive Rights to Newco. The Stockholders agree that they will
not enter into discussions or negotiations with any other party with a view to
(i) the sale of the Holloman Stock and the Sisters Interests, (ii) a merger
between Holloman and Sisters and another party or, (iii) a sale of all or
substantially all of the assets of Holloman and/or Sisters for a period of 60
days from the date of execution of this Agreement without prior notice to and
the consent of Newco.
8.4 Covenant Not to Compete. The Stockholders agrees that for a period
of five years from and after the date of Closing, they will not, unless acting
as an employee or consultant to Newco or Holloman or Sisters or with Newco's
written consent, directly or indirectly, own, manage, operate, join, control or
participate in the ownership of, or be connected as an officer, employee,
partner or otherwise with, any business engaged in any of the business which are
presently conducted by Holloman or Sisters within any state or province in which
Holloman or Sisters presently maintain an office, other than by owning not more
than 5% of a class of securities registered under Section 12 of the Securities
Exchange Act of 1934 or traded on a national securities exchange. Each person
agrees that the remedy at law for any breach of the foregoing will be inadequate
and that Holloman or Sisters and Newco shall be entitled, inter alia, to
temporary and permanent injunctive relief without the necessity of proving
actual damage to Holloman or Sisters or Newco.
9. Liability and Responsibility of and Indemnification by Stockholders.
<PAGE>
9.1 Subject to other subsections of this Section 9, the Stockholders shall
indemnify and hold harmless Newco and Holloman and Sisters against any
and in respect of any and all liability, damage, loss, cost and
expenses arising out of or otherwise in respect of:
(a) any misrepresentation, breach or warranty or non-fulfillment
of any agreement or covenant or from any misrepresentation in
or omission from any Schedule or list contained in this
Agreement, certificate or other instrument furnished by the
Stockholders, and
(b) any and all actions, suits, proceedings, audits, judgments,
costs and legal and other expenses incident to any of the
foregoing or to the enforcement of this Section 9;
provided, however, that the Stockholders shall not be liable to Newco under this
Agreement for any matter, other than matters relating to taxes, which was not
set forth in a claim presented in writing to the Stockholders pursuant to
Section 21 within four years from the Closing Date. Notwithstanding anything to
the contrary herein, the Stockholders shall be liable, responsible or obligated
to indemnify Newco for claims under this Section 9, only if the aggregate amount
of such claims exceeds $100,000. The total liability and responsibility of the
Stockholders under this Section 9 shall be limited to the aggregate purchase
price received under this Agreement.
9.2 Promptly after the receipt by any party hereto of notice of any
claim or the commencement of any action or proceeding, such party will, if a
claim with respect thereto is to be made against any party obligated to provide
indemnification (the "Indemnifying Party") pursuant to this Section 9, give such
Indemnifying Party written notice of such claim or the commencement of such
action or proceeding. Such Indemnifying Party shall have the right, at its
option and upon posting a bond or other security equal to such claims, to
compromise or defend, at its own expense and by its counsel, any matter
involving the asserted liability of the party seeking such indemnification. Such
notice, and opportunity to defend, shall be a condition precedent to any
liability of the Indemnifying Party under the indemnification agreements
contained in this Section 9. If any Indemnifying Party shall undertake to
compromise or defend any such asserted liability, it shall promptly notify the
party seeking indemnification of its intention to do so, and the party seeking
indemnification agrees to cooperate fully with the Indemnifying Party and its
counsel in the compromise of, or defense against any such asserted liability. In
any event, the indemnified party shall have the right at its own expense to
participate in the defense of such asserted liability.
10. Conditions Precedent to Newco's Obligations. All obligations of Newco under
this Agreement are subject to the fulfillment, prior to or at the Closing, of
each of the following conditions:
10.1 Representations and Warranties. The Stockholders' representations and
warranties contained in this Agreement or in any Schedule, list, certificate or
document delivered pursuant to the provisions hereof shall be true at and as of
the time of Closing as though made at and as of such time (except to the extent
that they are stated therein to be true as of some other date) and the
Stockholders shall have delivered to Newco a certificate dated the Closing Date
and signed by them to such effect.
10.2 Compliance with Agreements. The Stockholders and Holloman and Sisters shall
have complied with all agreements and conditions required by this Agreement to
be performed by them prior to or at the Closing, and the Stockholders shall have
delivered to Newco a certificate dated the Closing Date and signed by him to
such effect.
<PAGE>
10.3 Opinion of Counsel. The Stockholders shall have delivered to Newco an
opinion of their counsel Hollmann, Lyon, Patterson & Durrell, Inc. dated the
Closing Date and in form and substance satisfactory to Newco to the effect that:
(a) The Stockholders are the lawful owner of record and
beneficially of all the number of shares of Holloman Stock and
Sisters Interests set forth beside their names in Schedule A,
free and clear of any liens and encumbrances, equities and
claims and each Stockholder has full legal power and all
authorization required by law to transfer and deliver said
shares in accordance with this Agreement and by delivery of a
certificate or certificates therefor will transfer to Newco
said shares, free and clear of any liens, encumbrances,
equities and claims.
(b) This Agreement constitutes the valid obligations of the
Stockholders legally binding upon them in accordance with its
terms.
(c) Neither Holloman nor Sisters is a party to, or bound by any
written or oral contract or agreement which grants to any
person an option or right of first refusal or other right to
acquire at any time, or upon the happening of any stated
events, shares of the capital stock of Holloman or membership
interests in Sisters.
HollomanHolloman's authorized capital stock consists of 200,000 shares
of common stock $1.00par value, of which 79,456 shares have
been validly issued, are presently outstanding, and are fully
paid and non-assessable. The only owners of membership
interests in Sisters are listed on `schedule A hereto.
HollomanHolloman is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas, and has
the corporate power to perform its business as presently
conducted and to own and lease the properties used in
connection therewith. Holloman is duly qualified to do
business and is in good standing in all jurisdictions in which
its business or the ownership of its property requires such
qualification. Sisters is a limited liability corporation duly
organized, validly existing and in good standing under the
laws of the State of Texas, and has the corporate power to
perform its business as presently conducted and to own and
lease the properties used in connection therewith. Sisters is
duly qualified to do business and is in good standing in all
jurisdictions in which its business or the ownership of its
property requires such qualification
(f) The consummation of the transactions contemplated by this
Agreement will not result in a breach of any term of or
constitute a default under the Articles of Incorporation or
Charter or By-laws of Holloman or the Articles of Organization
of Sisters, or any indenture, agreement, instrument or
understanding known to such counsel to which Holloman and
Sisters or the Stockholders are a party or by which it or any
of them is bound.
HollomanHolloman and Sisters have good and marketable title to the
properties described in Subsection 4.5 hereof subject to no
liens or other encumbrances except those listed in phrases (i)
and (ii) of said Subsection 4.5. The opinion required by this
Subsection shall be based solely upon matters which have come
to such counsel's attention and which are contained in a title
insurance policy and any judgment, federal tax lien or
financing statement searches in respect of Holloman and
Sisters.
10.4 Directors. The Stockholders shall have taken action by Unanimous Consent or
at a meeting duly called to elect to the board of directors of Holloman the
persons designated by Newco prior to the Closing date.
10.5 Material Damage. The business and properties of Holloman and Sisters, taken
as a whole, shall not have been and shall not be threatened to be materially
adversely affected in any way as a result of fire, explosion, earthquake,
disaster, accident, labor dispute, flood, drought, embargo, riot, civil
disturbance, uprising, activity of armed forces or act of God or public enemy.
Approval of Counsel. All steps to be taken and all resolutions, papers
and documents to be executed, and all other legal matters in connection with the
purchase and sale of stock and related matters, including compliance with
applicable state and provincial securities laws shall be subject to the
reasonable approval of Newco's counsel.
<PAGE>
10.7 Use of Name. Newco wishes to avail itself of the good name and
reputation of Holloman. Holloman and the Stockholders hereby agree to the use of
the name "Holloman" by Newco and agree to execute such documents or consents as
may enable Newco to use the name "Holloman" name as set forth herein.
11. Conditions Precedent to Stockholders' Obligations. All obligations
of the Stockholders under this Agreement are subject to the fulfillment, prior
to or at the Closing, of each of the following conditions:
11.1 Representations and Warranties. Newco's representations and warranties
contained in this Agreement or in any certificate or document delivered pursuant
to the provisions hereof shall be true at and as of the time of Closing as
though made at and as of such time (except to the extent that they are stated
therein to be true as of some other date) and Newco shall have delivered to the
Stockholders a certificate dated the Closing Date and signed by its Chairman or
President to such effect.
11.2. Compliance with Agreements. Newco shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed by it prior to or at the Closing, and shall have delivered to the
Stockholders a certificate dated the Closing Date and signed by signed by its
Chairman or President to such effect.
11.3. Opinion of Counsel. Newco shall have delivered to the
Stockholders an opinion of its counsel, dated the Closing Date and in form and
substance satisfactory to the Stockholders with respect to the matters referred
to in Subsections 5.1 and 5.2 hereof.
11.4. Material Damage. The business and properties of Newco, taken as a
whole, shall not have been and shall not be threatened to be, affected in any
way materially adverse to the enterprise of Newco as a result of fire,
explosion, earthquake, disaster, accident, labor dispute, flood, drought,
embargo, riot, civil disturbance, uprising, activity of armed forces or act of
God or public enemy.
12. Broker and Finder's Fees. The Stockholders represent and warrant to
Newco that they have not engaged or dealt with any broker for a fee or
commission in respect to the execution of this Agreement or the consummation of
the transactions contemplated hereby. Newco represents and warrants to the
Stockholders, Holloman and Sisters that neither it nor any corporate affiliate
has engaged or dealt with any broker or other person who may be entitled to any
brokerage fee or commission in respect of the execution of this Agreement or the
consummation of the transactions contemplated hereby.
Each of the parties hereto shall indemnify and hold the others
harmless against any and all claims, losses, liabilities or expenses which may
be asserted against such other parties as a result of such first mentioned
party's dealings, arrangements or agreements with any such broker or person.
13. Survival of Representations and Warranties. All representations,
warranties and agreements, made by Newco, Holloman and Sisters and the
Stockholders in this Agreement or pursuant hereto shall survive the Closing for
a period of not to exceed four years, except for representations, warranties and
agreements relating to taxes of all kinds which shall survive until all claims
based thereon shall have been barred by the relevant statutes of limitations.
Notwithstanding any investigations or audit conducted before or after the
Closing Date, the parties shall be entitled to rely upon the representations and
warranties set forth in this Agreement.
14. Expenses. Except as provided in Section 3.1, Holloman and Sisters
shall bear the expenses of Holloman, sisters and the Stockholders, and Newco
shall bear its expenses, in connection with the transactions contemplated
thereby.
15. Announcements. Newco and the Stockholders will, and the
Stockholders will cause Holloman and Sisters to, cooperate with each other as to
the timing and content of any announcements of the transactions contemplated
hereby to the general public or to employees, customers and suppliers.
16. Further Actions and Assurances. Newco, Holloman and Sisters and the
Stockholders will execute and deliver any and all documents, and will cause any
and all other action to be taken, either before or after Closing, which may be
necessary or proper to effect or evidence the provisions of this Agreement and
the transactions contemplated hereby and by the Public Offering.
17. Counterparts. This Agreement may be executed in several
counterparts, each of which is an original and the Stockholders may become a
party hereto by executing a counterpart hereof. This Agreement and any
counterpart so executed shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
<PAGE>
18. Contents of Agreement; Parties in Interest. This Agreement sets
forth the entire understanding of the parties. Any previous agreements or
understandings between the parties regarding the subject matter hereof are
merged into and superceded by this Agreement. All representations, warranties,
covenants, terms, conditions and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
legal representatives, successors and assigns of the Stockholders and Newco.
19. Texas Law to Govern. This Agreement is being delivered and is
intended to be performed in the State of Texas and shall be construed and
enforced in accordance with the laws thereof.
20. Section Headings and Gender. The section headings herein have been
inserted for convenience of reference only and shall in no way modify or
restrict the terms or provisions hereof. The use of the masculine pronoun herein
when referring to any party has been for convenience only and shall be deemed to
refer to the particular party intended regardless of the actual gender or such
party.
21. Schedules. All Schedules referred to in this Agreement are intended
to be and are hereby specifically made a part of this agreement.
22. Notices. All notices, requests and other communications which are
required or permitted hereunder shall be sufficient if given in writing and
delivered personally or by registered or certified mail, postage prepaid, or by
facsimilie followed by an original signed copy, as follows: (or to such other
addressee as shall be set forth in a notice given in the same manner):
If to Newco: Holloman Corporation
8214 Westchester, Suite 500
Dallas, Texas 75225
Facsimilie No. (214) 987-2091
If to Holloman and Sisters
or Stockholders: c/o Sam Holloman
West County Road
Odessa, Texas
Facsimilie No.
23. Confidential Information. Notwithstanding any termination of this
Agreement, Newco and its corporate affiliates and its representatives agree to
hold in confidence any information not generally available to the public or
trade received by them from Holloman and Sisters or the Stockholders pursuant to
the terms of this Agreement. If this Agreement is terminated for any reason,
Newco, its corporate affiliates and its representatives will continue to hold
such information in confidence and will, to the extent requested by Holloman and
Sisters , promptly return to Holloman and Sisters all written materials
furnished to Newco, its corporate affiliates or representatives pursuant hereto.
IN WITNESS WHEREOF, this agreement has been executed as of the day and
year first above written.
Holloman Corporation
By:/S/ Peter Lucas________
Peter Lucas, Senior Vice President
T. Sisters Leasing , L. L. C. Holloman Construction Co.
By:/s/ Sam Holloman___ By:/s/ Sam Holloman
Name and Title Sam Holloman, President
Holloman Construction Co. Stockholders:
H. C. Stock, Ltd.
/s/ Sam Holloman By: Western Sunset Estates, Inc.,General Partner
Sam Holloman By: /s/ Sam Holloman
Sam Holloman, President
Holloman Construction Co.
Employee Stock Ownership Plan Holloman Chaitable Remainder Unitrust
By:/s/ Sam Holloman By:/s/ Sam Holloman_
Sam Holloman, Trustee Sam Holloman, Trustee
T. Sisters Leasing L. L. C. Members
------------------
Lakwest Ltd.
By: Western Sunset Estates, Inc.,General Partner
By: /s/ Sam Holloman
Sam Holloman
By:/s/ Sam Holloman
Sam Holloman, President
<PAGE>
List of Schedules and Exhibits
Schedule A List of Stockholderss and the number of shares of the Common
Stock of Holloman and Sisters owned by each
Stockholders-Recital A, Section 4.2 [To be prepared by the
Stockholders]
Schedule B Litigation-Section 4.7 [To be prepared by Stockholders]
Schedule C Insurance Section 4.8 [To be prepared by Stockholders]
Schedule D Patents, Trademarks, and Copyrights-Section 4.9
[To be prepared by Stockholders]
Schedule E Contracts and Commitments-Section 4.10 [To be prepared
by Stockholders]
Schedule F Existing Condition Section 4.13
[To be prepared by Stockholders]
Schedule G Transactions with Affiliates 4.16
[To be prepared by Stockholders]
Schedule H Bank Account Information 4.19 [To be prepared by Stockholders]
AMENDMENT TO
STOCK PURCHASE AGREEMENT
Relating to the Acquisition of
Holloman Construction Co.
and
T. Sisters Leasing, L.L. C.
by
Holloman Corporation
THIS AMENDMENT TO STOCK PURCHASE AGREEMENT is
made and entered into effective as of May 19, 1998 by and
among Holloman Construction Co., a corporation organized
under the laws of Texas, ("Holloman"), T. Sisters Leasing,
L. L. C., a Texas limited liability company ("Sisters"),
the individuals and entities listed on the signature page
hereto ("Stockholders") being the owners of all the issued
and outstanding shares of capital stock of Holloman and
Membership Interests of Sisters and Holloman Corporation
("Newco"), a Texas corporation.
RECITALS:
A The parties hereto entered into Stock
Purchase Agreement dated May 16, 1998 (the
"Agreement") for the purchase of all of the
outstanding common stock of Holloman and all
of the membership interests in Sisters by
Newco, and
B. The parties now desire to amend the
Agreement so as to purchase only the common
stock of Holloman and to delete the
membership interests in sisters from the
purchase.
NOW THEREFORE, in consideration of the mutual
promises and covenants contained herein, the parties
hereby agree s follows;
I. The Agreement between the parties hereto
dated May 16, 1998 is hereby amended so as
to delete the purchase of all of the
membership interests in Sisters and all
reference to Sisters in the said Agreement
is hereby deleted. All other terms and
conditions in the Agreement shall remain in
full force and effect including, without
limitation, the Purchase Price.
IN WITNESS WHEREOF, this Amendment to the
Agreement has been executed as of the day and year first
above written.
Hollloman Corporation
By: /s/ Peter Lucas
Peter Lucas, Senior Vice
President
T. Sisters Leasing , L. L. C. Holloman Construction Co
By:/s/ Sam Holloman By:/S/ Sam Holloman
Sam Holloman Sam Holloman, President
Holloman Construction Co. Stockholders:
Sam Holloman
H. C. Stock, Ltd
By Western Sunset Estates, Inc.,
General Partner
By:/s/ Sam Holloman
Sam Holloman
Holloman Construction Co. Employee Stock Ownership Plan
By:/s/Sam Holloman
Sam Holloman, Trustee
Sam Holloman, President
Holloman Charitable Remainder Trust
By: /s/ Sam Holloman
Sam Holloman, Trustee
T. Sisters Leasing L. L. C. Members
Lakwest Ltd.
By: Western Sunset Estates, Inc. General Partner
By:/s/ Sam Holloman
Sam Holloman, President
ARTICLES OF INCORPORATION
of
Holloman Corporation
The undersigned natural person of the age of eighteen (18) years or
more, a citizen of the State of Texas, acting as Incorporator of a corporation
(hereinafter referred to as the "Corporation") under the Texas Business
Corporation Act, hereby adopts the following Articles of Incorporation for the
Corporation:
ARTICLE I
NAME
The name of the Corporation is Holloman Corporation.
ARTICLE II
DURATION
The period of the Corporation's duration is perpetual.
ARTICLE III
PURPOSES
The purpose or purposes for which the Corporation is organized are:
To transact any and all lawful business for which a corporation may be
incorporated under the Texas Business Corporation Act, as currently in effect
or hereafter amended, to have and exercise all of the powers conferred by the
laws of the State of Texas upon corporations formed under the Texas Business
Corporation Act, and to do any or all of the things herein set forth to the
same extent as natural persons might or could do; provided, however, that
nothing stated herein shall authorize this Corporation to be organized for or
to transact any business in the State of Texas that is prohibited by any laws
of the State of Texas, as now existing or hereafter amended or enacted, or by
these Articles.
ARTICLE IV
CAPITAL STOCK
Section 1. The Corporation shall have authority to issue two classes of
capital stock, designated "Common Stock" and "Preferred Stock", respectively.
The aggregate number of shares of Common Stock authorized to be issued is twenty
million (20,000,000) shares with a par value of one cent ($0.01) per share. The
aggregate number of shares of Preferred Stock authorized to be issued is three
million (3,000,000) shares with a par value of $.01 per share.
Section 2. Each share of Common Stock shall have one vote on each
matter submitted to a vote of shareholders. Cumulative voting is expressly
prohibited and denied with respect to the election of directors of the
Corporation and any and all other matters submitted to a vote of the
shareholders.
Section 3. The Preferred Stock may be issued in one or more series,
from time to time, at the discretion of the Board of Directors without the
necessity of shareholder approval, with each such series to consist of such
number of shares and to have such voting powers (whether full or limited, or no
voting powers or more than one vote per share) and such designations, powers,
preferences, and relative participating optional, redemption, conversion,
exchange or other special rights, and such qualifications, limitations or
restrictions thereof, as shall be stated in the resolution or resolutions
providing for the issuance of such series adopted by the Board of Directors. The
Board of directors, in such resolution, or resolutions, may increase or decrease
the number of shares within each such series; provided, however, the board of
directors may not decrease the number of shares within a series to less than the
number of shares within such series that are then issued.
