<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
HOUSTON OPERATING COMPANY
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 4789 76-0307819
- --------------------------------------------------------------------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
49 Burlington Avenue, Round Lake, New York 12151, (518) 899-7393
- --------------------------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
49 Burlington Avenue, Round Lake, New York 12151, (518) 899-7393
- --------------------------------------------------------------------------------
(Address of Principal Place of Business or
Intended Principal Place of Business)
Richard W. Morrell,
49 Burlington Avenue, Round Lake, New York 12151, (518) 899-7393
- --------------------------------------------------------------------------------
(Name, Address, and Telephone Number of Agent For Service)
Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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. [ ] _____________
<PAGE> 2
If this form is a post-effective amendment filed pursuant to Rule 462(d)
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 the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SHARE PRICE FEE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 250,000 $2.00 $500,000 $139.00(2)
par value $0.001
per share
Common Stock, 250,000(1) $2.00(1) $500,000 $139.00(2)
par value $0.001 per
share, underlying the
convertible Preferred
Shares
===========================================================================================
</TABLE>
(1) 250,000 shares of Common Stock are being registered hereby to be issued
upon exercise of the right of conversion by the holders of Series A
Preferred Stock of the Company.
(2) Paid by electronic transfer.
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY 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> 3
PROSPECTUS,
SUBJECT TO COMPLETION,
Dated _____, 1999
HOUSTON OPERATING COMPANY
500,000 Shares of Common Stock
This Registration Statement of which this prospectus is a part relates to
the offer and sale of 250,000 shares (the "Shares") of Common Stock, par value
$0.001 per share (the "Common Stock"), of Houston Operating Company, a Delaware
corporation ("Houston"), which will be issued by Houston to finance the
expansion of its primary business. Additionally, through this Registration
Statement, the Company is registering 250,000 shares of Common Stock to be
delivered to the holders of the Company's Series A Preferred Stock (the
"Preferred Stock") upon conversion of the Preferred Stock should such conversion
occur. There are no security holders who will be selling their shares of Common
Stock in connection with this Registration Statement. No period of time has been
fixed within which the Shares may be offered or sold. Unless the context
otherwise requires, references herein to the "Company" include Houston Operating
Company and its subsidiary, 35 Caroline Corporation, a New York corporation.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
The date of this Prospectus is _____, 1999.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I.
Prospectus Summary ........................................................ 5
Risk Factors .............................................................. 7
Use of Proceeds ........................................................... 11
Determination of Offering Price ........................................... 12
Dilution .................................................................. 12
Selling Security Holders .................................................. 13
Plan of Distribution ...................................................... 13
Legal Proceedings ......................................................... 13
Directors, Executives Officers, and Control Persons ....................... 13
Security Ownership ........................................................ 14
Description of Securities ................................................. 15
Interest of Named Experts ................................................. 16
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities ...................................... 16
Description of Business ................................................... 16
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................... 20
Description of Property ................................................... 24
Certain Relationships and Related Transactions ............................ 24
Market for Common Equity .................................................. 24
Executive Compensation .................................................... 25
Index to Financial Statements ............................................. F-1
PART II
Indemnification of Directors and Officers ................................. 53
Other Expenses of Issuance and Distribution ............................... 53
Recent Sale of Unregistered Securities .................................... 53
Index to Exhibits ......................................................... 54
Undertakings .............................................................. 55
</TABLE>
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and historical and pro forma
financial statements included elsewhere in this Prospectus. Each prospective
investor is urged to read this Prospectus in its entirety, including the
financial data.
THE COMPANY
Houston Operating Company ("Houston") was incorporated under the laws of
the state of Delaware on August 31, 1989. Houston was formed to act as successor
to a bankrupt debtor under a bankruptcy plan of reorganization dated April 21,
1990. Under the terms of the plan, Houston issued approximately 2.8 million
shares of its common stock to shareholders and creditors of the bankrupt debtor.
In October, 1994, Harvey V. Risien, Jr. ("Risien") acquired approximately 2.5
million shares of Houston's issued and outstanding stock, which constitutes
approximately 89% of the issued and outstanding stock. However, since its
formation and emergence from bankruptcy, including the last three fiscal years,
Houston has not had any continuing operations nor generated any revenues.
In December, 1998, Risien sold approximately 2,469,417 shares, or 88.4%,
of Houston's issued and outstanding stock, to the shareholders of 35 Caroline
Corporation ("35 Caroline"), a closely-held New York corporation, which is
engaged in the business of recovering and transporting leased automobiles on
behalf of automobile leasing companies. In exchange for the stock of Houston,
the shareholders of 35 Caroline transferred all of the issued and outstanding
stock of 35 Caroline to Houston. As a result of the transaction, 35 Caroline
became a wholly-owned subsidiary of Houston, with 35 Caroline's former
shareholders becoming the majority shareholders of Houston.
Through this offering of the Shares of the Common Stock, the Company seeks
to raise up to $500,000, a portion which will be used by the Company to finance
the expansion of 35 Caroline's business by the acquisition of digital equipment
for its automobile inspection services and the purchase of other businesses
performing services related to the business of the Company. Concurrently with
this offering of the Shares, the Company seeks to raise up to an additional
$500,000 by way of a private offering of the Company's Preferred Stock, which
would be convertible into 250,000 shares of the Company's Common Stock, which
shares are also being registered through this Registration Statement.
BUSINESS OPERATIONS
35 Caroline Corporation was formed in 1989 under the laws of the state of
New York. 35 Caroline is one of the largest "first-leg" automobile recovery and
transportation companies in the United States, operating three locations in New
York and one location in New Jersey, and
<PAGE> 6
serving the northeast states of Connecticut, Delaware, Maine, Massachusetts, New
Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont.
Specifically, upon request by one of its leasing-company customers, 35 Caroline
arranges for the recovery and transportation of leased automobiles, and then
stores and marshals the vehicles until such time as the leasing company arranges
with the Company for the transportation, usually by another transporter, of the
vehicles to a final destination. Also, in connection with its recovery services,
and for an additional fee, 35 Caroline performs physical inspections of returned
vehicles for wear and tear, and prepares inspection reports to be used by the
leasing-company customers in evaluating the condition of a returned vehicle at
the expiration of the lease. The purchase of additional digital cameras,
computers, and related equipment, using a portion of the proceeds of this
offering, will improve performance and the time required of the inspection
services provided by the Company at reduced costs to the Company.
SELECTED FINANCIAL INFORMATION
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Houston Operating Company Financial
Statements and the Notes thereto included elsewhere in this Prospectus. The
Consolidated Statements of Operations Data for the years ended December 31,
1998, 1997 and 1996 and the Consolidated Balance Sheet Data as of December 31,
1998 and 1997 are derived from the Houston Operating Company Financial
Statements, which have been audited by Oppenheim & Ostrick, CPA's, independent
auditors.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C>
Consolidated Statements of Operations Data:
Sales $3,409,171 $ 2,736,067 $ 1,094,234
Cost of sales 2,837,625 2,080,256 807,718
---------- ------------ ------------
Gross profit 571,546 655,811 286,516
Operating expenses 282,459 199,098 119,422
---------- ------------ ------------
Operating income 289,087 456,713 167,094
Other income (expense) 678 (1,615) (783)
---------- ------------ ------------
Income before taxes 289,765 455,098 166,311
Income taxes 30,000 45,000 16,600
---------- ------------ ------------
Net income $ 259,765 $ 410,098 $ 149,711
========== ============ ============
Pro Forma:
Historical Income before income taxes $ 289,765 $ 455,098 $ 163,310
========== ============ ============
Less pro forma income taxes 120,000 189,000 64,711
---------- ------------ ------------
Pro forma net income $ 169,765 $ 266,098 $ 101,599
========== ============ ============
</TABLE>
<TABLE>
<S> <C> <C> <C>
Basic earnings per share $ .06 $ .10 $ .04
========== ============ ============
Weighted number of shares outstanding 2,795,171 2,795,171 2,795,171
========== ============ ============
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997
-------- --------
Consolidated Balance Sheet Data:
<S> <C> <C>
Cash $ 5,241 $ 5,694
Working capital 8,198 171,346
Total assets 865,203 457,623
Short-term debt(1) 403,766 214,337
Long-term debt, net current portion 25,658 20,544
Total stockholders' equity 85,779 222,742
</TABLE>
(1) Includes a $125,000 distribution payable to shareholders of wholly-owned
subsidiary to pay income taxes before the acquisition when the subsidiary
Company was an S corporation.
Total assets increased primarily by the purchase of property in 1998
totaling approximately $339,000 that in prior years was a leased property
used in the Company's operations.
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD, PRIOR TO PURCHASE,
CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS ALL OF THE OTHER
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS AND THE INFORMATION CONTAINED
IN THE FINANCIAL STATEMENTS, INCLUDING ALL NOTES THERETO.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate," or "continue" or the negative thereof or
other variations thereon or comparable terminology. The matters set forth under
"RISK FACTORS" constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.
LIMITED OPERATING HISTORY
<PAGE> 8
Houston Operating Company ("Houston") was incorporated under the laws of
the state of Delaware on August 31, 1989. Houston was formed to act as successor
to a bankrupt debtor under a bankruptcy plan of reorganization dated April 21,
1990. However, since emerging from bankruptcy, Houston has had no continuing
operations.
35 Caroline Corporation ("35 Caroline") was formed in 1989 under the laws
of the state of New York. It has been engaged in the business of providing
recovery and transportation services its inception.
RISKS OF RELATIONSHIPS WITH PRIMARY CUSTOMERS
The Company provides automobile recovery and transportation services to
automobile financing companies. The Company's revenues are primarily derived
from three customers, of which one customer generates approximately eighty
percent (80%) of the Company's business and another customer generates
approximately ten percent (10%) of the Company's business. The relationships
with its customers are not based on any written agreements, and therefore, the
Company's reliance on these relationships involve risks, including, among other
things, the risk that a customer could terminate its relationship with the
Company at any time or substantially reduce its business with the Company.
DEPENDENCE ON AND THE CYCLICAL NATURE OF THE AUTOMOBILE INDUSTRY
The Company's business is dependent on the success of the leasing of motor
vehicles, particularly new vehicles, which historically have been cyclical,
fluctuating with general economic cycles. During economic downturns, the
automotive retailing industry tends to experience similar periods of decline and
recession as the general economy. The Company believes that the industry is
influenced by general economic conditions and particularly by consumer
confidence, the level of personal discretionary spending, interest rates and
credit availability.
SEASONALITY
The Company's business is modestly seasonal overall. The greatest
seasonalities exist with the dealerships in the Northeast States, for which the
second and third quarters are the strongest with respect to vehicle-related
leases.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's growth depends in large part on its ability to manage
expansion, control costs in its operations and consolidate acquisitions into
existing operations. This strategy will entail reviewing and potentially
reorganizing acquired operations, corporate infrastructure and systems and
financial controls. Unforeseen expenses, difficulties, complications and delays
frequently encountered in connection with the rapid expansion of operations
could inhibit the
<PAGE> 9
Company's growth.
There can be no assurance that the Company will identify acquisition
candidates that would result in the most successful combinations or that
acquisitions will be able to be consummated on acceptable terms. The magnitude,
timing and nature of future acquisitions will depend upon various factors,
including the availability of suitable acquisition candidates, the negotiation
of acceptable terms, the Company's financial capabilities, the availability of
skilled employees to manage the acquired companies and general economic and
business conditions.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the efforts and abilities of the executive management of the Company,
namely, Richard W. Morrell, the President of the Company, and Simeon Morrell,
the Company's Vice-President of Operations. The loss of the services of one or
more of these key employees could have a material adverse effect on the Company.
The Company's business will also be dependent upon its ability to continue to
attract and retain qualified personnel, including key management in connection
with future acquisitions.
CONTROL BY PRINCIPAL STOCKHOLDERS
As of December 31, 1998, the Chairman and President of the Company,
Richard W. Morrell, together with his two sons, owned approximately 88% of the
issued and outstanding stock of the Company. As a result, such persons have the
ability to control the Company and direct its affairs and business.
Circumstances may occur in which the interests of such persons could be in
conflict with the interests of the Common Stock generally. In addition, such
persons may have an interest in pursuing transactions that, in their judgment,
enhance the value of their equity investment in the Company at a greater
percentage than those holding minority shares.
LACK OF PUBLIC MARKET FOR COMMON STOCK
There is no assurance as to (i) the liquidity of the Common Stock or that
a market for the Common Stock will exist in the future, (ii) the ability of
holders of the Common Stock to sell their Common Stock or (iii) the price at
which the holders of the Common Stock would be able to sell their stock. If such
a market were to exist, the Common Stock could trade at prices that may be
higher or lower than their principal amount or purchase price, depending on many
factors, including the market for similar stock and the financial performance of
the Company. In addition, any market for the Common Stock will be subject to the
limits imposed by the Securities Act and the Securities Exchange Act.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, ordinances and
regulations which establish various health and environmental quality standards,
and liability related thereto, and
<PAGE> 10
provide penalties for violations of those standards. Under certain laws and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal and remediation of hazardous or toxic substances
or wastes on, under, in or emanating from such property. Such laws typically
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances or wastes.
Certain laws, ordinances and regulations may impose liability on an owner or
operator of real property where on-site contamination discharges into waters of
the state, including groundwater. Under certain other laws, generators of
hazardous or toxic substances or wastes that send such substances or wastes to
disposal, recycling or treatment facilities may be liable for remediation of
contamination at such facilities. Other laws, ordinances and regulations govern
the generation, handling, storage, transportation and disposal of hazardous and
toxic substances or wastes, the operation and removal of underground storage
tanks, the discharge of pollutants into surface waters and sewers, emissions of
certain potentially harmful substances into the air and employee health and
safety.
Houston is the successor to Cambridge Oil Company, which was engaged in
the business of distributing petroleum products. Accordingly, the Company was,
and may presently be, subject to regulation by federal, state and local
authorities establishing health and environmental quality standards, and
liability related thereto, and providing penalties for violations of those
standards.
The Company believes that it does not have any material environmental
liabilities and that compliance with environmental laws, ordinances and
regulations will not, individually or in the aggregate, have a material adverse
effect on the Company's results of operations or financial condition. However,
environmental laws and regulations are complex and subject to frequent change.
There can be no assurance that compliance with amended, new or more stringent
laws or regulations, stricter interpretations of existing laws or the future
discovery of environmental conditions will not require additional expenditures
by the Company, or that such expenditures would not be material.
LABOR AVAILABILITY
The Company's services require an adequate supply of part-time or hourly
labor. Presently, the Company employs 17 clerical hourly employees, and 65
full-time drivers and 15 part-time drivers who are paid based on miles driven.
None of the Company's employees are represented by a labor union, and by
employing entry level drivers, management believes it is unlikely that employees
will vote in a union. However, the operating costs of the Company can be
adversely affected by high turnover. Accordingly, the Company's ability to
increase sales, productivity and net earnings will be limited to a degree by its
ability to employ the laborers necessary to meet the Company's requirements.
There can be no assurance that the Company will be able to maintain an adequate
labor force necessary to efficiently operate its facilities.
REGULATION
<PAGE> 11
35 Caroline is subject to regulation under federal, state and local laws
with regard to the transportation of automobiles. In particular, 35 Caroline is
required to maintain transport licenses which permits it to transport recovered
vehicles from lessees' locations to 35 Caroline's storage lots. Without the
licenses, 35 Caroline would be unable to transport the automobiles. 35 Caroline
currently maintains 150 transport licenses which allows it to transport up to
150 automobiles at any one time. The Company believes that it has been issued
more licenses than any other recovery and transport company in the Northeast
region of the country. However, an adverse change in the laws or regulations to
which the Company is subject could have material adverse effect on the Company's
revenues, by among other things, limiting the number of automobiles the Company
could transport.
INSURANCE
The Company maintains vehicle and general liability and property insurance
in amounts it considers adequate and customary for businesses of its kind.
However, there is no assurance that future claims will not exceed insurance
coverage.
USE OF PROCEEDS
Through this offering, the Company seeks to raise up to $500,000. Also, as
partial funding against this offering, the Company plans to receive additional
equity financing of $500,000, through the private placement of the Company's
Preferred Stock. Such private placement financing is expected to be consummated
in April 1999. The terms of the offering of the Preferred Stock, which will be
convertible to common stock of the Company upon the consummation of the
Company's sale of an additional $500,000 pursuant to this registration of Common
Stock, have yet to be finalized.
The Company intends to use the proceeds of this offering, in part, to
acquire digital inspection equipment. Currently, in addition to recovery and
transportation services, the Company provides inspection services of recovered
automobiles. The results of the inspection are set forth on a written report,
which is then sent to the leasing company so that it can evaluate the condition
of the vehicle at the expiration of the lease. The use of digital equipment,
including digital cameras and computers, to perform inspection services will
allow the Company to prepare and transmit its inspection reports on a much more
expedient and cost-efficient basis. The Company anticipates it will require
approximately $25,000 of capital expenditure to purchase the necessary equipment
to perform the digital inspections. The Company anticipates the purchase of the
equipment will enable the Company to increase its revenues generated by such
inspections by $300,000 to $500,000 and to provide additional services to
potential customers.
Additionally, the Company intends to use a portion of the proceeds of this
offering to acquire an automobile repossession business located in the area in
which the Company currently does business. An acquisition of a repossession firm
will enable the Company to expand its transport services to current customers
and market such service to new customers. The Company estimates that it will
require under $250,000 of capital to acquire a repossession business.
<PAGE> 12
DETERMINATION OF OFFERING PRICE
There is no established public market for the common stock being
registered under this offering. The offering price has been determined
arbitrarily.
DILUTION
The pro forma net tangible book value of the Common Stock as of December
31, 1998 was approximately $2.2 million or $0.43 per share. Pro forma net
tangible book value per share represents the Company's total tangible assets
less total liabilities, divided by the total number of shares of Common Stock
outstanding assuming the conversion of the outstanding shares of Preferred Stock
into shares of Common Stock.
After giving effect to the sale of the 500,000 shares of Common Stock by
the Company offered hereby and the receipt of the net proceeds therefrom, the
pro forma net tangible book value of the Company as of December 31, 1998 would
have been approximately $2.2 million or $.67 per share. This represents an
immediate increase in pro forma net tangible book value of $.24 per share to
existing shareholders and an immediate dilution in pro forma net tangible book
value of $1.33 per share to purchasers of Common Stock in this offering. The
following table illustrates the per share dilution as of December 31, 1998:
<TABLE>
<S> <C> <C>
Initial public offering price per share $2.00
Pro forma net tangible book value per
share as of December 31, 1998 $0.43
Increase per share attributable to new
shareholders .24
-----
Pro forma net tangible book value per share
as of December 31, 1998 after the offering 0.67
-----
Dilution per share to new shareholders $1.33
=====
</TABLE>
The following table sets forth on a pro forma basis the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by existing shareholders and by new shareholders:
<PAGE> 13
<TABLE>
<CAPTION>
(Omit $000)
Shares Purchased Total Consideration Average
------------------ ------------------- Price Paid
Number Percent Amount Percent Per Share
--------- ------- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1) 2,795,171 84.8% $1,203 77.3% $0.43
New shareholders 500,000 15.2 1,000 22.7 2.00
--------- ----- ------ -----
Total 3,295,171 100.0% $2,203 100.0%
========= ===== ====== =====
</TABLE>
(1) Excludes $500,000 preferred stock convertible into common shares,
contingent upon the proceeds of this offering.
SELLING SECURITY HOLDERS
There are no security holders of the Common Stock who are offering
securities for sale in connection with this Registration Statement.
PLAN OF DISTRIBUTION
The Company is selling the Shares through its directors and officers and
without the use of any underwriters, broker-dealers or agents. Therefore, no
underwriting discounts, concessions, commissions, or any other form of
compensation will be paid by the Company in connection with the sale of the
Shares, except the Company will pay all of the expenses incident to the
registration of the Shares.
LEGAL PROCEEDINGS
The Company nor its subsidiaries are a party to any legal actions which
could have a material adverse effect on its business, financial condition or
results of operations.
DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
MANAGEMENT -- DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following sets forth the names of the Company's directors, executive
officers, and key employees as of December 31, 1998. The directors of the
Company are elected annually by the shareholders and the officers are appointed
annually by the Board of Directors. The following individuals also serve as
officers of the Company's subsidiary.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Richard W. Morrell 58 Chairman of the Board of Directors, President,
Chief Financial Officer
Marjorie Morrell 56 Director, Secretary
Simeon Morrell 28 Director, Vice-President
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C>
Damon J. Morrell 26 Director, Vice-President
Allen D. Greenstein 58 Director, Vice-President
</TABLE>
All directors hold office until the next annual meeting of shareholders of
the Company (currently expected to be held during the month of April) and until
their successors are elected and qualified, subject to earlier removal and
replacement by the shareholders. Officers hold office until the first meeting of
directors following the annual meeting of shareholders and until their
successors are elected and qualified, subject to earlier removal and replacement
by the Board of Directors.
Biographies of the Company's Directors, Executive Officers and Key Employees
Richard W. Morrell is Chairman, President, and Chief Financial Officer
of Houston Operating Company and its subsidiary, 35 Caroline Corporation.
Mr. Morrell has been in the automobile rental and transport business since
1976, and in 1989, Mr. Morrell formed 35 Caroline Corporation. Mr. Morrell
has experience as a bond trader on Wall Street, and he received a Bachelor of
Arts degree from Montclair State University in Montclair, New Jersey.
Additionally, Mr. Morrell serves as a Director of Surf & Stream Campground.
Allen D. Greenstein is Vice-President of the Company. He has been
Chief Executive Officer of Surf & Stream Campground for twenty-five years.
Mr. Greenstein worked for six years on Wall Street as a stock trader. Mr.
Greenstein has a Bachelor of Arts degree from the University of Michigan.
Simeon Morrell, son of Richard W. Morrell, is Vice-President of Houston
Operating Company and its subsidiary, 35 Caroline Corporation. Mr. Morrell
has been with 35 Caroline Corporation for approximately six years, during
which time he has been instrumental in establishing three offices of 35
Caroline. Mr. Morrell has a Bachelor of Arts degree from Syracuse University.
Damon J. Morrell, son of Richard W. Morrell, is Vice-President of
Houston Operating Company and its subsidiary, 35 Caroline Corporation. Mr.
Morrell has been with 35 Caroline Corporation for approximately seven years,
during which time he has been involved in all aspects of the operations of 35
Caroline. Mr. Morrell received a Bachelor of Science degree in Marketing and
Financial Management from the State University of New York at Albany, New
York.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of December 31, 1998, the number and
percentage of shares of Common Stock owned of record and beneficially by each
officer and/or director of the Company, and by any other person or firm that
owns more than five percent (5%) of the
<PAGE> 15
Company's outstanding Common Stock and by all officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND PERCENTAGE OF
TITLE OF CLASS BENEFICIAL OWNER NATURE OF OWNER CLASS
- -------------- -------------------- --------------- -------------
<S> <C> <C> <C>
Common Richard W. Morrell 1,284,097 46%
49 Burlington Avenue
Round Lake, NY 12151
Common Damon Morrell 592,660 21.2%
49 Burlington Avenue
Round Lake, NY 12151
Common Simeon Morrell 592,660 21.2%
49 Burlington Avenue
Round Lake, NY 12151
Common All officers and 2,469,417 88.4%
directors as a group
</TABLE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue 50,000,000 shares of common stock, at
$0.001 par value, 5,000,000 of preference stock, at $0.001 par value, and
5,000,000 shares of preferred stock, at $0.001 par value. As of December 31,
1998, 2,795,171 shares of common stock are issued and outstanding. No preference
or preferred stock has been issued. The holders of Common Stock have one vote
per share on all matters (including election of directors) without provision for
cumulative voting. Thus, holders of more than 50% of the shares voting for the
election of directors can elect all of the directors, if they choose to do so.