Section 4. The Board of Directors shall have the power and authority at
any time and from time to time without the necessity of shareholder approval to
issue, sell, or otherwise dispose of any authorized and unissued shares of any
class of stock of the Corporation to such persons or parties, including the
holders of any class of stock, for such consideration (not less than the par
value thereof) and upon such terms and conditions as the Board of Directors in
its discretion shall deem to be in the best interests of the Corporation.
Section 5. No shareholder of the Corporation or other persons shall be
entitled to any preemptive or preferential right whatsoever to acquire, purchase
or subscribe for (i) any additional or unissued shares or treasury shares of the
Corporation, (ii) any securities of the Corporation convertible into or carrying
a right to subscribe to or acquire shares of the Corporation, or (iii) any other
securities of the Corporation; provided, however, that nothing in this paragraph
shall restrict or prohibit the Corporation from creating, issuing, offering,
distributing, or otherwise granting any warrants, options, rights of first
refusal, conversion rights subscription rights or other rights entitling
shareholders or other persons to acquire any shares or other securities of the
Corporation; provided, further, that such issuance may not be inconsistent with
any provision of law or with any provision of these Articles.
ARTICLE V
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of at least one thousand
and no/100 dollars ($1,000.00), consisting of money, labor done or property
actually received; provided, however, that failure to comply with the
requirements of this Article V shall not affect the validity of any action taken
by the Corporation.
ARTICLE VII
INDEMNIFICATION
The Corporation shall indemnify any director or officer, or former
director or officer of the Corporation, or any person who may have served at its
request as a director or officer of another corporation of which this
Corporation owns shares of capital stock or of which it is a creditor to the
fullest extent permitted by the Texas Business Corporation Act and as provided
in the By-laws of the Corporation.
ARTICLE VIII
BY-LAWS
The Board of Directors shall adopt the initial By-laws of the
Corporation. Except to the extent such power may be modified or divested by
action of shareholders representing a simple majority of the issued and
outstanding shares of the capital stock of the Corporation taken at a regular or
special meeting of the shareholders, the power to adopt, alter, amend or repeal
the By-laws of the Corporation shall be vested in the Board of Directors,
subject to repeal or change by action of the Corporation's shareholders.
ARTICLE IX
INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS
Section 1. No contract or transaction between the Corporation
and one or more of its directors or officers, or between any corporation,
partnership, association or other organization in which one or more of the
directors or officers of the Corporation are directors, officers or partners or
have a financial interest, shall be void or voidable solely by reason of such
relationship, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors of the Corporation or
committee thereof that authorizes the contract or transaction, or solely because
its or their votes are counted for such purposes, if any one of the following
conditions are met:
(i) The material facts concerning the relationship or interest of the
director or officer and the material facts concerning the contract or
transaction are disclosed or are known to the Board of Directors of the
Corporation or the committee thereof that authorizes the contract or
transaction, and the Board of Directors of the Corporation or committee thereof
in good faith authorizes the contract or transaction by the affirmative vote of
a majority of the disinterested directors, even though the disinterested
directors may be less than a quorum; or
(ii) The material facts concerning the relationship or interest of the
director or officer and the material facts concerning the contract or
transaction are disclosed or are known to the shareholders of the Corporation
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by the shareholders of the Corporation at any annual or
special meeting of shareholders called for that purpose; or
(iii) The contract or transaction is fair to the Corporation at the
time it is authorized, approved or ratified by the Board of Directors of the
Corporation, a committee thereof, or the shareholders of the Corporation.
Section 2. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors of
the Corporation or of a committee thereof that authorizes such contract or
transaction.
ARTICLE X
REGISTERED OFICE AND AGENT
The street address of the Corporation's initial registered office is
8214 Westchester Drive, Suite 500 and the name of the Corporation's initial
registered agent at such address is Peter Lucas.
ARTICLE XII
DIRECTORS
The number of directors of the Corporation shall be fixed in the manner
provided in the By-laws of the Corporation. The initial Board of Directors shall
consist of one member The name and address of the person who is to serve as
director until the first annual meeting of the shareholders or until his
respective successor has been elected and qualified is as follows:
Peter Lucas
8214 Westchester Drive, Suite 500
Dallas, Texas 75225
ARTICLE XI
INCORPORATOR
The name and address of the incorporator
is:
Maurice J. Bates
8214 Westchester
Suite 500
Dallas, Texas 75225
IN WITNESS WHEREOF, I have hereunto set my hand this 18th day of May,
1998.
--------------------
Maurice J. Bates
Holloman Corporation
(A Texas Corporation)
BY-LAWS
ARTICLE I
OFFICES
Section 1. Registered Office and Agent.
The initial registered office shall be located at 8214 Westchester
Drive, Suite 500, Dallas, Texas 75225. The name of the registered agent at such
address is Peter Lucas. The Board of Directors may change the Corporation's
registered office or registered agent, or both, in the manner set forth in
Article 2.10 of the Texas Business Corporation Act (the "Act").
Section 2. Other Offices.
The Corporation may also have offices at such other places, both within
and without the State of Texas, as the Board of Directors may from time to time
determine or the business of the Corporation requires.
ARTICLE II
ANNUAL MEETINGS OF SHAREHOLDERS
Section 1. Time and Place of Meetings.
Annual meetings of shareholders shall be held at such time and place,
within or without the State of Texas, as shall be determined by the Board of
Directors. At the meeting, shareholders shall elect, by a plurality vote, a
Board of Directors and transact such other business as may properly be brought
before the meeting.
Section 2. Notice of Annual Meetings.
Written or printed notice of the annual meeting stating the place, day
and hour of the meeting shall be delivered not less then ten (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 persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, postage prepaid, addressed to the shareholder at his
address as it appears on the share transfer records of the Corporation.
<PAGE>
ARTICLE III
SPECIAL MEETINGS OF SHAREHOLDERS
Section 1. Time and Place of Meetings.
Special meetings of shareholders, for any purpose, 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.
Section 2. Call of Special Meetings.
Special meetings of shareholders, for any purpose or purposes, unless
otherwise prescribed by statute or by the Articles of Incorporation, may be
called by the President, the Board of Directors or by the Secretary at the
request in writing of the holders of not less then one-tenth (1/10) of all the
shares entitled to vote at the meeting. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at special meetings shall
be confined to the purposes stated in the notice of the meeting.
Section 3. Notice Of special Meetings.
Written or printed notice of a special meeting stating the place, day
and hour of the meeting and purpose or purposes for which the meeting is called
shall be delivered not less than ten (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 persons calling the meeting, to
each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the shareholder at his address as it appears on
the share transfer records of the Corporation.
ARTICLE IV
QUORUM AND VOTING OF STOCK
Section 1. Quorum.
The holders of a majority of the shares of stock issued and outstanding
and entitled to vote, represented in person or by proxy, shall constitute a
quorum at all meetings of the shareholders for the transaction of business
except as otherwise provided by statute or by the Articles of Incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
shareholders, the shareholders present in person or represented by proxy shall
have power to adjourn the meeting from time to time, without notice other than
announcement at 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 2. Voting.
If a quorum is present, the affirmative vote of a majority of the
shares of stock represented at the meeting shall be the act of the shareholders
unless the vote of a greater or lesser number of shares of stock is required by
law or the Articles of Incorporation. Once a quorum is present at a meting of
shareholders, the shareholders represented in person or by proxy at the meeting
may conduct such business as may properly be brought before the meeting until it
is adjourned, and the subsequent withdrawal from the meeting of any shareholder
or the refusal of any shareholder represented in person or by proxy to vote
shall not affect the presence of a quorum at the meeting. Unless otherwise
provided in the Articles of Incorporation or these By-laws in accordance with
the Act, directors of the Corporation shall be elected by a plurality of the
votes cast by the holders of shares entitled to vote in the election of
directors at a meeting of shareholders at which a quorum is present in person or
by proxy.
Section 3. Votes, Proxies.
Each outstanding share of stock having voting power 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 as permitted by
the Texas Business Corporation Act. A shareholder may vote either in person or
by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact.
Section 4. Action by Written Consent.
Any action required by statute to be taken at a meeting of the
shareholders, or any action which may be taken at a meeting of the shareholders,
may be taken without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all the shareholders entitled to vote with respect
to the subject matter thereof.
<PAGE>
ARTICLE V
DIRECTORS
Section 1. General Powers
The business and affairs of the Corporation shall be managed by its
Board of Directors which 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.
Section 2. Number of Directors.
The number of directors shall be at least one, the number to be
determined by the Board prior to the next annual meeting of the shareholders.
Directors need not be residents of the State of Texas nor shareholders of the
Corporation. The directors, other than the first Board of Directors, shall be
elected at the annual meeting of the shareholders and each director elected
shall serve until the next succeeding annual meeting and until his successor
shall have been elected and qualified. The first Board of Directors shall hold
office until the first annual meeting of shareholders.
Section 3. Vacancies.
Any vacancy occurring in the Board of Directors by death, resignation,
removal or otherwise may be filled by the affirmative vote of the majority of
the remaining directors though less than a quorum of the Board of Directors. A
director elected to fill a vacancy shall be elected for the unexpired portion of
the term of his predecessor in office. 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.
A director elected to fill a newly created directorship shall serve until the
next succeeding annual meeting of shareholders and until his successor shall
have been elected and qualified.
Section 4. Books of Corporation.
The directors may keep the books of the Corporation, except such as are
required by law to be kept within the state, outside of the State of Texas at
such place or places as they may from time to time determine.
Section 5. Compensation of Directors.
Directors, as members of the Board of Directors or any committee
thereof, shall be entitled to receive compensation for their services on such
terms and conditions as may be determined from time to time by the Board of
Directors. Nothing herein contained, however, shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
<PAGE>
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Time and Place of Meetings.
Meetings of the Board of Directors, regular or special, may be held
either within or without the State of Texas, at such time and place as set in
the Notice of Meting.
Section 2. First Meeting of New Board.
The first meeting of each newly elected Board of Directors shall be
held immediately following the annual meeting of shareholders and at the same
place, and no notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a quorum shall be
present, or it may convene at such place and time as shall be fixed by the
consent in writing of all the directors.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors may be held upon such
notice, or without notice, and at such time and at such place as shall from time
to time be determined by the Board.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by the
President on three days' notice to each director, either personally, by mail,
telecopy, or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of two
directors.
Section 5. Waiver of Notice.
Attendance of a director at any meeting shall constitute a waiver of
notice of such meeting, except where a director attends for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 6. Quorum.
A majority of the directors shall constitute a quorum for the
transaction of business unless a greater number is required by law or by the
Articles of Incorporation. The act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors,
unless the act of a greater number is required by statute or by the Articles of
Incorporation. If a quorum shall not be present at any meeting of directors, the
directors present thereat may adjourn the meeting form time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Directors may not vote by proxy at any meeting of the Board of Directors.
Directors with an interest in a business transaction of the Corporation and
directors who are directors or officers or have a financial interest in any
other corporation, partnership, association or other organization with which the
Corporation is transacting business may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee of the
Board of Directors to authorize such business transaction.
Section 7.Action by Unanimous Consent.
Unless otherwise provided by the Articles of Incorporation or By-laws,
any action required or permitted to be taken at a meeting of the Board of
Directors may be taken without a meeting if a consent in writing, or
counterparts thereof, setting forth the action so taken, is signed by all the
members of the Board of Directors. Such consent shall have the same force and
effect as a unanimous vote at a meeting. The signed consent, or a signed copy,
shall be placed in the minute book.
Section 8.Meetings by Communications Equipment.
Unless otherwise provided by the Articles of Incorporation or By-laws,
any action required or permitted to be taken at a meeting of the Board of
Directors may be taken 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 a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
<PAGE>
ARTICLE VII
COMMITTEES OF THE BOARD OF DIRECTORS
Section 1.Executive Committee.
The Board of Directors, by resolution adopted by a majority of the
number of directors fixed by the By-laws or otherwise, may designate two or more
directors to constitute an Executive Committee, which committee, to the extent
provided in such resolution or in the Articles of Incorporation or By-laws,
shall have and exercise all of the authority of the Board of Directors in the
management of the Corporation, except as otherwise required by law. Vacancies in
the membership of the Executive Committee shall be filled by the Board of
Directors at a regular or special meeting of the Board of Directors. The
Executive Committee shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required.
Section 2. Other Committees.
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate from among its members one or more
committees in addition to the Executive Committee, each of which shall be
composed of one or more or its members, and may designate one or more of its
members as alternate members of any committee, who may, subject to any
limitations imposed by the Board of Directors, replace absent or disqualified
members at any meeting of that committee. Any such committee, to the extent
provided in the resolution of the Board of Directors designating the committee
or in the Articles of Incorporation or these By-laws, shall have and may
exercise all of the authority of the Board of Directors, except where action of
the Board of Directors is required by the Act or by the Articles of
Incorporation. Any member of a committee of the Board of Directors may be
removed, for or without cause, by the affirmative vote of a majority of the
whole Board of Directors. If any vacancy or vacancies occur in a committee of
the Board of Directors caused by death, resignation, retirement,
disqualification, removal from office or otherwise, the vacancy shall be filled
by the affirmative vote of a majority of the whole Board of Directors. Such
committee or committees shall have such name or names as may be designated by
the Board of Directors and shall keep regular minutes of their proceedings and
report the same to the Board of Directors when required.
Section 3.Action by Unanimous Consent.
Any action required or permitted to be taken at a meeting of the
Executive Committee or other committee may be taken without a meeting if a
consent, in writing, setting forth the action so taken, is signed by all the
members of the respective committee. Such consent shall have the same force and
effect as a unanimous vote at a meeting. The signed consent, or a signed copy,
shall be placed in the minute book.
Section 4.Meetings by Communications Equipment.
Unless otherwise provided by the Articles of incorporation or By-laws,
any action required or permitted to be taken at a meeting of the Executive
Committee or other committee may be taken 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 a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
<PAGE>
ARTICLE VIII
NOTICES
Section 1. Form of Notice.
Whenever under the provisions of the Act or of the Articles of
Incorporation or of these By-laws notice is required to be given to any director
or shareholder, it shall not be construed to mean personal notice, but such
notice may be given in writing, by mail, addressed to such director or
shareholder at his address as it appears on the records of the Corporation with
postage thereon prepaid and such notice shall be deemed to be given at the time
when the same shall be deposited in the United States mail. Notice to directors
may also be given by telegram and telecopy or other means of immediate
communication. Any notice required or permitted to be given by telegram,
telecopy or other means of immediate communication shall be deemed to be given
at the time of actual delivery.
Section 2. Waiver of Notice.
Whenever any notice whatsoever is required to be given under the
provisions of the statutes or under the provisions of 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 therein, shall be deemed equivalent to the giving of such notice.
<PAGE>
ARTICLE IX
OFFICERS AND AGENTS
Section 1. General.
The officers of the Corporation shall include a President and a
Secretary, each of whom shall be elected by the Board of Directors. Such other
officers, including a Chairman of the Board, Chief Executive Officer, Vice
Presidents, a Treasurer and assistant officers, as may be deemed necessary, may
be elected or appointed by the Board of Directors. Any two or more offices may
be held by the same person. No officer, assistant officer or agent need be a
shareholder, a director or a resident of Texas. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
Section 2. Election.
The officers of the Corporation to be elected by the Board of Directors
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the shareholders. If the
election of officers shall not be held at such meeting or such meeting shall not
have been held, such election shall be held as soon thereafter as conveniently
may be. Each officer shall hold office until his successor shall have been duly
elected and shall have qualified or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
Section 4. Removal.
Any officer or agent elected or appointed by the Board of Directors may
be removed by the Board of Directors whenever, in its judgment, the best
interests of the Corporation will be served thereby. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights. Any vacancy occurring in any office of the Corporation may be
filled by the Board of Directors.
Section 5. Authority, Duties of Officers and Agents.
Officers and agents shall have such authority and perform such duties
in the management of the Corporation as are provided in these By-laws or as may
be determined by resolution of the Board of Directors not inconsistent with
these By-laws.
Section 6. Compensation of Officers and Agents.
The salaries and compensation of officers and agents of the Corporation
shall be fixed from time to time by the Board of Directors.
Section 7. Chairman of the Board.
If there be a Chairman of the Board of Directors, he shall be chosen
from among the directors. He shall have the power to call special meetings of
the shareholders and of the directors for any purpose or purposes, and he shall
preside at all meetings of the shareholders and of the Board of Directors,
unless he shall be absent or unless he shall, at his option, designate the Chief
Executive Officer, if there be one, or the President to preside in his stead at
some particular meeting. He shall advise and counsel the Chief Executive Officer
or the President and other officers of the Corporation, and shall exercise such
duties as may be assigned to or required of him from time to time by the Board
of Directors.
<PAGE>
Section 8. Chief Executive Officer.
The Chief Executive Officer, if one be elected by the Board of
Directors, shall be the chief executive officer of the Corporation and, subject
to the provisions of these By-laws, shall have general and active control of all
its business. In the absence of the Chairman of the Board, the Chief Executive
Officer shall preside, when present, at all meetings of shareholders and at all
meetings of the Board of Directors and shall see that all orders and resolutions
of the Board of Directors and the shareholders are carried into effect. The
Chief Executive Officer shall have general authority to execute bonds, deeds,
and contracts in the name of the Corporation and affix the corporate seal
thereto; to sign stock certificates; to cause the employment or appointment of
such employees and agents of the Corporation as the proper conduct of operations
may require, and to fix their compensation, subject to the provisions of these
By-laws; to remove or suspend any employee or agent who shall have been employed
or appointed under his authority or under authority of an officer subordinate to
him; to suspend for cause, pending final action by the authority which shall
have elected or appointed him, any officer subordinate to the chief executive
office; and, in general, to exercise all the powers and authority usually
pertaining to the Chief Executive Officer of a corporation, except as otherwise
provided by these By-laws.
Section 9. President.
If there be a Chairman of the Board of Directors or a Chief Executive
Officer, the powers and duties of the President shall be subject to the powers
and duties of the Chairman of the Board of Directors or the Chief Executive
Officer. If there be no Chairman or Chief Executive Officer, the President shall
have all the powers and duties provided for in Section 8.
Section 10. Vice Presidents.
The Vice-President or, if there shall be more than one, the
Vice-Presidents, in the order determined by the Board of Directors, shall, in
the absence or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 11. Assistant Vice President.
In the absence of a Vice President or in the event of his inability or
refusal to act, the Assistant Vice President, if any, (or if there be more than
one, the Assistant Vice Presidents in the order designated or, in the absence of
any designation, then in the order of their election), shall perform the duties
and exercise the powers of that Vice President, and shall perform such other
duties and have such other powers as the Board of Directors, the Chief Executive
Officer, the President, or the Vice President under whose supervision he is
appointed may from time to time prescribe.
Section 12. Secretary.
The Secretary shall attend all meetings of the Board of
Directors and all meetings of the shareholders and record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the Executive Committee
or other committees 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 have
custody of the corporate seal of the Corporation and he, or an Assistant
Secretary, shall have authority to affix the same to any instrument requiring it
and, when so affixed, it may be attested by his signature or by the signature of
such Assistant Secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
Section 13. Assistant Secretary.
The Assistant Secretary or, if there be more than one, the
Assistant Secretaries, in the order determined by the Board of Directors, shall,
in the absence or disability of the Secretary perform the duties and exercise
the powers of the Secretary and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
<PAGE>
Section 14. Treasurer.
The Treasurer (or the Vice President in charge of finance, if
one be elected), shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to 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 Chief Executive Officer, the
President and the Board of Directors, at its regular meeting or when the Board
of Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the Corporation.
Section 15. Assistant Treasurer.
The Assistant Treasurer or, if there shall be more than one, the
Assistant Treasurers, in the order determined by the Board of Directors, shall,
in the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
Section 16. Bonding.
If required by the Board of Directors, all or certain officers of the
Corporation shall give the Corporation a bond in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of their office and for the restoration to the
Corporation in case of their death, resignation, retirement or removal from
office of all books, papers, vouchers, money and other property of whatever kind
in their possession or under their control belonging to the Corporation.
ARTICLE X
GENERAL COUNSEL
The Board of Directors may appoint a general counsel for the
Corporation at compensation to be set by the Board. The general counsel, as
such, shall not be an officer of the Corporation unless the Board of Directors
shall so designate him in the resolution of appointment, but the person
designated as general counsel may hold any other office to which he is elected.
The Board may appoint an individual lawyer or a law firm as the general counsel
of the Corporation, as it may elect. If a law firm should be selected, then one
member thereof shall be designated as the particular lawyer in such firm whose
personal services are contemplated. The General Counsel shall, when called upon,
counsel and advise with the officers of this Corporation on any legal matters
which may arise in the conduct of the Corporation's business, shall handle all
claims and litigation involving the Corporation, and shall perform such further
legal services as may be contemplated in the contract of employment.
<PAGE>
ARTICLE XI
POWER TO INDEMNIFY AND TO PURCHASE
INDEMNITY INSURANCE; DUTY TO INDEMNIFY
Section 1. In this Article XI:
(a) "Corporation," includes any domestic or foreign predecessor entity
of the Corporation in a merger, consolidation, or other transaction in which the
liabilities of the predecessor are transferred to the Corporation by operation
of law and in any other transaction in which the Corporation assumes the
liabilities of the predecessor but does not specifically exclude liabilities
that are the subject matter of this Article.
(b) "Director" means any person who is or was a director of the
Corporation, any person who, while a director of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise.
(c) "Expenses" include court costs and attorneys' fees.
(d) "Official capacity", means:
(1) when used with respect to a director, the office of
director in the Corporation; and
(2) when used with respect to a person other than a director,
the elective or appointive office in the Corporation held by the
officer or the employment or agency relationship undertaken by the
employee or agent in behalf of the Corporation, but
(3) in both Paragraph (1) and (2) does not include service for
any other foreign or domestic corporation or any partnership, joint
venture, sole proprietorship, trust, employee benefit plan, or other
enterprise.
(e) "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.
<PAGE>
Section 2. The Corporation shall indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding because
the person is or was a director of the Corporation only if it is determined in
accordance with Section 6 of this Article XI that the person:
(a) conducted himself in good faith;
(b) reasonably believed:
(1)in the case of conduct in his official capacity as a director
of the Corporation, that his conduct was in the Corporation's best
interests; and
(2) in all other cases, that his conduct was at least not opposed
to the Corporation's best interests; and
(c) in the case of any criminal proceeding, had no reasonable cause to
believe his conduct was unlawful.
Section 3. Except to the extent permitted by Section 5 of this Article,
a director may not be indemnified under Section 2 of this Article in respect of
a proceeding:
(a) in which the person is found to be liable on the basis that
personal benefit was improperly received by him, whether or not the benefit
resulted from an action taken in the person's official capacity; or
(b) in which the person is found liable to the Corporation.
Section 4. The termination of a proceeding by judgment, order,
settlement, or conviction, or on a plea of nolo contenders or its equivalent is
not of itself determinative that the person did not meet the requirements set
forth in Section 2 of this Article. A person shall be deemed to have been found
liable in respect of any claim, issue or matter only after the person shall have
been so adjudged by a court of competent jurisdiction after exhaustion of all
appeals therefrom.
Section 5. A person may be indemnified under Section 2 of this Article
against judgments, penalties (including excise and similar taxes), fines,
settlement, and reasonable expenses actually incurred by the person in
connection with the proceeding; but if the person is found liable to the
Corporation or is found liable on the basis that personal benefit was improperly
received by the person, the indemnification:
(a)is limited to reasonable expenses actually incurred by the person
in connection with the proceeding; and
(b) shall not be made in respect of any proceeding in which the person
shall have been found liable for willful or intentional misconduct in the
performance of his duty to the Corporation.
Section 6. A determination of indemnification under Section 2 of this
Article XI must be made:
(a) by a majority vote of a quorum consisting of directors who at the
time of the vote are not named defendants or respondents in the proceeding;
(b) if such a quorum cannot be obtained, by a majority vote of a
committee of the Board of Directors designated to act in the matter by a
majority vote of all directors, consisting solely of two or more directors who
at the time of the vote are not named defendants or respondents in the
proceeding;
(c) by special legal counsel selected by the Board of Directors or a
committee of the Board by vote as set forth in Subsection (a) or (b) of this
Section, or, if such a quorum cannot be obtained and such a committee cannot be
established, by a majority vote of all directors; or
(d) by the shareholders in a vote that excludes the shares held by
directors who are named defendants or respondents in the proceeding.
<PAGE>
Section 7. Authorization of indemnification and determination as to
reasonableness of expenses must be made in the same manner as the determination
that indemnification is permissible, except that if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses must be
made in the manner specified by Subsection (c) of Section 6 of this Article XI
for the selection of special legal counsel. A provision contained in the
Articles of Incorporation, the By-laws, a resolution of shareholders or
directors, or an agreement that makes mandatory the indemnification permitted
under Section 2 of this Article XI shall be deemed to constitute authorization
of indemnification in the manner required by this Section 7 even though such
provision may not have been adopted or authorized in the same manner as the
determination that indemnification is permissible.
Section 8. The Corporation shall indemnify a director against
reasonable expenses incurred by him in connection with a proceeding in which he
is a named defendant or respondent because he is or was a director if he has
been wholly successful, on the merits or otherwise, in the defense of the
proceeding.
Section 9. If, in a suit for the indemnification required by Section 8
of this Article XI, a court of competent jurisdiction determines, that the
director is entitled to indemnification under that Section, the court shall
order indemnification and shall award to the director the expenses incurred in
securing the indemnification.
Section 10. If, upon application of a director, a court of competent
jurisdiction determines, after giving any notice the court considers necessary,
that the director is fairly and reasonably entitled to indemnification in view
of all the relevant circumstances, whether or not he has met the requirements
set forth in Section 2 of this Article XI or has been adjudged liable in the
circumstances described by Section 3 of this Article XI, the court may order the
indemnification that the court determines is proper and equitable. The court
shall limit indemnification to reasonable expenses if the proceeding is brought
by or in behalf of the Corporation or if the director is found liable on the
basis that personal benefit was improperly received by him, whether or not the
benefit resulted from an action taken in the person's official capacity.
Section 11. Reasonable expenses incurred by a director who was, is, or
is threatened to be made a named defendant or respondent in a proceeding may be
paid or reimbursed by the Corporation, in advance of the final disposition of
the proceeding and without any of the determination specified in Section 6 and 7
of this Article XI, after the Corporation receives a written affirmation by the
director of his good faith belief that he has met the standard of conduct
necessary for indemnification under this Article XI and a written undertaking by
or on behalf of the director to repay the amount paid or reimbursed if it is
ultimately determined that he has not met those requirements.
Section 12. The written undertaking required by Section 11 of this
Article XI must be an unlimited general obligation of the director but need not
be secured. It may be accepted without reference to financial ability to make
repayment.
Section 13. A provision for the Corporation to indemnify or to advance
expenses to a director who was, is, or is threatened to be made a named
defendant or respondent in a proceeding, whether contained in the Articles of
Incorporation, the By-laws, a resolution of shareholders or directors, an
agreement or otherwise, except in accordance with Section 18 of this Article XI,
is valid only to the extent it is consistent with this Article XI as limited by
the Articles of Incorporation, if such a limitation exists.
Section 14. Notwithstanding any other provision of this Article XI, the
Corporation may pay or reimburse expenses incurred by a director in connection
with his appearance as a witness or other participation in a proceeding at a
time when he is not a named defendant or respondent in the proceeding.
Section 15. An officer of the Corporation shall be indemnified as, and
to the same extent, provided by Sections 8, 9, and 10 of this Article XI for a
director and is entitled to seek indemnification under those sections to the
same extent as a director. The Corporation may indemnify and advance expenses to
an officer, employee, or agent of the Corporation to the same extent that it may
indemnify and advance expenses to directors under this Article XI.
<PAGE>
Section 16. The Corporation may indemnify and advance expenses to
persons who are not or were not officers, employees, or agents of the
Corporation who are or were serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venturer sole proprietorship, trust, employee benefit plan or other
enterprise, to the same extent that it may indemnify and advance expenses to
directors under this Article XI.
Section 17. The Corporation may indemnify and advance expenses to an
officer, employee or agent, or person who is identified in Section 16 of this
Article XI and who is not a director to such further extent, consistent with
law, as may be provided by the Articles of Incorporation, By-laws, general or
specific action of the Board of Directors, or contract or as permitted or
required by common law.
Section 18. The Corporation may purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation or who is or was serving at the request of
the Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him
and incurred by him in such a capacity or arising out of his status as such a
person, whether or not the Corporation would have the power to indemnify him
against that liability under this Article XI. If the insurance or other
arrangement is with a person or entity that is not regularly engaged in the
business of providing insurance coverage, the insurance or arrangement may
provide for payment of a liability with respect to which the Corporation would
not have the power to indemnify the person only if including coverage for the
additional liability has been approved by the shareholders of the Corporation.
Without limiting the power of the Corporation to procure or maintain any kind of
insurance or other arrangement, the Corporation may, for the benefit of persons
indemnified by the Corporation:
(a) create a trust fund;
(b) establish any form of self-insurance;
(c) secure its indemnity obligation by grant of a security interest or
other lien on the assets of the Corporation; or
(d) establish a letter of credit, guaranty, or surety arrangement.
The insurance or other arrangement may be procured, maintained, or
established within the Corporation or with any insurer or other person deemed
appropriate by the Board of Directors regardless of whether all or part of the
stock or other securities of the insurer `or other person are owned in whole or
part by the Corporation. In the absence of fraud, the judgment of the Board of
Directors as to the terms and conditions of the insurance or other arrangement
and the identity of the insurer or other person participating in an arrangement
shall be conclusive and the insurance or arrangement shall not be voidable and
shall not subject the directors approving the insurance or arrangement to
liability, on any ground, regardless of whether directors participating in the
approval are beneficiaries of the insurance or arrangement.
Section 19. Any indemnification of or advance of expenses to a director
in accordance with this Article XI shall be reported in writing to the
shareholders with or before the notice or waiver of notice of the next
shareholders' meeting or with or before the next submission to the shareholders
of a consent to action without a meeting pursuant to Section A, Article 9.10 of
the Texas Business Corporation Act and, in any case, within the 12-month period
immediately following the date of the indemnification or advance.
Section 20. For purposes of this Article XI, the Corporation is deemed
to have requested a director to serve an employee benefit plan whenever the
performance by him of his duties to the Corporation also imposes duties on or
otherwise involves services by him to the plan or participants or beneficiaries
of the plan. Excise taxes assessed on a director with respect to an employee
benefit plan pursuant to applicable law are deemed fines. Action taken or
omitted by him with respect to an employee benefit plan in the performance of
his duties for a purpose reasonably believed by him to be in the interest of the
participants and beneficiaries of the plan is deemed to be for a purpose which
is not opposed to the best interests of the Corporation.
<PAGE>
ARTICLE XII
CERTIFICATES FOR SHARES
Section 1. Form of Certificate.
The shares of capital stock of the Corporation shall be represented by
certificates signed by the Chief Executive Officer, the President or a Vice
President and the Secretary or an Assistant Secretary of the Corporation and may
be sealed with the seal of the Corporation or a facsimile thereof.
When the Corporation is authorized to issue shares of more than one
class, every certificate shall set forth upon the face or back of such
certificate, or shall state that the Corporation will furnish to any shareholder
upon request and without charge a full statement of the designations,
preferences, limitations and relative rights of the shares of each class
authorized to be issued and, if the Corporation is authorized to issue any
preferred or special class in series, the variations in the relative rights and
preferences between the shares of each such series so far as the same have been
fixed and determined and the authority of the Board of Directors to fix and
determine the relative rights and preferences of subsequent series.
Section 2. Facsimilie Signatures.
The signatures of the officers of the Corporation upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation itself or an employee of
the Corporation. In case any officer who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such officer
before such certificate was issued, it may be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
Section 3. Lost Certificates.
The Board of Directors may direct a new certificate to be issued in
place of any certificate theretofore issued by the Corporation alleged to have
been 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 prescribe such terms and conditions as it deems expedient,
and may require such indemnities as it deems adequate, to protect the
Corporation from any claim that may be made against it with respect to any such
certificate alleged to have been lost or destroyed.
Section 4. Transfer of Shares.
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, a new
certificate shall be issued to the person entitled thereto, and the old
certificate canceled and the transaction recorded upon the books of the
Corporation.
Section 5. Closing of Transfer Books.
For the purpose of determining shareholders entitled to notice of or to
vote at any meeting of shareholders or any adjournment thereof or entitled to
receive payment of any distribution or dividend or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a stated
period but not to exceed, in any case, fifty (50) days. If the stock transfer
books shall be closed for the purpose of determining shareholders entitled to
notice of or to vote at a meeting of shareholders, such books shall be closed
for a least ten (10) days immediately preceding such meeting. In lieu of closing
the stock transfer books, the Board of Directors may fix, in advance, a date as
the record date for any such determination of shareholders, such date in any
case to be not more than 50 days and, in case of a meeting of shareholders, not
less than ten days prior to the date on which the particular action, requiring
such determination of shareholders, is to be taken. If the stock transfer books
are not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
Section 6. Registered Shareholders.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive distributions
or dividends, to vote as such owner and to hold liable for calls and assessments
a person registered on its books as the owner of shares, and shall not be bound
to recognize any equitable or other claim to 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 the laws of Texas.
<PAGE>
Section 7. List of Shareholders.
The officer or agent having charge of the transfer books for shares
shall make, at least ten (10) days before each meeting of shareholders, a
complete list of the shareholders entitled to vote at such meeting, arranged in
alphabetical order, with the address of each and the number of shares held by
each, which list, for a period of ten (10) days prior to such meeting, shall be
kept on file at the registered office of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time of
the meeting. The original share ledger or transfer book, or a duplicate thereof,
shall be prima facie evidence as to who are the shareholders entitled to examine
such list or share ledger or transfer book or to vote at any meeting of the
shareholders.
ARTICLE XIII
GENERAL PROVISIONS
Section 1. Distributions and Dividends
Subject to the Articles of Incorporation, distributions or share
dividends may be declared by the Board of Directors at any regular or special
meeting. Distributions and dividends may be paid in cash, in property or in
shares of the capital stock, subject to any provisions of the Act and the
Articles of Incorporation. The declaration and payment of distributions and
dividends shall be at the discretion of the Board of Directors.
Before payment of any distribution or dividend, there may be set aside
out of any funds of the Corporation available for distributions or dividends
such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve fund to meet contingencies or for
equalizing distributions or dividends or for repairing or maintaining any
property of the Corporation or for such other purpose as the directors shall
think conducive to the interest of 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 resolution of the
Board of Directors.
Section 5. Seal.
The Corporation seal shall have inscribed thereon the name of the
Corporation and indicate that it is incorporated in the State of Texas. The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any manner reproduced. Any officer of the Corporation shall have authority to
affix the seal to any document requiring it. The Corporation shall not be
required to have a seal.
ARTICLE XIV
AMENDMENTS
These By-laws may be altered, amended or repealed or new By laws may be
adopted at any regular or special 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, provided notice of the proposed alteration, amendment or
repeal be contained in the notice of such meeting subject to repeal or change by
action of the shareholders.
No By-law shall be adopted by the directors which shall require more
than a majority of the voting shares for a quorum at a meeting of shareholders,
nor more than a majority of the votes cast to constitute action by the
shareholders, except where higher percentages are required by law or by the
Articles of Incorporation.
DRAFT - 7/1/98
WARRANT AGREEMENT
Between
HOLLOMAN CORPORATION
And
AMERICAN STOCK TRANSFER & TRUST COMPANY
As Warrant Agent
for Public Offering of 1,000,000 Units of Common Stock and
Redeemable Common Stock Purchase Warrants
Dated ______________, 1998
THIS WARRANT AGREEMENT, dated as of ______________, 1998, between
Holloman Corporation, a Texas corporation (hereinafter called the "Company"),
and American Stock Transfer & Trust Company, New York, New York, as warrant
agent (hereinafter called the "Warrant Agent");
WHEREAS, the Company proposes to issue 1,000,000 Redeemable Common
Stock Purchase Warrants (hereinafter called the "Warrants"), entitling the
holders thereof to purchase one share of Common Stock, no par value (hereinafter
called the "Common Stock") for each Warrant, in connection with the proposed
issuance by the Company of 1,000,000 Units, each Unit consisting of one share of
Common Stock and one Warrant, and the Company also proposes to issue up to
150,000 Warrants underlying, in part, the Underwriters' over-allotment option
and 100,000 Warrants underlying, in part, a warrant to purchase Units to be
granted to the Representative of the Underwriters; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to act in connection with the
registration, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
1. Appointment of Warrant Agent. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions hereinafter in this Agreement set forth, and the Warrant Agent
hereby accepts such appointment.
2. Form of Warrant. The text of the Warrant and of the form of election
to purchase shares to be printed on the reverse thereof shall be substantially
as set forth in Exhibit A attached hereto. The Warrant Price to purchase one
share of Common Stock shall be as provided and defined in Section 8. The
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman of the Board or President or
Vice President of the Company, under its corporate seal, affixed or in
facsimile, attested by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company. Warrants shall be dated
as of the date of issuance thereof by the Warrant Agent either upon initial
issuance or upon transfer or exchange.
3. Countersignature and Registration. The Warrant Agent shall maintain
books for the transfer and registration of the Warrants. The Warrants shall be
countersigned by the Warrant Agent (or by any successor to the Warrant Agent
then acting as warrant agent under this Agreement) and shall not be valid for
any purpose unless so countersigned. Warrants may be so countersigned, however,
by the Warrant Agent (or by its successor as warrant agent) and be delivered by
the Warrant Agent, notwithstanding that the persons whose manual or facsimile
signatures appear
<PAGE>
thereon as proper officers of the Company shall have ceased to be such officers
at the time of such countersignature or delivery.
4. Transfers and Exchanges. The Warrant Agent shall transfer, from time
to time after the sale of the Units, any outstanding Warrants upon the books to
be maintained by the Warrant Agent for that purpose, upon surrender thereof for
transfer properly endorsed or accompanied by appropriate instructions for
transfer. Upon any such transfer, a new Warrant shall be issued to the
transferee, and the surrendered Warrant shall be cancelled by the Warrant Agent.
Warrants so cancelled shall be delivered by the Warrant Agent to the Company
from time to time. The Warrants may be exchanged at the option of the holder
thereof, when surrendered at the office of the Warrant Agent, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock. The Warrant Agent is hereby irrevocably authorized to countersign
in accordance with Section 3 of this Agreement the new Warrants required
pursuant to the provisions of this section, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed
on behalf of the Company for such purpose.