The Common Stock is not redeemable and has no conversion or pre-emptive rights.
There are no sinking fund provisions. In the event of liquidation of the
Company, the holders of Common Stock will share equally in any balance of the
Company's assets available for distribution to them after satisfaction of
creditors and preferred shareholders, if any. The Company may pay dividends, in
cash or in securities or other property when and as declared by the Board of
Directors from funds legally available therefore, but had paid no cash dividends
on its Common Stock to date. The former principal shareholder of Houston has a
put option to sell his remaining 41,928 shares of common stock to the Company in
exchange for $75,000. The put option, which expires on April 15, 1999, and which
is secured by a certificates of deposit in the amount of $75,000, is exercisable
at the shareholder's discretion. Additionally, in the event the option is
exercised, Houston shall pay $9,530 to the selling shareholder over a five-year
period, in monthly installments together with interest thereon at the rate of
6%.
<PAGE> 16
DIVIDENDS
The payment by the Company of dividends, if any, in the future rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Company has not paid any
dividends since its inception, however, intends to pay dividends as soon as
business operations permit.
ADDITIONAL INFORMATION
The foregoing statements are a summary of the rights and privileges of the
holders of the Company's Common Stock. It does not purport to be complete and
its subject to the provisions of the corporate law of the State of Delaware, the
Securities Act of 1993, the Securities Exchange Act of 1934, as amended, and to
the terms of the Company's Articles of Incorporation, as amended, and Bylaws.
The foregoing statements are qualified in their entirety by such references.
INTEREST OF NAMED EXPERTS AND COUNSEL
The financial statements in this Prospectus have been included in reliance
upon the report of Oppenheim & Ostrick, Certified Public Accountants, and upon
the authority of such firm as expert in accounting.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of 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 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.
DESCRIPTION OF BUSINESS
As discussed below in the "SERVICES" section of this Prospectus, the
Company provides automobile recovery and transportation services to automobile
financing companies. In general, at the expiration of an automobile lease, an
automobile financing company will contact the Company, requesting that the
Company arrange for the recovery of the leased vehicle. The
<PAGE> 17
Company will then recover the leased vehicle, transport the vehicle to one of
its facilities, and then store the vehicle until the leasing company instructs
the Company as to the disposition of the leased vehicle.
SERVICES
The Company, through its subsidiary, 35 Caroline, is one of the largest
"first-leg" automobile recovery and transportation companies in the United
States. The Company provides its services primarily to automobile leasing
companies and operates in the northeast states of Connecticut, Delaware, Maine,
Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island,
and Vermont. In general, at the expiration of an automobile lease, the lessee of
the leased vehicle has two options with regard to the leased vehicle. The lessee
can either purchase the vehicle, in which case the lessee retains possession of
the vehicle, or the lessee can decide to return the vehicle to the leasing
company. In the event the lessee chooses to return the vehicle, the lessee may
request that the leasing company pick up the vehicle directly from the lessee's
location, such as his or her residence or place of business. The leasing company
will then contact 35 Caroline, requesting that 35 Caroline contact the lessee in
order to arrange for the pick up of the leased vehicle. Accordingly, 35 Caroline
will contact the lessee and arrange a time that 35 Caroline can pick up the
vehicle. 35 Caroline will dispatch a driver to the predetermined location for
pick up, the driver will pick up the leased vehicle, and, if requested, will
inspect the condition of the vehicle for wear and tear. The driver will then
transport the vehicle to the nearest of the Company's facilities, where the
vehicle will be stored until the leasing company instructs 35 Caroline as to the
disposition of the recovered vehicle. It is this service, the recovery of the
automobile from the lessee and then the transportation of the automobile to a
marshaling facility, which is considered to be "first-leg" transportation.
Central to the Company's philosophy is customer-oriented services designed
to meet the needs of its leasing-company customers on an economical and
expedient basis. The Company prides itself on being able to arrange for the
recovery and transportation of a leased vehicle in a period much shorter than
its competitors. From its four locations, the Company believes that it can
provide its services in a much more responsive manner than its competitors.
The Company charges its customers fees based on the distance which it must
travel to recover the leased vehicle. Depending on the distance, fees for
recovery and transportation of vehicles generally range from a minimum fee of
$75 to a maximum of $395. Additional fees are charged if 35 Caroline inspects a
recovered vehicle for wear and tear. The Company's revenues are primarily
derived from three customers, of which one customer generates approximately
eighty percent (80%) of the Company's business.
THE MARKET
The Company has identified an opportunity in the fragmented off lease
transportation services industry. Consolidations continue to generate excitement
and financial success to investors throughout various segments of the industry.
According to Venture Economics
<PAGE> 18
Information Services, the "roll up" category posted an exceptional 63.5% return
to its investors for the twelve month period ending September 30, 1997. By
introducing marketing and consistently reliable service on a nationwide basis
through automation, standardization and training, and by acquiring operations
with unrealized profit potential, the Company intends to capitalize on a single
identity. In addition, the Company's integration-focused approach has been to
create the infrastructure to properly position it for a build-up strategy rather
than a simple roll up strategy.
Off lease transport is viewed as an immature, financially unstable and
very fragmented industry. In recent years, the $12 plus billion a year market
has been growing due to the following factors: (i) an increase in leased
vehicles and an aging vehicle base whereby the average vehicle is over three
years old; (ii) Federally mandated deregulation of intra-state transportation;
and (iii) more selective marketing by the principals. The United States market
consists of over 36,000 companies, many of which are family-owned businesses and
operated from a single location, are undercapitalized, are not automated, and
perform little or no marketing.
TARGETED SEGMENTS
The Company plans to generate a significant portion of its revenues from
higher-margin commercial accounts such as companies that operate fleets, repair
and body shops, car dealerships, auto auctions and more. The companies targeted
by the Company as potential acquisitions service such commercial accounts, which
include leasing companies as well as governmental entities operating large
fleets that the Company can serve on a regional and national basis.
STRATEGY
The Company seeks to be a leader in the recovery and transportation of
automobiles and to increase shareholder value through a strategy that includes
the principal elements discussed below.
The Company intends to create a national alliance of lease services
through acquisitions and, more importantly, successfully integrating and
marketing these companies using a systematic approach to automate, standardize,
and organize the services under a single, nationwide entity. The Company's
strategy is to reach a critical mass in each market in order to fully realize
numerous economic and operation benefits. The Company's initial acquisitions are
acting as a "prototype" for which systems, standards, policies and procedures
will be documented and firmly put into place. The transition will include
implementation of centralized dispatching, fleet standardization, professional
driver training, local marketing, and the introduction of a dedicated sales
force. Some of these actions are already in place.
The Company presently generates annual revenues in excess of $3 million
and anticipates generating $5 million in annual revenues within three years.
Within five years, the Company
<PAGE> 19
projects having some national presence in all major markets and expects to
generate nearly $10 million in annual revenues, which represents just a small
portion of industry market share.
Through its size, the Company believes it can leverage its name
recognition to attract retail customers, gain market share, and obtain contracts
with regional and national companies and fleet operated businesses looking to
increase efficiency through vendor consolidation for local and national
transportation and recovery services. In addition, the Company believes it will
realize additional economic efficiencies through its purchasing power in the
areas of equipment, financing, fuel, insurance, and parts. Moreover, the Company
believes it can increase its business by continuing to find innovative ways to
provide effective and efficient means to service customer problems without
hurting its margins.
In addition to its marketing efforts, the Company's key differentiators
include a day-one centralization and hub and spoke unification strategy, heavy
focus on integration and operations, fast and reliable service through automated
dispatching, courteous and professional service through rigorous driver and
employee training and diverse management. Because of low capital intensity, the
Company will also be able to expand into ancillary, but not directly related
areas, among them financing, insurance and support businesses.
Concurrently, in addition to recovery and transportation services, the
Company provides inspection services for its customers. The Company believes it
can increase revenues by implementing a digital inspection service, which
measures and records the condition of a leased vehicle at the time the vehicle
is returned by the lessee to the leasing company. The Company anticipates it
will require approximately $25,000 of capital expenditure to purchase the
necessary equipment to perform the digital inspections. The Company anticipates
the purchase of the equipment will enable the Company to increase its annual
revenues generated by such inspections by $300,000 to $500,000 and to provide
additional services to potential customers.
Additionally, the Company is actively seeking to purchase an automobile
repossession business located in the areas in which the Company currently does
business. An acquisition of a repossession firm will enable the Company to
expand its transport services to current customers and market such service to
new customers. The Company estimates that it will require under $250,000 of
capital to acquire a repossession business.
Also, the Company anticipates that the majority shareholder of the
Company, Richard W.`Morrell, will transfer a portion of his Common Stock in
order for the Company to acquire Morrell and Greenstein Partnership (the
"Partnership"), of which Mr. Morrell owns fifty percent (50%). The Partnership
owns a campground located in New Jersey. The Company projects that the purchase
of the Partnership will increase the Company's profits by approximately $130,000
per year. The transaction is contingent upon receiving equity financing of
$500,000, in the form of preferred stock, as partial funding against this
offering. Such transaction is expected to be consummated in April 1999. The
terms of the offering of the preferred stock, which will be convertible to
common stock of the Company upon the consummation of receiving an additional
$500,000 pursuant to this registration of common stock, have yet to be
finalized.
<PAGE> 20
COMPETITION
Consolidation is in its infancy stage in the transport industry. In
addition to 35 Caroline Corporation, this opportunity is being pursued by just
three other consolidators with one more pending. In early 1997, Miller
Industries, a tow truck manufacturer, was the first company to begin
consolidating the towing services industry through its subsidiary, RoadOne TM,
which resulted in Miller competing with its customers. RoadOne TM has since
acquired approximately 87 companies with over $155 million in aggregate revenues
but is not significantly unifying them. Miller has also entered the truck
distribution and finance businesses. On April 30, 1998, United Road Services,
Inc. became a publicly traded company through its simultaneous merger of seven
towing companies contingent upon its initial public offering which raised
approximately $80 million.
PATENTS
The Company has no patents.
EMPLOYEES
As of December 31, 1998, the Company, through its subsidiary, employed 17
clerical hourly employees, and 65 full-time drivers and 15 part-time drivers who
are paid based on miles driven. None of the Company's employees are represented
by a labor union.
AVAILABLE INFORMATION
Reports, proxy and information statements and other information filed by
the Company with the Securities and Exchange Commission (the "Commission") may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10007; and Chicago Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Information on the operation of the Public Reference Room may
be obtained by calling the Commission at 1-800-SEC-0330. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of that Web site is http://www.sec.gov.
MANAGEMENT'S DISCUSSION AND ANALYSIS
BACKGROUND
<PAGE> 21
The Company's strategic planning approach to its customers is as follows:
Customer Service
The Company's mission statement is to say yes in helping resolve its
customers' pick up and delivery needs.
Delivery Scheduling
The Company finds innovative ways to provide effective and efficient means
to service customer problems without decreasing its margins. The Company plans
its pricing so it knows whether to accept a customer order. The Company operates
in ten states covering the Northeast region of the United States.
Location
The selection of strategic locations resulted in improved sales because of
the concentration of leased vehicles in that region.
The operating subsidiary, 35 Caroline Corporation, started operations in
1990 after incorporating as an S corporation for federal income tax reporting in
1989. For state income tax reporting purposes, the Company chose to be a C
corporation. The Company picks up end of lease automobiles, inspects them for
excess wear and tear, and then transports the vehicles to a pre- determined
destination for redistribution pending the vehicle owners' requests. The
Company's revenue generally doubled from 1990 through 1997. The Company has two
concentration risks, one is that the Company has a customer that is a major
national leasing company from whom the Company derives approximately 80% of its
revenues and the other is that the Company only operates within the ten
aforementioned states. The Company is planning to improve its customer base by
more aggressive marketing tactics.
New Business Developments
The Company plans to implement a digital inspection system requiring
$25,000 of capital expenditure for digital equipment to measure excess wear and
tear of an automobile. Such digital system will double inspection fee revenue to
the Company as well as establish fair wholesale market value to the lessor. This
improvement will potentially increase revenues $300,000 to $500,000, and enable
the Company to increase their transport services to new potential customers.
The Company is actively seeking to purchase an automobile repossession
firm in its present locations of transport services which will permit the
Company to expand its transport services to current customers and market this
new service to new customers. Management estimates the capital expenditure to
consummate such a transaction is under $250,000. If the model works, Management
may consider expanding on a larger scale to all geographical areas the Company
services.
<PAGE> 22
If the Company obtains equity financing of $500,000, it will absorb
Morrell & Greenstein Partners with campground assets to Houston that could
generate revenues approximately $400,000 to $450,000 per year.
If the financing is successful, it is the Company's plan to register its
stock with the anticipation of increasing its revenues from present customers as
well as new customers. The Company will use common stock as a vehicle to avoid
cash restraints while seeking further acquisitions.
Results of Operations
The following table summarizes the Company's operating results as a
percentage of revenues for each of the periods indicated:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1998 1997
------ ------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 83.2 76.0
------ ------
Gross profit 16.8 24.0
Operating expenses 8.3 7.3
------ ------
Operating income 8.5 16.7
Other income 0.0 (0.1)
------ ------
Income before taxes 8.5 16.6
Income taxes 0.9 1.6
------ ------
Net income 7.6% 15.0%
====== ======
</TABLE>
Comparing Year Ended December 31, 1998 to Year Ended December 31, 1997
Sales increased 24%, or $673,000, over the prior year as a result of an
increase in the unit column of sales as demand for the Company's services was
created by improved customer services and marketing efforts.
Gross profit on sales decreased by $85,000, or 13%, over the prior year
because cost of outside contractors as well as inside salaries and related
payroll taxes increased by 30%, or $458,000, and 32%, or $235,000, respectively,
over the prior years cost of sales for the same categories.
<PAGE> 23
Operating expenses increased by $83,000, or 42%, over the prior year's
expenses. Administrative salaries and accounting fees were responsible for
almost the entire increase as the Company was building its infrastructure to
manage the increase in sales.
The provision for income taxes decreased in 1998 compared to 1997 in
relationship to the decrease in taxable book income reported those periods. The
tax rates were 41.5% for both periods which is in line with statutory rates for
federal and state income taxes.
Liquidity and Capital Resources
The Company has three operating sources of cash: (i) fees for
transportation of vehicles; (ii) storage fees to temporarily store the recovered
vehicles; and (iii) inspection fees for evaluating the excess wear and tear of
the vehicles. The Company's cash flow is highly dependent upon the fees for the
above services quoted to all customers. Cash from operations for year ended 1998
was $523,000 compared to $341,000 in 1997, an increase of $182,000, or 53%, over
the year ended 1997.
The Company's working capital was approximately $8,000 in 1998 compared to
$171,000 in 1997, a decrease of $163,000 over the prior year.
The current ratio in year ended 1998 was 1.0 to 1 compared to 1.8 to 1 for
year 1997. The lack of liquidity and working capital is due to an estimate of
distribution payable to shareholders in anticipation of going public to cover
income tax payments.
The debt to equity ratio in year ended 1998 was 9.2 to 1 compared to .94
to 1 in 1997 as a result of shareholder distributions and financing a property
for use in its transport business for $350,000.
Cash out flows for investing activities was $465,000 comprised of $390,000
in property and equipment and $75,000 in certificates of deposit for the
purchase option of additional common stock from a shareholder of the Company.
The option expires April 15, 1999.
In 1998, the Company had an outflow for financing of $60,000 made up
primarily of distribution to stockholders of $397,000 to cover income taxes of
the three officers since the Company files its federal tax returns as an S
corporation. In 1998, the Company had an inflow of funds primarily from a
related party of $316,000 and capital leases of $21,000.
Capital Requirements
As of December 31, 1998, the Company plans capital expenditures for
approximately $25,000 for the purchase of a digital equipment, such as digital
cameras and computers, to up grade its inspection process of examining
automobiles for excess wear and tear for the benefit of the lessor at the end of
the lease. The Company also plans to spend up to $250,000 on acquiring a company
that provides automobile transport services or repossess automobiles for major
financial institutions who finance vehicles to high risk individuals. This may
serve as a model to make acquisitions in this niche market.
<PAGE> 24
The Company believes that it has adequate equipment at this time to
continue its operations successfully even at an increased level of sales for the
next ongoing year if no major repairs are required. Currently all equipment is
in good working order. The Company also has adequate resources for its daily
working capital. The Company may develop an acquisition strategy and if that
happens, it will need outside financing.
DESCRIPTION OF PROPERTY
The Company maintains its headquarters in Round Lake, New York, and
maintains satellite offices in Hicksville, New York, Newburgh, New York, and
Perth Amboi, New Jersey. These facilities are utilized as offices for
administrative and dispatch operations and as lots for storage of vehicles
waiting to be transported to other locations. Except for its location in
Hicksville, which the Company recently purchased, the Company leases its other
locations. The Company leases its headquarters under a five year lease, and
leases its locations in Newburgh and Perth Amboi under a month-to-month lease.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996 and 1997, the Company had related party receivables, which were
transferred to stockholders' equity. Additionally, the Company has a
non-interest bearing loan from a company in which the President of the Company
has a one percent (1%) ownership interest. Moreover, in 1996 and 1997, the
Company paid $8,665 and $1,476, respectively, for the rental of equipment from a
related party. In December 1998, a related party entity obtained a loan, secured
by a mortgage on its real property, and then lent such funds to the Company. The
Company used such funds to purchase the land and building utilized by its office
in Hicksville, New York. The Company will repay the loan over the next fifteen
years, commencing February 1999; however, the Company expects that a portion of
the proceeds of this offering will be used to repay the loan.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Although the Company is a public company, due to the inactivity of Houston
since its inception, there is no public trading market in which the Company's
stock is traded. The Company's Common Stock is not subject to outstanding
options or warrants to purchase Common Stock. However, concurrently with this
offering, the Company seeks to raise an additional $500,000 by way of a private
offering of the Company's preferred stock, which would be convertible into
250,000 shares of the Company's Common Stock upon the consummation of receiving
an additional $500,000 pursuant to this registration. The terms of the offering
of preferred stock have yet to be finalized.
There are currently approximately 430 holders of record of the Common
Stock. The Company has not paid any dividends since its inception, however, it
intends to pay dividends as soon as business operations permit.
<PAGE> 25
EXECUTIVE COMPENSATION
Director Compensation
The Company does not pay compensation to its directors. However, all
officers and directors are reimbursed for any expenses incurred on behalf of the
Company. Directors are reimbursed for expenses pertaining to attendance at
meetings, including travel, lodging and meals.
Executive Compensation
The Company did not pay any of its Executive Officers compensation in
excess of $60,000 for the Company's last fiscal year. Compensation paid to
Richard W. Morrell, President of the Company, for the last fiscal year amounted
to approximately $46,000.
FINANCIAL STATEMENTS
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere
herein. The Company's statement of operations for the periods ended December 31,
1998 and 1997, and the Company's balance sheet as of December 31, 1998 and 1997
are derived from, and are qualified by reference to, the audited financial
statements, which have been audited by Oppenheim & Ostrick and should be read in
conjunction with those financial statements and notes thereto.
<PAGE> 26
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS - HOUSTON OPERATING COMPANY
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Income F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-10
UNAUDITED PRO FORMA FINANCIAL DATA - UNAUDITED
Pro Forma financial data F-11 - F-12
Pro Forma Balance sheet F-13
Pro Forma Statement of Operations F-14 - F-15
FINANCIAL STATEMENTS - MORRELL & GREENSTEIN PARTNERSHIP
Page
Independent Auditors' Report F-16
Consolidated Balance Sheets F-17
Consolidated Statements of Income and Retained Earnings F-18
Consolidated Statement of Partner's Capital F-19
Consolidated Statements of Cash Flows F-20
Notes to Consolidated Financial Statements F-21 - F-24
</TABLE>
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Houston Operating Company
Round Lake, NY
We have audited the accompanying consolidated balance sheet of Houston
Operating Company as of December 31, 1998 and the related statement of income,
stockholders' equity and cash flows for the years ended December 31, 1998 and
1997. 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.
We conducted the audits in accordance with generally accepted auditing
standards. These 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 the audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Houston
Operating Company as of December 31, 1998 and the results of it's operation and
its cash flows for the years ended December 31, 1998 and 1997 in conformity with
generally accepted accounting principles.