5. Exercise of Warrants. Subject to the provisions of this Agreement,
each registered holder of Warrants shall have the right, which may be exercised
as in such Warrants expressed, to purchase from the Company (and the Company
shall issue and sell to such registered holder of warrants) the number of fully
paid and nonassessable shares of Common Stock specified in such Warrants, upon
surrender of such Warrants to the Company at the office of the Warrant Agent,
with the form of election to purchase on the reverse thereof duly filled in and
signed, and upon payment to the Warrant Agent for the account of the Company of
the Warrant Price for the number of shares of common stock in respect of which
such Warrants are then exercised. Payment of such Warrant Price may be made in
cash, or by certified or official bank check, payable in United States dollars,
to the order of the Warrant Agent. No adjustment shall be made for any dividends
on any shares of Common Stock issuable upon exercise of a Warrant. Upon such
surrender of Warrants, and payment of the Warrant Price as aforesaid, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the registered holder of such Warrants and in such
name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares as of the date of the
surrender of such Warrants and payment of the Warrant Price as aforesaid;
provided, however, that if, at the date of surrender of such Warrants and
payment of the Warrant Price, the transfer books for the Common Stock or other
class of stock purchasable upon the exercise of such Warrants shall be closed,
the certificates for the shares in respect of which such Warrants are then
exercised shall be issuable as of the date on which such books shall next be
opened and until such date the Company shall be under no duty to deliver any
certificate for such shares; provided further, however, that the transfer books
aforesaid, unless otherwise required by law, shall not be closed at any one time
for a period longer than 20 days. The rights of purchase represented by the
Warrants shall be exercisable, at the election of the registered holders
thereof, either as an entirety or from time to time for part only of the shares
specified therein, and in the event that any Warrant is exercised in respect of
less than all of the shares specified therein, a new Warrant or Warrants will be
issued for the remaining number of shares specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section and of Section 3 of this Agreement and the Company, whenever
required by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose.
6. Mutilated or Missing Warrants. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company will issue and the Warrant
Agent will countersign and deliver in exchange and substitution for and upon
cancellation of the mutilated warrant, or in lieu of and substitution for the
Warrant lost, stolen or destroyed, a new Warrant of like tenor and representing
an equivalent right or interest; but only upon receipt of evidence satisfactory
to the Company and the Warrant Agent of such loss, theft or destruction of such
Warrant and indemnity, if requested, also satisfactory to them. Applicants for
such substitute Warrants shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or the Warrant
Agent may prescribe.
7. Reservation and Registration of Common Stock.
A. There have been reserved, and the Company shall at all times keep
reserved, out of the authorized and unissued shares of Common Stock, a number of
shares sufficient to provide for the exercise of the rights of purchase
represented by the Warrants, and the Transfer Agent for the Common Stock and
every subsequent Transfer Agent for any shares of the Company's capital stock
issuable upon the exercise of any of the rights of purchase aforesaid are hereby
irrevocably authorized and directed at all times to reserve such number of
authorized and unissued shares as shall be requisite for such purpose. The
Company will keep a copy of this Agreement on file with the Transfer Agent for
the Common Stock and with every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time such Transfer Agent for stock certificates
required to honor outstanding Warrants. The Company will supply such Transfer
Agents with duly executed stock certificates for such purpose and will itself
provide or otherwise make available any cash which may be issuable as provided
in Section 9 of this Agreement. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be cancelled by the Warrant Agent and shall
thereafter be delivered to the Company, and such cancelled Warrants shall
constitute sufficient evidence of the number of shares of stock which have been
issued upon the exercise of such Warrants.
B. The Company represents that it has registered under the Securities
Act of 1933, as amended, the shares of Common Stock issuable upon exercise of
the Warrants and will use its best efforts to maintain the effectiveness of such
registration by post-effective amendment during the entire period in which the
Warrants are exercisable, and that it will use its best efforts to qualify such
Common Stock for sale under the securities laws of such states of the United
States as may be necessary to permit the exercise of the Warrants in the states
in which the Units are initially qualified and to maintain such qualifications
during the entire period in which the Warrants are exercisable.
8. Warrant Price; Adjustments.
A. The price at which Common Stock shall be purchasable upon exercise
of Warrants at any time after the Common Stock and Warrants become separately
tradable until ____________, 2003 (hereinafter called the "Warrant Price") shall
be $_____ per share of common stock or, if adjusted as provided in this Section,
shall be such price as so adjusted.
B. The Warrant Price shall be subject to adjustment from time to time
as follows:
(1) Except as hereinafter provided, in case
the Company shall at any time or from time to time after the
date hereof issue any additional shares of Common Stock for a
consideration per share less than the Warrant Price in effect
immediately prior to the issuance of such additional shares,
or without consideration, then, upon each such issuance, the
Warrant Price in effect immediately prior to the issuance of
such additional shares shall forthwith be reduced to a price
(calculated to the nearest full cent) determined by dividing:
(a) An amount equal to (i) the total
number of shares of Common Stock outstanding
immediately prior to such issuance multiplied by the
Warrant Price in effect immediately prior to such
issuance, plus (ii) the consideration. if any.
received by the Company upon such issuance, by
(b) The total number of shares of
Common Stock outstanding immediately after the
issuance of such additional shares.
(2) The Company shall not be required to
make any such adjustment of the Warrant Price in accordance
with the foregoing if the amount of such adjustment shall be
less than $0.05 (adjustment will be made when cumulative
adjustment equals or exceeds $0.05) but in such case the
Company shall maintain a cumulative record of the Warrant
Price as it would have been in the absence of this provision
(the "Constructive Warrant Price"), and for the purpose of
computing a new Warrant Price after the next subsequent
issuance of additional shares (but not for the purpose of
determining whether an adjustment thereof is required under
the terms of this paragraph) the constructive Warrant Price
shall be deemed to be the Warrant Price in effect immediately
prior to such issuance.
(3) For the purpose of this Section 8 the following provisions
shall also be applicable:
(a) In the case of the issuance of
additional shares of Common Stock for cash, the
consideration received by the Company therefor shall
be deemed to be the net cash proceeds received by the
Company for such shares before deducting any
commissions or other expenses paid or incurred by the
Company for any underwriting of, or otherwise in
connection with, the issuance of such shares.
(b) In case of the issuance
(otherwise than upon conversion or exchange of shares
of Common stock) of additional shares of Common Stock
for a consideration other than cash or a
consideration a part of which shall be other than
cash, the amount of the consideration other than cash
received by the Company for such shares shall be
deemed to be the value of such consideration as
determined in good faith by the Board of Directors of
the Company, as of the date of the adoption of the
resolution of said Board, providing for the issuance
of such shares for consideration other than cash or
for consideration a part of which shall be other than
cash, such fair value to include goodwill and other
intangibles to the extent determined in good faith by
the Board.
(c) In case of the issuance by the
Company after the date hereof of any security (other
than the Warrants) that is convertible into shares of
Common Stock or of any warrants, rights or options to
purchase shares of Common stock (except the options
and warrants referred to in subsection H of this
Section 8), (i) the Company shall be deemed (as
provided in subparagraph (e) below) to have issued
the maximum number of shares of Common Stock
deliverable upon the exercise of such conversion
privileges or warrants, rights or options, and (ii)
the consideration therefor shall be deemed to be the
consideration received by the Company for such
convertible securities or for such warrants, rights
or options, as the case may be, before deducting
therefrom any expenses or commissions incurred or
paid by the Company for any underwriting of, or
otherwise in connection with, the issuance of such
convertible security or warrants, rights or options,
plus (A) the minimum consideration or adjustment
payment to be received by the Company in connection
with such conversion, or (B) the minimum price at
which shares of Common Stock are to be delivered upon
exercise of such warrants, rights or options or, if
no minimum price is specified and such shares are to
be delivered at an option price related to the market
value of the subject shares, an option price bearing
the same relation to the market value of the subject
shares at the time such warrants, rights or options
were granted; provided that as to such options such
further adjustment as shall be necessary on the basis
of the actual option price at the time of exercise
shall be made at such time if the actual option price
is less than the aforesaid assumed option price. No
further adjustment of the Warrant Price shall be made
as a result of the actual issuance of the shares of
Common Stock referred to in this subparagraph (c). on
the expiration of such warrants, rights or options,
or the termination of such right to convert, the
Warrant Price shall be readjusted to such Warrant
Price as would have pertained had the adjustments
made upon the issuance of such warrants, rights,
options or convertible securities been made upon the
basis of the delivery of only the number of shares of
Common Stock actually delivered upon the exercise of
such warrants, rights or options or upon the
conversion of such securities.
(d) For the purposes hereof, any
additional shares of Common Stock issued as a stock
dividend shall be deemed to have been issued for no
consideration.
(e) The number of shares of Common
Stock at any time outstanding shall include the
aggregate number of shares deliverable in respect of
the convertible securities, rights and options
referred to in subparagraph (C) of this paragraph;
provided that with respect to shares referred to in
clause (i) of subparagraph (c), to the extent that
such warrants, options, rights or conversion
privileges are not exercised, such shares shall be
deemed to be outstanding only until the expiration
dates of the warrants, rights, options or conversion
privileges or the prior cancellation thereof.
C. In case the Company shall at any time subdivide its outstanding
shares of Common stock into a greater number of shares, the Warrant Price in
effect immediately prior to such subdivision shall be proportionately reduced
and, in case the outstanding shares of the Common Stock of the Company shall be
combined into a smaller number of shares, the Warrant Price in effect
immediately prior to such combination shall be proportionately increased.
D. Upon each adjustment of the Warrant Price pursuant to the provisions
of this Section 8, the number of shares issuable upon the exercise of each
Warrant shall be adjusted by multiplying the Warrant Price in effect prior to
the adjustment by the number of shares of Common Stock covered by the warrant
and dividing the product so obtained by the adjusted Warrant Price.
E. Except upon consolidation or reclassification of the shares of
Common Stock of the Company as provided for in subsection (c) hereof and except
for readjustment of the Warrant Price upon expiration of warrants, rights or
options as provided for in subparagraph (c) of paragraph 3 of subsection (B)
hereof, the Warrant Price in effect at any time may not be adjusted upward or
increased in any manner whatsoever.
F. Irrespective of any adjustment or change in the warrant Price or the
number of shares of Common Stock actually purchasable under the several
Warrants, the Warrants theretofore and thereafter issued may continue to express
the Warrant Price per share and the number of shares purchasable thereunder as
the Warrant Price per share and the number of shares purchasable were expressed
in the Warrants when initially issued.
G. If any capital reorganization or reclassification of the capital
stock of the Company (other than a distribution of stock in accordance with
Section 10(B)) or consolidation or merger of the Company with another
corporation or the sale of all or substantially all of its assets to another
corporation shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger or Bale, lawful and adequate provision
shall be made whereby the holder of each Warrant then outstanding shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions specified herein and in the Warrants and in lieu of the
shares of the common Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented by each such warrant,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented by each
such Warrant had such reorganization, reclassification, consolidation, merger or
sale not taken place, and in any such case appropriate provisions shall be made
with respect to the rights and interest of the holder of each Warrant then
outstanding to the end that the provisions thereof (including without limitation
provisions for adjustment of the Warrant Price and of the number of shares
purchasable upon the exercise of each Warrant then outstanding) shall thereafter
be applicable as nearly as may be in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of each Warrant.
H. No adjustment of the Warrant Price shall be made in connection with
the issuance or sale of shares of Common Stock issuable pursuant to currently
outstanding options and warrants granted to officers, directors, employees,
advisory directors, or affiliates of the Company.
I. Whenever the Warrant Price is adjusted as herein provided, the
Company shall (a) forthwith file with the Warrant Agent a certificate signed by
the Chairman of the Board or the President or a Vice President of the Company
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company, showing in detail the facts requiring such adjustment
and the Warrant Price and the number of shares of Common Stock purchasable upon
exercise of the Warrants after such adjustment and (b) cause a notice stating
that such adjustment has been effected and stating the adjusted warrant Price
and the number of shares of Common Stock purchasable upon exercise of the
Warrants to be published at least once a week for two consecutive weeks in a
newspaper of general circulation in Oklahoma City, Oklahoma and in New York, New
York. The Company, at its option, may cause a copy of such notice to be sent by
first class mail, postage prepaid, to each registered holder of Warrants at his
address appearing on the Warrant register. The Warrant Agent shall have no duty
with respect to any such certificate filed with it except to keep the same on
file and available for inspection by holders of Warrants during reasonable
business hours. The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of a Warrant to determine whether any facts exist
which may require any adjustment of the Warrant Price, or with respect to the
nature or extent of any adjustment of the Warrant Price when made, or with
respect to the method employed in making such adjustment.
J. The Company may retain a firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) selected by the Board of
Directors of the Company or the Executive Committee of said Board and approved
by the Warrant Agent, to make any computation required under this Section 8, and
a certificate signed by such firm shall be conclusive evidence of the
correctness of any computation made under this Section 8.
K. In case at any time conditions shall arise by reason of action taken
by the Company which, in the opinion of the Board of Directors of the Company,
are not adequately covered by the other provisions of this Agreement and which
might materially and adversely affect the rights of the holders of the Warrants,
or in case at any time any such conditions are expected to arise by reason of
any action contemplated by the Company, the Board of Directors of the Company
shall appoint a firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial statements
of the Company), who shall give their opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 8), of the Warrant
Price and the number of shares of Common Stock purchasable pursuant hereto
(including, if necessary, any adjustment as to the property which may be
purchasable in lieu thereof upon exercise of the Warrants) which is, or would
be, required to preserve without dilution the rights of the holders of the
Warrants. The Board of Directors of the Company shall make the adjustment
recommended forthwith upon the receipt of such opinion or the taking of any such
action contemplated, as the case may be; provided, however, that no adjustment
of the Warrant Price shall be made which in the opinion of the accountant or
firm of accountants giving the aforesaid opinion would result in an increase of
the Warrant Price to more than the Warrant Price then in effect except as
otherwise provided in subsection E of this Section 8.
9. No Fractional Interests. The Company shall not be required to issue
fractions of shares of Common Stock on the exercise of Warrants. If any fraction
of a share of Common Stock would, except for the provisions of this section, be
issuable on the exercise of any warrant (or specified portions thereof), the
Company shall purchase such fraction for an amount in cash equal to the current
value of such fraction (a) computed, if the Common Stock shall be listed or
admitted to unlisted trading privileges on any national or regional securities
exchange, on the basis of the last reported sale price of the Common Stock on
such exchange on the last business day prior to the date of exercise upon which
such a sale shall have been effected (or, if the Common Stock shall be listed or
admitted to unlisted trading privileges on more than one such exchange, on the
basis of such price on the exchange designated from time to time for such
purpose by the Board of Directors of the Company) or (b) computed, if the Common
Stock shall not be listed or admitted to unlisted trading privileges, on the
basis of the average of the high and low bid prices of the Common Stock in the
Nasdaq Stock Market, on the last business day prior to the date of exercise.
10. Notice to Warrant Holders.
A. Nothing contained in this Agreement or in any of the Warrants shall
be construed as conferring upon the holders thereof the right to vote or to
consent or to receive notice as stockholders in respect of the meetings of
stockholders for the election of directors of the Company or any other matters,
or any rights whatsoever as stockholders of the Company; provided, however, that
in the event that a meeting of stockholders shall be called to consider and take
action on a proposal for the voluntary dissolution of the Company, other than in
connection with a consolidation, merger or sale of all, or substantially all, of
its property, assets, business and goodwill as an entirety, then and in that
event the Company shall cause a notice thereof to be published at least once a
week for two consecutive weeks in a newspaper of general circulation in Oklahoma
City, Oklahoma and New York, New York, such publication to be completed at least
20 days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stock holders entitled to vote at
such meeting. The Company shall also cause a copy of such notice to be sent by
first class mail, Postage prepaid, at least 20 days prior to said date fixed as
a record date or said date of closing the transfer books, to each registered
holder of Warrants at his address appearing on the Warrant register; but failure
to mail or receive such notice or any defect therein or in the mailing thereof
shall not affect the validity of any action taken in connection with such
voluntary dissolution. If such notice shall have been so given and if such a
voluntary dissolution shall be authorized at such meeting or any adjournment
thereof, then for and after the date on which such voluntary dissolution shall
have been duly authorized by the stockholders, the purchase rights represented
by the Warrants and other rights with respect thereto shall cease and terminate.
B. If the Company shall make any distribution on, or to holders of, its
Common Stock (or other property which may be purchasable in lieu thereof upon
the exercise of Warrants) of any property (other than a cash dividend), the
Company shall cause a notice of its intention to make such distribution to be
published at least once a week for two consecutive weeks in a newspaper of
general circulation in Oklahoma City, Oklahoma and New York, New York, such
publication to be completed at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to receive such distribution. The Company shall also cause
a copy of such notice to be sent by first class mail, postage prepaid, at least
20 days prior to said date fixed as a record date or said date of closing the
transfer books, to each registered holder of Warrants at his address appearing
on the Warrant register; but failure to mail or to receive such notice or any
defect therein or in the mailing thereof shall not affect the validity of any
action taken in connection with such distribution.
11. Disposition of Proceeds on Exercise of Warrants.
A. The Warrant Agent shall account promptly to the Company with respect
to Warrants exercised and concurrently pay to the Company all monies received by
the Warrant Agent for the purchase of shares of the Company's stock through the
exercise of such Warrants.
B. The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours at its principal
office.
12. Redemption of Warrants.
A. At any time on or after _______________, 1999, the Company may, at
its option, redeem some or all of the outstanding Warrants at $0.05 per Warrant,
upon thirty (30) days' prior written notice, if the closing sale price of the
Common Stock on the American Stock Exchange or any other national securities
exchange, or the closing bid quotation on the Nasdaq Stock Market, has equaled
or exceeded $_____ for ten (10) consecutive trading days preceding the date
notice of redemption is given (the "Redemption Price"). In the event of an
adjustment in the Warrant Price pursuant to Section 8, the Redemption Price
shall also be automatically adjusted. In order to redeem the Warrants, the
Company must have on file with the Securities and Exchange Commission a current
registration statement pertaining to the Common Stock underlying the Warrants.
B. The election of the Company to redeem some or all of the Warrants
shall be evidenced by a resolution of the Board of Directors of the Company.
C. Warrants may be exercised at any time on or before the date fixed
for redemption (the "Redemption Date").
D. Notice of redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each holder of Warrants, at his address appearing in the Warrant
register.
All notices of redemption shall state:
(1) The Redemption Date;
(2) That on the Redemption Date the
Redemption Price will become due and payable upon each
Warrant;
(3) The place where such Warrants are to be
surrendered for redemption and payment of the Redemption
Price; and
(4) The current Warrant Price of the
Warrants, the place or places where such Warrants may be
surrendered for exercise, and the time at which the right to
exercise the Warrants will terminate in accordance with this
Agreement.
E. Notice of redemption of Warrants at the election of the Company
shall be given by the Company or, at the Company's request, by the Warrant Agent
in the name and at the expense of the Company.
F. Prior to any Redemption Date, the Company shall deposit with the
Warrant Agent an amount of money sufficient to pay the Redemption Price of all
the Warrants which are to be redeemed on that date. If any Warrant is exercised
pursuant to Section 5, any money so deposited with the Warrant Agent for the
redemption of such Warrant shall be paid to the Company.
G. Notice of redemption having been given as aforesaid, the Warrants so
to be redeemed shall, on the Redemption Date, become redeemable at the
Redemption Price therein specified and on such date (unless the Company shall
default in the payment of the Redemption Price), such Warrants shall cease to be
exercisable and thereafter represent only the right to receive the Redemption
Price. Upon surrender of such Warrants for redemption in accordance with said
notice, such Warrants shall be redeemed by the Company for the Redemption Price.
13. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent under
the provisions of Section 15 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement and at such time any of the Warrants shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the Warrant Agent and deliver such warrants so
countersigned; and in case at the time any of the Warrants shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrants
either in the name of the predecessor Warrant Agent or in the name of the
successor warrant agent; and in all such cases such Warrants shall have the full
force provided in the warrant and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver warrants so countersigned; and in case at that time any of the
Warrants shall not have been countersigned, the Warrant Agent may countersign
such Warrants whether in its prior name or in its changed name; and in all such
cases such Warrants shall have the full force provided in the Warrants and in
this Agreement.
14. Duties of Warrant Agent. The Warrant Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrants, by their
acceptance thereof, shall be bound:
A. The statements contained herein and in the Warrants shall be taken
as statements of the Company, and the Warrant Agent assumes no responsibility
for the correctness of any of the same except such as describe the Warrant Agent
or action taken or to be taken by it. The Warrant Agent assumes no
responsibility with respect to the distribution of the Warrants except as herein
otherwise provided.