/s/ OPPENHEIM & OSTRICK
- ----------------------------
OPPENHEIM & OSTRICK,
Certified Public Accountants
Culver City, California
February 26, 1999
F-1
<PAGE> 28
HOUSTON OPERATING COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash $ 5,241
Certificate of deposit - restricted 75,000
Marketable securities 4,841
Accounts receivable, net 296,882
Prepaid expenses 30,000
---------
Total current assets 411,964
Property & equipment (at cost) 492,265
Less accumulated depreciation (64,587)
---------
Property and equipment, net 427,678
Other assets:
Other assets 25,561
---------
$ 865,203
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 197,121
Accrued expenses 4,295
Distribution payable 125,000
Income taxes payable 28,200
Deferred income taxes 21,054
Line of credit payable 11,000
Current portion of long-term debt 17,096
---------
Total current liabilities 403,766
Long-term liabilities:
Long-term debt, less current maturities 25,658
Due to related company 350,000
Total long-term liabilities 375,658
---------
Total liabilities 779,424
Stockholders' equity:
Capital stock, $.001 par value, authorized 50,000,000
shares, issued and outstanding 2,795,171 shares 2,795
Additional paid-in capital 38,850
Retained earnings 44,134
---------
Total stockholders' equity 85,779
---------
$ 865,203
=========
</TABLE>
See accompanying accountants' report
F-2
<PAGE> 29
HOUSTON OPERATING COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
Amount Amount
---------- -----------
<S> <C> <C>
Sales $3,409,171 $ 2,736,067
Cost of sales 2,837,625 2,080,256
---------- -----------
Gross profit 571,546 655,811
Operating expenses 282,459 199,098
---------- -----------
Operating income 289,087 456,713
Other income (expense) 678 (1,615)
---------- -----------
Income before taxes 289,765 455,098
Income taxes 30,000 45,000
---------- -----------
Net income $ 259,765 $ 410,098
========== ===========
Pro Forma:
Historical income before income taxes $ 289,765 $ 455,098
Less pro forma income taxes 120,000 189,000
---------- -----------
Pro forma net income $ 169,765 $ 266,098
========== ===========
Basic earnings per share $ .06 $ .10
========== ===========
Weighted number of shares outstanding 2,795,171 2,795,171
========== ===========
</TABLE>
See accompanying accountants' report
F-3
<PAGE> 30
HOUSTON OPERATING COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
------------------------ Paid-in Retained
Shares Amounts Capital Earnings Balance
---------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 200 $ 500 $ 0 $ 31,988 $ 32,488
Net income, year ended
December 31, 1997 0 0 0 410,098 410,098
Subchapter S distribution,
shareholders' December 31, 1997 0 0 0 (219,844) (219,844)
---------- ------- ------- --------- ---------
Balance, December 31, 1997 200 500 0 222,242 222,742
Acquisition by exchanging 88%
of shareholders' common stock (200) (500) 0 0 (500)
for 100% shareholders' common 2,795,171 2,795 38,850 0 41,645
stock of 35 Caroline Corp. 0 0 0 (40,599) (40,599)
(subsidiary))
Net income, year ended
December 31, 1998 0 0 0 259,765 259,765
Subchapter S distribution,
December 31, 1998 0 0 0 (397,274) (397,274)
---------- ------- ------- --------- ---------
Balance, December 31, 1998 2,795,171 $ 2,795 $38,850 $ 44,134 $ 85,779
========== ======= ======= ========= =========
</TABLE>
See accompanying accountants' report
F-4
<PAGE> 31
HOUSTON OPERATING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 259,765 $ 410,098
Non-cash expenses included in net income:
Depreciation 25,912 31,903
(Increase) decrease in:
Accounts receivable 57,398 (222,890)
Marketable securities 20,889 0
Prepaid expenses (30,000) 0
Other assets (17,715) (635)
Increase (decrease) in:
Accounts payable 99,855 86,722
Distribution payable 125,000 0
Accrued expenses (10,523) (4,503)
Income taxes payable 6,787 18,803
Deferred taxes payable (13,945) 21,033
--------- ---------
Net cash provided by operating activities 523,423 340,531
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment (389,518) (78,457)
Purchase of marketable securities 0 (25,729)
Purchase of certificate of deposit (75,000) 0
--------- ---------
Net cash used by investing activities (464,518) (104,186)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowing- related party 316,360 0
Proceeds from credit line 11,000 0
Proceeds from (payments on) long-term borrowings 10,556 (16,456)
Distribution to stockholders (397,274) (219,844)
--------- ---------
Net cash used by financing activities (59,358) (236,300)
--------- ---------
Net increase (decrease) in cash (453) 45
Cash, beginning of period 5,694 5,649
--------- ---------
Cash, end of period $ 5,241 $ 5,694
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for interest $ 3,461 $ 3,308
========= =========
Cash paid during the periods for income taxes $ 37,158 $ 5,164
========= =========
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Acquisition transaction:
Common stock $ 2,295 $ 0
========= =========
Paid-in capital $ 38,850 $ 0
========= =========
Retained earnings $ (40,599) $ 0
========= =========
</TABLE>
See accompanying accountants' report
F-5
<PAGE> 32
HOUSTON OPERATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(1) General:
On December 22, 1998, Houston Operating Company acquired 100% of the
shareholders' common stock of 35 Caroline Corporation in exchange for 88%
of its shareholders' common stock. Prior to the acquisition, Houston
Operating Company had no operating income for the past three years and
had no equity. There is an option for $75,000 to acquire another 2%
common stock by Houston Operating Company that expires on April 15, 1999.
The operating subsidiary, 35 Caroline Corporation, was incorporated on
May 31, 1989, as a New York State Corporation.
(2) Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All intercompany accounts
have been eliminated.
Use of estimates:
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses.
Inventory valuation:
Inventory is valued at the lower of cost (first-in, first-out) or
market.
Accounts receivable and allowance for doubtful accounts:
The Company uses principally the aging method and management's
analysis to calculate the allowance for doubtful accounts. As of
December 31, 1998 and 1997, all accounts receivables are considered
collectable.
Property and equipment:
Property and equipment is stated at cost, net of accumulated
depreciation. Depreciation is provided by various methods at rates
calculated to amortize cost over the estimated useful lives of the
respective assets or, as to leasehold improvements, the term of the
related lease if less than the estimated service life. Upon sale or
retirement of property and equipment, the related cost and accumulated
depreciation are eliminated from the accounts and the resulting gains
or losses are recorded. Repairs and maintenance expenditures, not
anticipated to extend asset lives, are expenses as incurred.
Investment securities:
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115-"Accounting For Certain Debt and Equity
Securities" (SFAS 115). In accordance with this statement securities
are classified as held-to-maturity, available-for-sale or trading.
See accompanying accountants' report
F-6
<PAGE> 33
HOUSTON OPERATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(2) Summary of significant accounting policies (cont'd):
Investment securities (cont'd):
Unrealized holding gains and losses for trading securities are
included in earnings. Unrealized holding gains and losses for
available-for-sale securities are excluded from earnings and
reported, net of any income tax effect, as separate component of
shareholders' equity. Realized gains and losses for securities
classified as either available-for-sale or held-to-maturity are
reported in earnings based on the adjusted cost of the specific
security sold.
Comprehensive income:
Effective in the first quarter of fiscal 1999, the Company will
adopt, if applicable, Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") establishes
standards for reporting and displaying of comprehensive income and
its components in the Company's consolidated financial statements.
Comprehensive income is defined in SFAS 130 as the change in equity
(net assets) of a business enterprise during the period from
transactions and other events and circumstances from nonowner
sources. Total comprehensive income was the same as income from
operating sources for years ended 1998 and 1997
Recently issued accounting Standard:
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information: ("SFAS 131") which supersedes Statement of
Financial Accounting Standards No. 14. This statement changes the way
that publicly-held companies report information about operating
segments as well as disclosures about products and services,
geographic areas and major customers. Operating segments are defined
as revenue-producing components of the enterprise, which are
generally used internally for evaluating segment performance. SFAS
131 will be effective for the Company's year ending December 31, 1998
and will not affect the Company's financial position or results of
operations.
Income taxes:
The Company elected to be taxed as an S corporation under the
provisions of the Internal Revenue Service Code for federal income
tax reporting. Under this provision, the Company is not liable for
federal corporate income taxes on its taxable income. Accordingly,
net operating loss carryback or carryforward is not allowed as a
deduction. Instead, the Company's stockholders include their
proportionate share of the Company's taxable income or loss in their
individual income tax returns. However, the Company chose to be
treated as a C corporation for state income tax reporting purposes.
The Company filed its tax returns on a cash basis. As a result, there
is a difference between book and taxable income, which creates
temporary timing differences generating deferred tax benefits or
credits. Starting January 1, 1999, the Company will file its tax
returns on the accrual basis.
See accompanying accountants' report
F-7
<PAGE> 34
HOUSTON OPERATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(2) Summary of significant accounting policies (cont'd):
Income taxes (cont'd):
The Company accounts for income taxes under the Statement of Financial
Accounting Standards Board 109, Accounting for Income Taxes. The
objective of Accounting for Income Taxes is to recognize the amount of
current and deferred taxes payable (or refundable) at the date of the
financial statements as a result of all events that have been
recognized in the financial statements and as measured by the
provisions of enacted tax laws. Income taxes currently payable are
based on the taxable income for the year. A deferred tax asset or
liability is calculated for tax consequences attributable to temporary
differences that will result in net taxable amounts in future years.
The differences relate primarily to depreciable assets (use of
different depreciation methods and lives for financial statement and
income tax purposes) and allowance for doubtful receivables deductible
for financial statement purposes but not for income tax purposes.
(3) Business environment:
The Company's primary business is the end-of-lease pick-up and
transportation of leased vehicles. The Company has two concentration
risks. The Company has one customer for 80% of its sales and another
customer for 10% of its revenues. The Company's sales are derived in the
northeast in primarily ten states including New England, New York and New
Jersey.
(4) Marketable securities:
Marketable securities are recorded at market. The securities consist
primarily of stocks and publicly traded corporations allowable for
resale.
(5) Property and equipment:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Land $ 220,882 $ 0
Build 118,936 0
Leasehold improvements 20,935 8,000
Furniture & fixtures 35,092 29,338
Computer software 8,505 8,505
Trucks & trailers 87,915 56,607
--------- ---------
492,265 102,450
Less accumulated depreciation (64,587) (38,655)
--------- ---------
$ 427,678 $ 63,795
========= =========
</TABLE>
Depreciation expense for Houston Operating Company was $25,912 and
$31,903 for the years ended December 31, 1998 and 1997 respectively.
See accompanying accountants' report
F-8
<PAGE> 35
HOUSTON OPERATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(6) Long-term debt:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Automobile financing, secured by
the auto, payable in monthly
installments of $569 including
interest at 6.9% until June, 2001 $ 15,633 $ 21,171
Automobile financing, secured by
the auto, payable in monthly
installments of $564 including
interest at 7.8% until October, 1999 4,910 11,027
Automobile financing, secured by
the auto, payable in monthly
installments of $646 including
interest at 7.8% until March, 2002 22,211 0
-------- --------
42,754 32,198
Less current maturities (17,096) (11,654)
-------- --------
$ 25,658 $ 20,544
======== ========
</TABLE>
Maturities for the long-term debt are as follows:
<TABLE>
<S> <C> <C>
1999 $17,096
2000 13,110
2001 10,642
2002 1,906
-------
$42,754
=======
</TABLE>
(7) Income taxes:
The deferred taxes result primarily from timing differences in income
recognition from the use of the accrual basis of accounting for
financial reporting purposes and the cash basis of accounting for tax
purposes. Starting January 1, 1999, the Company will change its basis
for tax purposes from cash to accrual.
The provision for income taxes for the years ended December 31, 1998 and
1997, consists of the following:
<TABLE>
<CAPTION>
State tax expense December 31,
----------------------------
1998 1997
------- -------
<S> <C> <C>
Current $ 8,946 $23,067
Deferred 21,054 21,933
------- -------
$30,000 $45,000
======= =======
</TABLE>
See accompanying accountants' report
F-9
<PAGE> 36
HOUSTON OPERATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(8) Income taxes (cont'd):
The pro forma provision for income taxes for the years ended December 31,
1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Current:
Federal $ 45,900 $ 79,333
State 8,946 23,067
-------- --------
54,846 102,400
-------- --------
Deferred:
Federal 44,100 64,700
State 21,054 21,900
-------- --------
65,154 86,600
-------- --------
Total pro forma $120,000 $189,000
======== ========
</TABLE>
The pro forma provision for income taxes for the years ended December 31,
1998 and 1997 differs from the amount computed by applying the federal
statutory income tax rate to income before taxes as follows:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
---- ----
<S> <C> <C>
Total computed at federal
statutory rate 35.0% 35.0%
State income taxes, net of
federal effect 6.5% 6.5%
---- ----
41.5% 41.5%
==== ====
</TABLE>
(9) Related party transactions:
The Company in 1996 and 1997 had related party receivables, which were
transferred to stockholders' equity.
The Company has a non-interest bearing loan from Folkstone (the President
owns a percentage of stock.) In addition, the Company paid $8,665 and
$1,476 in 1997 and 1996 respectively for equipment rental to a related
party. The loan payable of $34,185 was offset by a miscellaneous
receivable resulting a $17,000 loss. In 1998, all related party
transactions ended.
The Company paid rent in the amount of $12,000 for 1997.
In December 1998, a related party entity took out a mortgage on its real
estate and loaned the Company $350,000 to pay for its location to provide
transport services to its customers. The Company will repay the related
party over the next 15 years starting February 1999.
See accompanying accountants' report
F-10
<PAGE> 37
HOUSTON OPERATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(10) Year 2000 contingency:
The Company is aware of the issue associated with the programming code
in existing computer systems as the year 2000 approaches. The year 2000
problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year value
to "00". The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous data
or cause a system to fail. The Company is reviewing both its information
technology and its non-information technology systems to determine
whether they are year 2000 compliant, and to date the Company has not
identified any material systems, which are not year 2000 compliant. The
Company has not made a material expenditure to address the year 2000
problem and at present does not anticipate that it will be required to
make any such material expenditure in the future.
The Company has initiated formal communications with all significant
suppliers and service providers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate the
year 2000 problem. Although the Company has received verbal assurances
of year 2000 compliance from certain of such third parties, the Company
has not yet received written assurances of year 2000 compliance from
third parties with whom it has relationships. The Company believes its
operations will not be significantly disrupted even if third parties
with whom the Company has relationships are not year 2000 compliant.
In the event that the Company's suppliers are unable to provide
sufficient quantities of materials or goods to the Company as a result
of their failure to be year 2000 compliant, the Company believes that it
can obtain adequate supplies of materials and goods at comparable prices
from other sources.
(11) Commitments:
The Company has operating leases. Minimum future payments under these
leases for years ending December 31, are:
<TABLE>
<S> <C>
1999 $ 36,900
2000 30,900
2001 30,900
2002 3,540
2003 16,700
--------
$118,940
========
</TABLE>
(12) Stockholder's equity:
After the exchange of common stock on December 22, 1998 between 35
Caroline Corporation and Houston Operating Company, the former
shareholders of 35 Caroline Corporation will own 88.4% of the
outstanding common stock of Houston Operating Company.
See accompanying accountants' report
F-11
<PAGE> 38
HOUSTON OPERATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(12) Stockholder's equity (cont'd):
The authorized capital of Houston Operating Company consists of
50,000,000 shares of $0.001 par common stock of which 2,795,171 shares
are issued and outstanding, 5,000,000 shares of preferred stock, none
of which is issued and outstanding.
The former principal shareholder of Houston Operating Company has a put
option to receive $75,000 which is in an escrow account in exchange for
selling his remaining 41,928 shares of common stock to the Company.
The put option transaction described earlier can be exercised at the
seller's discretion collateralized by a $75,000 certificate of deposit
by the Company which expires April 15, 1999.
Following the completion of the stock purchase transaction, Houston
Operating Company shall pay to the former majority stockholder $9,530
payable over a five year period in self-liquidating monthly
installments, together with interest accruing at a rate of six (6)
percent only if the above option is exercised.
(13) Subsequent event:
The Company plans to acquire a related party entity, which is projected
to increase profits, approximately $130,000 per year. The transaction
is contingent upon receiving equity financing of $500,000 as partial
funding against an initial public offering. The transaction is expected
to be consummated in April 1999. The terms of the mandatory convertible
preferred stock converted to common stock upon the consummation of
receiving an additional 500,000 of common stock were not finalized at
this time.
If the transaction is completed, the 50% non-related party will receive
20% ownership interest in the Company from common stock owned by the
other 50% owner in the related party entity (Morrell & Greenstein
Partners). Mr. Morrell and his family will own 80% of the approximately
88% outstanding common stock shares and Mr. Greenstein will own 20% of
the outstanding shares. The remaining shareholders will own 12% of the
outstanding shares, however, if the option to purchase the remaining
41,928 shares of common stock, the common stock ownership will decrease
to 10% of the outstanding shares.
See accompanying accountants' report
F-12
<PAGE> 39
HOUSTON OPERATING COMPANY
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA
The following unaudited, pro forma, condensed, combined balance sheet has been
prepared to present the combined financial position of Houston Operating Company
as though the purchase of the partnership's capital interests had taken place on
December 31, 1998.
The Company will purchase the partnership interests in the campground in
exchange for common stock of the principal shareholder of the Houston Operating
Company. As a result of the transaction, the ownership interest of the Company
will gave 20% ownership to the 50% owner of the campground, the other 50%
partner (principal shareholder of Houston Operating Company) will own with his
family approximately 70% of the combined entities and approximately 10% will
remain with old shareholders of the Houston Operating Company before the
acquisition of 35 Caroline Corporation.
The purpose of the acquisition is to add income before taxes and equity of
approximately $130,000 and $97,000 respectively. Sales for year ended December
31, 1998 were $415,000. The transaction will take place based on the above
equity as of December 31, 1998. The transaction is contingent upon a proposed
initial public offering of $1,000,000 of which $500,000 in convertible preferred
stock will be issued prior to the IPO and will happen at the same time the
partnership equity is exchanged for common stock as described above.
The balance sheet of the partnership after the exchange of common shares will be
increased in equity for the land and building of the campground from a cost
basis of $120,000 to $1,640,000 based on an appraisal by the bank using the
income approach for the calendar years of 1995, 1996 and 1997. The updated
estimate of value include all sales and recasted expenses for owners perks for
1998. The appraisal used an estimate value of $1,035,000 based on a 10.5%
capitalization rate. In 1998, the income used was $410,000 instead of $393,000
or a $17,000 increase. For the previous three-year average operating expenses
were adjusted by $44,000 for owners and managers perks. The resulting $61,000
times the capitalization rate of 10.5% adjusted the 1,035,000 value to the
$1,640,000 estimate of value. The bank appraiser used comparable sales and
income for the area in 1997 for the purpose of an appraisal for a $350,000
mortgage financing of the land and building of the partnership. The appraisal
did not consider the building portion of the managers living quarters and office
space.
The purpose of the pro forma adjustments is to reflect the change in
capitalization of Morrell & Greenstein Partners to the capitalization of Houston
Operating Company, with appropriate changes to earnings per share of the Company
to reflect the acquisition of the campground (Morrell & Greenstein Partners).
The following unaudited, pro forma, condensed combined Statements of Operations
for the twelve-month period ended December 31, 1998, as if the acquisition had
taken place at December 31, 1998.
These unaudited pro forma condensed financial statements should be read in
conjunction with the selected financial data and notes included elsewhere
herein.
The following unaudited pro forma, condensed financial statements are not
necessarily indicative of the results of combined operations that would have
occurred had the acquisition been effective January 1, 1999 or the future
results of the combined companies. All material non-recurring changes are fully
disclosed in the pro forma financial statements.
See accompanying accountants' report
F-13
<PAGE> 40
HOUSTON OPERATING COMPANY
CONDENSED PRO FORMA BALANCE SHEET
DECEMBER 31, 1998
Omit $(000)
<TABLE>
<CAPTION>
Pro Forma Adjustment
M&G ----------------------- Pro Forma
Houston Partnership DR CR Total
------- ----------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets $411 $ 48(1) $ 500 $ 0 $ 959
Property & equipment 428 120(2) 1,520 2,068
Other assets 26 350 0(2) 350 26
---- ------ ------ ------ ------
$865 $ 518 $2,020 $ 350 $3,053
==== ====== ====== ====== ======
Liabilities:
Current liabilities $404 $ 82 $ 0 $ 0 $ 486
Long-term liabilities 375 339(2) 350 0 364
---- ------ ------ ------ ------
779 421 350 350 850
---- ------ ------ ------ ------
Stockholders' equity:
Common stock 3 0 0 0 3
Preferred stock 0 0 0(1) 500 500
Paid-in capital 39 0 0(2) 1,617 1,656
Partner's equity 0 97(2) 97(2) 0 0
Retained earnings 44 0 0 0 44
---- ------ ------ ------ ------
86 97 97 2,117 2,203
---- ------ ------ ------ ------
$865 $ 518 $2,467 $2,467 $3,053
==== ====== ====== ====== ======
</TABLE>
- ----------
(1) Assumes convertible preferred stock issued for $500,000.
(2) Combined elimination entries
See accompanying accountants' report
F-14
<PAGE> 41
HOUSTON OPERATING COMPANY
CONDENSED PRO FORMA STATEMENT OF INCOME
DECEMBER 31, 1998
Omit $(000)
<TABLE>
<CAPTION>
Pro Forma Adjustment
M&G -------------------- Pro Forma
Houston Partnership DR CR Total
---------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 3,409 $415 $ 3,824
Cost of sales 2,838 54 2,892
---------- ---- ----------
Gross profit 571 361 932
Operating expenses 282 231 513
---------- ---- ----------
Operating income 289 130 419
Pre-tax operating income
taxes 30 0 30
---------- ---- ----------
Net income $259 $130 $389
========== ==== ==========
Pro forma:
Historical pre-tax income $ 289 $130 $ 419
Less pro forma income(1) 120(1) 52(2) 172
---------- ---- ----------
Pro forma net income $169 $ 78 $247
========== ==== ==========
Basic earnings per share $.09
==========
Number of weighted
shares outstanding 2,795,171 2,795,171
</TABLE>
(1) Based on converting an S Corporation and partnership taxable income into
regular C Corporation provisions for income taxes.
(2) Houston Operating Company acquired 35 Caroline Corporation or December 22,
1998 and 35 Caroline Corporation - the wholly owned subsidiary will file
its tax returns as an S corporation for fiscal year ended December 31,
1998.
See accompanying accountants' report
F-15
<PAGE> 42
FINANCIAL STATEMENTS OF
MORRELL & GREENSTEIN PARTNERSHIP
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
Independent Auditors' Report F-16
Consolidated Balance Sheets F-17
Consolidated Statement of Income F-18
Statement of Partnership's Capital F-19
Consolidated Statements of Cash Flows F-20
Notes to Consolidated Financial Statements F-21 - F-24
</TABLE>
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
To the Partners
Morrell & Greenstein Partners
Round Lake, NY
We have audited the accompanying consolidated balance sheet of Morrell &
Greenstein Partners as of December 31, 1998 and 1997 and the related statement
of income, partners' capital and cash flows for the years ended December 31,
1998 and 1997. 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.
We conducted the audits in accordance with generally accepted auditing
standards. These 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 the audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Morrell &
Greenstein Partners as of December 31, 1998 and 1997 and the results of it's
operation and its cash flows for the years ended December 31, 1998 and 1997 in
conformity with generally accepted accounting principles.
/s/ OPPENHEIM & OSTRICK
- ----------------------------
OPPENHEIM & OSTRICK,
Certified Public Accountants
Culver City, California
February 26, 1999
F-16
<PAGE> 44
MORRELL & GREENSTEIN PARTNERS
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
Current Assets:
Cash $ 45,596 $ 30,177
Inventory 2,100 2,000
--------- ---------
Total current assets 47,696 32,177
Property, plant & equipment:
Land 118,870 118,870
Building 319,872 319,872
Less accumulated depreciation (318,872) (316,774)
--------- ---------
Net property, plant and equipment 119,870 121,968
--------- ---------
Other assets:
Due from affiliated entity 0 10,000
Due from related party 350,000 0
--------- ---------
Total assets $ 517,566 $ 164,145
========= =========
LIABILITIES AND PARTNERSHIPS' CAPITAL
Current liabilities:
Accrued expenses $ 402 $ 6,010
Deferred income 70,914 73,935
Current portion of long-term debt 10,785 0
--------- ---------
Total current liabilities 82,101 79,945
Long-term liabilities:
Mortgage payable 339,215 0
--------- ---------
Total liabilities 421,316 79,945
--------- ---------
Partnerships' capital:
Partners' capital 96,250 84,200
--------- ---------
$ 517,566 $ 164,145
========= =========
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 45
MORRELL & GREENSTEIN PARTNERS
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
Amount Amount
-------- --------
<S> <C> <C>
Sales $415,304 $392,559
Cost of sales 53,608 50,387
Operating expenses 231,646 220,368
-------- --------
Total cost and expenses 285,254 270,755
Income from operations 130,050 121,804
Pro Forma:
Historical pre-tax income $130,050 $121,804
Less pro forma income taxes 52,000 49,000
-------- --------
Pro forma net income $ 78,050 $ 72,804
======== ========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 46
MORRELL & GREENSTEIN PARTNERS
STATEMENT OF PARTNERSHIP'S CAPITAL
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Capital
---------
<S> <C>
Balance as of January 1, 1997 $ 61,396
Income 121,804
Draws (99,000)
---------
Balance as of December 31, 1997 84,200
---------
Income 130,050
Draws (118,000)
---------
Balance as of December 31, 1998 $ 96,250
=========
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 47
MORRELL & GREENSTEIN
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 130,050 $ 121,804
Non-cash expenses included in net income:
Depreciation 2,098 3,874
(Increase) decrease in:
Inventory (100) 0
Due from affiliated entity 10,000 0
Increase (decrease) in:
Accrued expenses (5,608) (16,073)
Deferred taxes payable (3,021) 4,053
--------- ---------
Net cash provided by operating activities 133,419 113,658
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution payable - stockholders (118,000) (99,000)
--------- ---------
Net cash used by financing activities (118,000) (99,000)
--------- ---------
Net increase in cash 15,419 14,658
Cash, beginning of period 30,177 15,519
--------- ---------
Cash, end of period $ 47,596 $ 30,177
========= =========
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Due from related party $(350,000)
=========
Proceeds from long-term financing $ 350,000
=========
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 48
MORRELL & GREENSTEIN PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(1) General:
The Partnership is a recreational campground and is split into two
entities. The operating income and expenses are reported as a C
corporation. The Partnership charges rent to the C corporation for use of
the real estate that is on the Partnership's books. The Campground was
purchased in April 1975 and is located in Toms River, New Jersey near the
Jersey shore. It has operated under the same ownership since 1975.
(2) Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and a related party C corporation. All intercompany accounts
have been eliminated. The financial statements have been consolidated
to reflect the entire operation which reflects the revenues, net
assets and equity as if the activities were under one reporting
system.
Use of estimates:
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses.
Inventory valuation:
Inventory is valued at the lower of cost (first-in, first-out) or
market.
Property and equipment:
Property and equipment is stated at cost, net of accumulated
depreciation. Depreciation is provided by various methods at rates
calculated to amortize cost over the estimated useful lives of the
respective assets or, as to leasehold improvements, the term of the
related lease if less that the estimated service life. Upon sale or
retirement of property and equipment, the related cost and accumulated
depreciation are eliminated from the accounts and the resulting gains
or losses are recorded. Repairs and maintenance expenditures, not
anticipated to extend asset lives, are expenses as incurred.
Income taxes:
The Company elected to be taxed as a Partnership under the provisions
of the Internal Revenue Service Code for federal income tax
reporting. Under this provision, the entity is not liable for federal
corporate income taxes on its taxable income. Accordingly, net
operating loss carryback or carryforward is not allowed as a
deduction. Instead, the Partners include their proportionate share of
the Company's taxable income or loss in their individual income tax
returns.
See accompanying accountants' report
F-21
<PAGE> 49
MORRELL & GREENSTEIN PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(3) Business environment:
The Campground (Morrell & Greenstein Partners) is renting space to
campers for a short specified visit. The Campground has 18 acres of camp
sites and provides food and supplies, bath and shower, clothes washing
and drying facilities in an approximately 6,000 square foot building that
it owns. The primary season is from Memorial Day to Labor Day, however,
they do receive advances for rental fees after Labor Day to reserve space
during the summer months.
(4) Long-term debt - related party transaction:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
--------- ----
<S> <C> <C>
Realty in a realted party company
payable in monthly installments
of $3,500 including interest at
8.8% until January, 2014 $ 350,000 $ 0
--------- ----
350,000 0
Less current maturities (10,785) (0)
--------- ----
$ 339,215 $ 0
========= ====
</TABLE>
Maturities for the long-term debt are as follows:
<TABLE>
<S> <C>
1999 $ 10,785
2000 12,792
2001 13,958
2002 15,231
2003 and after 297,234
--------
$350,000
========
</TABLE>
The related party receivable is for $350,000. The Partnership has filed a
UCC filing against the Houston Operating Company's real estate which was
paid in cash from escrow from the loan proceeds on the campgrounds
realty. The partners are planning to exchange their equity interest for
shares of stock in the Houston Operating Company from the majority
shareholder who also owns 50% of the campground partnership.
See accompanying accountants' report
F-22
<PAGE> 50
MORRELL & GREENSTEIN PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(5) Income taxes:
The pro forma provision for income taxes for the periods ended December
31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Current:
Federal $ 43,000 $ 41,000
State 9,000 8,000
-------- --------
Total pro forma $ 52,000 $ 49,000
======== ========
</TABLE>
The pro forma provision for income taxes for the year ended December
31, 1998 and the December 31, 1997 differs from the amount computed by
applying the federal and state statutory income tax rate to income
before taxes as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
------ ------
<S> <C> <C>
Total computed at federal
statutory rate 35.0% 35.0%
State income taxes, net of
federal effect 6.5% 6.5%
Surtax benefits (1.8)% (1.0)%
------ ------
39.7% 40.5%
====== ======
</TABLE>
(6) Year 2000 contingency:
The Company is aware of the issue associated with the programming code
in existing computer systems as the year 2000 approaches. The year 2000
problem is pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two digit year
value to "00". The issue is whether computer systems will properly
recognize date-sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company is reviewing both
its information technology and its non-information technology systems
to determine whether they are year 2000 complaint, and to date the
Company has not identified any material systems, which are not year
2000 complaint. The Company has not made a material expenditure to
address the year 2000 problem and at present does not anticipate that
it will be required to make any such material expenditure in the
future.
The Company has initiated formal communications with all significant
suppliers and service providers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate the
year 2000 problem. Although the Company has received verbal assurances
of year 2000 compliance from certain of such third parties, the Company
has not yet received written assurances of year 2000 compliance from
third parties with whom it has relationships. The Company believes its
operations will not be significantly disrupted even if third parties
with whom the Company has relationships are not year 2000 compliant.
See accompanying accountants' report
F-23
<PAGE> 51
MORRELL & GREENSTEIN PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(7) Year 2000 contingency (cont'd):
In the event that the Company's suppliers are unable to provide
sufficient quantities of materials or goods to the Company as a result
of their failure to be year 2000 compliant, the Company believes that
it can obtain adequate supplies of materials and goods at comparable
prices from other sources.
(8) Subsequent event:
The Partnership will exchange its interest for common stock of the
shareholder of Houston Operating Company, who owns the other 50% of the
campground. The transaction is contingent upon receiving equity
financing of $500,000 as partial funding against an initial public
offering to fund the Houston Operating Company (the related party
transactions). The transaction is expected to be consummated in April
1999.
If the transaction is completed, the 50% non-related partner will
receive 20% ownership interest in the Houston Operating Company from
common stock owned by the other 50% partner in the related party
entity.
See accompanying accountants' report
F-24
<PAGE> 52
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of the Company provide for indemnification
to the full extent permitted by Delaware law of all persons it has the power to
indemnify under Delaware law. Such indemnification is not deemed to be exclusive
of any other rights to which those indemnified may be entitled, under any bylaw,
agreement, vote of stockholders or otherwise. The provisions of the Company"s
Articles of Incorporation, which provides for indemnification may reduce the
likelihood of derivative litigation against the Company"s directors and officers
for breach of their fiduciary duties, even though such action, if successful,
might otherwise benefit the Company and its stockholders.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with this
Registration Statement. All of such expenses are estimates, other than the
filing fees payable to the Securities and Exchange Commission.
<TABLE>
<S> <C>
Filing fee - Securities and Exchange Commission $ 278.00
Fees and Expenses of Accountants and Legal Counsel $25,000.00
Printing fees $ 5,000.00
Miscellaneous $ 1,000.00
Total $31,278.00
</TABLE>
RECENT SALES OF UNREGISTERED SECURITIES
There have been no recent sales of unregistered securities of the Company.
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
3.1 Articles of Incorporation of Registrant
3.2 Bylaws of the Registrant
4.1* Statement of Rights and Preferences
5.1 Opinion regarding Legality
10.1 Commercial Lease Agreement, dated May 2, 1997, between Robert
K. Curtis, as Lessor, and Richard W. Morrell, as Lessee, with
regard to the business premises located in New York.
10.2 Letter Lease Agreement, dated May 7, 1998, between Bridgeview
Management Company, Inc., as Lessor, and 35 Caroline
Corporation, as Lessee, with regard to the business premises
located in Perth Amboy, New Jersey.
10.3 Lease Agreement, dated May 18, 1997, between Village of Round
Lake, as Landlord, and 35 Caroline Corporation, as Tenant,
with regard to the business premises located in Round Lake,
New York.
10.4 Promissory Note, dated January 13, 1999, between 35 Caroline
Corporation, as Borrower, and Allen Greenstein and Richard
Morrell, as Lender.
10.5 Amended Stock Purchase Agreement, dated November 18, 1998, by
and among 35 Caroline Corporation, Richard W. Morrell, and
Harvey V. Risien.
11.1* Statement re: computation of per share earnings.
21.1 List of Subsidiaries of the Registrant.
21.2 Articles of Incorporation of 35 Caroline Corporation.
21.3 Bylaws of 35 Caroline Corporation
23.1 Consent of Oppenheim & Ostrick, independent auditors.
27* Financial Data Schedule
</TABLE>
- ---------
* To be filed by Amendment
<PAGE> 54
UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of 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 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.
<PAGE> 55
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 authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Round
Lake, state of New York, on April 1, 1999.
HOUSTON OPERATING COMPANY
a Delaware corporation
By /s/ RICHARD W. MORRELL
----------------------------------
Richard W. Morrell, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<S> <C> <C>
Director, President,
/s/ RICHARD W. MORRELL Chief Financial Officer 4/1/99
- --------------------------- ----------------------- ------
Richard W. Morrell Title Date
/s/ DAMON J. MORRELL Director, Vice-President 4/1/99
- --------------------------- ----------------------- ------
Damon J. Morrell Title Date
/s/ SIMEON MORRELL Director, Vice-President 4/1/99
- --------------------------- ----------------------- ------
Simeon Morrell Title Date
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
HOUSTON OPERATING COMPANY
ARTICLE I
NAME
The name of the corporation ("Corporation"), shall be:
HOUSTON OPERATING COMPANY
ARTICLE II
DURATION
The Corporation shall continue in existence perpetually unless sooner
dissolved according to law.
ARTICLE III
PURPOSES
The purposes for which this Corporation is organized are:
(a) To acquire by purchase or otherwise, own, hold, lease, rent,
mortgage or otherwise, to trade with and deal in real estate, lands and
interests in lands and all other property of every kind and nature;
(b) To engage in the exploration, drilling, development, and operation
of oil and gas leases and other interests in oil and gas; and purchase, own,
sell, assign, deal in, and otherwise acquire, own and dispose of in any manner,
oil and gas or other natural resources, properties, or interests therein,
including but not limited to leases, working interests, overriding royalties,
production payments, or any other interest of whatever nature;
(c) To engage in the gathering, processing, and transportation of oil,
gas, and other natural resources, and to this end acquire, own, and develop
plants and facilities for the gathering, processing, and transportation of oil,
gas, and other natural resources and to do and cause to be done any other act or
transaction necessary, convenient, or appropriate in connection with the
foregoing purpose;
(d) To manufacture, use, work, sell and deal in compounds, chemicals,
biologicals, pharmaceuticals, electronics, dry goods, food stuffs, and products
of all types, including the privileges or rights, owned or hereafter acquired by
it for manufacturing, using and vending any machine or machines for
manufacturing, working or producing any or all products, and marketing or
distributing any or all products;
<PAGE> 2
(c) To borrow money and to execute notes and obligations and security
contracts therefore, to tend any of the monies or funds of the Corporation and
to take evidence of indebtedness therefore; and to negotiate loans; to carry on
a general mercantile and merchandise business and to purchase, sell and deal in
such goods, supplies, and merchandise of every kind and nature;
(f) To engage in the export or import business of any goods, supplies,
and merchandise of every kind and nature between the United States and its
territories and possessions and any and all foreign countries or between foreign
countries, as principal or agent;
(g) To do all and everything necessary, suitable, convenient, or proper
for the accomplishment of any of the purposes or the attainment of any one or
more of the objects herein enumerated or incidental to the powers therein named
or which shall at any time appear conducive or expedient for the protection or
benefit of the Corporation, with all the powers hereafter conferred by the laws
under which this Corporation is organized; and
(h) To engage in any and all other lawful purposes, activities and
pursuits, whether similar or dissimilar to the foregoing, and the Corporation
shall have all the powers allowed or permitted by the laws of the State of
Delaware.
ARTICLE IV
CAPITALIZATION
The Corporation shall have authority to issue an aggregate of
60,000,000 shares, of which 50,000,000 shares shall be common stock having a par
value of $0.001 per share ("Common Stock"), 5,000,000 shares shall be preferred
stock having a par value of $0.001 per share ("Preferred Stock"), and 5,000,000
shares shall be preference stock having a par value of $0.001 per share
("Preference Stock").
ARTICLE V
CLASSES OF STOCK
A statement of the designations and the powers, preferences, and
rights, and the qualifications, limitations, or restrictions thereof, of the
shares of stock of each class which the Corporation shall be authorized to
issue, is as follows:
(a) Definitions. As used in this Article V or in any resolution adopted
by the board of directors providing for the issue of any particular series of
Preferred Stock or Preference Stock, the following terms shall have the
following meanings, respectively:
2
<PAGE> 3
(i) The term "arrearages," whenever used in connection with
dividends on any shares of Preferred Stock or Preference Stock, shall
refer to the condition that exists as to dividends which (A) have not
been paid or declared and set apart for payment to the date or for the
period indicated, and (B) are cumulative (either unconditionally, or
conditionally to the extent that the conditions have been fulfilled);
but the term shall not refer to the condition that exists as to
dividends, to the extent that they are non-cumulative, on such shares
which shall not have been paid or declared and set apart for payment.
(ii) The term "stock junior to the Preferred Stock," whenever
used with reference to the Preferred Stock, shall mean the Preference
Stock, Common Stock and any other stock of the Corporation over which
the Preferred Stock has preference or priority in the payment of
dividends and in the distribution of assets on any dissolution,
liquidation, or winding up of the Corporation.
(iii) The term "stock junior to the Preference Stock,"
whenever used with reference to the Preference Stock, shall mean the
Common Stock and any other stock of the Corporation over which the
Preference Stock has preference or priority in the payment of dividends
and in the distribution of assets on any dissolution, liquidation, or
winding up of the Corporation.
(iv) The term "subsidiary" means any corporation of which at
least a majority of the outstanding stock having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation, irrespective of whether or not at the time stock of any
other class or classes or such corporation shall have or might have
voting power by reason of the happening of any contingency, is, at the
time of determination thereof, directly or indirectly owned by the
Corporation, or by one or more subsidiaries of the Corporation, or by
the Corporation and one or more subsidiaries. As used in this
definition, the term "corporation" shall include comparable types of
business organizations authorized under the laws of any state,
territory or possession of the United States or any foreign country
however designated.
(b) Preferred Stock Provisions.
(b)(1) Authority of the Board of Directors of the Corporation Issue in
Series. Preferred Stock may be issued from time to time in one or more series,
each such series to have such designations, preferences, and relative,
participating, optional, or other special rights and qualifications, limitations
or restrictions as are expressed in this Article and in the resolution or
resolutions providing for the issue of such series adopted by the board of
directors as hereinafter provided. Subject to the provisions of this Article,
authority is hereby granted to the board of directors to authorize the issue of
one or more series of Preferred Stock and, with respect to each series, to fix
by resolution or resolutions providing for the issue of each such series the
following:
3
<PAGE> 4
(i) the number of shares of such series, which may
subsequently be increased or decreased (but not below the number of
shares of such series then outstanding) by resolution of the board of
directors, and the distinctive designation thereof;
(ii)the dividend rate or rates on the shares of such series,
the extent, if any, to which dividends shall cumulate (and, if
cumulative, the date or dates from which dividends shall cumulate), the
dates on which dividends, if declared, shall be payable and any
limitations, restrictions, or conditions on the payment of such
dividends;
(iii) the terms (including the price or prices), if any, upon
which all or any part of the shares of such series may be redeemed, and
any limitations, restrictions, or conditions on such redemption;
(iv)the amounts which the holders of the shares of such series
shall be entitled to receive upon any liquidation, dissolution, or
winding up of the Corporation;
(v) the terms, if any, of any purchase, retirement, or sinking
fund to be provided for the shares of such series;
(vi)the terms, if any, upon which the shares of such series
shall be convertible into or exchangeable for shares of any other
series, class or classes, or other securities, whether or not issued by
the Corporation, and the terms of such conversion or exchange;
(vii) the voting powers, full or limited (not to exceed one
vote per share), if any, of the shares of such series;
(viii) the restrictions, limitations, and conditions, if any,
upon issuance of indebtedness of the Corporation so long as any shares
of such series are outstanding; and
(ix)any other preferences and relative, participating,
optional, or other special rights and qualifications, limitations and
restrictions thereof not inconsistent with law, the provisions of this
Article, or any resolution of the board of directors of the Corporation
pursuant hereto.
All shares of any one series of Preferred Stock shall be identical with
all other shares of the same series, except that shares of any one series issued
at different times may differ as to the dates from which dividends thereon shall
be cumulative.
So long as any shares of any series of the Preferred Stock shall be
outstanding, the resolution of the board of directors establishing such series
shall not be amended so as adversely to affect any of the powers, preferences,
or rights of the holders of the shares of such series, without the affirmative
vote of the holders of at least a majority, or such greater proportion as the
board of directors may set forth in the resolution establishing such series, of
the shares of such series outstanding at the time
4
<PAGE> 5
or as of a record date fixed by the board of directors of the Corporation, but
such resolution may be amended with such vote.
(b)(2) Dividend Rights.
(i) The holders of the Preferred Stock of each series shall be
entitled to receive when and as declared by the board of directors of
the Corporation, preferential dividends in cash payable at such rate,
from such date, and on such dividend payment dates and, if cumulative,
cumulative from such date or dates, as may be fixed by the provisions
of this Article or by the resolutions of the board of directors
providing for the issue of such series.
(ii) So long as any of the Preferred Stock is outstanding, no
dividends (other than dividends payable in stock junior to the
Preferred Stock and cash in lieu of fractional shares in connection
with any such dividend) shall be paid or declared in cash or otherwise,
nor shall any other distribution be made, on any stock junior to the
Preferred Stock, unless
(A) there shall be no arrearages in dividends on
Preferred Stock for any past dividend period, and dividends in
full for the current dividend period shall have been paid or
declared on all Preferred Stock (cumulative and
non-cumulative);
(B) the Corporation shall have paid or set aside for
payment all amounts, if any, then or theretofore required to
be paid or set aside for all purchase, retirement, and sinking
funds, if any, for the Preferred Stock of any series; and
(C) the Corporation shall not be in default on any of
its obligations to redeem any of the Preferred Stock.
If the date of any payment or declaration of any dividend or
of making any other distribution referred to in this paragraph (ii)
shall be a dividend payment date for the Preferred Stock, the reference
in this paragraph to "the current dividend period" shall be
inapplicable for all of the purposes hereof.
(iii) So long as any of the Preferred Stock is outstanding, no
shares of any stock junior to the Preferred Stock shall be purchased,
redeemed, or otherwise acquired by the Corporation or by any subsidiary
except in connection with a reclassification or exchange of any stock
junior to the Preferred Stock through the issuance or other stock
junior to the Preferred Stock, or the purchase, redemption, or other
acquisition of any stock junior to the Preferred Stock with proceeds of
a reasonably contemporaneous sale of other stock junior to the
Preferred Stock, nor shall any funds be set aside or made available for
any sinking fund for the purchase, redemption, or other acquisition of
any stock junior to the Preferred Stock, unless
5
<PAGE> 6
(A) there shall be no arrearages in dividends on
Preferred Stock for any past dividend period;
(B) The Corporation shall have paid or set aside for
payment all amounts, if any, then or theretofore required to
be paid or set aside for all purchase, retirement, and sinking
funds, if any, for the Preferred Stock of any series, and
(C) The Corporation shall not be in default on any of
its obligations to redeem any of the Preferred Stock.
(iv) Subject to the foregoing provisions and not otherwise,
such dividends (payable in cash, property, or stock junior to the
Preferred Stock) as may be determined by the board of directors of the
Corporation may be declared and paid on the shares of any stock junior
to the Preferred Stock from time to time.
(v) Dividends shall not be declared or paid or set aside for
payment on any series of Preferred Stock unless there shall be no
arrearages in dividends on all other series of Preferred Stock for any
past dividend period and dividends in full for the current dividend
period shall have been paid or declared on all Preferred Stock to the
extent that such dividends are cumulative and any dividends paid or
declared when dividends are not so paid or declared in full shall be
shared ratably by the holders of all series of Preferred Stock in
proportion to such respective arrearages and unpaid and undeclared
current cumulative dividends.
(b)(3) Liquidation Rights.
(i) In the event of any liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, the holders of
Preferred Stock of each series shall be entitled to receive the full
preferential amount fixed by this Article or by the resolutions of the
Board of Directors of the Corporation providing for the issue of such
series, including any arrearages in dividends thereon to the date
fixed for the payment in liquidation, before any distribution shall be
made to the holders or any stock junior to the preferred Stock. After
such payment in full to the holders of the Preferred Stock, the
remaining assets of the Corporation shall then be distributed
exclusively among the holders of any stock junior to the Preferred
Stock, according to their respective interests.
(ii) If the assets of the Corporation are insufficient to
permit the payment of the full preferential amounts payable to the
holders of the Preferred Stock of the respective series in the event of
a liquidation, dissolution, or winding up, then the assets available
for distribution to holders of the Preferred Stock shall be distributed
ratably to such holders in proportion to the full preferential amounts
payable on the respective shares.
6
<PAGE> 7
(iii) A consolidation or merger of the Corporation with or
into one or more other corporations or a sale of all or substantially
all of the assets of the Corporation shall not be deemed to be a
liquidation, dissolution, or winding up, voluntary or involuntary.
(b)(4) Status of Preferred Stock Purchased, Redeemed, or Converted.
Shares of Preferred Stock purchased, redeemed, or converted into or exchanged
for shares of any other class or series, and unissued shares of any series of
Preferred Stock which cease to be designated as to series by reason of a
decrease in the number of shares of such series as herein provided, shall be
deemed to be authorized but unissued shares of Preferred Stock undesignated as
to series.
(b)(5) Restrictions on Certain Corporate Action. Subject to the
provisions of subsection (e)(4) of this Article V, so long as any shares of the
Preferred Stock shall be outstanding, the Corporation shall not, without the
affirmative vote of the holders of at least a majority of the shares of the
Preferred Stock outstanding at the time or as of a record date fixed by the
board of directors:
(i) create or authorize any class of stock ranking prior to or
on a parity with the Preferred Stock with respect to the payment of
dividends or the distribution of assets; or
(ii) amend the Certificate of Incorporation of the Corporation
so as adversely to affect any of the preferences or other rights of the
holders of the Preferred Stock; provided, however, that if any such
amendment would adversely affect any of the preferences or other rights
of the holders of one or more, but less than all, of the series of the
Preferred Stock then outstanding, the affirmative vote of, and only of,
the holders of at least a majority of the shares of all series so
adversely affected, voting as a single class, shall be required.
(c) Preference Stock Provisions.