B. The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
C. The Warrant Agent may execute and exercise any of the rights or
powers hereby vested in it to perform any duty hereunder either itself or by or
through its attorneys, agents or employees.
D. The Warrant Agent may consult at any time with counsel satisfactory
to it (who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant in
respect of any action taken, Buffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel, provided the
Warrant Agent shall have exercised reasonable care in the selection and
continued employment of such counsel.
E. The Warrant Agent shall incur no liability or responsibility to the
Company or to any holder of any Warrant for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate, or other paper,
document or instrument believed by it to be genuine and to have been signed,
sent or presented by the proper party or parties.
F. The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the warrant
Agent and save it harmless against any and all liabilities, including judgments,
costs and reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the Warrant
Agent's negligence or bad faith.
G. The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more registered holders of Warrants shall
furnish the Warrant Agent with reasonable security and indemnity for any cost
and expense which may be incurred, but this provision shall not affect the power
of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be enforced by the
Warrant Agent without the possession of any of the Warrants or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the Warrants, as their respective rights or
interests may appear.
H. The Warrant Agent and any stockholder, director, officer or employee
of the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become peculiarly interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
I. The Warrant Agent shall act hereunder solely as agent and not in a
ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence or bad faith.
15. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company notice
in writing, and to the holders of the Warrants notice by publication, of such
resignation, specifying a date when such resignation shall take effect, which
notice shall be published at least once a week for two consecutive weeks in a
newspaper of general circulation in Oklahoma City, Oklahoma and New York, New
York, prior to the date so specified. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company and by like publication. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the registered
holder of a Warrant (who shall, with such notice, submit his warrant for
inspection by the Company), then the registered holder of a Warrant may apply to
any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent.
Any successor warrant agent, whether appointed by the Company or by
such a court, shall be a bank or trust company having its principal office, and
having capital and surplus as shown by its last published report to its
stockholders, of at least $1,000,000. After appointment, the successor warrant
agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Warrant Agent without further act or deed;
but the former Warrant Agent shall deliver and transfer to the successor warrant
agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure to
file or publish any notice provided for in this section, however, or any defect
therein, shall not affect the legality or validity of the resignation or removal
of the Warrant Agent or the appointment of the successor warrant agent, as the
case may be.
16. Identify of Transfer Agent. Forthwith upon the appointment of any
Transfer Agent for the Common Stock or of any subsequent Transfer Agent for
shares of the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such Transfer Agent.
17. Notices. Any notice pursuant to this Agreement to be given or made
by the Warrant Agent or the registered holder of any Warrant to or on the
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) as follows:
Holloman Corporation
5257 West Interstate 20
Odessa, Texas 79763
Attention: President
Any notice pursuant to this Agreement to be given or made by the
Company or the registered holder of any Warrant to or on the Warrant Agent shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the warrant Agent with
the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
18. Supplements and Amendments. The Company and the Warrant Agent may
from time to supplement or amend this Agreement without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may deem
necessary or desirable and which shall not be inconsistent with the provisions
of the Warrants and which shall not adversely affect the interests of the
holders of Warrants.
19. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
20. Merger or Consolidation of the Company. The Company shall not
effect any consolidation or merger with, or sale of substantially all its
property to, any other corporation unless the corporation resulting from such
merger (if not the Company) or consolidation or the corporation purchasing such
property shall expressly assume, by supplemental agreement satisfactory in form
to the Warrant Agent and executed and delivered to the Warrant Agent, the due
and punctual performance and observance of each and every covenant and condition
of this Agreement to be performed and observed by the Company.
21. Texas Contract. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of Texas and
for all purposes shall be construed in accordance with the laws of said state.
22. Benefits of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes by deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date hereof.
HOLLOMAN CORPORATION
By:
John E. Holdridge, President and Chief Executive
Officer
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
<PAGE>
No. ____
EXHIBIT A
FORM OF
HOLLOMAN CORPORATION
REDEEMABLE COMMON STOCK PURCHASE WARRANT
TO PURCHASE ________ SHARES OF COMMON STOCK
EXERCISABLE ON OR BEFORE 5:00 P. M.,
NEW YORK, NEW YORK TIME, ___________ 2003
This Warrant Certifies that _____________________________________, or
registered assigns, is the holder of _______________ Warrants expiring _______,
2003, to purchase Common Stock, no par value per share (the "Common Stock"), of
Holloman Corporation, a Texas corporation (the "Company"). Each Warrant entitles
the holder to purchase from the Company at any time after the Shares and
Warrants become separately tradable and until 5:00 p.m.,New York, New York time,
on_______ 2003 (subject to extensions in the sole discretion of the Company, the
"Expiration Date") ________ fully-paid and non-assessable shares of Common Stock
at the exercise price (the "Exercise Price") of $____ per share upon surrender
of this Warrant Certificate and payment of the Exercise Price at the office or
agency of the Warrant Agent in New York, New York, but only subject to the
conditions set forth herein and in the Warrant Agreement. Payment of the
Exercise Price may be made in cash or by certified check payable to the order of
the Company. As used herein, "Shares" refers to the Common Stock offered by the
Prospectus dated ____________, 1998, and, where appropriate, to the other
securities or property issuable upon exercise of a Warrant as provided for in
the Warrant Agreement upon the happening of certain events set forth in the
Warrant Agreement.
No Warrant may be exercised after 5:00 p.m., New York, New York time,
on the Expiration Date. To the extent not exercised by such time, the Warrants
shall be cancelled and retired notwithstanding delivery of the related Warrant
Certificate. All Warrants evidenced hereby shall thereafter be void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse in hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
Dated: , 1998
HOLLOMAN CORPORATION
By:
John E. Holdridge, President and Chief Executive
Officer
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
<PAGE>
FORM OF
ELECTION TO PURCHASE
Holloman Corporation
c/o American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
shares of the stock provided for therein, and requests that certificates for
such shares shall be issued in the name of and be delivered to at and, if said
number of shares shall not be all of the shares purchasable thereunder, that a
new Warrant for the balance remaining of the shares purchasable under the within
Warrant be registered in the name of, and delivered to, the undersigned at the
address stated below.
Date:___________________
Name of Warrant Holder:______________________________
(Please Print)
Signature:___________________________________________
(Signature must conform
in all respects to name of
holder as specified on
the face of the Warrant
Certificate)
Address:____________________________________________
============================================
<PAGE>
FORM OF
ASSIGNMENT
For value received,
does hereby well, assign and transfer unto the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint attorney, to transfer said Warrant on the books of the within-named
Corporation, with full power of substitution in the promises,
Date:___________________
Signature:___________________________________________
(Signature must conform
in all respects to name of
holder as specified on
the face of the Warrant
Certificate)
1998 STOCK COMPENSATION PLAN
of
HOLLOMAN CORPORATION
(a Texas corporation)
<PAGE>
(1)
TABLE OF CONTENTS
* * *
1998 STOCK COMPENSATION PLAN
of
HOLLOMAN CORPORATION
SECTION SUBJECT PAGE
1. Purpose of Plan ...........................................1
2. Stock Subject to the Plan....................................1
3. Administration of the Plan...................................1
(a) General ...........................................1
(b) Changes in Law Applicable...........................2
4. Types of Awards Under the Plan...............................2
5. Persons to Options Shall Be Granted..........................2
(a) Nonqualified Options... ..........................2
(b) Incentive Options...................................2
6. Factors to Be Considered in Granting Options.................3
7. Time of Granting Option...................................3
8. Terms and Conditions of Options..............................3
(a) Number of Shares....................................3
(b) Type of Option......................................3
(c) Option Period.......................................3
(1) General....................................3
(2) Termination of Employment..................3
(3) Cessation of Service as Director
or Advisor.................................4
(4) Disability.................................4
(5) Death......................................4
(6) Acceleration and Exercise Upon Change
of Control.................................4
<PAGE>
(d) Option Prices.....................................5
(1) Nonqualified Options.......................5
(2) Incentive Options..........................5
(3) Determination of Fair Market Value.........5
(e) Exercise of Options.................................6
(f) Non-transferability of Options......................6
(g) Limitations on 10% Shareholders....................6
(h) Limits on Vesting of Incentive Options.............6
(i) Compliance with Securities Laws.....................6
(j) Additional Provisions...............................7
9. Medium and Time of Payment...................................7
10. Alternate Stock Appreciation Rights..........................8
(a) Award of Alternate Stock Rights.....................8
(b) Alternate Stock Rights Agreement....................8
(c) Exercise .................. ....................8
(d) Amount of Payment...................................8
(e) Form of Payment....................................8
(f) Termination of SAR ................................8
(g) Effect of Exercise of SAR..........................9
(h) Effect of Exercise of Related Option................9
(i) Non-transferability of SAR..........................9
11. Reload Options
(a) Authorization of Reload Options.....................9
(b) Reload Option Amendment.............................9
(c) Reload Option Price...............................9
(d) Term and Exercise...................................9
(e) Termination of Employment...........................9
(f) Applicability of Other Sections.....................9
12. Rights as a Shareholder......................................9
13. Optionee's Agreement to Serve...............................10
14. Adjustments on Changes in Capitalization....................10
(a) Changes in Capitalization.........................10
(b) Reorganization, Dissolution or Liquidation........10
(c) Change in Par Value................................10
(d) Notice of Adjustments..............................10
(e) Effect Upon Holder of Option....................11
(f) Right of Company to Make Adjustments...............11
15. Investment Purpose..........................................11
16. No Obligation to Exercise Option or SAR.....................12
17. Modification, Extension, and Renewal of Options............12
18. Effective Date of the Plan..................................12
19. Termination of the Plan.....................................12
<PAGE>
20. Amendment of the Plan.......................................12
21. Withholding ..........................................12
22. Indemnification of Committee................................12
23. Application of Funds........................................13
24. Governing Law ..........................................13
<PAGE>
1998 STOCK COMPENSATION PLAN - Page 1
1998 STOCK COMPENSATION PLAN
OF
HOLLOMAN CORPORATION
1. Purpose of Plan. This 1998 Stock Compensation Plan ("Plan") is
intended to encourage ownership of the common stock of HOLLOMAN CORPORATION
("Company") by certain officers, directors, employees and advisors of the
Company or any Subsidiary or Subsidiaries of the Company (as hereinafter
defined) in order to provide additional incentive for such persons to promote
the success and the business of the Company or its Subsidiaries and to encourage
them to remain in the employ of the Company or its Subsidiaries by providing
such persons an opportunity to benefit from any appreciation of the common stock
of the Company through the issuance of stock options and related stock
appreciation rights to such persons in accordance with the terms of the Plan. It
is further intended that options granted pursuant to this Plan shall constitute
either incentive stock options ("Incentive Options") within the meaning of
Section 422 (formerly Section 422A) of the Internal Revenue Code of 1986, as
amended ("Code"), or options which do not constitute Incentive Options
("Nonqualified Options") as determined by the Committee (as hereinafter defined)
at the time of issuance of such options. Incentive Options, Nonqualified Options
and Reload Options (as defined in Section 11 hereof) are herein sometimes
referred to collectively as "Options". As used herein, the term Subsidiary or
Subsidiaries shall mean any corporation (other than the employer corporation) in
an unbroken chain of corporations beginning with the employer corporation if, at
the time of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
2. Stock Subject to the Plan. Subject to adjustment as provided in
Section 14 hereof, there will be reserved for the use upon the exercise of
Options to be granted from time to time under the Plan, an aggregate of Two
hundred forty thousand (240,000) shares of the common stock, $.01 par value, of
the Company ("Common Stock"), which shares in whole or in part shall be
authorized, but unissued, shares of the Common Stock or issued shares of Common
Stock which shall have been reacquired by the Company as determined from time to
time by the Board of Directors of the Company ("Board of Directors"). To
determine the number of shares of Common Stock available at any time for the
granting of Options under the Plan, there shall be deducted from the total
number of reserved shares of Common Stock, the number of shares of Common Stock
in respect of which Options have been granted pursuant to the Plan which remain
outstanding or which have been exercised. If and to the extent that any Option
to purchase reserved shares shall not be exercised by the optionee for any
reason or if such Option to purchase shall terminate as provided herein, such
shares which have not been so purchased hereunder shall again become available
for the purposes of the Plan unless the Plan shall have been terminated, but
such unpurchased shares shall not be deemed to increase the aggregate number of
shares specified above to be reserved for purposes of the Plan (subject to
adjustment as provided in Section 14 hereof).
3. Administration of the Plan.
(a) General. The Plan shall be administered by a Compensation
Committee ("Committee") appointed by the Board of Directors, which
Committee shall consist of not less than two (2) members of the Board
of Directors who are not eligible to participate in the Plan, and have
not, for a period of at least one (1) year prior thereto been eligible
to participate in the Plan, except that if at any time there shall be
less than two (2) directors who are qualified to serve on the
Committee, then the Plan shall be administered by the full Board of
Directors. All references in this Plan to the Committee shall be deemed
to refer instead to the full Board of Directors at any time there is
not a committee of two (2) members qualified to act hereunder. The
Board of Directors may from time to time appoint members of the
Committee in substitution for or in addition to members previously
appointed and may fill vacancies, however caused, in the Committee. If
the Board of Directors does not designate a Chairman of the Committee,
the Committee shall select one of its members as its Chairman. The
Committee shall hold its meetings at such times and places as it shall
deem advisable. A majority of its members shall constitute a quorum.
Any action of the Committee shall be taken by a majority vote of its
members at a meeting at which a quorum is present. Notwithstanding the
preceding, any action of the Committee may be taken without a meeting
by a written consent signed by all of the members, and any action so
taken shall be deemed fully as effective as if it had been taken by a
vote of the members present in person at the meeting duly called and
held. The Committee may appoint a Secretary, shall keep minutes of its
meetings, and shall make such rules and regulations for the conduct of
its business as it shall deem advisable.
The Committee shall have the sole authority and power, subject
to the express provisions and limitations of the Plan, to construe the
Plan and option agreements granted hereunder, and to adopt, prescribe,
amend, and rescind rules and regulations relating to the Plan, and to
make all determinations necessary or advisable for administering the
Plan, including, but not limited to, (i) who shall be granted Options
under the Plan, (ii) the term of each Option, (iii) the number of
shares covered by such Option, (iv) whether the Option shall constitute
an Incentive Option or a Nonqualified Option or a Reload Option, (v)
the exercise price for the purchase of the shares of the Common Stock
covered by the Option, (vi) the period during which the Option may be
exercised, (vii) whether the right to purchase the number of shares
covered by the Option shall be fully vested on issuance of the Option
so that such shares may be purchased in full at one time or whether the
right to purchase such shares shall become vested over a period of time
so that such shares may only be purchased in installments, and (viii)
the time or times at which Options shall be granted. The Committee's
determinations under the Plan, including the above enumerated
determinations, need not be uniform and may be made by it selectively
among the persons who receive, or are eligible to receive, Options
under the Plan, whether or not such persons are similarly situated.
<PAGE>
The interpretation by the Committee of any provision of the
Plan or of any option agreement entered into hereunder with respect to
any Incentive Option shall be in accordance with Section 422 of the
Code and the regulations issued thereunder, as such section or
regulations may be amended from time to time, in order that the rights
granted hereunder and under said option agreements shall constitute
"Incentive Stock Options" within the meaning of such section. The
interpretation and construction by the Committee of any provision of
the Plan or of any Option granted hereunder shall be final and
conclusive, unless otherwise determined by the Board of Directors. No
member of the Board of Directors or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan
or any Option granted under it. Upon issuing an Option under the Plan,
the Committee shall report to the Board of Directors the name of the
person granted the Option, whether the Option is an Incentive Option or
a Nonqualified Option, the number of shares of Common Stock covered by
the Option, and the terms and conditions of such Option.
(b) Changes in Law Applicable. If the laws relating to
Incentive Options or Nonqualified Options are changed, altered or
amended during the term of the Plan, the Board of Directors shall have
full authority and power to alter or amend the Plan with respect to
Incentive Options or Nonqualified Options, respectively, to conform to
such changes in the law without the necessity of obtaining further
shareholder approval, unless the changes require such approval.
4. Types of Awards Under the Plan. Awards under the Plan may be in the
form of either Options, alternate stock appreciation rights (as described in
Section 10 hereof), or a combination thereof.
5. Persons to Whom Options Shall be Granted.
(a) Nonqualified Options. Nonqualified Options shall be
granted only to officers, directors (other than "Outside Directors" of the
Company or a Subsidiary [as hereinafter defined]), employees and advisors of the
Company or a Subsidiary who, in the judgment of the Committee, are responsible
for or contribute to the management or success of the Company or a Subsidiary
and who, at the time of the granting of the Nonqualified Options, are either
officers, directors (other than Outside Directors), employees or advisors of the
Company or a Subsidiary. As used herein, the term "Outside Director" shall mean
any director of the Company or a Subsidiary who is not an employee of the
Company or a Subsidiary.
(b) Incentive Options. Incentive Options shall be granted only
to employees of the Company or a Subsidiary who, in the judgment of the
Committee, are responsible for or contribute to the management or success of the
Company or a Subsidiary and who, at the time of the granting of the Incentive
Option are either an employee of the Company or a Subsidiary. Subject to the
provisions of Section 8(g) hereof, no individual shall be granted an Incentive
Option who, immediately before such Incentive Option was granted, would own more
than ten percent (10%) of the total combined voting power or value of all
classes of stock of the Company ("10% Shareholder").
6. Factors to Be Considered in Granting Options. In making any
determination as to persons to whom Options shall be granted and as to the
number of shares to be covered by such Options, the Committee shall take into
account the duties and responsibilities of the respective officers, directors,
employees, or advisors, their current and potential contributions to the success
of the Company or a Subsidiary, and such other factors as the Committee shall
deem relevant in connection with accomplishing the purpose of the Plan.
7. Time of Granting Options. Neither anything contained in the Plan or
in any resolution adopted or to be adopted by the Board of Directors or the
Shareholders of the Company or a Subsidiary nor any action taken by the
Committee shall constitute the granting of any Option. The granting of an Option
shall be effected only when a written Option Agreement acceptable in form and
substance to the Committee, subject to the terms and conditions hereof including
those set forth in Section 8 hereof, shall have been duly executed and delivered
by or on behalf of the Company and the person to whom such Option shall be
granted. No person shall have any rights under the Plan until such time, if any,
as a written Option Agreement shall have been duly executed and delivered as set
forth in this Section 7.
<PAGE>
8. Terms and Conditions of Options. All Options granted pursuant to
this Plan must be granted within ten (10) years from the date the Plan is
adopted by the Board of Directors of the Company. Each Option Agreement
governing an Option granted hereunder shall be subject to at least the following
terms and conditions, and shall contain such other terms and conditions, not
inconsistent therewith, that the Committee shall deem appropriate:
(a) Number of Shares. Each Option shall state the number of
shares of Common Stock which it represents.
(b) Type of Option. Each Option shall state whether it is
intended to be an Incentive Option or a Nonqualified Option.
(c) Option Period.
(1) General. Each Option shall state the date upon which it is granted. Each
Option shall be exercisable in whole or in part during such period as is
provided under the terms of the Option subject to any vesting period set forth
in the Option, but in no event shall an Option be exercisable either in whole or
in part after the expiration of ten (10) years from the date of grant; provided,
however, if an Incentive Option is granted to a 10% Shareholder, such Incentive
Option shall not be exercisable more than five (5) years from the date of grant
thereof.
(2) Termination of Employment. Except as otherwise provided in case of
Disability (as hereinafter defined), death or Change of Control (as hereinafter
defined), no Option shall be exercisable after an optionee who is an employee of
the Company or a Subsidiary ceases to be employed by the Company or a Subsidiary
as an employee; provided, however, that the Committee shall have the right in
its sole discretion, but not the obligation, to extend the exercise period for
not more than three (3) months following the date of termination of such
optionee's employment; provided further, however, that no Option shall be
exercisable after the expiration of ten (10) years from the date it is granted
and provided further, no Incentive Option granted to a 10% Shareholder shall be
exercisable after the expiration of five (5) years from the date it is granted.