(c)( 1) Authority of the Board of Directors of the Corporation To Issue
in Series. Preference Stock may be issued from time to time in one or more
series, each such series to have such designations, preferences, and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions as are expressed in this Article and in the resolution or
resolutions providing for the issue of such series adopted by the board of
directors as hereinafter provided. Subject to the provisions of this Article,
authority is hereby granted to the board of directors to authorize the issue of
one or more series of Preference Stock and, with respect to each series, to fix
by resolution or resolutions providing for the issue of each such series the
following:
(i) the number of shares of such series, which may, except as
otherwise provided in any resolution of the board of directors of the
Corporation providing for the issuance of a series of Preferred Stock,
subsequently be increased or decreased (but not below the number of
shares of such series then outstanding) by resolution of the board of
directors, and the distinctive designation thereof;
7
<PAGE> 8
(ii) the dividend rate or rates on the shares of such series,
the extent, if any, to which dividends shall cumulate (and, if
cumulative, the date or dates from which dividends shall cumulate), the
dates on which dividends, if declared, shall be payable and any
limitations, restrictions, or conditions on the payment of such
dividends;
(iii) the terms (including the price or prices), if any, upon
which all or any part of the shares of such series may be redeemed, and
any limitations, restrictions, or conditions on such redemption;
(iv) the amounts which the holders of the shares of such
series shall be entitled to receive upon any liquidation, dissolution,
or winding up of the Corporation;
(v) the terms, if any, of any purchase, retirement, or sinking
fund to be provided for the shares of such series;
(vi) the terms, if any, upon which the shares of such series
shall be convertible into or exchangeable for shares of any other
series, class or classes, or other securities, whether or not issued by
the Corporation, and the terms of such conversion or exchange;
(vii) the voting powers, full or limited (not to exceed one
vote per share), if any, of the shares of such series;
(ix) any other preferences and relative, participating,
optional, or other special rights and qualifications, limitations, and
restrictions thereof not inconsistent with law, the provisions of this
Article or any resolution of the board of directors of the Corporation
pursuant hereto.
All shares of any one series of Preference Stock shall be identical
with all other shares of the same series, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon shall be cumulative.
So long as any shares of any series of the Preference Stock shall be
outstanding, the resolution of the board of directors establishing such series
shall not be amended so as adversely to affect any of the powers, preferences,
or rights of the holders of the shares of such series, without the affirmative
vote of the holders of at least a majority, or such greater proportion as the
board of directors may set forth in the resolution establishing such series, of
the shares of such series outstanding at the time or as of a record date fixed
by the board of directors of the Corporation, but such resolution may be so
amended with such vote.
(c)(2) Dividend Rights.
(i) Subject to the rights of the holders of the Preferred
Stock and of any other series of Preference Stock, the holders of the
Preference Stock of each series shall be entitled to receive, when and
as declared by the board of directors of the Corporation, preferential
8
<PAGE> 9
dividends in cash payable at such rate, from such date, and on such
dividend payment dates and, if cumulative, cumulative from such date or
dates, as may be fixed by the provisions of this Article or by the
resolutions of the board of directors providing for the issue of such
series.
(ii) So long as any of the Preference Stock is outstanding, no
dividends (other than dividends payable in stock junior to the
Preference Stock and cash in lieu of fractional shares in connection
with any such dividend) shall be paid or declared in cash or otherwise,
nor shall any other distribution be made, on any stock junior to the
Preference Stock, unless
(A) there shall be no arrearages in dividends on
Preference Stock for any past dividend period, and dividends
in full for the current dividend period shall have been paid
or declared on all Preference Stock (cumulative and
non-cumulative);
(B) the Corporation shall have paid or set aside for
payment all amounts, if any, then or theretofore required to
be paid or set aside for all purchase, retirement, and sinking
funds, if any, for the Preference Stock of any series; and
(C) the Corporation shall not be in default on any of
its obligations to redeem any of the Preference Stock.
If the date of any payment or declaration of any dividend or
of making any other distribution referred to in this paragraph (ii)
shall be a dividend payment date for the Preference Stock, the
reference in this paragraph to "the current dividend period" shall be
inapplicable for all of the purposes hereof.
(iii) Subject to the foregoing provisions and not otherwise,
such dividends (payable in cash, property, or stock junior to the
Preference Stock) as may be determined by the board of directors of the
Corporation may be declared and paid on the shares of any stock junior
to the Preference Stock from time to time.
(iv) If the resolution of the board of directors establishing
any series of Preference Stock provides that dividends on the shares of
such series shall have priority over the payment of dividends on the
shares of any other series of Preference Stock, dividends on the shares
of such other series of Preference Stock shall not be paid unless
dividends on the series entitled to such priority shall have been paid
in full, including any arrearages which may exist with respect thereto.
Subject to any resolutions of the board of directors establishing a
priority or priorities as aforesaid, dividends shall not be declared or
paid or set aside for payment on any series of Preference Stock unless
there shall be no arrearages in dividends on all other series of
Preference Stock for any past dividend period and dividends in full for
the current dividend period shall have been paid or declared on all
other series of Preference Stock to the extent that
9
<PAGE> 10
such dividends are cumulative and any dividends paid or declared when
dividends are not so paid or declared in full shall be shared ratably
by the holders of all series of Preference Stock in proportion to such
respective arrearages and unpaid and undeclared current cumulative
dividends.
(c)(3) Liquidation Rights.
(i) Subject to the rights of the holders of the Preferred
Stock and of any other series of Preference Stock, in the event of any
liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary, the holders of Preference Stock of each
series shall be entitled to receive the full preferential amount fixed
by this Article or by the resolutions of the board of directors of the
Corporation providing for the issue of such series, including any
arrearages in dividends thereon to the date fixed for the payment in
liquidation, before any distribution shall be made to the holders of
any stock junior to the Preference Stock. After such payment in full to
the holders of the Preference Stock, the remaining assets of the
Corporation shall then be distributed exclusively among the holders of
any stock junior to the Preference Stock, according to their respective
interests.
(ii) If the resolution of the board of directors establishing
any series of Preference Stock provides that the full preferential
amount payable in the event of a liquidation, dissolution or winding up
of the Corporation with respect to such series shall be distributed
prior to the distribution of the preferential amount payable with
respect to any other series of Preference Stock, then no such amount
shall be distributed to the holders of the shares of such other series
unless the amount distributable on the series entitled to such priority
has been distributed in full. If the assets of the Corporation are
insufficient to permit the payment of the full preferential amounts
payable to the holders of the Preference Stock of the respective series
in the event of a liquidation, dissolution, or winding up, then the
assets available for distribution to holders of the Preference Stock
shall be distributed first to the holders of any series of Preference
Stock in accordance with any priorities established as aforesaid, and
then ratably to the holders of the remaining series of Preference Stock
in proportion to the full preferential amounts payable on the shares of
such series.
(iii) A consolidation or merger of the Corporation with or
into one or more other corporations or a sale of all or substantially
all of the assets of the Corporation shall not be deemed to be a
liquidation, dissolution, or winding up, voluntary or involuntary.
(c)(4) Status of Preference Stock Purchased, Redeemed or Converted.
Shares of Preference Stock purchased, redeemed or converted into or exchanged
for shares of any other class or series, and unissued shares of any series of
Preference Stock which cease to be designated as to series by reason of a
decrease in the number of shares of such series as herein provided, shall be
deemed to be authorized but unissued shares of Preference Stock undesignated as
to series.
10
<PAGE> 11
(c)(5) Restrictions on Certain Corporate Action. Subject to the
provisions of subsection (e)(4) of this Article V, so long as any shares of the
Preference Stock shall be outstanding, the Corporation shall not, without the
affirmative vote of the holders of at least a majority of the shares of the
Preference Stock outstanding at the time or as of a record date fixed by the
board of directors:
(i) create or authorize any class of stock ranking prior to or
on a parity with the Preference Stock with respect to the payment of
dividends or the distribution of assets; or
(ii) amend the Certificate of Incorporation of the Corporation
so as adversely to affect any of the preferences or other rights of the
holders of the Preference Stock, provided, however, that if any such
amendment would adversely affect any of the preferences or other rights
of the holders of one or more, but less than all, of the series of the
Preference Stock then outstanding, the affirmative vote of, and only
of, the holders of at least a majority of the shares of all series so
adversely affected, voting as a single class, shall be required.
(d) Common Stock Provisions.
(d)(1) Dividend Rights. Subject to provisions of law and the
preferences of the Preferred Stock and Preference Stock, the holders of the
Common Stock shall be entitled to receive dividends at such times and in such
amounts as may be determined by the board of directors of the Corporation.
(d)(2) Voting Rights. The holders of the Common Stock shall have one
vote for each share held on each matter submitted to a vote of the stockholders
of the Corporation.
(d)(3) Liquidation Rights. In the event of any liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of the
Corporation and the preferential amounts to which the holders of the Preferred
Stock and Preference Stock may be entitled, the holders of the Common Stock
shall be entitled to share ratably in the remaining assets of the Corporation.
(e) Other Provisions.
(e)(1) Authority for Issuance of Shares. The board of directors of the
Corporation shall have authority to authorize the issuance, from time to time
without any vote or other action by the stockholders, of any or all shares of
stock of the Corporation of any class at any time authorized, and any securities
convertible into or exchangeable for any such shares, in each case to such
persons and for such consideration and on such terms as the board of directors
from time to time in its discretion lawfully may determine; provided, however,
that the consideration for the issuance of shares of stock of the Corporation
having par value shall not be less than such par value. Shares so issued, for
which the full consideration determined by the board of directors has been paid
to the Corporation, shall
11
<PAGE> 12
be fully paid stock, and the holders of such stock shall not be liable for any
further call or assessments thereon.
(e)(2) No Preemptive Rights. Unless otherwise provided in the
resolution of the board of directors providing for the issue of any series of
Preferred Stock or Preference Stock, no holder of shares of any class of the
Corporation or of any security or obligation convertible into, or of any
warrant, option, or right to purchase, subscribe for, or otherwise acquire,
shares of any class of the Corporation, whether now or hereafter authorized,
shall, as such holder, have any preemptive right whatsoever to purchase,
subscribe for, or otherwise acquire, shares of any class of the Corporation,
whether now or hereafter authorized.
(e)(3) Abandonment of Dividends and Distributions. Anything herein
contained into the contrary notwithstanding, any and all right, title, interest,
and claim in and to any dividends declared, or other distributions made, by the
Corporation, whether in cash, stock, or otherwise, which are unclaimed by the
stockholder entitled thereto for a period of six years after the close of
business on the payment date, shall be and be deemed to be extinguished and
abandoned; and such unclaimed dividends or other distributions in the possession
of the Corporation, its transfer agents, or other agents or depositories, shall
at such time become the absolute property of the Corporation, free and clear of
any and all claims of any persons whatsoever.
(e)(4) Certain Amendments. Except as otherwise provided in this Article
or resolutions of the board of directors providing for the issue of any series
of Preferred Stock or Preference Stock, the number of authorized shares of any
class or classes of stock of the Corporation may be increased or decreased (but
not below the number of shares of such series then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, voting as a single class.
ARTICLE VI
LIMITATION ON LIABILITY
A director of the Corporation shall have no personal liability to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except (a) for any breach of a director's duty of loyalty to
the Corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
section 174 of the General Corporation Law of Delaware as it may from time to
time be amended or any successor provision thereto, or (d) for any transaction
from which a director derived an improper personal benefit.
ARTICLE VII
TAKEOVER STATUTE ELECTION
The Corporation hereby expressly elects not to be governed by the
provisions of section 203 of the General Corporation Law of the state of
Delaware, which provision shall not apply to the Corporation.
12
<PAGE> 13
ARTICLE VIII
INDEMNIFICATION
The Corporation should have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative by reason of the fact that he is or was a director, officer,
employee, or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise to the full
extent permitted by the General Corporation Law of the state of Delaware on the
date hereof and as the same may be amended from time to time.
ARTICLE IX
REGISTERED OFFICE AND REGISTERED AGENT
The name and address of the Corporation's registered agent in the state
of Delaware is The Corporation Trust Company, 1209 Orange Street, in the city of
Wilmington, county of New Castle, Delaware. Either the registered office or the
registered agent may be changed in the manner provided by law.
ARTICLE X
AMENDMENT
The Corporation reserves the right to amend, alter, change, or repeal
all or any portion of the provisions contained in its Certificate of
Incorporation from time to time in accordance with the laws of the state of
Delaware, and, except as otherwise set forth herein, all rights conferred on
stockholders herein are granted subject to this reservation.
ARTICLE XI
ADOPTION AND AMENDMENT OF BYLAWS
The initial bylaws of the Corporation shall be adopted by the board of
directors. The power to alter, amend, or repeal the bylaws or adopt new bylaws
shall be vested in the board of directors, but the stockholders of the
Corporation may also alter, amend, or repeal the bylaws or adopt new bylaws. The
bylaws may contain any provisions for the regulation or management of the
affairs of the Corporation not inconsistent with the laws of the state or
Delaware now or hereafter existing.
ARTICLE XII
DIRECTORS
The governing board of the Corporation shall be known as the board of
directors. The number of directors comprising the board of directors
13
<PAGE> 14
shall be fixed and may be increased or decreased from time to time in the
manner provided in the bylaws of the Corporation, except that at no time shall
there be less than one nor more than eleven directors. The initial board of
directors shall be appointed by the sole incorporator following formation of the
Corporation as provided in section 108 of the General Corporation Law of
Delaware.
ARTICLE XIII
INCORPORATORS
The name and mailing address of the sole incorporator signing this
certificate of incorporation is as follows:
Name Address
-------------- ---------------------------------
Mark E. Lehman 136 South Main Street, Suite 721
Salt Lake City, Utah 84101
The undersigned, being the sole incorporator herein before named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the state of Delaware, makes this certificate, hereby declaring and certifying
that this is his act and deed and that the facts herein stated are true, and
accordingly has hereunto set his hand this 30th day of August, 1989.
/s/ MARK E. LEHMAN
---------------------------------
Mark E. Lehman
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE)
1, a notary public, hereby certify that on the 30th day of August,
1989, personally appeared before me Mark E. Lehman, who being by me first duly
sworn, declared that he signed the foregoing instrument as his own act and deed
and that the facts stated therein are true.
WITNESS MY HAND AND OFFICIAL SEAL.
/s/ [Signature Illegible]
---------------------------------
N O T A R Y P U B L I C
Residing in Salt Lake City, Utah
---------------------
My Commission Expires:
10-25-91
- ------------------------------
14
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
HOUSTON OPERATING COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. OFFICES............................................................................. 1
SECTION 1.01 Principal office..................................................... 1
SECTION 1.02 Additional Offices................................................... 1
ARTICLE 2. SHAREHOLDERS ....................................................................... 1
SECTION 2.01 Annual Meetings...................................................... 1
SECTION 2.02 Special Meetings..................................................... 1
SECTION 2.03 Place of Meetings.................................................... 1
SECTION 2.04 Notice of Meetings................................................... 1
SECTION 2.05 Closing Transfer Books and Record Date . ............................ 2
SECTION 2.06 Voting Lists......................................................... 2
SECTION 2.07 Quorum............................................................... 3
SECTION 2.08 Manner of Acting..................................................... 3
SECTION 2.09 Proxies.............................................................. 3
SECTION 2.10 Voting of Shares..................................................... 3
SECTION 2.11 Voting of Shares by Certain Holders.................................. 3
SECTION 2.12 Informal Action by Shareholders...................................... 4
SECTION 2.13 Cumulative Voting Prohibited......................................... 4
ARTICLE 3. BOARD OF DIRECTORS.................................................................. 4
SECTION 3.01 General Powers ...................................................... 4
SECTION 3.02 Number, Tenure and Qualifications ................................... 4
SECTION 3.03 Resignation ......................................................... 5
SECTION 3.04 Regular Meetings .................................................... 5
SECTION 3.05 Special Meetings .................................................... 5
SECTION 3.06 Notice .............................................................. 5
SECTION 3.07 Quorum .............................................................. 5
SECTION 3.08 Manner of Acting .................................................... 5
SECTION 3.09 Action Without a Meeting ............................................ 6
SECTION 3.10 Vacancies ........................................................... 6
SECTION 3.11 Compensation ........................................................ 6
SECTION 3.12 Presumption of Assent ............................................... 6
SECTION 3.13 Removal ............................................................. 7
SECTION 3.14 Committees .......................................................... 7
SECTION 3.15 Interested Directors ................................................ 7
ARTICLE 4. OFFICERS ........................................................................... 8
SECTION 4.01 Officers ............................................................ 8
SECTION 4.02 Election and Term of Office ......................................... 8
SECTION 4.03 Removal ............................................................. 9
SECTION 4.04 Resignation ......................................................... 9
SECTION 4.05 Vacancies ........................................................... 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.06 Chairman of the Board ............................................... 9
SECTION 4.07 President ........................................................... 9
SECTION 4.08 Vice-President ...................................................... 9
SECTION 4.09 Secretary and Assistant Secretaries ................................. 10
SECTION 4.10 Treasurer and Assistant Treasurers .................................. 10
SECTION 4.11 Compensation ........................................................ 11
ARTICLE 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................... 11
SECTION 5.01 Indemnification ..................................................... 11
SECTION 5.02 Advancement of Expenses ............................................. 12
SECTION 5.03 Insurance ........................................................... 12
SECTION 5.04 Other Indemnification ............................................... 12
ARTICLE 6. ADMINISTRATIVE MATTERS ............................................................. 12
SECTION 6.01 Contracts............................................................ 12
SECTION 6.02 Loans................................................................ 12
SECTION 6.03 Checks and Orders for Payment........................................ 12
SECTION 6.04 Deposits............................................................. 13
SECTION 6.05 Books and Records.................................................... 13
SECTION 6.06 Fiscal Year.......................................................... 13
SECTION 6.07 Distributions........................................................ 13
SECTION 6.08 Corporate Seal....................................................... 13
SECTION 6.09 Waiver of Notice..................................................... 13
SECTION 6.10 Amendments........................................................... 13
ARTICLE 7. CERTIFICATES FOR SHARES AND THEIR TRANSFER ......................................... 13
SECTION 7.01 Certificates for Shares ............................................. 13
SECTION 7.02 Transfer of Shares .................................................. 14
ARTICLE 8. GENERAL PROVISIONS ................................................................. 14
SECTION 8.01 Construction ........................................................ 14
SECTION 8.02 Headings ............................................................ 14
CERTIFICATE OF SECRETARY-TREASURER ............................................................ 14
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
HOUSTON OPERATING COMPANY
ARTICLE 1. OFFICES
SECTION 1.01 Principal Office. The principal office of 700 N. St.
Mary's, Ste. 950, San Antonio, Texas 78205 (the "Corporation") in the State of
Texas shall be located in the City of San Antonio, County of Bexar.
SECTION 1.02 Additional Offices. The Corporation may have such other
offices, either within or without the State of Texas as the Board of Directors
may designate or as the business of the Corporation may require from time to
time.
ARTICLE 2. SHAREHOLDERS
SECTION 2.01 Annual Meetings. The annual meeting of the shareholders
shall be held during the month of April in each year, beginning with the year
1994 upon the date and at the hour designated by the Board of Directors by
notice to the shareholders, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the
election of directors shall not be held on the day designated herein for any
annual meeting of the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as such special meeting can be conveniently
scheduled.
SECTION 2.02 Special Meetings. Special meetings of the shareholders,
for any purpose or purposes, unless otherwise prescribed by statute, may be
called by the President or by the Board of Directors, and shall be called by the
President at the request of the holders of not less than 10% of all the
outstanding shares of the Corporation entitled to vote at the meeting.
SECTION 2.03 Place of Meetings. The Board of Directors may designate
any place, either within or without the State of Texas, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of Texas,
unless otherwise prescribed by statute, as the place for the holding of such
meeting. If no designation is made, or if a special meeting be otherwise called,
the place of meeting shall be the principal office of the Corporation in the
State of Texas.
<PAGE> 5
SECTION 2.04 Notice of Meetings. Written or printed notice stating the
place, day and hour of the meeting and, in case of special meeting, the purpose
or purposes for which the meeting is called, shall (unless otherwise prescribed
by statute) be delivered not more than 60 days and not less than 10 days before
the date of the meeting, either personally or by mail, by or at the direction of
the President, the Secretary or the 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,
addressed to the shareholder at such shareholder's address as it appears on the
stock transfer books of the Corporation, with postage thereon prepaid.
SECTION 2.05 Closing Transfer Books and Record Dates. For the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to receive a
distribution by the Corporation (other than a distribution involving a purchase
or redemption by the Corporation of any of its own shares) or a share dividend,
or in order to make a determination of shareholders for any other proper
purpose, the Board of Directors of the Corporation may provide that the stock
transfer books shall be closed for a stated period but not to exceed, in any
case, 60 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 at least 10 days immediately
preceding such meetings. 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 shareholder, such date in any case to be not more than 60 days
and, in case of a meeting of shareholders, not less than 10 days before 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 shareholder, or shareholders entitled to receive payment of a
distribution (other than a distribution involving a purchase or redemption by
the Corporation of any of its own shares) or a share 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 distribution or share dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of the 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 2.06 Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make at least 10 days
before each meeting of shareholders a complete list of the shareholders entitled
to vote at each meeting, or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each, which list,
2
<PAGE> 6
for a period of 10 days before 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 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
stock transfer book shall be prima facie evidence as to who are the shareholders
entitled to examine such list or transfer books or to vote at any meeting of the
shareholders.
SECTION 2.07 Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. 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 noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
SECTION 2.08 Manner of Acting. The vote of the holders of a majority of
the shares entitled to vote and thus represented at such meeting at which a
quorum is present shall be the act of the shareholders' meeting unless the vote
of a greater number is required by law, the Articles of Incorporation or these
Bylaws.
SECTION 2.09 Proxies. At all meetings of shareholders, a shareholder
may vote in person or by proxy executed in writing by the shareholder or by such
shareholder's duly authorized attorney in fact. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after 11 months from the date of its execution, unless provided
in the proxy. Each proxy shall be revocable unless the proxy form conspicuously
states that the proxy is irrevocable and the proxy is coupled with an interest.
SECTION 2.10 Voting of Shares. Subject to the provisions of Section
2.13, each outstanding share entitled to vote shall be entitled to one vote upon
each matter submitted to a vote at a meeting of the shareholders.
SECTION 2.11 Voting of Shares by Certain Holders.
(a) Shares standing in the name of another Corporation may be voted by
such officer, agent or proxy as the bylaws of such Corporation may prescribe,
or, in the absence of such provision, as the Board of Directors of such
Corporation may determine.
3
<PAGE> 7
(b) Shares held by an administrator, executor, guardian or conservator
may be voted by such person, either in person or by proxy, without a transfer of
such shares into such person's name. Shares standing in the name of a trustee
may be voted by such trustee, either in person or by proxy, but no trustee shall
be entitled to vote shares held by such trustee without a transfer of such
shares into the name of the trust.
(c) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into such receiver's name if
authority so to do be contained in an appropriate order of the court by which
such receiver was appointed.
(d) A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares to transferred.
(e) Shares of its own stock belonging to the Corporation shall not be
voted, directly or indirectly, at any meeting, and shall not be counted in
determining the total number of outstanding shares at any given time.
SECTION 2.12 Informal Action by Shareholders. Unless otherwise provided
by law, any action required to be taken at a meeting of the shareholders, or any
other action which may be taken at a meeting of the shareholders, may be taken
without a meeting if consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof. Meetings of shareholders by use of conference telephone
or similar communications equipment may also be held as more specifically
described in Section 3.10 of these Bylaws.