(3) Cessation of Service as Director or Advisor. In the event an optionee who
was a director or advisor of the Company or a Subsidiary ceases to be a director
or advisor of the Company or a Subsidiary for any reason, other than Disability
or death, prior to the full exercise of the Option, such optionee may exercise
his Option at any time within ninety (90) days after such optionee's status as a
director or advisor of the Company or a Subsidiary is so terminated to the
extent he was entitled to exercise such Option at the date such optionee's
status as a director or advisor of the Company or a Subsidiary terminated;
provided, however, that no Option shall be exercisable after the expiration of
ten (10) years from the date it is granted.
(4) Disability. If an optionee's employment is terminated by reason of the
permanent and total Disability of such optionee or if an optionee who is a
director or advisor of the Company or a Subsidiary ceases to serve as a director
or advisor by reason of the permanent and total Disability of such optionee, the
Committee shall have the right in its sole discretion, but not the obligation,
to extend the exercise period for not more than one (1) year following the date
of termination of the optionee's employment or the date such optionee ceases to
be a director or advisor of the Company or a Subsidiary, as the case may be,
subject to the condition that no Option shall be exercisable after the
expiration of ten (10) years from the date it is granted and subject to the
further condition that no Incentive Option granted to a 10% Shareholder shall be
exercisable after the expiration of five (5) years from the date it is granted.
For purposes of this Plan, the term "Disability" shall mean the inability of the
optionee to fulfill such optionee's obligations to the Company or a Subsidiary
by reason of any physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous period
of not less than twelve (12) months as determined by a physician acceptable to
the Committee in its sole discretion.
(5) Death. If an optionee dies while in the employ of the Company or a
Subsidiary, or while serving as a director or advisor of the Company or a
Subsidiary, and shall not have fully exercised Options granted pursuant to the
Plan, such Options may be exercised in whole or in part at any time within one
(1) year after the optionee's death, by the executors or administrators of the
optionee's estate or by any person or persons who shall have acquired the
Options directly from the optionee by bequest or inheritance, but only to the
extent that the optionee was entitled to exercise such Option at the date of
such optionee's death, subject to the condition that no Option shall be
exercisable after the expiration of ten (10) years from the date it is granted
and subject to the further condition that no Incentive Option granted to a 10%
Shareholder shall be exercisable after the expiration of five (5) years from the
date it is granted.
<PAGE>
(6) Acceleration and Exercise Upon Change of Control. Notwithstanding the
preceding provisions of this Section 8(c), if any Option granted under the Plan
provides for either (a) an incremental vesting period whereby such Option may
only be exercised in installments as such incremental vesting period is
satisfied or (b) a delayed vesting period whereby such Option may only be
exercised after the lapse of a specified period of time, such as after the
expiration of one (1) year, such vesting period shall be accelerated upon the
occurrence of a Change of Control (as hereinafter defined) of the Company, or a
threatened Change of Control of the Company as determined by the Committee, so
that such Option shall thereupon become exercisable immediately in part or its
entirety by the holder thereof, as such holder shall elect. For the purposes of
this Plan, a "Change of Control" shall be deemed to have occurred if:
(i) Any "person", including a "group" as
determined in accordance with Section 13(d)(3) of the
Securities Exchange Act of 1934 ("Exchange Act") and
the Rules and Regulations promulgated thereunder, is
or becomes, through one or a series of related
transactions or through one or more intermediaries,
the beneficial owner, directly or indirectly, of
securities of the Company representing 25% or more of
the combined voting power of the Company's then
outstanding securities, other than a person who is
such a beneficial owner on the effective date of the
Plan and any affiliate of such person;
(ii) As a result of, or in connection with,
any tender offer or exchange offer, merger or other
business combination, sale of assets or contested
election, or any combination of the foregoing
transactions ("Transaction"), the persons who were
Directors of the Company before the Transaction shall
cease to constitute a majority of the Board of
Directors of the Company or any successor to the
Company;
(iii) Following the effective date of the Plan,
the Company is merged or consolidated with another
corporation and as a result of such merger or
consolidation less than 40% of the outstanding voting
securities of the surviving or resulting corporation
shall then be owned in the aggregate by the former
stockholders of the Company, other than (x) any party
to such merger or consolidation, or (y) any
affiliates of any such party;
(iv) A tender offer or exchange offer is
made and consummated for the ownership of securities
of the Company representing 25% or more of the
combined voting power of the Company's then
outstanding voting securities; or
(v) The Company transfers more than 50% of
its assets, or the last of a series of transfers
result in the transfer of more than 50% of the assets
of the Company, to another corporation that is not a
wholly-owned corporation of the Company. For purposes
of this subsection 8(c)(6)(v), the determination of
what constitutes more than 50% of the assets of the
Company shall be determined based on the sum of the
values attributed to (i) the Company's real property
as determined by an independent appraisal thereof,
and (ii) the net book value of all other assets of
the Company, each taken as of the date of the
Transaction involved.
In addition, upon a Change of Control, any Options
previously granted under the Plan to the extent not already
exercised may be exercised in whole or in part either
immediately or at any time during the term of the Option as
such holder shall elect.
(d) Option Prices.
<PAGE>
(1) Nonqualified Options. The purchase price or
prices of the shares of the Common Stock which shall be
offered to any person under the Plan and covered by a
Nonqualified Option shall be the price determined by the
Committee at the time of granting of the Nonqualified Option,
which price may be less than, equal to or higher than one
hundred percent (100%) of the fair market value of the Common
Stock at the time of granting the Nonqualified Option.
(2) Incentive Options. The purchase price or prices
of the shares of the Common Stock which shall be offered to
any person under the Plan and covered by an Incentive Option
shall be one hundred percent (100%) of the fair market value
of the Common Stock at the time of granting the Incentive
Option or such higher purchase price as may be determined by
the Committee at the time of granting the Incentive Option;
provided, however, if an Incentive Option is granted to a 10%
Shareholder, the purchase price of the shares of the Common
Stock of the Company covered by such Incentive Option may not
be less than one hundred ten percent (110%) of the fair market
value of such shares on the day the Incentive Option is
granted.
(3) Determination of Fair Market Value. During such
time as the Common Stock of the Company is not listed upon an
established stock exchange, the fair market value per share
shall be deemed to be the closing sales price of the Common
Stock on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") on the day the Option is
granted, as reported by NASDAQ, if the Common Stock is so
quoted, and if not so quoted, the mean between dealer "bid"
and "ask," prices of the Common Stock in the New York
over-the-counter market on the day the Option is granted, as
reported by the National Association of Securities Dealers,
Inc. If the Common Stock is listed upon an established stock
exchange or exchanges, such fair market value shall be deemed
to be the highest closing price of the Common Stock on such
stock exchange or exchanges on the day the Option is granted
or, if no sale of the Common Stock of the Company shall have
been made on established stock exchange on such day, on the
next preceding day on which there was a sale of such stock. If
there is no market price for the Common Stock, then the Board
of Directors and the Committee may, after taking all relevant
facts into consideration, determine the fair market value of
the Common Stock.
(e) Exercise of Options. To the extent that a holder
of an Option has a current right to exercise, the Option may
be exercised from time to time by written notice to the
Company at its principal place of business. Such notice shall
state the election to exercise the Option, the number of whole
shares in respect of which it is being exercised, shall be
signed by the person or persons so exercising the Option, and
shall contain any investment representation required by
Section 8(i) hereof. Such notice shall be accompanied by
payment of the full purchase price of such shares and by the
Option Agreement evidencing the Option. In addition, if the
Option shall be exercised, pursuant to Section 8(c)(4) or
Section 8(c)(5) hereof, by any person or persons other than
the optionee, such notice shall also be accompanied by
appropriate proof of the right of such person or persons to
exercise the Option. The Company shall deliver a certificate
or certificates representing such shares as soon as
practicable after the aforesaid notice and payment of such
shares shall be received. The certificate or certificates for
the shares as to which the Option shall have been so exercised
shall be registered in the name of the person or persons so
exercising the Option. In the event the Option shall not be
exercised in full, the Secretary of the Company shall endorse
or cause to be endorsed on the Option the number of shares
which has been exercised thereunder and the number of shares
that remain exercisable under the Option and return such
Option Agreement to the holder thereof.
(f) Non-transferability of Options. An Option granted
pursuant to the Plan shall be exercisable only by the optionee
or the optionee's court appointed guardian as set forth in
Section 8(c)(4) hereof during the optionee's lifetime and
shall not be assignable or transferable by the optionee
otherwise than by Will or the laws of descent and
distribution. An Option granted pursuant to the Plan shall not
be assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise other than by Will or the laws
of descent and distribution) and shall not be subject to
execution, attachment, or similar process. Any attempted
transfer, assignment, pledge, hypothecation, or other
disposition of any Option or of any rights granted thereunder
contrary to the foregoing provisions of this Section 8(f), or
the levy of any attachment or similar process upon an Option
or such rights, shall be null and void.
<PAGE>
(g) Limitations on 10% Shareholders. No Incentive
Option may be granted under the Plan to any 10% Shareholder
unless (i) such Incentive Option is granted at an option price
not less than one hundred ten percent (110%) of the fair
market value of the shares on the day the Incentive Option is
granted and (ii) such Incentive Option expires on a date not
later than five (5) years from the date the Incentive Option
is granted.
(h) Limits on Vesting of Incentive Options. An
individual may be granted one or more Incentive Options,
provided that the aggregate fair market value (as determined
at the time such Incentive Option is granted) of the stock
with respect to which Incentive Options are exercisable for
the first time by such individual during any calendar year
shall not exceed $100,000. To the extent the $100,000
limitation in the preceding sentence is exceeded, such option
shall be treated as an option which is not an Incentive
Option.
(i) Compliance with Securities Laws. The Plan and the
grant and exercise of the rights to purchase shares hereunder,
and the Company's obligations to sell and deliver shares upon
the exercise of rights to purchase shares, shall be subject to
all applicable federal and state laws, rules and regulations,
and to such approvals by any regulatory or governmental agency
as may, in the opinion of counsel for the Company, be
required, and shall also be subject to all applicable rules
and regulations of any stock exchange upon which the Common
Stock of the Company may then be listed. At the time of
exercise of any Option, the Company may require the optionee
to execute any documents or take any action which may be then
necessary to comply with the Securities Act of 1933, as
amended ("Securities Act"), and the rules and regulations
promulgated thereunder, or any other applicable federal or
state laws regulating the sale and issuance of securities, and
the Company may, if it deems necessary, include provisions in
the stock option agreements to assure such compliance. The
Company may, from time to time, change its requirements with
respect to enforcing compliance with federal and state
securities laws, including the request for and enforcement of
letters of investment intent, such requirements to be
determined by the Company in its judgment as necessary to
assure compliance with said laws. Such changes may be made
with respect to any particular Option or stock issued upon
exercise thereof. Without limiting the generality of the
foregoing, if the Common Stock issuable upon exercise of an
Option granted under the Plan is not registered under the
Securities Act, the Company at the time of exercise will
require that the registered owner execute and deliver an
investment representation agreement to the Company in form
acceptable to the Company and its counsel, and the Company
will place a legend on the certificate evidencing such Common
Stock restricting the transfer thereof, which legend shall be
substantially as follows:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAW BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT
BE OFFERED, SOLD OR TRANSFERRED UNTIL EITHER (i) A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) THE
COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL THAT
REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
(j) Additional Provisions. The Option Agreements
authorized under the Plan shall contain such other provisions
as the Committee shall deem advisable, including, without
limitation, restrictions upon the exercise of the Option. Any
such Option Agreement with respect to an Incentive Option
shall contain such limitations and restrictions upon the
exercise of the Incentive Option as shall be necessary in
order that the option will be an "Incentive Stock Option" as
defined in Section 422 of the Code.
<PAGE>
9. Medium and Time of Payment. The purchase price of the shares of the
Common Stock as to which the Option shall be exercised shall be paid in full
either (i) in cash at the time of exercise of the Option, (ii) by tendering to
the Company shares of the Company's Common Stock having a fair market value (as
of the date of receipt of such shares by the Company) equal to the purchase
price for the number of shares of Common Stock purchased, or (iii) partly in
cash and partly in shares of the Company's Common Stock valued at fair market
value as of the date of receipt of such shares by the Company. Cash payment for
the shares of the Common Stock purchased upon exercise of the Option shall be in
the form of either a cashier's check, certified check or money order. Personal
checks may be submitted, but will not be considered as payment for the shares of
the Common Stock purchased and no certificate for such shares will be issued
until the personal check clears in normal banking channels. If a personal check
is not paid upon presentment by the Company, then the attempted exercise of the
Option will be null and void. In the event the optionee tenders shares of the
Company's Common Stock in full or partial payment for the shares being purchased
pursuant to the Option, the shares of Common Stock so tendered shall be
accompanied by fully executed stock powers endorsed in favor of the Company with
the signature on such stock power being guaranteed. If an optionee tenders
shares, such optionee assumes sole and full responsibility for the tax
consequences, if any, to such optionee arising therefrom, including the possible
application of Code Section 424(c), or its successor Code section, which negates
any nonrecognition of income rule with respect to such transferred shares, if
such transferred shares have not been held for the minimum statutory holding
period to receive preferential tax treatment.
10. Alternate Stock Appreciation Rights.
(a) Award of Alternate Stock Rights. Concurrently with or
subsequent to the award of any Option to purchase one or more shares of
Common Stock, the Committee may in its sole discretion, subject to the
provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the optionee with respect to each
share of Common Stock covered by an Option ("Related Option"), a
related alternate stock appreciation right ("SAR"), permitting the
optionee to be paid the appreciation on the Related Option in lieu of
exercising the Related Option. A SAR granted with respect to an
Incentive Option must be granted together with the Related Option. A
SAR granted with respect to a Nonqualified Option may be granted
together with or subsequent to the grant of such Related Option.
(b) Alternate Stock Rights Agreement. Each SAR shall be on
such terms and conditions not inconsistent with this Plan as the
Committee may determine and shall be evidenced by a written agreement
executed by the Company and the optionee receiving the Related Option.
(c) Exercise. An SAR may be exercised only if and to the
extent that its Related Option is eligible to be exercised on the date
of exercise of the SAR. To the extent that a holder of a SAR has a
current right to exercise, the SAR may be exercised from time to time
by written notice to the Company at its principal place of business.
Such notice shall state the election to exercise the SAR, the number of
shares in respect of which it is being exercised, shall be signed by
the person so exercising the SAR and shall be accompanied by the
agreement evidencing the SAR and the Related Option. In the event the
SAR shall not be exercised in full, the Secretary of the Company shall
endorse or cause to be endorsed on the SAR and the Related Option the
number of shares which have been exercised thereunder and the number of
shares that remain exercisable under the SAR and the Related Option and
return such SAR and Related Option to the holder thereof.
<PAGE>
(d) Amount of Payment. The amount of payment to which an
optionee shall be entitled upon the exercise of each SAR shall be equal
to 100% of the amount, if any, by which the fair market value of a
share of Common Stock on the exercise date exceeds the fair market
value of a share of Common Stock on the date the Option related to said
SAR was granted or became effective, as the case may be; provided,
however, the Company may, in its sole discretion, withhold from such
cash payment any amount necessary to satisfy the Company's obligation
for withholding taxes with respect to such payment. For this purpose,
the fair market value of a share of Common Stock shall be determined as
set forth in Section 8(d) hereof.
(e) Form of Payment. The amount payable by the Company to an
optionee upon exercise of a SAR may be paid in shares of Common Stock,
cash or a combination thereof. The number of shares of Common Stock to
be paid to an optionee upon such optionee's exercise of SAR shall be
determined by dividing the amount of payment determined pursuant to
Section 10(d) hereof by the fair market value of a share of Common
Stock on the exercise date of such SAR. For purposes of this Plan, the
exercise date of a SAR shall be the date the Company receives written
notification from the optionee of the exercise of the SAR in accordance
with the provisions of Section 10(c) hereof. As soon as practicable
after exercise, the Company shall either deliver to the optionee the
amount of cash due such optionee or a certificate or certificates for
such shares of Common Stock. All such shares shall be issued with the
rights and restrictions specified herein.
(f) Termination of SAR. Except as otherwise provided in case
of Disability (as defined in Section 8(c)(4) hereof) or death, no SAR
shall be exercisable after an optionee ceases to be an employee,
director or advisor of the Company or Subsidiary; provided, however,
that the Committee shall have the right in its sole discretion, but not
the obligation, to extend the exercise period for not more than three
(3) months following the date such optionee ceases to be an employee,
director or advisor of the Company or a Subsidiary; provided further,
that the Committee may not extend the period during which an optionee
may exercise a SAR for a period greater than the period during which an
optionee may exercise the Related Option. If an optionee's position as
an employee, director or advisor of the Company is terminated due to
the Disability or death of such optionee, the Committee shall have the
right, in its sole discretion, but not the obligation, to extend the
exercise period applicable to the SAR for a period not to exceed the
period in which the optionee may exercise the Option related to said
SAR as set forth in Sections 8(c)(4) and 8(c)(5) hereof, respectively.
(g) Effect of Exercise of SAR. The exercise of any SAR shall
cancel and terminate the right to purchase an equal number of shares
covered by the Related Option.
(h) Effect of Exercise of Related Option. Upon the exercise or
termination of any Related Option, the SAR with respect to such Related
Option shall terminate to the extent of the number of shares of Common
Stock as to which the Related Option was exercised or terminated.
(i) Non-transferability of SAR. A SAR granted pursuant to this
Plan shall be exercisable only by the optionee or the optionee's court
appointed guardian as set forth in Section 8(c)(4) hereof during the
optionee's lifetime and, subject to the provisions of Section 10(f)
hereof, shall not be assignable or transferable by the optionee. A SAR
granted pursuant to the Plan shall not be assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and
shall not be subject to execution, attachment, or similar process. Any
attempted transfer, assignment, pledge, hypothecation, or other
disposition of any SAR or of any rights granted thereunder contrary to
the foregoing provisions of this Section 10(i), or the levy of any
attachment or similar process upon a SAR or such rights, shall be null
and void.
<PAGE>
11. Reload Options.
(a) Authorization of Reload Options. Concurrently with the
award of Nonqualified Options and/or the award of Incentive Options to
any participant in the Plan, the Committee may authorize reload options
("Reload Options") to purchase for cash or shares that number of shares
of Common Stock equal to the sum of:
(1) The number of shares of Common Stock used to
exercise the underlying Nonqualifying Option or Incentive
Option; and
(2) To the extent authorized by the Committee, the
number of shares of Common Stock used to satisfy any tax
withholding requirement incident to the exercise of the
underlying Nonqualifying Option or Incentive Options.
The grant of a Reload Option will become effective upon the exercise of
the underlying Nonqualifying Option, Incentive Option or Reload Option
through the use of shares of Common Stock held by the optionee for at
least 12 months. Notwithstanding the fact that the underlying option
may be an Incentive Option, a Reload Option is not intended to qualify
as an "incentive stock option" under Section 422 of the Code.
(b) Reload Option Amendment. Each Option Agreement shall state
whether the Committee has authorized Reload Options with respect to the
underlying Nonqualifying Option and/or Incentive Option. Upon the
exercise of an underlying Option or Incentive Option, the Reload Option
will be evidenced by an amendment to the underlying Option Agreement.
(c) Reload Option Price. The option price per share of Common
Stock deliverable upon the exercise of a Reload Option shall be the
fair market value of a share of Common Stock on the date the grant of
the Reload Option becomes effective.
(d) Term and Exercise. Each Reload Option is fully exercisable
six months from the effective date of grant. The term of each Reload
Option shall be equal to the remaining option term of the underlying
Nonqualifying Option and/or Incentive Option.
(e) Termination of Employment. No additional Reload Options
shall be granted to optionees when Nonqualifying Options, Incentive
Option and/or Reload Options are exercised pursuant to the terms of
this Plan following termination of the optionee's employment.