SECTION 2.13 Cumulative Voting Prohibited. At each election for
directors, every shareholder entitled to vote at such election shall have the
right to vote, in person or by proxy, the number of shares owned by such
shareholder for as many persons as there are directors to be elected and for
whose election such shareholder has a right to vote. Cumulative voting is
expressly prohibited.
ARTICLE 3. BOARD OF DIRECTORS
SECTION 3.01 General Powers. The business and affairs of the
Corporation shall be managed by its Board of Directors.
SECTION 3.02 Number, Tenure and Qualifications. The number of directors
of the Corporation shall be one. Each director shall hold office until the next
annual meeting of the shareholders and
4
<PAGE> 8
until such director's successor shall have been elected and qualified.
Directors need not be residents of the State of Texas or shareholders of the
Corporation.
SECTION 3.03 Resignation. Any director may resign by giving written
notice to the President or the Secretary. The resignation shall take effect at
the time specified therein. The acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.04 Regular Meetings. A regular meeting of the Board of
Directors shall be held (without other notice than this Bylaw) immediately
after, and at the same place as, the annual meeting of shareholders. The Board
of Directors may provide, by resolution, the time and place for the holding of
additional regular meetings without notice other than such resolution.
SECTION 3.05 Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President or any two
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meeting of the
Board of Directors called by them.
SECTION 3.06 Notice. Notice of any special meeting shall be given at
least one (1) day prior thereto by written notice delivered personally or mailed
to each director at such director's business address, or by telegram or
telephone. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed, with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. Any director may waive notice of
any meeting. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
SECTION 3.07 Quorum. A majority of the number of directors then fixed
by these Bylaws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, but if less than such majority is present at
a meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice.
SECTION 3.08 Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. Notwithstanding the foregoing, the following matters shall require
the affirmative vote of all of the directors prior to action by the Board of
Directors and/or the submission thereof to the shareholders:
5
<PAGE> 9
(a) any amendment, alternation or repeal of the Articles of
InCorporation or Bylaws of the Corporation;
(b) issuance and sale by the Corporation of any shares of stock over
and above those shares initially issued by the Corporation; and
(c) revisions to any employment agreements executed between the
Corporation and its employees or waivers of or refusal to enforce any
of the terms of such employment agreements.
SECTION 3.09 Action Without a Meeting. Any action that may be taken by
the Board of Directors at a meeting may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be signed by all of the
directors. Subject to the provisions of these Bylaws for notice of meetings,
members of the Board of Directors, members of any committee designated by the
Board or shareholders may participate in and hold a meeting of such Board,
committee or shareholders by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting 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.
SECTION 3.10 Vacancies. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors, unless otherwise provided
by law. A director elected to fill a vacancy shall be elected for the unexpired
term of such director's 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 the shareholders called for that
purpose.
SECTION 3.11 Compensation. By resolution of the Board of Directors,
each director shall be reimbursed for expenses, if any, of attendance at each
meeting of the Board of Directors, and may be paid a stated salary as director
or a fixed sum for attendance at meetings of the Board of Directors or both. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
SECTION 3.12 Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless such director's dissent shall be entered in the minutes of the meeting or
unless such director shall file such director's written dissent to such action
with the person acting as the Secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered
6
<PAGE> 10
mail to the Secretary of the Corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director who voted in
favor of such action.
SECTION 3.13 Removal. Any director or the entire Board of Directors may
be removed, with or without cause, at any meeting of the shareholders called
expressly for that purpose, by a vote of the holders of a majority of the shares
then entitled to vote at an election of directors. In the event cumulative
voting is permitted by these Bylaws at any time, if less than the entire Board
is to be removed, no one of the directors may be removed if the votes cast
against such director's removal would be sufficient to elect such director if
then cumulatively voted at an election of the entire Board of Directors, or if
there be classes of directors, at an election of the class of directors of which
such director is a part.
SECTION 3.14 Committees. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members one or more committees, including an executive committee. Each committee
shall have and may exercise such authority of the Board of Directors as is set
forth in the resolution creating the committee, except that if an executive
committee is appointed, it shall have and may exercise all of the authority of
the Board of Directors, except as specifically prohibited in the resolution or
in this Section of the Bylaws. In no event, however, shall any such committee
have the authority of the Board of Directors in reference to amending the
Articles of Incorporation, approving a plan of merger or consolidation,
recommending to the shareholders the sale, lease or exchange of all or
substantially all of the property and assets of the Corporation otherwise than
in the usual and regular course of its business recommending to the shareholders
a voluntary dissolution of the Corporation or a revocation thereof, amending,
altering or repealing the Bylaws or adopting new Bylaws, filling vacancies in or
removing members of the Board of Directors or any such committee, electing or
removing officers, fixing the compensation of any member of such committee or
altering or repealing any resolution of the Board of Directors which by its
terms provides that it shall not be so amendable or repealable; and, unless such
resolution expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of shares of the
Corporation. Any organization of such committee and the delegation to such
committee of authority shall not operate to relieve the Board of Directors, or
any member thereof, of any responsibility imposed by law.
SECTION 3.15 Interested Directors.
(a) If subsection (b) of this Section 3.15 is satisfied, no contract or
other transaction between the Corporation and any of its directors (or any
Corporation or firm in which any of them are
7
<PAGE> 11
directly or indirectly interested) shall be invalid solely because of this
relationship or because of the presence of such director, at the meeting
authorizing such contract or transaction, or such director's participation in
such meeting or authorization.
(b) Subsection (a) of this Section 3.15 shall apply only if:
(1) The material facts of the relationship or interest of each such
director are known or disclosed:
(A) To the Board of Directors or a committee and the Board or
committee nevertheless authorizes or ratifies the contract or transaction by a
majority of the directors present, each such interested director to be counted
in determining whether a quorum is present but not in calculating the majority
necessary to carry the vote; or
(B) To the shareholders and they nevertheless authorize or
ratify the contract or transaction by a majority of the shares present, each
such interested person to be counted for quorum and voting purposes; or
(2) The contract or transaction is fair to the Corporation as of
the time it is authorized or ratified by the Board of Directors, a committee of
the Board, or the shareholders.
(c) This provision shall not be construed to invalidate a contract or
transaction which would be valid in the absence of this provision.
ARTICLE 4. OFFICERS
SECTION 4.01 Officers. The Corporation shall have a President and a
Secretary. The Corporation may have a Vice-President, a Treasurer and such other
officers (including a Chairman of the Board and additional Vice-Presidents) and
assistant officers and agents, as the Board of Directors may think necessary.
Any two or more offices may be held by the same person.
SECTION 4.02 Election and Term of Office. 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, such election shall be held at a special meeting as
soon as such meeting can be conveniently scheduled. Each officer shall hold
office until such officer's successor shall have been duly elected and shall
have qualified or until such officer's death or until such officer shall resign
or shall have been removed in the manner hereinafter provided.
8
<PAGE> 12
SECTION 4.03 Removal. Any officer or agent may be removed by the Board
of Directors whenever, in its judgment, the best interests of the Corporation
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights.
SECTION 4.04 Resignation. Any officer may resign by giving written
notice to the President or the Secretary. The resignation shall take effect at
the time specified therein. The acceptance of such resignation shall not be
necessary to make it effective.
SECTION 4.05 Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 4.06 Chairman of the Board. The Chairman of the Board, if such
an officer has been elected by the Board of Directors, shall, if present,
preside at all meetings of the Board of Directors and exercise and perform such
other powers and duties as from time to time may be assigned to such individual
by the Board of Directors or prescribed by these Bylaws.
SECTION 4.07 President. Subject to such supervisory and executive
powers, if any, which may be given by the Board of Directors to the Chairman of
the Board, if the Board of Directors has elected a Chairman of the Board, the
President shall be the Chief Executive Officer of the Corporation and, subject
to the control of the Board of Directors, shall in general supervise and control
all of the business and affairs of the Corporation. The President shall, when
present, preside at all meetings of the shareholders and the Board of Directors.
The President may sign certificates for shares of the Corporation, any deeds,
mortgages, bonds, contracts or other instruments which the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as from time to
time may be assigned to such officer by the Board of Directors.
SECTION 4.08 Vice-President. In the absence of the President or in the
event of the President's death, inability or refusal to act, the Vice-President
(or in the event there be more than one Vice-President, the Vice-Presidents in
the order designated by the Board, or in the absence of any designation, then in
the order of their election) shall perform the duties of the President, and when
so acting, shall have all of the powers of, and
9
<PAGE> 13
be subject to, All the restrictions upon the President. The Vice-Presidents
shall perform such other duties as from time to time may be assigned to them by
the Board of Directors or by the President.
SECTION 4.09 Secretary and Assistant Secretaries.
(a) The Secretary shall attend all meetings of the Board and all
meetings of the shareholders and shall record all votes and the minutes of all
proceedings and shall perform like duties for the standing committees when
required. The Secretary shall give or cause to be given notice of all meetings
of the shareholders and all meetings of the Board of Directors and shall perform
such other duties as may be prescribed by the Board. The Secretary shall keep in
safe custody the seal, if any, of the Corporation, and when authorized by the
Board, affix the same to any instrument requiring it, and when so affixed, it
shall be attested by the signature of the Secretary or by the signature of an
Assistant Secretary. The Secretary shall perform such other duties as from time
to time may be assigned by the Board of Directors or by the President.
(b) The Assistant Secretaries in the order of their seniority as
determined by the order of their election shall, in the absence or disability of
the Secretary, perform all the duties and exercise the powers of the Secretary,
and they shall perform such other duties as from time to time may be assigned to
them by the Board of Directors or by the President.
(c) In the absence of the Secretary or an Assistant Secretary, the
minutes of all meetings of the Board and shareholders shall be recorded by such
person as shall be designated by the Board of Directors or by the President.
SECTION 4.10 Treasurer and Assistant Treasurers.
(a) The Treasurer 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. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements. The Treasurer shall
keep and maintain the Corporation's books of account and shall render to the
President and directors an account of all of the transactions of such officer as
Treasurer and of the financial condition of the Corporation and exhibit the
books, records and accounts of such officer to the President or directors at any
time. The Treasurer shall disburse funds for capital expenditures as authorized
by the Board of Directors and in accordance with the orders of the President,
and present to the President for the President's attention any requests for
disbursing
10
<PAGE> 14
funds if in the judgment of the Treasurer any such request is not properly
authorized. The Treasurer shall perform such other duties as from time to time
may be assigned to the Treasurer by the Board of Directors or by the President.
(b) If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board for the faithful performance of the duties of such
individual's office and for the restoration to the Corporation, in case of such
individual's death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in such
individual's possession or under such individual's control belonging to the
Corporation.
(c) The Assistant Treasurers in the order of their seniority as
determined by the order of their election shall, in the absence or disability of
the Treasurer, perform all the duties and exercise the powers as from time to
time may be assigned to them by the Board of Directors or by the President.
SECTION 4.11 Compensation. The salaries of the officers shall be
determined from time to time by the Board of Directors, but no formal action of
the directors shall be required in determining such salaries. No officer shall
be prevented from receiving such salary by reason of the fact that the
individual is also a director of the Corporation.
ARTICLE 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 5.01 Indemnification. The Corporation shall indemnify any
director or officer or former director or officer of the Corporation and any
person who, while a director or officer 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 against reasonable expenses incurred
by such individual in connection with any action, suit or proceeding in which
such individual is a named defendant or respondent if such individual has been
wholly successful, on the merits or otherwise, in the defense of such action,
suit or proceeding. The Corporation may indemnify any director or officer or
former director or officer of the Corporation, and any person who, while a
director or officer 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 who was, or is, threatened to be named a
defendant or respondent in an action, suit or proceeding against judgments,
penalties
11
<PAGE> 15
(including excise and similar taxes), fines, settlements and reasonable expenses
actually incurred by such individual in connection with an action, suit or
proceeding to the full extent permitted by Article 2.02-1 of the Texas Business
Corporation Act.
SECTION 5.02 Advancement of Expenses. The Corporation may pay in
advance any reasonable expenses which may become subject to indemnification
subject to the provisions of Article 2.02-1 of the Texas Business Corporation
Act.
SECTION 5.03 Insurance. The Corporation may purchase and maintain
insurance or another arrangement on behalf of any person who is or was a
director or officer or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise
against any liability asserted against such individual and incurred by such
individual in any such capacity or arising out of such individual's status as
such, whether or not the Corporation would have the power to indemnify such
individual against such liability under these Bylaws or the laws of the State of
Texas.
SECTION 5.04 Other Indemnification. The protection and indemnification
provided hereunder shall not be deemed exclusive of any other rights to which
such director or officer or former director or officer may be entitled, under
any agreement, insurance policy, vote of the shareholders, or otherwise.
ARTICLE 6. ADMINISTRATIVE MATTERS
SECTION 6.01 Contracts. The Board of Directors may authorize any
officer or officers or agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
SECTION 6.02 Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 6.03 Checks and Orders for Payment. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation, shall be signed by such officer or officers or
agent or agents of the Corporation and in such manner as shall from time to time
be determined by resolution of the Board of Directors.
12
<PAGE> 16
SECTION 6.04 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
SECTION 6.05 Books and Records. The Corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders and Board of Directors, and shall keep at its principal
office, or at the office of its transfer agent or registrar, a record of its
shareholders giving the names and addresses of all shareholders and the number
and class of the shares held by each.
SECTION 6.06 Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 6.07 Distributions. The Board of Directors may from time to
time declare, and the Corporation may pay, distributions on its outstanding
shares in the manner and upon the terms and conditions provided by law and the
Corporation's Articles of Incorporation.
SECTION 6.08 Corporate Seal. The Board of Directors may provide for a
corporate seal which may be circular in form and shall have inscribed thereon
the name of the Corporation and such other description as the directors may
approve.
SECTION 6.09 Waiver of Notice. Unless otherwise provided by law,
whenever any notice is required to be given to any shareholder or director of
the Corporation under the provisions of these Bylaws or under the provisions of
the Articles of Incorporation or under the provisions of the Texas Business
Corporation Act, 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.
SECTION 6.10 Amendments. These Bylaws may be altered, amended or
repealed, and new bylaws may be adopted, at any meeting of the Board of
Directors of the Corporation as set forth in Article 3, Section 8 of the Bylaws,
subject to repeal or change by action of the shareholders.
ARTICLE 7. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 7.01 Certificates for Shares. Certificates representing shares
of the Corporation shall be in such form as shall be determined by the Board of
Directors. Such certificates shall be signed by the President and by the
Secretary or by such other officers authorized by law and by the Board of
Directors so to do, and sealed with the corporate seal if the Corporation has a
corporate seal. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the
13
<PAGE> 17
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, destroyed or mutilated certificate, a new one may be
issued therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
SECTION 7.02 Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by such holder's legal representative, who shall furnish
proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the Corporation
shall be deemed by the Corporation to be the owner thereof for all purposes.
ARTICLE 8. GENERAL PROVISIONS
SECTION 8.01 Construction. Whenever the context so requires, all gender
references shall include the feminine, masculine and neuter, and the singular
shall include the plural, and conversely. If any portion of these Bylaws shall
be invalid or inoperative, then, so far as is reasonable and possible:
(a) The remainder of these Bylaws shall be considered valid and
operative, and
(b) Effect shall be given to the intent manifested by the portion held
invalid or inoperative.
SECTION 8.02 Readings. The headings are for organization, convenience
and clarity. In interpreting these Bylaws, they shall be subordinated in
importance to the other written material.
CERTIFICATE OF SECRETARY-TREASURER
The undersigned, Secretary-Treasurer of Houston Operating Company, does
hereby certify that the foregoing Bylaws were duly adopted by the Board of
Directors of the Corporation effective the 16th day of December, 1994.
/s/ ELIZABETH ORTH
-------------------------------------
Elizabeth Orth, Secretary
14
<PAGE> 1
EXHIBIT 5.1
SMITH & ASSOCIATES
1925 Century Park East, Suite 500
Los Angeles, California 90067
310.277.1250 Telephone
310.286.1816 Facsimile
April 2, 1999
Securities and Exchange Commission
Washington, D.C.
Re: Houston Operating Company Registration Statement on Form SB-2
Dear Ladies and Gentlemen:
We have acted as special securities counsel for Houston Operating
Company, a Delaware corporation (the "Company"), in connection with the
preparation and filing with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), of a Registration Statement on
Form SB-2 relating to a public offering by the Company of 250,000 shares of the
Company's Common Stock and to 250,000 shares of the Company's Common Stock,
which underlie the shares of the Company's Preferred Stock convertible into
Common Stock. This opinion is rendered to you pursuant to Item 601 of
Regulation S-B of the Act.
In our capacity as such special counsel, we have examined originals or
copies, certified or otherwise identified to our satisfaction as being true
copies, of such corporate records of the Company as we have been provided for
the purpose of this opinion. In our examination we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies, and the authenticity of the originals of
such latter documents.
On the basis of such examination and our consideration of such questions
of law as we have deemed relevant in the circumstances, we are of the opinion,
subject to the assumptions and limitations set forth herein, that the shares of
Common Stock of the Company that are being registered have been duly authorized
and, when sold, will be legally issued, fully paid and non-assessable.
In rendering our opinion, we have advised you only as to such knowledge
as we have obtained from officers of the Company. We have not made an
independent review of any of Company's operations, transactions or contractual
arrangements for purposes of this opinion. As to any facts material to such
opinion, we have relied upon certificates, affidavits, oaths and declarations
of public officials and of officers, or other representatives of the Company.
Respectfully submitted,
/s/ SMITH & ASSOCIATES
-------------------------
SMITH & ASSOCIATES
<PAGE> 1
EXHIBIT 10.1
COMMERCIAL LEASE AGREEMENT
THIS AGREEMENT Between ROBERT K. CURTIS of 887 Route 67, Ballston Spa, New
York, 12020 as Lessor and RICHARD W. MORRELL of Box 444, Round Lake, New York
12151, as Lessee
WITNESSETH: That the said Lessor has let unto the said Lessee and the said
Lessee has hired from the said Lessor the following premises:
The parcel of land of approximately One (1) acre in size, located on the
premises owned by Lessor, as more particularly shown on the attached map along
with the right to use the shanty/building located thereabouts as mutually
agreed, and located on Route 67, in the Town of Ballston, County of Saratoga and
State of New York, together with the right of ingress and egress over the lands
of the Lessor and the right to the use of the Railroad spur located on Lessor's
property and to the storage of ramps used in conjunction with same; subject to
the unqualified right of the Lessor from time to time to move, relocate,
or reconfigure said parcel to other areas on Lessor's lands at Lessor's sole
option and discretion, so long as any new location is similarly suitable for the
use intended under this Agreement; for the term of five (5) years to commence
May 1, 1997 and to end on the 30th day of April, 2002; to be used and occupied
solely as a business for the temporary parking and storing of leased
automobiles, small trucks and trailers under 30 feet in length, upon the
conditions and covenants following unless otherwise agreed to by Lessor in
writing:
FIRST: That the Lessee shall pay rent in the amount of Thirty-Eight
Thousand One-Hundred and 00/100 ($38,100.00) Dollars, said rent being payable in
the following monthly installments, due on the first day of each month:
$600.00/month each and every month for the use of the land; and
$35.00/month for each and every month for the use of the shanty/building for the
entire five (5) year term. There will be a late charge in the amount of $50.00
for any payment received after the 10th of each month.
Lessee has this day deposited with Lessor the sum of Six Hundred
Thirty-five and 00/100 ($635.00) Dollars, as security for the full and faithful
performance by the Lessee of all of the terms and conditions upon the Lessee's
part to be performed, which said sum shall be returned to the Lessee after the
time fixed or the expiration of the term herein, provided the Lessee has fully
and faithfully carried out all of the terms, covenants and conditions on his
part to be performed. The security deposited hereunder shall not be mortgaged,
assigned or encumbered by the Lessee without the written consent of the Lessor.
<PAGE> 2
SECOND: That the Lessee shall take good care of the premises and shall at
his own cost and expense make all repairs and changes to the leased premises,
and at the end or other expiration of the term, shall deliver up the demised
premises in good order or condition, damages by the elements excepted.
Lessee also agrees to be responsible for any and all snow plowing, snow
removal, salting and clearing of the parking and walk areas.
THIRD: That the Lessee shall promptly execute and comply with all
statutes, ordinances, rules, orders, regulations and requirements of the
Federal, State and Town Governments and of any and all their Departments and
Bureaus applicable to said premises, for the correction, prevention, and
abatement of nuisances, violations or other grievances, in, upon or connected
with said premises during said term; and shall also promptly comply with and
execute all rules, orders, and regulations of the Board of Fire Underwriters for
the prevention of fires, at his own cost and expense.
FOURTH: That in case the Lessee shall fail or neglect to comply with the
aforesaid statutes, ordinances, rules, orders, regulations and requirements or
any of them, or in case the lessee shall fail or neglect to make any necessary
repairs, then the Lessor or his Agents may enter said premises and make said
repairs and comply with any and all of the said statutes, ordinances, rules,
orders, regulations or requirements, at the cost and expense of the Lessee and
in case of the Lessee's failure to pay therefor, the said cost and expense shall
be added to the next month's rent and be due and payable as such, or the Lessor
may deduct the same from the balance of any sum remaining in the Lessor's hands.
This provision is in addition to the right of the Lessor to terminate this Lease
by reason of any default on the part of the Lessee.
FIFTH: That the Lessee shall not assign this Agreement, or underlet or
underlease the premises, or any part thereof, without prior written consent of
Lessor; or occupy, or permit or suffer the same to be occupied for any business
or purpose deemed disreputable or extra-hazardous on account of fire or any
other reason, under penalty of damages and forfeiture.
SIXTH: That no alterations, additions or improvements shall be made in or
to the premises without the consent of the Lessor in writing, under penalty of
damages and forfeiture, and all additions and improvement made by the Lessee
shall belong to the Lessor.
SEVENTH: That the Lessee shall, in case of fire, or destruction, give
immediate notice thereof to the Lessor who shall at Lessor's option cause the
damage to be repaired forthwith; but if the premises be so damaged that the
Lessor shall decide not to rebuild or repair, the term shall cease and the
accrued rent be paid up to the time of such fire or destruction.
EIGHTH: That said Lessee agrees that the said Lessor and Agents, and other
representatives, shall have the right to enter into and upon said premises, or
any part thereof, at all reasonable hours for the purpose of examining the same,
or making such repairs or alterations therein as may be necessary for the safety
and preservation thereof.
<PAGE> 3
NINTH: The Lessee also agrees to permit the Lessor or his Agents to show
the premises to persons wishing to hire or purchase the same; and the Lessee
further agrees that the Lessor or his Agents shall have the right to place
notices on the front of said premises, or any part thereof, offering the
premises "To Let" or "For Sale," and the Lessee hereby agrees to permit the
same to remain thereon without hindrance or molestation.
TENTH: That if the said premises, or any part thereof, shall become vacant
during the said term, or should the Lessee be evicted by summary proceedings or
otherwise, the Lessor or his representatives may re-enter the same, either by
force or otherwise, without being liable to prosecution therefor; and re-let
the said premises as the Agent of the said Lessee and receive the rent thereof;
applying the same, first to the payment of such expenses as the Lessor may be
put to in re-entering and re-letting and then to the payment of the rent due by
these presents; the balance, if any, to be paid over to the Lessee who shall
remain liable for any deficiency.
ELEVENTH: That in case of any damage or injury occurring to the building,
or damage and injury to the said premises of any kind whatsoever, said damage
or injury being caused by the carelessness, negligence, or improper conduct on
the part of the said Lessee, his Agents or Employees, then the said Lessee
shall cause the said damage or injury to be repaired as speedily as possible at
his own cost and expense.
TWELFTH: The Lessee shall neither place, nor cause, nor allow to be
placed, any sign or signs of any kind whatsoever at, in or about the entrance
to said premises nor any other part of same, except in or at such place or
places as may be agreed to by the said Lessor and consented to by him in
writing; with the exception of any sign Lessee is required to have placed on
the leased premises pursuant to requirements of the Department of Motor
Vehicles; and in case the Lessor or his representatives shall deem it necessary
to remove any such sign or signs in order to paint the buildings thereon or
make any other repairs, alterations or improvements in or upon said premises or
any part thereof, he shall have the right to do so, providing he causes the
same to be removed and replaced at his expense, whenever the said repairs,
alterations or improvements shall have been completed.
THIRTEENTH: It is expressly agreed and understood by and between the
parties to this agreement, that the Lessor shall not be liable for any damage
or injury to Lessee or Lessee's property by water, steam, electricity, rain,
ice or snow, which may be sustained by the said Lessee or other person or for
any other damage or injury resulting from the carelessness, negligence, or
improper conduct on the part of any other Lessee or Agents, or Employees, or by
reason of the breakage, leakage, or obstruction of the water or soil pipes, or
other leakage or erosion in or about the said area, unless said damage or
injury be caused by or due to the negligence of the Lessor.
FOURTEENTH: That if default be made in any of the covenants herein
contained, then it shall be lawful for the said Lessor to re-enter the said
premises and the same to have again, repossess and enjoy. The said Lessee hereby
expressly waives the service of any notice in writing of intention to re-enter,
except as otherwise setforth herein.
<PAGE> 4
FIFTEENTH: That this instrument shall not be a lien against said
premises in respect to any mortgages that hereafter may be placed against said
premises and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this Lease,
irrespective of the date of recording and the Lessee agrees to execute any such
instrument without cost, which may be deemed necessary or desirable to further
effect the subordination of this Lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Lessor or his assigns and
legal representatives to the option of cancelling this Lease without incurring
any expense or damage, and the term hereby granted is expressly limited
accordingly.
SIXTEENTH: During the term of this Lease agreement and for any further
time that Lessee shall hold the demised premises, Lessee shall obtain and
maintain at his expense the following types and amounts of insurance:
(1) Fire Insurance - Lessee shall keep all buildings, improvements and
equipment on the demised premises, including all alterations, additions and
improvements and all personal property or stored property, insured against loss
or damage by fire, explosion, and the perils specified in the standard extended
coverage endorsement, and by vandalism and malicious mischief. The insurance
shall be in an amount sufficient to prevent Lesser and Lessee from becoming
co-insurers under provision of applicable policies of insurance, but in any
event in an amount acceptable to Lessor and sufficient to adequately cover all
possible losses.
(2) Personal injury and property damage insurance. Insurance against
liability for bodily injury and property damage and machinery insurance, all to
be in amounts and in forms of insurance policies as may from time to time be
required by Lessor, shall be provided by Lessee, and shall in any event not be
in an amount less than One-Million and 00/100 ($1,000,000.00) Dollars.
(3) Other Insurance. Lessee shall provide and keep in force other
insurance in amounts that may from time to time be required by Lessor against
other insurable hazards as are commonly insured against for the type of
business activities that Lessee will conduct.
All insurance provided by Lessee as required by this section shall be
carried in favor of Lessor and Lessee as their respective interests may appear.
In the case of insurance against damage to the building by fire or other
casualty, the policy shall provide that loss, if any, shall be adjusted with and
be payable to Lessor. If requested by Lessor, any insurance against fire or
other casualty shall provide that loss be payable to the holder under a standard
mortgage clause. All insurance shall be written with responsible companies that
Lessor shall approve, and the policies shall be held by Lessor, or, when
appropriate, by the holder of any mortgage, in which case copies of the policies
or certificates of insurance shall be delivered by Lessee to Lessor. All
policies shall require thirty (30) days notice by registered mail to Lessor of
any cancellation or change affecting any interest of Lessor.
<PAGE> 5
SEVENTEENTH: It is expressly understood and agreed that if for any reason
it shall be impossible to obtain insurance on the buildings, inventory and
personal property on the premises in an amount, and in the form, and in
insurance companies acceptable to the Lessor, the latter may, if he so elect, at
any time thereafter terminate this Lease and the term thereof, on giving to the
Lessee thirty (30) days' notice in writing of his intention so to do and upon
the giving of such notice, this Lease and the term thereof shall terminate and
come to an end.
EIGHTEENTH: It is expressly understood and agreed that in case the demised
premises shall be deserted or vacated, or if default be made in the payment of
the rent or any part thereof as herein specified, or if, without the consent of
the Lessor, the Lessee shall sell, assign, or mortgage this Lease or if default
be made in the performance of any of the covenants and agreements in this Lease
contained on the part of the Lessee to be kept and performed, or if the Lessee
shall fail to comply with any of the statutes, ordinances, rules, orders,
regulations and requirements of the Federal, State and Town Governments or of
any and all their Departments and Bureaus applicable to said premises, or
hereafter established as herein provided, or if the Lessee shall file a petition
in bankruptcy or be adjudicated a bankrupt or make an assignment for the benefit
of creditors to take advantage of any insolvency act, the Lessor may, if he so
elect, at any time thereafter terminate this Lease and the term thereof, upon
giving to the Lessee five days' notice in writing of his intention so to do, and
upon the event of such notice, this Lease and the term thereof shall terminate,
expire and come to an end on the date fixed in such notice as if said date were
the date originally fixed in this Lease for the termination or expiration
thereof.
All notices required to be given to the Lessee may be given by mail
addressed to the Lessee at the address stated above or personally delivered.
NINETEENTH: All applications and connections for necessary utility services
on the demised premises shall be made in the name of Lessee only. Lessee shall
be solely liable for utility charges as they become due, including, but not
limited to, those for sewer, water, gas, electricity, and telephone services,
and if not so paid, the same shall be added to the month's rent next accruing,
as further set forth in Paragraph "Thirty-Second", herein.
TWENTIETH: The failure of the Lessor to insist upon strict performance of
any of the covenants or conditions of this Lease or to exercise any option
herein conferred in any one or more instances, shall not be construed as a
waiver or relinquishment for the future of any such covenants, conditions or
options, but the same shall be and remain in full force and effect.
This agreement contains the entire agreement of the parties and may not be
changed, modified, discharged or terminated orally. Any modification of this
Lease agreement or additional obligations assumed by either party in connection
with this Lease agreement shall be binding only if evidenced in a writing signed
by each party or an authorized representation of each party.
<PAGE> 6
TWENTY-FIRST: If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi-public use or
purpose, then and in that event, the term of this Lease shall cease and
terminate from the date of title vesting in such proceeding and Lessee shall
have no claim against Lessor for the value of any unexpired term of said Lease.
No part of any award shall belong to the Lessee.
TWENTY-SECOND: That if the said premises, or any part thereof shall be
deserted or become vacant during said term, or if any default be made in the
payment of the said rent or any part thereof, or if any default be made in the
performance of any of the covenants herein contained, the Lessor or
representatives may re-enter the said premises by force, summary proceedings or
otherwise, and remove all persons therefrom, without being liable to
prosecution therefor, and the Lessee hereby expressly waives the service of any
notice in writing of intention to re-enter, and the Lessee shall pay at the
same time as the rent becomes payable under the terms hereof a sum equivalent
to the rent reserved herein, and the Lessor may rent the premises on behalf of
the Lessee, reserving the right to rent the premises for a longer period of
time than fixed in the original Lease without releasing the original Lessee
from any liability, applying any moneys collected, first to the expense of
resuming or obtaining possession, second to restoring the premises to a
rentable condition, and then to the payment of the rent and all other charges
due and to grow due to the Lessor, any surplus to be paid to the Lessee, who
shall remain liable for any deficiency.
TWENTY-THIRD: In the event that the relation of the Lessor and Lessee may
cease or terminate by reason of the re-entry of the Lessor under the terms and
covenants contained in this Lease or by the ejectment of the Lessee by summary
proceedings or otherwise, or after the abandonment of the premises by the
Lessee, it is hereby agreed that the Lessee shall remain liable and shall pay
in monthly payments the rent which accrues subsequent to the re-entry by the
Lessor, and the Lessee expressly agrees to pay as damages for the breach of the
covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Lessor during the remainder of the
unexpired term, such differences or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference
or deficiency shall from time to time be ascertained and it is mutually agreed
between Lessor and Lessee that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out
of or in any way connected with this Lease, the Lessee's use or occupancy of
said premises, and/or any claim of injury or damage.
TWENTY-FOURTH: The Lessee hereby covenants and agrees to be liable for
and to pay any costs and expenses and without limitation reasonable attorneys'
fees and court costs incurred by Lessor in curing any default hereunder or in
the collection of any passed due amounts or, in the event of termination
resulting from default or breach of this Agreement by Lessee, in the collection
of the rent reserved hereunder. Suit or suits for the recovery of any loss or
deficiency of rent or damages, or for any installment or installments of rent
or additional rent payable hereunder,
<PAGE> 7
may be brought by Lessor at once or form time to time at the Lessor's election
and nothing contained in this Lease shall be deemed to require Lessor to await
the date whereon this Lease or the term hereof would have expired by limitation
had there been no such default by Lessee or no such termination. No failure by
Lessor to insist upon the strict performance of any covenant, agreement, term or
condition of this Lease or to exercise any right or remedy consequent upon a
breach thereof and no acceptance of full or partial rent or additional rent
during the continuance of any such breach shall constitute a waiver of any such
breach or of such covenant, agreement, term or condition. In the event of any
breach by Lessee of any of the covenants, agreements, terms or conditions
contained in this Lease, Lessor shall be entitled to enjoin such breach and
shall have the right to invoke any right and remedy allowed at law or in equity
by statute or otherwise.
TWENTY-FIFTH: The Lease shall be governed by and construed in accordance
with the laws of the State of New York. The Lessee waives all rights to redeem
under any law of the State of New York.
TWENTY-SIXTH: Lessor shall not be liable for failure to give possession of
the premises upon commencement date by reason of the fact that premises are not
ready for occupancy or because a prior Lessee or any other person is wrongfully
holding over or is in wrongful possession, or for any other reason. The rent
shall not commence until possession if given or is available, but the term
herein shall not be extended.
TWENTY-SEVENTH: If any term covenant, condition or provision of this Lease
or the application hereof to any circumstance or to any person, firm or
corporation shall be invalid, or unenforceable to any extent, the remaining
terms, covenants, conditions and provisions of this Lease shall not be affected
thereby and each remaining, term, covenant, condition and provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
TWENTY-EIGHTH: Lessee shall be at liberty to place any one or more
temporary structures on the leased premises at his own expense, subject to
removal upon the termination or expiration of this lease, and so long as same
does not cause any damage to said leased premises or cause Lessor's taxes to
increase. In the event the placement of any temporary structure by Lessee causes
Lessor's taxes to increase, Lessee shall, at Lessor's option, either remove said
structure, or pay the increase in taxes. Lessee shall be at liberty to construct
permanent structures only upon the express written consent of Lessor, which
consent may be withheld for any reason.
TWENTY-NINTH: Lessor and Lessee mutually agree that under no circumstance
will Lessor be entitled to place a lien upon or retain as collateral, any of the
automobiles stored or parked on the leased premises as part of Lessee's
business, for payments of any amounts owed pursuant to the terms of this
Agreement.
THIRTIETH: In the event of sale of the premise leased hereunder, Lessee
agrees to vacate the premises within ninety (90) days after receipt of notice
from Lessor of such sale, and said lease shall terminate upon the expiration of
the ninety (90) day period.
<PAGE> 8
THIRTY-FIRST: Lessee warrants that Lessee will not do anything on said
leased premises that will be harmful to or cause damage or harm to the
environment; and further that Lessee will be responsible for all costs
associated with the clean-up and correction of any and all environmental
hazards or damage caused by Lessee, his employees or any stored or parked
vehicles; and further will indemnify and hold Lessor harmless in regards to
same. Lessee agrees that no automotive repair or maintenance work is to be
conducted on the leased premises, and to keep the area leased in a clean and
oil-free condition.
THIRTY-SECOND: Lessee shall initiate, contract for, and obtain, in his
name, all utility services required on the premises, including gas,
electricity, telephone, water, and sewer connections and services, and Lessee
shall pay all charges for those services as they become due. If Lessee fails to
pay the charges, Lessor may elect to pay them and the charges will then be
added to the rental installment next due. Lessor may elect to forfeit or
terminate this lease if Lessee fails or refuses to pay the charges for utility
services as assessed or incurred.
Lessor shall not be liable for any personal injury or property damage
resulting from the negligent operation or faulty installation of utility
services provided for use on the premises, nor shall Lessor be liable for any
injury or damage suffered by Lessee as a result of the failure to make
necessary repairs to the utility facilities.
Lessee shall be liable for any injury or damages to the equipment or
service lines of the utility suppliers that are located on the premises,
resulting from the negligent or deliberate acts of Lessee, or the agents or
employees of Lessee.
THIRTY-THIRD: Lessee shall not do or permit anything to be done on or
about the premises that will obstruct or interfere with the rights of other
tenants or occupants of Lessor's properties, or injure or annoy them or use or
allow the premises to be used for any immoral or unlawful purpose, nor shall
Lessee cause, maintain, or permit any nuisance in, on, or about the premises or
common areas.
THIRTY-FOURTH: Lessor shall not be liable, and Lessee waives all
claims, for injury or damage to persons or property sustained by Lessee or any
employee or occupant of any building on the premises or the premises itself,
resulting from (1) any part of the building, equipment, or appurtenances on the
premises in need of repair, (2) any accident in or about the premises, or (3)
any injury or damage resulting directly or indirectly from any act or
negligence of a tenant or occupant or of any other person. This waiver of
liability and release of Lessor shall apply especially, but not exclusively, to
damage caused by water, snow, frost, steam, excessive heat or cold, sewage,
gas, orders, noise, or the bursting or leakage of pipes or plumbing fixtures,
and shall apply whether any damage results from the act or negligence of other
tenants, occupants, or servants or of any other person, or whether the damage
is caused or results from any event or circumstance of a similar or wholly
different nature.
If any damage results from any act or negligence of Lessee, Lessee
shall repair the damages within thirty (30) days or within a reasonable period,
but not to exceed sixty (60) days if the damages cannot be repaired
<PAGE> 9
in a thirty-day period. If Lessee fails or refuses to make the repairs, Lessor
may, at the option of Lessor, repair the damage, whether caused to the building
or to any occupants, and Lessee shall pay to Lessor the total cost of the
repairs and damages. All personal property belonging to Lessee or to any
occupant that is in the building or on the premises shall be there at the risk
of Lessee or the occupant only, and Lessor shall not be liable for any damage to
or the theft or misappropriation of such property.
Lessee shall assume all liability for any injury or damages that may arise
from any accident that occurs in front of the leased premises, or in, on, or
about the leased premises in any area under the control of or used by Lessee
that result from the acts of Lessee, his employees, agents, or customers. Lessee
shall indemnify Lessor against any and all claims filed by parties injured or
damaged by an accident as provided in this section.
THIRTY-FIFTH: Lessor shall not be liable in any manner for any loss,
injury, or damage incurred by Lessee from acts of theft, burglary, or vandalism
committed by either identified or unidentified parties, except for personal acts
of Lessor where the acts are committed against Lessee, or the agents, employees,
or guests of Lessee, or are committed against the premises.
Lessee shall be responsible for arranging, and all expenditures relating
to, any security precautions that Lessee deems necessary for the safety of the
personnel, guests, or property of Lessee located in or on the premises. Lessee
shall also provide, at the expense of Lessee, insurance against losses of the
above nature that Lessee desires to maintain, as set forth herein. Lessee
specifically agrees not to make any claims against Lessor, either in law or in
equity, for any loss or damage incurred.
Any and all improvements, alterations and additions made to the leased
premises shall, at the expiration of this Lease Agreement, or any extension
thereunder, remain on the premises and belong to Lessor as a further
consideration for this Lease Agreement and no compensation shall be allowed or
paid therefore to Lessee.
And the said Lessor does covenant that the said lessee on paying the said
rent, and performing the covenants aforesaid, shall and may peaceably and
quietly have, holding and enjoy the said premises for the term aforesaid,
subject to the rights to termination pursuant to this Agreement.
And it is further understood and agreed, that the covenants and agreements
herein contained are binding on the parties hereto and upon their respective
successors, heirs, executors and administrators.
IN WITNESS WHEREOF the parties hereto have hereunto set their hands and
seals this 2nd day of May, One-thousand Nine-Hundred and Ninety-Seven.
IN PRESENCE OF /s/ ROBERT K. CURTIS L.S.
----------------------------------
ROBERT K. CURTIS
/s/ RICHARD W. MORRELL L.S.
----------------------------------
RICHARD W. MORRELL
<PAGE> 10
STATE OF NEW YORK:
SS:
COUNTY OF SARATOGA:
On the 2nd day of May 1997, before me personally came Robert K. Curtis, to
me known and known to me to be the individual described in, and who executed,
the foregoing instrument, and he duly acknowledged to me he executed the same.
/s/ JANET L. SABIN
----------------------------------------
Notary Public
Janet L. Sabin
Notary Public, State of New York
No. 01SA8014331
Qualified in Saratoga County
Commission Expires July 18, 1997
STATE OF NEW YORK:
SS:
COUNTY OF SARATOGA:
On the 2nd day of May 1997, before me personally came Richard W. Morrell,
to me known and known to me to be the individual described in, and who executed,
the foregoing instrument, and he duly acknowledged to me he executed the same.
/s/ [Signature Illegible]
----------------------------------------
Notary Public
??????????????
Notary Public, State of New York
No. 4???????????
Qualified in Saratoga County
Commission Expires July 18, 1998
IN CONSIDERATION of the letting of the premises within mentioned to the
within named Lessee and the sum of $1.00 paid to the undersigned by the within
named Lessor, the undersigned does hereby unconditionally guarantee covenant,
and agree, to and with the Lessor and the Lessor's legal representatives,
that if default shall at any time be made by the said Lessee in the payment of
the rent and the performance of the covenants contained in the within Lease, on
the Lessee's part to be paid and performed, that the undersigned will well and
truly pay the said rent, or any arrears thereof, that may remain due unto the
said Lessor, and also pay all damages that may arise in consequence of the
nonperformance of said covenants, or either of them, without requiring notice of
any such default from the said Lessor. The undersigned hereby waives all right
to trial by jury in any action or proceeding hereinafter instituted by the
Lessor, to which the undersigned may be a party.
IN WITNESS WHEREOF, the undersigned has set its hand and seal this 2nd day
of May, 1997.
WITNESS /s/ [Signature Illegible] 35 CAROLINE CORP
By: /s/ RW MORRELL L.S.
------------------------------------
Title: Pres
----------------------------------
<PAGE> 1
EXHIBIT 10.2
BRIDGEVIEW MANAGEMENT COMPANY, INC.
1160 State Street
Perth Amboy, New Jersey 08861
35 Caroline Corporation
P.O. Box 444
49 Burlington Avenue
Round Lake, NY 12151
c/o Mr. Richard W. Morrell
Dear Mr. Morrell:
This Letter Lease Agreement made this 7th day of May, 1998, by and between
BRIDGEVIEW MANAGEMENT COMPANY, INC. (Lessor) and 35 CAROLINE CORPORATION
(Lessee), covers the rental of the acreage shown in Schedule A, under the
following conditions:
1. This agreement covers certain acreage located at 1160 State Street,
Perth Amboy, New Jersey, including the area as identified on the
attached site plan (Schedule A), consisting of approximately one (1)
acre of land (the "Demised Premises").
2. Lessee may use the Demised Premises only for the storage of
previously leased automobiles, subject to all applicable laws and
regulations. Nothing herein shall be construed to permit Lessee to
store inoperable or junked vehicles or automobile parts at the
Demised Premises. Lessee shall not perform any service, maintenance or
preparation work on any vehicle at the Demised Premises, unless and
until a building is renovated or constructed for that purpose, with
Lessor's consent, at the Demised Premises. It is understood and agreed
that Lessee intends to occupy an office on the Demised Premises for
its use during the term of this lease. Lessor will be solely
responsible for all maintenance and upkeep of such office, and shall
remove all from the Demised Premises upon the termination of this
lease.
3. The gross rental will be $2,000.00 per month, payable on the first
day of each month. This amount includes the cost of all common area
maintenance charges. Rent for any partial month shall be prorated.
Rent for the month of May 1998 shall be paid upon commencement of the
term of this lease.
<PAGE> 2
4. The term of this lease shall be for one hundred twenty (120) days,
beginning on May 7, 1998, and ending on July 6, 1998.
5. Upon signing this lease, Lessee shall deposit the sum of $4,000 with
Lessor as security for performance of this lease. The security
deposit(s) shall be returned to Lessee without interest within 30
days of the termination of this lease, if Lessee has complied with
all of its obligations under this lease.
6. Lessee shall not sub-let the Demised Premises or any portion thereof
nor shall this lease be assigned without Lessor's written consent,
except that Lessee may assign this lease, upon written notice to the
Lessor, to a successor company to the Lessee established by an
initial public offering during the next ensuing three (3) to six (6)
months following the execution of this lease.
7. It is understood and agreed that Lessee intends to operate "low
clearance" automobile carriers which will require smooth and level
access to the Demised Premises, and, from time to time and only
during regular business hours.
8. Lessee shall, at its sole cost, indemnify Lessor and save Lessor
harmless against and from any and all claims arising from the use,
conduct, management of or from any work or thing whatsoever done in
or on the premises during the initial term or any extension by
Lessee, its agents, servants, employees, licensees, invitees or
independent contractors acting on its behalf, and further shall
indemnify Lessor and save Lessor harmless against and from any and
all claims arising from any condition of, on or at the premises,
resulting or arising from any negligence, intentional act or omission
of Lessee, or any of its agents, servants, employees, licensees,
invitees or independent contractors acting on its behalf.
9. Lessee shall, throughout the initial term, and any option periods of
this agreement, maintain the following insurances:
A. Insurance against loss or damage to Lessee's automobiles,
trailer, equipment and other personal property, by fire and
extended coverages.
B. Comprehensive and general liability insurance policy
covering claims for personal injury or damage to the
property of others in an amount not less than $1,000,000.
<PAGE> 3
C. Workers compensation insurance in compliance with the New
Jersey State statutes covering its employees on the
premises.
10. It is understood and agreed that the security guard stationed at the
entrance to the property of which the Demised Premises are a part,
provides security only at the point of ingress and egress. Lessor
shall not be liable to Lessee for any damage or loss to Lessee's
property occurring in or about the Demised Premises, including but
not limited to damage or loss to any of Lessee's vehicles during
transit to or from, or storage at, the Demised Premises. Lessee may
in its discretion and at its sole cost, provide such additional
security as Lessee deems necessary to protect against such damages or
loss.