(f) Applicability of Other Sections. To the extent not
inconsistent with the foregoing provisions of this Section, the other
Sections of this Plan pertaining to Options, including Sections 5, 8,
and 9, are incorporated herein by this reference thereto as through
fully set forth herein.
12. Rights as a Shareholder. The holder of an Option or a SAR shall
have no rights as a shareholder with respect to the shares covered by the Option
or SAR until the due exercise of the Option, Related Option, or SAR and the date
of issuance of one or more stock certificates to such holder for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
provided in Section 14 hereof.
13. Optionee's Agreement to Serve. Each employee receiving an Option
shall, as one of the terms of the Option Agreement agree that such employee will
remain in the employ of the Company or Subsidiary for a period of at least one
(1) year from the date on which the Option shall be granted to such employee;
and that such employee will, during such employment, devote such employee's
entire time, energy, and skill to the service of the Company or a Subsidiary as
may be required by the management thereof, subject to vacations, sick leaves,
and military absences. Such employment, subject to the provisions of any written
contract between the Company or a Subsidiary and such employee, shall be at the
pleasure of the Board of Directors of the Company or a Subsidiary, and at such
compensation as the Company or a Subsidiary shall reasonably determine. Any
termination of such employee's employment during the period which the employee
has agreed pursuant to the foregoing provisions of this Section 13 to remain in
employment that is either for cause or voluntary on the part of the employee
shall be deemed a violation by the employee of such employee's agreement. In the
event of such violation, any Option or Options held by such employee, to the
extent not theretofore exercised, shall forthwith terminate, unless otherwise
determined by the Committee. Notwithstanding the preceding, neither the action
of the Company in establishing the Plan nor any action taken by the Company, a
Subsidiary or the Committee under the provisions hereof shall be construed as
granting the optionee the right to be retained in the employ of the Company or a
Subsidiary, or to limit or restrict the right of the Company or a Subsidiary, as
applicable, to terminate the employment of any employee of the Company or a
Subsidiary, with or without cause.
<PAGE>
14. Adjustments on Changes in Capitalization.
(a) Changes in Capitalization. Subject to any required action
by the Shareholders of the Company, the number of shares of Common
Stock covered by the Plan, the number of shares of Common Stock covered
by each outstanding Option, and the exercise price per share thereof
specified in each such Option, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
of the Company resulting from a subdivision or consolidation of shares
or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such shares effected
without receipt of consideration by the Company after the date the
Option is granted, so that upon exercise of the Option, the optionee
shall receive the same number of shares the optionee would have
received had the optionee been the holder of all shares subject to such
optionee's outstanding Option immediately before the effective date of
such change in the number of issued shares of the Common Stock of the
Company.
(b) Reorganization, Dissolution or Liquidation. Subject to any
required action by the Shareholders of the Company, if the Company
shall be the surviving corporation in any merger or consolidation, each
outstanding Option shall pertain to and apply to the securities to
which a holder of the number of shares of Common Stock subject to the
Option would have been entitled. A dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the
surviving corporation, shall cause each outstanding Option to terminate
as of a date to be fixed by the Committee (which date shall be as of or
prior to the effective date of any such dissolution or liquidation or
merger or consolidation); provided, that not less than thirty (30) days
written notice of the date so fixed as such termination date shall be
given to each optionee, and each optionee shall, in such event, have
the right, during the said period of thirty (30) days preceding such
termination date, to exercise such optionee's Option in whole or in
part in the manner herein set forth.
(c) Change in Par Value. In the event of a change in the
Common Stock of the Company as presently constituted, which change is
limited to a change of all of its authorized shares with par value into
the same number of shares with a different par value or without par
value, the shares resulting from any change shall be deemed to be the
Common Stock within the meaning of the Plan.
(d) Notice of Adjustments. To the extent that the adjustments
set forth in the foregoing paragraphs of this Section 14 relate to
stock or securities of the Company, such adjustments, if any, shall be
made by the Committee, whose determination in that respect shall be
final, binding and conclusive, provided that each Incentive Option
granted pursuant to this Plan shall not be adjusted in a manner that
causes the Incentive Option to fail to continue to qualify as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
The Company shall give timely notice of any adjustments made to each
holder of an Option under this Plan and such adjustments shall be
effective and binding on the optionee.
(e) Effect Upon Holder of Option. Except as hereinbefore
expressly provided in this Section 14, the holder of an Option shall
have no rights by reason of any subdivision or consolidation of shares
of stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class by
reason of any dissolution, liquidation, merger, reorganization, or
consolidation, or spin-off of assets or stock of another corporation,
and any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Common Stock subject to the
Option. Without limiting the generality of the foregoing, no adjustment
shall be made with respect to the number or price of shares subject to
any Option granted hereunder upon the occurrence of any of the
following events:
<PAGE>
(1) The grant or exercise of any other options which
may be granted or exercised under any qualified or
nonqualified stock option plan or under any other employee
benefit plan of the Company whether or not such options were
outstanding on the date of grant of the Option or thereafter
granted;
(2) The sale of any shares of Common Stock in the
Company's initial or any subsequent public offering,
including, without limitation, shares sold upon the exercise
of any overallotment option granted to the underwriter in
connection with such offering;
(3) The issuance, sale or exercise of any warrants to
purchase shares of Common Stock whether or not such warrants
were outstanding on the date of grant of the Option or
thereafter issued;
(4) The issuance or sale of rights, promissory notes
or other securities convertible into shares of Common Stock in
accordance with the terms of such securities ("Convertible
Securities") whether or not such Convertible Securities were
outstanding on the date of grant of the Option or were
thereafter issued or sold;
(5) The issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities, whether
or not any adjustment in the purchase price was made or
required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible
Securities were outstanding on the date of grant of the Option
or were thereafter issued or sold; or
(6) Upon any amendment to or change in the terms of
any rights or warrants to subscribe for or purchase, or
options for the purchase of, Common Stock or Convertible
Securities or in the terms of any Convertible Securities,
including, but not limited to, any extension of any expiration
date of any such right, warrant or option, any change in any
exercise or purchase price provided for in any such right,
warrant or option, any extension of any date through which any
Convertible Securities are convertible into or exchangeable
for Common Stock or any change in the rate at which any
Convertible Securities are convertible into or exchangeable
for Common Stock.
(f) Right of Company to Make Adjustments. The grant of an
Option pursuant to the Plan shall not affect in any way the right or
power of the Company to make adjustments, reclassification,
reorganizations, or changes of its capital or business structure or to
merge or to consolidate or to dissolve, liquidate or sell, or transfer
all or any part of its business or assets.
15. Investment Purpose. Each Option under the Plan shall be granted on
the condition that the purchase of the shares of stock thereunder shall be for
investment purposes, and not with a view to resale or distribution; provided,
however, that in the event the shares of stock subject to such Option are
registered under the Securities Act or in the event a resale of such shares of
stock without such registration would otherwise be permissible, such condition
shall be inoperative if in the opinion of counsel for the Company such condition
is not required under the Securities Act or any other applicable law,
regulation, or rule of any governmental agency.
16. No Obligation to Exercise Option or SAR. The granting of an Option
or SAR shall impose no obligation upon the optionee to exercise such Option or
SAR.
17. Modification, Extension, and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, the Committee and
the Board of Directors may modify, extend or renew outstanding Options granted
under the Plan, or accept the surrender of outstanding Options (to the extent
not theretofore exercised). Neither the Committee nor the Board of Directors
shall, however, modify any outstanding Options so as to specify a lower price or
accept the surrender of outstanding Options and authorize the granting of new
Options in substitution therefor specifying a lower price. Notwithstanding the
foregoing, however, no modification of an Option shall, without the consent of
the optionee, alter or impair any rights or obligations under any Option
theretofore granted under the Plan.
<PAGE>
18. Effective Date of the Plan. The Plan shall become effective on the
date of execution hereof, which date is the date the Board of Directors approved
and adopted the Plan ("Effective Date"); provided, however, if the Shareholders
of the Company shall not have approved the Plan by the requisite vote of the
Shareholders, within twelve (12) months after the Effective Date, then the Plan
shall terminate and all Options theretofore granted under the Plan shall
terminate and be null and void.
19. Termination of the Plan. This Plan shall terminate as of the
expiration of ten (10) years from the Effective Date. Options may be granted
under this Plan at any time and from time to time prior to its termination. Any
Option outstanding under the Plan at the time of its termination shall remain in
effect until the Option shall have been exercised or shall have expired.
20. Amendment of the Plan. The Plan may be terminated at any time by
the Board of Directors of the Company. The Board of Directors may at any time
and from time to time without obtaining the approval of the Shareholders of the
Company or a Subsidiary, modify or amend the Plan (including such form of Option
Agreement as hereinabove mentioned) in such respects as it shall deem advisable
in order that the Incentive Options granted under the Plan shall be "Incentive
Stock Options" as defined in Section 422 of the Code or to conform to any change
in the law, or in any other respect which shall not change: (a) the maximum
number of shares for which Options may be granted under the Plan, except as
provided in Section 14 hereof; or (b) the option prices other than to change the
manner of determining the fair market value of the Common Stock for the purpose
of Section 8(d) hereof to conform with any then applicable provisions of the
Code or regulations thereunder; or (c) the periods during which Options may be
granted or exercised; or (d) the provisions relating to the determination of
persons to whom Options shall be granted and the number of shares to be covered
by such Options; or (e) the provisions relating to adjustments to be made upon
changes in capitalization. The termination or any modification or amendment of
the Plan shall not, without the consent of the person to whom any Option shall
theretofore have been granted, affect that person's rights under an Option
theretofore granted to such person. With the consent of the person to whom such
Option was granted, an outstanding Option may be modified or amended by the
Committee in such manner as it may deem appropriate and consistent with the
requirements of this Plan applicable to the grant of a new Option on the date of
modification or amendment.
<PAGE>
21. Withholding. Whenever an optionee shall recognize compensation
income as a result of the exercise of any Option or SAR granted under the Plan,
the optionee shall remit in cash to the Company or Subsidiary the minimum amount
of federal income and employment tax withholding which the Company or Subsidiary
is required to remit to the Internal Revenue Service in accordance with the then
current provisions of the Code. The full amount of such withholding shall be
paid by the optionee simultaneously with the award or exercise of an Option or
SAR, as applicable.
22. Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in connection with the defense of any action, suit or proceedings, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within sixty (60) days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the Company
the opportunity, at its own expense, to pursue and defend the same.
23. Application of Funds. The proceeds received by the Company from the
sale of Common Stock pursuant to Options granted hereunder will be used for
general corporate purposes.
24. Governing Law. This Plan shall be governed and construed in
accordance with the laws of the state of incorporation of the Company.
EXECUTED this 25th day of May, 1998.
HOLLOMAN CORPORATION
By: ______________________________
John E. Holdridge, President
ATTEST:
- ------------------------------
Peter Lucas, Secretary
T. SISTERS
LEASING LLC
LEASE OF PERSONAL PROPERTY
, hereinafter called Lessor, hereby leases to HOLLOMAN CONSTRUCTION
COMPANY________________________________________, hereinafter called Lessee,
and Lessee hereby leases and hires from the Lessor that certain personal
property, hereinafter more particularly described, subject to the terms,
provisions, conditions and agreements of this Lease hereinafter set
forth.
The personal property hereby leased (hereinafter called said property)
receipt of which in good condition is hereby acknowledged by Lessee is
described as follows, to-wit:
MAKE MODEL SERIAL NUMBER
SAMSUNG SE 350 EXCAVATOR UNIT 988 JAY 1185
4956.34
359.33 7.25%
5316.67
Said property will be located at ___ODESSA, TEXAS_, and will not be moved
to a new location except upon written notice first given to Lessor.
Said property is hereby leased for a period of _____SIXTY (60)__________
months
beginning on the ______4____ day of _____APRIL_____________________, 1998____.
Lessee hereby promises to pay to Lessor as follows:
Five Thousand Three Hundred Fifteen & 67/100
_________ ($__5315.67______) on ___April 4, 1998______
and _FIFTY-NINE (59)___ equal successive __MONTHLY__ installments of _FIVE
THOUSAND THREE HUNDRED FIFTEEN & 67 100_ Dollars ($_5315.67______)
beginning on _MAY 4, 1998_
___________________, 19 _______ and _ENDING APRIL 4, 2003_________
1. Time is of the essence of this Lease. This instrument constitutes the
entire agreement between Lessor and Lessee. Whenever the context of this
Lease requires, the masculine gender includes the feminine or neuter, and
the singular number includes the plural; and whenever the word Lessor is
used herein, it shall include all assignees of Lessor. If there be more
than one Lessee named in this Lease the liability of each shall be joint
and several. 2. No title or right in said property shall pass to Lessee
except the Lease rights herein expressly granted. Plates or other markings
may be affixed to or placed on said property indicating that Lessor (or
assignee) is the owner thereof and Lessee will not remove the same. Upon
the termination of the lease period, Lessee will immediately return said
property to Lessor in as good condition as received less normal wear, tear,
and depreciation. Said property shall always remain and be deemed personal
property even though attached to realty. All replacements, equipment,
repairs or accessories made to or placed in or upon said property shall
become a component part thereof and title thereto shall be immediately
vested in Lessor and shall be included under the terms hereof. All advances
made by Lessor to preserve said property to or pay insurance premiums for
insurance thereon or to discharge and pay any taxes, liens or encumbrances
thereon shall be added to the unpaid balance of rentals due hereunder and
shall be repayable by Lessee to Lessor immediately together with interest
thereon at the rate of seven per cent (7%) per annum until paid.
3. It is understood that Lessor contemplates assigning this Lease and said
property and that such assignee may assign same. All rights of Lessor
hereunder shall be succeeded to by any assignee hereof and said assignes
title to this Lease, to the rental herein provided for to be paid and in
and to said property shall be free from all defenses, setoffs or
counterclaims of any kind or character which Lessee may be entitled to
assert against Lessor; it being understood and agreed that any assignee of
Lessor does not assume any obligations of the Lessor herein named. It is
further understood and agreed, however, that Lessee may separately claim
against Lessor as to any matters which Lessee may be entitled to assert
against Lessor.
4. Lessee assumes the entire risk of loss from hazard and agrees
to keep the property insured to protect all interests of Lessor, at
Lessees expense, and for such risks and in such amounts as Lessor may
require, including the liability of Lessor for public liability and
property damage; and Lessor may, but shall not be obligated to, insure
said property at the expense of Lessee. Said insurance policies and
the proceeds therefrom shall be the sole property of Lessor and Lessor
shall be named as an insured in all said policies. The proceeds of
such insurance, whether resulting from loss or damage or return
premium, or otherwise, shall be applied toward the replacement or
repair of the said property or the payment of obligations of Lessee
hereunder at the option of the Lessor. Lessee hereby appoints Lessor
as Lessees attorney-in-fact to make claims for, receive payment of
and execute or endorse all documents, checks or drafts for loss or
damage or return premium under any insurance policy issued on said
property.
5. Lessee agrees to use, operate and maintain said property in accordance
with all laws, and not to sublet the same; to pay all licensing or
registration fees for said property and to keep the same free of levies,
liens and encumbrances; to pay all taxes levied on or in relation to said
property; to permit Lessor to inspect said property at any time; and to
keep it in first-class condition and repair and house the same in suitable
shelter; and not to sell or otherwise dispose of his interest therein or in
any equipment or accessories attached thereto. Said property will not be
removed from the State of Texas without the written consent of the Lessor,
and Lessee will immediately inform Lessor if the property is permanently
moved in this State to a location other than the above stated.
6. If any of the installments of rent provided for herein are not paid with
ten (10) days after the due date thereof, Lessee will pay to Lessor
reasonable collection costs, including charges of any collection agency or
service employed by Lessor to collect said rents. In the event Lessor
employs the services of an attorney to enforce any of the terms of this
Lease, Lessee agrees to pay reasonable attorney fees and court costs so
incurred by Lessor.
7. No delay or omission to exercise any right, power or remedy accruing to
Lessor upon any breach or default by Lessee under this Lease shall impair
any such right, power or remedy of Lessor, nor shall be construed as a
waiver of any such breach or default, or of any similar breach or default
thereafter occurring; nor shall any waiver of a single breach or default be
deemed a waiver of any subsequent breach or default. All waivers under this
Lease must be in writing. All remedies either under this Lease or by law
afforded to Lessor shall be cumulative and not
alternate.
8. Lessee agrees to and does hereby indemnify and hold Lessor harmless of,
from and against all claims, costs, expenses, damages and liabilities,
including reasonable attorney fees resulting from or pertaining to the use
or operation of the property during the term of this agreement and while
said property is in possession of the Lessee.
9. If Lessee shall fail to pay any rental as herein provided when the same
is due and payable, or if Lessee shall default in performance or shall fail
to observe, keep or perform any other provision of this Lease required to
be observed, kept, or performed by Lessee, then in such event Lessor, at
its sole option, and in addition to and without prejudice to any other
remedies, may terminate this Lease and/or enter upon Lessees premises and
without any court order or other process of law may repossess and move said
property either with or without notice to Lessee. Any such repossession
shall not constitute a termination of this Lease unless Lessor so notifies
Lessee in writing, and Lessor has the right, at its sole option,
(a) To lease said property to any other person or persons upon
such terms and conditions as Lessor shall determine, or,
(b) To sell said property to the highest bidder at public auction
in accordance with the pledge laws of the State of Texas at which sale
the Lessor may be the purchaser.
In either of such events, there shall be due from Lessee and Lessee will
immediately pay to Lessor the difference between the total of rentals to be
received from any third person or the purchase price at said sale as the
case may be and the total unpaid rental provided to be paid therein, plus
all costs and expenses of Lessor in repossessing, releasing, transporting,
repairing, selling or otherwise handling said property; in the event that
such releasing or selling results in a surplus, such surplus shall be paid
to Lessee.
10. For the purpose of this Agreement any notices required to be given
shall be given to the parties hereto in writing and by mail at the
addresses hereinafter set forth after the signature of each party, or to
such other addresses as each party may substitute by notice to the other;
if this Lease be assigned by Lessor, the address of the assignee shall be
as indicated in the instrument of assignment. 11. In consideration of the
mutual covenants contained herein, Lessee is hereby granted the option to
obtain a new one (1) year lease at an annual rental of
______________________________________ Dollars ($________________). Said
option may be exercised by Lessee by written notice to that effect to
Lessor, which notice shall be accompanied by payment of the entire annual
rental above described, and which shall be delivered to Lessor no less than
ninety (90) days before the expiration of the term hereof. Said new one (1)
year term and any succeeding one (1) year term, shall carry an identical
option hereto, and except for the amount of rental, each new lease shall be
subject to provisions and conditions identical with those of this lease.
The rental payable for each new lease shall be that specified in this
Paragraph 11 as payable for the first new lease. Notwithstanding anything
provided in this Paragraph, in no event shall Lessee have the power or
option to obtain more than _______________________________ successive new
leases hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Lease this
_________ day of ___________________________, 19________
T. SISTERS LEASING LLC ___HOLLOMAN CONSTRUCTION COMPANY__
By ___/s/_Teresa McCoy________________ By __/s/_Mark E. Stevenson_____
(Lessor)
- -----------------------------------------------------------------------------
By_____________________________________ By___________________
(Lessor) (Lessee)
_________________________________________________
_________________________________________________
Mail Address
ASSIGNMENT OF LEASE
For value received, undersigned does hereby sell, assign, transfer and set
over to: (hereinafter called Bank, the address of which for purpose of
notices pursuant to this instrument is __________________________________)
that certain"Lease Agreement" dated _____________________________,
19_______ entered into by and between undersigned, therein called the
"Lessor" and ______________________________________________ therein called
the "Lessee", together with the property subject thereto, and all rentals
and other sums due and to become due thereunder.
Undersigned hereby guarantees due and punctual payment of all rentals and
of all other sums due or to become due on or under the aforesaid lease
agreement, and does hereby consent that, without further notice and without
releasing the liability of undersigned, Bank may, at its discretion, give
grace or indulgence in the collection of the same, and grant extensions of
time for the payment of the same before, at or after maturity. Upon any
default by the said Lessee undersigned will upon demand repurchase the said
lease agreement and the property covered thereby by paying to Bank the
title to the property subject to said lease agreement, and to the rental
payments and other sums due thereon and thereunder are hereby vested in
Bank; that the said lease agreement is genuine; that the said Lessee has
capacity to contract; that undersigned has the right to make this
assignment and that said rental property and rental payments and other sums
are free from liens, encumbrances, claims and setoffs of every kind
whatsoever, and that as of the date hereof, the unpaid balance of rental
payments specified in said lease is
________________________________________________ Dollars
($_______________), and the next payment is due thereunder on the
__________________________ day of _________________________, 19________.
Undersigned hereby waives (a) the right, if any, to the benefit of, or to direct
the application of, any security hypothecated to Bank until all indebtedness of
the said Lessee to Bank, howsoever arising, shall have been paid, and (b) the
right to require Bank to proceed against the said Lessee, or to pursue any other
remedy in the Banks power; and agrees that Bank may proceed against undersigned
directly or independently of the said lease, and that the cessation of the
liability of the said Lessee for any reason other than full payment, or any
extension, forbearance or acceptance, release, or substitution of security or
any impairment or suspension of Bank's remedies or rights against the said
Lessee shall not in any way affect the Liability of undersigned hereunder. Bank
does not assume any of the obligations arising under said lease agreement, and
undersigned does hereby covenant and agree to keep and perform all of the
obligation of the"Lessor" under said lease agreement and to save Bank harmless
from the consequences of any failure to do so.
DATED_________________________, 19______ T. SISTERS LEASING, LLC
By_____________________________________________
________________________________________________
09/02 `90 20:21 NO.782 14/14
COMMERCIAL LEASE
Preamble - Parties and Premise
BOB GIST, referred to in this lease as "Lessor, hereby leases to
HOLLOMAN CONST. CO., referred to in this lease as "Lessee," those certain
premises, referred to as "the premises," and located at WEST HI WAY 80 ODESSA,
ECTOR, TX..
The parties agree to be legally bound as follows:
Term
The term of this lease shall be for the period of years commencing at
1.2u01 A.M. on the I day of APRIL 1, 1992, and ending at 12:01 A.M. 5 years
later, unless sooner terminated as herein provided.
Rent
Lessee agrees to pay to Lessor as rent for the use and occupancy of
the premises the sum of $1500 per month payable on the day 5 of each and every
month commencing with APRIL 1, 1992, at the office of Lessor or such other place
or places as Lessor may from time to time designate by written notice given to
Lessee.
Extended Term
Should Lessee fully and faithfully perform all the terms and
conditions of this lease tar the lull term specified, Lessee may extend this
lease for a further term of 5 year(s), commencing on expiration of the full term
specified in this lease, by giving Lessor written notice of Lessee's desire to
so do at least 60 days prior to expiration of the original term of this lease.
Rent during Extended Term
Should this lease be extended as provided for above, the rent during
such period of extension shall be equal to the rent specified in this lease for
the initial period adjusted by adding to that amount the sum of $ONLY THE AMOUNT
OF ANY TAX INCREASE per month.
<PAGE>
Hold Over
Should Lessee hold over and continue in possession of the premises
after expiration of the term of this lease or any extension thereof, Lessee's
continued occupancy of the premises shall be considered a month-to-month tenancy
subject to all the terms and conditions of this 1ease.
Lessor's Inability to Deliver Possession
Should Lesson for any reason be unable to deliver possession of the
premises to Lessee on the date specified in this lease as the date on which the
term of this lease is to commence, this lease shall not be void or voidable nor
shall Lessor be liable to Lessee for any loss or damage resulting from such
failure to deliver possession to Lessee so long as Lessor has exercised, and
continues to exercise, reasonable diligence to deliver possession of the
premises to Lessee. No rent shall however, accrue or become due from Lessee to
Lessor under' this lease until the actual physical poss~5St~fl Of the premises
is delivered, or' the right to actual unrestricted physical possession of the
premises under this lease is tendered by Lessor to Lessee. Furthermore, the term
of this lease shall not be extended by Lesson's inability to deliver possession
of the premises to Lessee on the date specified in this lease.
Use of Premises
The premises shall be used for a CONSTRUCTION OFFICE by Lessee and for
no other use or uses without the express written consent of Lessor.
Prohibited Uses
Lessee shall not commit or permit the commission of any acts on the
premises nor use or permit the use of the premises in any way that:
(a) will increase the existing rates for or cause cancellation of any
fire, casualty, liability or other insurance policy insuring the premises or the
contents;
(b) violates or conflicts with any law, statute ordinance, or
governmental rule or regulation, whether now in force or hereafter enacted,
governing the premises;
(c) obstructs or interferes with the rights of neighbors or injures or
annoys them; or
<PAGE>
(d) constitutes the commission of waste on the premises or the
commission or' maintenance of a nuisance.
Alterations
Lessee shall not make or permit any other person to make any
alterat~on5 to the premises without the prior written consent of Lessor. Should
Lessor consent to the making of any alterations to the premises by Lessee the
alterations shall be made at the sole cost and expense of Lessee by a contractor
or other person selected by Lessee and approved in writing before work commences
by Lessor. Any and all alterations, additions, or Improvements made to the
premises shall on expiration or sooner termination of this lease become the
property of Lessor and remain on the premises; provided, however, that on
expiration or sooner termination of this lease and written demand being given by
Lessor, Lessee shall at Lessee's sole cost and expense remove all alterations,
additions, and improvements made to the premises by Lessee and pay all costs of
repairing any damages to the premises caused by their removal.
Maintenance and Repairs
Lessee admits, by entering into possession under this lease, that the
premises are now in a good, clean, and safe condition and repair. Lessee shall,
at all times during the term of this lease and any renewal or extension thereof,
maintain, at Lessee's sole cost and expense, the premises, and every part of the
premises, in a good, clean, and safe condition, and shall on expiration or
sooner termination of this lease surrender the premises to Lessor in as good
condition and repair as they are' in on the date of this lease, reasonable wear
and tear and damage by the elements excepted. Lessee hereby waives any right to
make repairs to the premises at the expense of Lessor as provided by any law on
statute now or hereafter enacted.
Inspection by Lessor
Lessee shall permit Lessor or Lessor's agents, representatives, or
employees to enter the premises at all reasonable times for the purpose of
inspecting the premises to determine whether Lessee is complying with the terms
of this lease and for the purpose of doing other lawful acts that may be
necessary to protect interest in the premises under this lease.
<PAGE>
Payment of Utility Charges
Lessee shall pay, and hold Lessor and the property of Lessor free and
harmless from, all charges for the furnishing of gas, water, electricity,
telephone service, and other public utilities to the premises during the term of
this lease or any extension thereof and far the removal of garbage and rubbish
from the premises during the term of this tease or any extensions thereof.
Personal Property Taxes
Lessee shall pay before they become delinquent alt taxes, assessments,
or other charges levied or imposed by any governmental entity on the furniture,
trade fixtures, appliances, and other personal property placed by Lessee in, on,
or about the premises including, without limiting the generality of the other
terms used in this section, any shelves, counters, vaults, vault doors, wall
safes, partitions, fixtures, machinery, plant equipment, office equipment,
television or radio antennas, or communication equipment brought or, the
premises by Lessee.
Real Property Taxes
All real property taxes and assessments levied or assessed against the
premises by any governmental entity, including any special assessments imposed
on or against the premises for the construction or improvement of public works
in, or, or about the premises, shell be paid, before they become delinquent, by
Lessor; provided, however, Lessee shall conduct no activity or the premises nor
place any articles on the premises that will increase the real property taxes
levied or assessed against the premises.
Destruction of Premises
Should the premises or the Building of which they are a part be damaged
or destroyed by any cause not the fault at Lessee, Lessor shall at
Lessor's sole cost and expense promptly repair the same and the rent
payable under this tease shall be abated for thy time and to the extent
Lessee is prevented from the premises in their entirety; provided,
however, that should the cost of repairing the damage or destruction
exceed 25 percent of the full replacement cost of the premises or the
building of which the premises are a part, Lessor may, in lieu of
making the repairs required by this paragraph, terminate this lease by
giving Lessee 90 days written notice of such termination.
<PAGE>
Condemnation of Premises
Should all or any part of the premises be taken by any public or
quasi-public agency or entity under the power of eminent domain during the term
of this lease:
(a) either Lessor or Lessee may terminate this lease by giving the
other 90 days written notice of termination provided, however, that Lessee
cannot terminate this lease unless the portion of the premises taken by eminent
domain is so extensive as to render the remainder of the premises useless for
the uses permitted by this lease;
b) any and all damages and compensation awarded or paid because of the
taking, except for amounts paid Lessee for moving expenses or for damage to any
personal property or trade fixtures owned by Lessee, shall belong to Lessor, and
Lessee shall have no claim against Lessor or the entity exercising eminent
domain power for the value of the unexpired term of this leases
c) should only a portion of the premises be taken by eminent domain
and neither Lessor nor Lessee terminates this lease, the rent thereafter payable
under this least shall be reduced by the same percentage that the floor area at
the portion taken by eminent domain bears to the floor are; of the entire
premises; and
d) should any portion of the building containing the premises other
than the premises be taken by eminent domain, Lessor may, at his option,
terminate this lease.
Assignment or Subleasing
Lessee may encumber, assign, or otherwise transfer this binge, any
right or interest in this lease, or any right or interest in the premises with
the prior express written consent at Lessor. Lessee may sublet the premises or
any part thereat or allow any other persons, including lessee's agents and
servants, to occupy or use the premises or any part thereof with the prior
written consent of Lessor. A consent by Lessor to one assignment, subletting, a"
occupation and use by another person shall not he deemed to be a consent to any
subsequent assignment, subletting, or occupation and use by another person. The
consent of Lessor to any assignment of Lessee's interest in this lease or the
subletting by Lessee of the premises shall not be unreasonably withheld.
<PAGE>
Indemnity
Lessee shall indemnify and hold Lessor and the property of Lessor,
including the premises, free and harmless from any and all liability, claims,
lost, damages or expenses, including counsel fees and costs, arising by reason
of the death or injury of any person, including Lessee or any person who is an
employee or agent of Lessee, or by reason of damage to or destruction of any
property, including property owned by Lessee or any person who is an employee or
agent of Lessee, caused or allegedly caused by:
(a) any cause whatsoever while such person or property is in or on the
premises or in any way connected with the premises or with any personal property
on the premises;
(b) some condition at the premises;
Cc) some act or omission on the premises of tresses or any person in,
an, or about the premises with the permission of Lessee; or
1/2) any matter connected with Lessee's occupation and use of the
premises.
Liability Insurance
Lessee shall, at its own cost and expense, secure within 10 days and
maintain during the entire term of this lease and any renewals or extensions of
such term a broad form comprehensive coverage policy of public liability
insurance issued by an insurance company acceptable to Lessor and insuring
Lessor against lost or liability caused by or connected with Lessees occupation
end use of the premises under this lease in amounts not lass than:
a) $100000 for injury to or death of one person and, subject to such
limitation for injury to or death of one person, of not less than $1,000,000 for
injury to or death of two or more persons as a result of any one accident or
incident; and
b) $NONE for damage to or destruction of any property of others.
Unremoved Trade Fixtures
Any trade fixtures that are not removed from the premises by Lessee 70
days after this lease's expiration or sooner termination, regardless of cause,
shall be deemed abandoned by Lessee and shall automatically become the property
of Lessor as owner of the real property to
<PAGE>
which they are affixed.
Acts Constituting Breaches by Lessee
Lessee shall be guilty of a material default and breach of this lease
should:
(a) any rent be unpaid when due and remain unpaid for 30 days after
written notice to pay such rent or surrender possession of the premises has been
given to Lessee by Lessor;
(b) Lessee default in the performance of or breach any provision,
covenant, or condition of this lease other than one for the payment of rent and
such default or breach is not cured within 30 days after written notice thereof
is given by Lessor to Lessee;
c) Lessee breach this lease and abandon the premises before expiration
of the term of this lease;
d) a receiver be appointed to take possession of all or substantially
all of Lessee's property and not he discharged within 20 days after his or her
appointment;
e) Lessee make a general assignment for the benefit of creditors; or
(f) execution or attachment be levied on all or substantially all of
Lessee's property and assets and not be discharged within 20 days.
Lessor's Remedies for Lessees Default
Should Lessee be guilty of a material default and breach of this lease
as defined in this lease, Lessor, in addition to any other remedies given Lessor
by law or equity, may:
(a) continue this lease in effect by not terminating Lessee's right to
possession of the premises and thereby he entitled to enforce all Lessors right
to recover the rent specified in this lease as it becomes due under this lease;
(b) terminate Lessee's right to possession of the premises, thereby
terminating this lease, and recover from Lessee;
(1) the worth at time of award of the unpaid rent which had
been earned at the time of termination of the lease;
(2) the worth at the time of award of the amount by which the
unpaid rent which would have been
<PAGE>
earned after termination at the lease until the time of award exceeds
the amount of rental lose that Lessee proves could have been
reasonably avoided;
(3) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of
award exceeds the amount of rental loss that Lessee proves could be
reasonably avoided; and
(4) any other amount necessary to compensate Lessor
tar all detriment proximately caused by Lessee's failure to perform
Lessee's obligations under this lease; or
(c) in lieu of, or in addition to, bringing an action for any
or all of the recoveries described in this lease, bring en action to
recover and regain possession of the premises in the manner provided
by the laws of TX..
Waiver of Breach
The waiver by Lessor of any breach by Lessee of any of the
provisions of this lease shall not constitute a continuing waiver or a
waiver of any subsequent breach by Lessee either of the same or
another provision of this lease.
Force Majeure -- Unavoidable Delays
Should the performance of any act required by this lease to
be performed by either Lessor or Lessee be prevented or delayed by
reason of an act of God, strike, lockout, labor troubles, inability to
secure materials, restrictive governmental laws or regulations, or any
other cause, except financial inability, not the fault of the party
required to perform the act, the time for performance of the act will
be extended tar a period equivalent to the period of delay and
performance of the act during the period of delay will be excused;
provided, however, that nothing contained in this section shall excuse
the prompt payment of rent by Lessee as required by this lease or the
performance of any act rendered difficult solely because of the
financial condition of the party, Lessor or Lessee required to perform
the act.
Arbitration
Any dispute relating to the interpretation or performance of
this Agreement shall be required at the request of either
party through binding arbitration in accordance with the
rules of either the American Arbitration Association of
Texas. Judgement at any award determined by the arbitrators
may be entered in the appropriate court having jurisdiction.
<PAGE>
Notices
Except as otherwise expressly provided by law, any and all notices or
other communications required or permitted by this lease or by law to be served
on or given to either party hereto by the other party hereto shall be in writing
and shall be deemed duly served and given when personally delivered to (any
member of) the party to whom they are directed, or in lieu of such personal
service when deposited in the United States mail, first--class postage prepaid,
addressed to Lessee at BOX 69410 ODESSA, TX 79769, or to Lessor at 2403 PEBBLE
BEACH COVE AUSTIN,TX 78745. Either party, Lessee or Lessor, may change this
address for the purpose of this section by giving written notice of such change
to the other party in the manner provided in this section.
Binding on Heirs and Successors
This lease shall be binding on and shall inure to the benefit of the
heirs, executors, administrators, successors, and assigns of the parties hereto,
Lessor and Lessee, but nothing in this section contained shall be construed as a
consent by Lessor to any assignment at this lease or any interest therein by
Lessee.
Partial Invalidity
Should any provision of this lease be held by a court of competent
Jurisdiction to be either invalid, void, or unenforceable, the remaining
provisions of this lease shall, remain in full force and effect unimpaired by
the holding.
Sole and Only Agreement
This instrument constitutes the sole and only agreement between Lessor
and Lessee respecting the premises, the leasing of the premises to Lessee, or
the lease term herein specified, and correctly sets forth the obligations of
Lessor and Lessee to each other as of this date. Any agreements or
representations respecting the premises or their leasing by Lessor or Lessee not
expressly set forth in this instrument are void. * Refer to Attachment to
Commercial Lease date January 21, 1992.
Time of Essence
Time is expressly declared to be the essence of this lease.
<PAGE>
EXECUTED on January 21, 1991, at ODESSA, TX..
Lessor
/S/ Bob Gist
Bob Gist
Lessee
Holloman Const. Co
/S/ Sam Holloman
Sam Holloman
Ector
TX.
On _____________________, ______________, before me, personally appeard Bob
Bob Gist, known to me or proved to me to be the person whose name is subscribed
to the within document and acknowledged to me that he or she executed the same.
(seal)
____________/S/________
Notary Public for TX.
Ector
TX.
On _____________________, ______________, before me, personally appeard Bob
Bob Gist, known to me or proved to me to be the person whose name is subscribed
to the within document and acknowledged to me that he or she executed the same.
(seal)
____________/S/________
Notary Public for TX.
<PAGE>
ATTACHMENT TO COMMERCIAL LEASE
BETWEEN BOB GIST AND HOLLOMAN CONSTRUCTION CO.
dated January 2l, 1992
Both parties heroin agree to the following:
1. Bob Gist, lessor, shall be responsible for any and all claims
involving the clean--up and/or disposal of any hazardous
waste, materials, and/or products that are present and
existing on the surface and/or soil at the lease site as of
the closing date of this lease, April 1, 1992.
2. Holloman Construction Co., lessee, shall be responsible for
any and all claims involving the clean--up and/or disposal of
any hazardous waste, materials and/or products that exist on
the surface and/or soil at the lease site after closing date
of this lease, April 1, 1992, and until further termination of
this lease.
3. Bob Gist, lessor, gives Holloman Construction Co., lessee, the
right to construct offices, work areas, and general
improvements within the lease site location. Holloman
Construction Co. shall be liable for the cost of these
improvements.
Subsidiaries of the Registrant
Holloman Corporation
<TABLE>
<CAPTION>
State or Jurisdiction Other Jurisdictions in
Name of Incorporation Which Qualified DBA (2) Amount Owned
- ---- ---------------- --------------- ------ ------------
<S> <C> <C> <C> <C>
Holloman Construction
Company (1) Texas Arizona, Arkansas, Colorado,
Florida, Louisiana, Maryland, 100%
New Mexico, Oklahoma,
Utah
</TABLE>
- -----------------
(1) Assumes consummation of the Acquisition (2) No assumed names.
Consent of Independent Certified Public Accountants
We have issued our report dated January 13, 1998, accompanying the financial
statements of Holloman Construction Co. incorporated by reference in the
Rgistration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Expert"
/s/ Charles Carlson
Odessa, Texas
July 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 1065223
<NAME> HOLLOMAN CONSTRUCTION COMPANY
<MULTIPLIER> 1
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-1-1998
<PERIOD-START> NOV-2-1998
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1
<CASH> 327,923
<SECURITIES> 0
<RECEIVABLES> 4,918,535
<ALLOWANCES> 0
<INVENTORY> 37,319
<CURRENT-ASSETS> 5,294,482
<PP&E> 938,830
<DEPRECIATION> 2,850,518
<TOTAL-ASSETS> 6,233,312
<CURRENT-LIABILITIES> 2,749,171
<BONDS> 34,587
0
0
<COMMON> 85,000
<OTHER-SE> 3,532,155
<TOTAL-LIABILITY-AND-EQUITY> 6,233,312
<SALES> 12,000,425
<TOTAL-REVENUES> 12,000,425
<CGS> 10,421,012
<TOTAL-COSTS> 10,421,012
<OTHER-EXPENSES> 626,902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,429
<INCOME-PRETAX> 922,594
<INCOME-TAX> 313,682
<INCOME-CONTINUING> 608,912
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608,912
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