11. Lessor shall not be liable to Lessee for any inconvenience,
interruption, cessation or loss of business or otherwise, caused
directly or indirectly, by any present or future laws, ordinances,
orders, rules, regulations or requirements, or by priorities,
rationing or curtailment of labor or materials, or by war, civil
commotion, strikes, or riots, or by any matter or thing resulting
therefrom or by any cause beyond Lessor's control, including, without
limitation, casualty to the premises, nor shall this agreement in any
way be affected by such causes.
BRIDGEVIEW MANAGEMENT COMPANY, INC.
Lessor
Witness:
/s/ JOAN YAREMKO By /s/ BARRY C. HARRIS
- ----------------------------------- -------------------------------------
Barry C. Harris, President
35 CAROLINE CORPORATION
Lessee
Witness:
[Signature Illegible] By /s/ RICHARD MORRELL
- ----------------------------------- -------------------------------------
Richard Morrell, Owner
<PAGE> 1
EXHIBIT 10.3
LEASE AGREEMENT
The Landlord and Tenant agree to lease the Premises at the Rent and for the
Term stated on these terms:
LANDLORD: TENANT:
Village of Round Lake 35 Carolina Corp.
- ----------------------------------- -----------------------------------
Address Address
P.O. Box 85 P.O. Box 444
- ----------------------------------- -----------------------------------
Round Lake, NY 12151 Round Lake, NY 12151
- ----------------------------------- -----------------------------------
Premises: Second Storey, Village Hall, Burlington Avenue, Round Lake, NY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Lease Date: Term: 5 years Yearly Rent $
May __, 1997 beginning: 5/12/97 Monthly Rent $ 250
ending: 5/11/02 Security $
- -------------------------------------------------------------------------------
The Last Year's Rent Paid in Advance (w/in 30 days hereof)
- -------------------------------------------------------------------------------
</TABLE>
1. RENT The amount must make the rent payment fee for each month on the 1st
day of that month at the landlord's address as set forth above. The landlord
must not notify the tenant of tenant's duty to pay the rent, and the rent must
be paid in full and no deductions will be allowed from the rent. The first
month's rent must be paid at the time of the signing of this Lease by the
tenant. If the landlord permits the tenant to pay the rest in installments, and
permission is for the tenant's convenience only and if the tenant does not pay
said installments when they are due, the landlord may notify the tenant that the
tenant may no longer pay the rent in installments.
2. USE Premises to be used for business and/or commercial purposes.
3. [ILLEGIBLE] Tenant [ILLEGIBLE] at tenant's expense, promptly comply with
all laws, orders, requests, and directions, of all governmental authorities,
landlord's insurers, Board of Fire Underwriters, or similar groups. Notice
received by tenant from any authority or group must be promptly delivered to
landlord. Tenant may not do anything which may increase landlord's insurance
premiums; if tenant does, tenant must pay the increase in premiums as added
rent.
4. REPAIRS The tenant must maintain the apartment and all of the equipment
and fixtures in it. The tenant agrees, at tenant's own cost, to make all
repairs to the apartment and replacement to the equipment and fixtures in the
apartment whenever the [ILLEGIBLE] results from the tenant's acts or neglect.
If the tenant fails to make a repair or replacement, then the landlord may do
so and charge the tenant the costs of said repair or replacement as additional
rent, which rent shall be due and payable under the terms and conditions as
normal rent is due and payable.
5. GLASS, COST OF REPLACEMENT The tenant agrees to replace, at the tenant's
own expense, all glass broken during the term of this lease, regardless of the
cause of the breakage. The tenant agrees that all glass in said premises is
whole as of the beginning of the term of this lease.
6. ALTERATIONS
7. ASSIGNMENTS AND SUBLEASE Tenant must not assign this lease or sublet all or
part of the apartment or permit any other person to use the apartment. If tenant
does, landlord has the right to cancel the lease as stated in the Tenant's
Default section. State law may permit tenant to assign or sublet under certain
conditions. Tenant must get landlord's written permission each time tenant wants
to assign or sublet. Permission to assign or sublet is good only for that
assignment or sublease. Tenant remains bound in the terms of this lease after a
permitted assignment or sublease even if landlord accepts rent from the assignee
or subtenant. The assignee or subtenant does not become landlord's tenant.
8. ENTRY BY THE LANDLORD The tenant agrees to allow the landlord to enter the
leased premises at any reasonable hour to repair, inspect, install or work upon
any fixture or equipment in said leased premises and to perform such other work
that the landlord may decide is necessary. In addition, tenant agrees to permit
landlord and/or landlord's agent, to show the premises to persons wishing to
hire or purchase the [ILLEGIBLE], during the reasonable hours of any day during
the term of this Lease, tenant will permit the usual notices of "To Let" or "For
Sale" to be placed upon conspicuous portions of the walls, doors, or windows of
said premises and remain thereto without hindrance or molestation. Village
Superintendent to have access to roof through office.
9. FIRE, ACCIDENT, DEFECTS, AND DAMAGE Tenant must give landlord prompt notice
of fire, accident, damage or dangerous or defective condition. If the apartment
can not be used because of fire or other casualty, tenant is not required to pay
rent for the time the apartment is unusable. If part of the apartment can not be
used, tenant must pay rent for the usable part. Landlord shall have the right to
decide which part of the apartment is usable. Landlord need only repair the
damaged structural parts of the apartment. Landlord is not required to repair or
replace any equipment, fixtures, furnishings or decorations unless originally
installed by landlord. Landlord is not responsible for delays due to settling
insurance claims, obtaining estimates, labor and supply problems or any other
cause not fully under landlord's control.
If the fire or other casualty is caused by an act or neglect of tenant, or at
the time of the fire or casualty tenant is in default in any term of this lease,
then all repairs will be made at tenant's expense and tenant must pay the full
rent with no adjustment. The cost of the repairs will be added rent.
Landlord has the right to demolish or rebuild the building if there is
substantial damage by fire or other casualty. Even if the apartment is not
damaged, landlord may cancel this lease within 30 days after the fire or
casualty by giving tenant notice of landlord's intention to demolish or rebuild.
The lease will end 30 days after landlord's cancellation notice to tenant.
Tenant must deliver the apartment to landlord on or before the cancellation date
in the notice and pay all rent due to the date of the fire or casualty. If the
lease is cancelled landlord is not required to repair the apartment or building.
10. WAIVERS If the landlord accepts the rent due under this lease or fails to
enforce any terms of this lease, said action by the landlord shall not be a
waiver of any of the landlord's rights. If a term in this lease is determined to
be illegal, then the rest of this lease shall remain in full force and effect
and be binding upon both the landlord and the tenant.
11. TENANT'S DEFAULT
A. Landlord may give 5 days written notice to tenant to correct any of
the following defaults.
1. Failure to pay rent or added rent on time.
2. Improper assignment of the lease, improper subletting all or part
of the premises, or allowing another to use of the premises.
3. Improper conduct by tenant or other occupant of the premises.
4. Failure to fully perform any other term in the lease.
B. If tenant fails to correct the defaults in section A within the 5
days, landlord may cancel the lease by giving tenant a written 3 day notice
stating the date the term will end. On that date the term and tenant's rights
in this lease automatically end and tenant must leave the premises and give
landlord the keys. Tenant continues to be responsible for rent, expenses,
damages and losses.
C. If the lease is cancelled, or rent or added rent is not paid on time,
or tenant vacates the premises, landlord may in addition to other remedies take
any of the following steps:
1. Enter the premises and remove tenant and any person or property;
2. Use [ILLEGIBLE], eviction or other lawsuit method to take back the
premises.
D. If the lease is ended or landlord takes back the premises, rent and
added rent for the unexpired term becomes due and payable. Landlord may re-rent
the premises and anything in it for any term. landlord may re-rent for a lower
rent and give allowances to the new tenant. Tenant shall be responsible for
landlord's cost of re-renting. Landlord's[ILLEGIBLE] shall include the cost of
repairs, decorations, broker's fees, attorney's fees, advertising and
preparation for renting. Tenant shall continue to be responsible for rent,
expenses, damages and losses. Any rent received from the re-renting shall be
applied to the reduction of money tenant owes. Tenant waives all rights to
return to the premises after possession is given to the landlord by a Court.
<PAGE> 2
12. TENANT'S ADDITIONAL OBLIGATIONS Tenant shall keep the grounds and common
areas of the leased premises as well as the lease premises themselves
neat and clean. Tenant agrees not to use any of the equipment, fixtures
or plumbing fixtures in the leased premises for any purpose other than that for
which said equipment, fixtures or plumbing fixtures were designed. Any damage
resulting from the misuse of such equipment, fixtures and plumbing fixtures
shall be paid for by the tenant as additional rent, which additional rent shall
be due and payable under the terms and conditions as normal rent is due and
payable.
All furniture and other personal belongings, equipment or the like, if any,
provided by the landlord and included within the terms of this lease shall be
returned to the landlord at the end of the term of this lease or any earlier
termination in as good condition as possible taking into account reasonable
wear and tear. If the tenant vacates the premises or is dispossessed and fails
to remove any of tenant's furniture, clothing or personal belongings, those
items shall be considered abandoned by the tenant and the landlord shall be
authorized to dispose of those items as the landlord sees fit.
13. QUIET ENJOYMENT The landlord agrees that if the tenant pays the rent and
complies with all of the other terms and conditions of this lease, then the
tenant may peaceably and quietly have, hold and enjoy the premises leased
hereunder for the term of this lease.
14. LEASE, PARTIES UPON WHOM BINDING This lease is binding upon the landlord
and the tenant and their respective heirs, distributors, executors,
administrators, successors and lawful assigns.
15. UTILITIES AND SERVICES Tenant agrees to pay for all utilities and services
provided to the leased premises with the following exceptions:
Tenant shall pay electric service, telephone and oil heat. No other utilities
are known to the parties.
16. SPACE "AS IS" Tenant has inspected the Premises. Tenant states that they
are in good order and repair and takes the Premises "as is."
17. TENANT RESTRICTIONS No sign, advertisement or illumination shall be placed
upon any portion of the exterior, or in the windows of premises and no
television aerials shall be installed without written consent of Landlord.
Washing machine or driers or water beds are not permitted in the premises. No
animal shall be permitted in these premises without the consent in writing of
Landlord and Tenant will be responsible for all damages which may be caused by
such animal permitted by the Landlord.
18. SECURITY Tenant has given Security to landlord in the amount stated above.
If tenant fully complies with all the terms of this lease, landlord will return
the security after the term ends. If tenants does not fully comply with the
terms of this lease, landlord may use the security to pay amounts owed by
tenant, including damages. If landlord sells the premises, landlord may give
the security to the buyer. Tenant will look only to the buyer for the return of
the security.
This lease will be deemed renewed on a year-to-year basis unless one party
notifies the other in writing of cancellation within 90 days of the expiration
hereof.
Landlord shall maintain heating system and plumbing system.
RIDER: Additional terms on -0- page(s) initialed at the end by the parties
is attached and made a part of this Lease.
SIGNATURES, EFFECTIVE DATE The parties have entered into this Lease on the date
first above stated. This lease is effective when landlord delivers to tenant a
copy signed by all parties.
LANDLORD: TENANT:
/s/ [Signature Illegible] /s/ RW MORRELL
- ------------------------------------ -----------------------------------
WITNESS: -----------------------------------
/s/ [Signature Illegible]
- ------------------------------------
=======================
to
=======================
LEASE AGREEMENT
No.
=======================
Dated 19
=======================
Begins
Expires
Rent
Payable
=======================
=======================
<PAGE> 1
EXHIBIT 10.4
PROMISSORY NOTE
US $350,000 Round Lake, New York
January 13, 1999
FOR VALUE RECEIVED, the undersigned maker, 35 CAROLINE CORP., a corporation
formed and existing under the laws of the State of New York, and having an
office at 49 Burlington Avenue, Round Lake, NY 12151 (the "BORROWER"), hereby
unconditionally promises to pay to the order of ALLAN GREENSTEIN and RICHARD
MORRELL, with addresses of 38 Mitchell Drive, Toms River, NJ 08755 and 49
Burlington Avenue, Round Lake, NY 12151, respectively (together the "LENDER"),
or at such other place as the Lender may specify from time to time, in lawful
money of the United States of America and in immediately available funds, the
principal amount of Three Hundred Fifty Thousand Dollars ($350,000) in one
hundred eighty (180) installments of Three Thousand Five Hundred ($3,500)
Dollars each, commencing February 13, 1999 until January 13, 2014, (the
"MATURITY DATE"), provided, however, that no default hereunder is existing.
Interest shall accrue on the unpaid principal amount of this Promissory
Note (the "NOTE") from the date of this Note until such principal amount is paid
in full at the per annum rate equal to 8.7594% (the "LENDING RATE"). For the
purposes of this Note, an "INTEREST PERIOD" shall be (i) in the case of the
first Interest Period, beginning on the date hereof and ending on the first day
of the next calendar month, and (ii) in the case of all other Interest Periods,
beginning on the last day of the immediately preceding Interest Period and
ending on the first day of each calendar month thereafter; provided, however,
that no Interest Period shall extend beyond the Maturity Date. Interest on this
Note shall be payable on the last day of each Interest Period and upon the
Maturity Date.
Any principal amount of this Note which is not paid when due, and any
interest and other payments not paid within ten (10) days from the date it is
due (whether each is due as stated, by acceleration or otherwise), shall bear
interest, payable on demand, until payment in full of such amounts at the rate
per annum equal to the Lending Rate plus 5% (collectively, the "DEFAULT RATE"),
after as well as before judgment. Interest shall be calculated on the basis of a
365-day year for the actual number of days elapsed. Any change in the interest
rate on this Note shall become effective as of the opening of business on the
day on which such change in the Lending Rate becomes effective. The Lender
shall, within seven (7) days of such change, notify the Borrower in writing of
the effective date and the amount of each such change in the Lending Rate;
provided, however, that any failure by the Lender to give the Borrower any such
notice shall not affect the application of such change in the Lending Rate. Each
determination of an interest rate by the Lender pursuant to any provision of
this Note shall be, absent manifest error, presumed to be correct.
<PAGE> 2
Whenever any payment on this Note shall be stated to be due on a day which
is not a business day, such payment shall be made on the next succeeding
business day and such extension of time shall be included in the computation of
the payment of interest on this Note.
In no event shall the interest rate on this Note exceed the maximum
interest rate permitted by applicable law. If, notwithstanding, interest in
excess of said maximum rate shall be paid hereunder, the excess shall be
retained by the Lender as a prepayment of all or part of the unpaid balance of
principal. The Borrower may prepay this Note, in whole or in part, at any time
at par, without any penalty or premium.
If at any time (a) the Borrower fails to pay when due any principal or any
interest of this Note or any other amount payable hereunder; or (b) any
representation or warranty made by the Borrower in this Note proves to have
been incorrect; or (c) the Borrower becomes insolvent or unable to pay its
debts as they mature, or consents to the appointment of a custodian, trustee,
intervenor or receiver for it or for all or a substantial part of its property,
or any such custodian, trustee, intervenor or receiver is appointed; or (d)
bankruptcy, dissolution, reorganization, intervention, arrangement or
liquidation proceedings (or proceedings similar in purpose or effect) are
instituted by or against the Borrower; or (e) a warrant of attachment or
execution or similar process against any substantial part of the assets of the
Borrower is issued; or (f) the Borrower is dissolved or becomes incompetent
(any event listed in clauses (a) through (f) inclusive being an "EVENT OF
DEFAULT"); then Lender shall be entitled, upon the occurrence of any such Event
of Default, by notice of default given to the Borrower, to retain any and all
payments previously made pursuant to this Note and all amounts owing pursuant
to this Note shall immediately become due and payable. Any amount not paid when
due shall continue to bear interest from the due date at the Default Rate or
the highest rate then permitted by law (if the Default Rate is then in excess
of the maximum rate).
The Borrower hereby waives diligence, presentment, protest, demand and
notice of every kind and, to the fullest extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder. The
non-exercise by the Lender of any of its rights under this Note in any
particular instance shall not constitute a waiver hereof in that or any
subsequent instance. The acceptance by the Lender of any partial payment shall
not constitute a waiver of any default or of any of the Lender's rights under
this Note. This Note may not be changed or terminated orally. This Note shall
bind the heirs, legal representatives, successors and assigns of the
undersigned and shall enure to the benefit of the Lender and its successors and
assigns.
The Borrower promises to pay all costs and expenses, including all
reasonable attorneys' fees and disbursements, incurred in the collection and
enforcement of this Note. The Borrower hereby agrees to indemnify the Lender,
its officers, directors, employees, agents, counsel or representatives and to
hold the Lender and such other
2
<PAGE> 3
parties harmless from any loss, liability, cost or expense that the Lender may
sustain or incur as a consequence of, in connection with, arising out of or
relating to this Note.
Any and all payments by the Borrower under this Note shall be made (i)
without setoff, defenses or counterclaim, and (ii) free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of the Lender, taxes imposed on or in respect of its
income (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings, penalties and liabilities being hereinafter referred to as
"TAXES"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder to the Lender, upon receipt of a
certificate from the Lender (i) the sum payable shall be increased as may be
necessary so that, after making all required deductions (including deductions
applicable to additional sums payable under this paragraph), the Lender receives
an amount equal to the sum it would have received had no such deductions been
made, (ii) the Borrower shall make such deductions, and (iii) the Borrower shall
pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law.
Any notice, request, demand, statement, authorization, approval or
consent required or permitted under this Note shall to the address above or to
such other address as either party may specify by notice given in accordance
with this paragraph, be in writing and be made by, and deemed duly given upon,
(a) deposit in the United States mail, postage prepaid, registered or
certified, return receipt requested, such delivery to be effective upon
service, (c) delivery by an overnight courier of recognized reputation (such as
Federal Express), such mailing to be effective one (1) business days after
mailing, or (d) transmission by telecopier, such delivery to be effective upon
receipt of a confirmation of transmission.
Time is of the essence with respect to every provision hereof. Each
provision of this Note shall survive until all amounts due are paid to Lender's
satisfaction and are not subject to any preference period, shall be interpreted
as consistent with existing law and shall be deemed amended to the extent
necessary to comply with any conflicting law. If a court deems any provision
invalid, the remainder of this Note shall remain in effect. Singular number
includes plural and neuter gender includes masculine and feminine as
appropriate.
This Note shall be governed by, and construed an interpreted in
accordance with, the laws of the State of New York, without regard to its
conflicts of law provisions.
In any action or other legal proceeding relating to this Note, the
Borrower (i) consents to the personal jurisdiction of any State or Federal
court located in the State of New York, (ii) waives objection to the laying of
venue, (iii) waives personal service of process, (iv) consents to service of
process by registered or certified mail directed to
3
<PAGE> 4
the Borrower at the last address shown in the Lender's records relating to this
Note, with such service of process to be deemed completed five days after
mailing and (v) waives any right to trial by jury with respect to this Note or
to assert any counterclaim or setoff or recoupment with respect to this Note. In
any proceeding, a copy of this Note kept in the Lender's course of business
shall be admitted into evidence as an original.
THIS WRITTEN NOTE CONSTITUTES THE ENTIRE AND FINAL AGREEMENT BETWEEN THE
PARTIES, AND SUPERSEDES ALL PRIOR WRITTEN AGREEMENTS AND ALL PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES REGARDING ALL
ISSUES ADDRESSED IN THIS NOTE.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered as of the day and year and at the place first above written.
35 CAROLINE CORP., a New York corporation
By: /s/ R W MORRELL
-------------------------------------
Name: R W Morrell
Title: Pres.
/s/ ESTELLE T. GENEST
-------------------------------------
Estelle T. Genest
Notary Public, State of New York
Registration No. 5031522
Qualified in Saratoga County
Commission Expires 8-8-00
4
<PAGE> 1
EXHIBIT 10.5
AMENDED
STOCK PURCHASE AGREEMENT
This Agreement is made this 18th day of November, 1998, amending and in lieu of
the Stock Purchase Agreement dated November 11, 1998, by and among 35 Caroline
Corporation, a New York corporation ("Caroline"), and Richard W. Morrell, an
individual residing in _________________ ("Morrell") (collectively "Buyer"),
and Harvey V. Risien, Jr., an individual residing in San Antonio, Texas
("Seller").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1. Sale of Common Stock. Subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase at the Closing, and the Seller agrees
to sell to Buyer eighty-eight and three-tenths percent (88.3%) of the common
stock of Houston Operating Company, a Delaware corporation ("Houston"), or
2,459,417 shares (the "HOC Common Stock") for the purchase price specified in
Section 1.2.
1.2 Purchase Price. The aggregate purchase price to be paid by Buyer for the
HOC Common Stock shall be $1,000 in cash and the undertaking and agreement by
Buyer to contribute at Closing all of the outstanding capital stock of Caroline
to Houston.
1.3 Closing. The purchase and sale of the HOC Common Stock shall take place at
the offices of Barton & Schneider, L.L.P., 700 N. St. Mary's, Suite 1825, San
Antonio, Texas 78206, or such other location as agreed by the parties, on
November 30, 1995, or at such other time and place as the Seller and the Buyer
mutually agree upon in writing (which time and place are designated as the
"Closing"). At the Closing the Seller shall deliver to the Buyer certificates
representing the HOC Common Stock which Buyer is purchasing, together with a
stock power transferring the HOC Common Stock to Buyer against delivery to the
Seller of the Purchase Price as follows:
(a) A check for $1,000 made payable to Seller;
(b) Certificates representing all of the outstanding capital stock of
Caroline together with a stock power transferring the stock to
Houston; and
(c) A Promissory Note from HOC to Seller in the amount of $8,530 on terms
set forth in paragraph 4.3 hereof.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER AND HOUSTON.
The Seller hereby represents and warrants to Buyer, that, now or prior to
Closing:
2.1 Organization, Good Standing and Qualification. Houston is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to carry
on its business as now conducted. Houston is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure so
to qualify would have a material adverse effect on its business or properties.
1
<PAGE> 2
2.2 Capitalization. The authorized capital of Houston consists of (i)
50,000,000 shares of $0.001 par common stock of which 2,795,171 shares are
issued and outstanding, of which 2,511,345 shares are owned by the Seller and
283,326 shares are owned by public shareholders, (ii) 5,000,000 shares of
preference stock, none of which is issued and outstanding; and (iii) 5,000,000
shares of preferred stock, none of which is issued and outstanding.
2.3 Subsidiaries. Houston does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity.
2.4 Authorization. The performance of all obligations of Seller hereunder
has been taken or will be taken prior to the Closing, and this Agreement
constitutes a valid and legally binding obligation of the Seller, enforceable in
accordance with its terms.
2.5 Valid Issuance of Common Stock.
(a) The HOC Common Stock which is being sold by the Seller and
purchased by the Buyer hereunder, when assigned and delivered in
accordance with the terms hereof for the consideration expressed herein,
will be sold and delivered in compliance with all applicable federal and
state securities laws and shall be free of all liens, claims or rights
of any other person or entity; provided Buyer executes and delivers an
investment letter in the form of Schedule 2.5(a) hereof.
(b) The shares of HOC Common Stock are all duly and validly
authorized and issued, fully paid and nonassessable.
(c) There are no shares of Common Stock of Houston issued and
outstanding other than as set forth in Section 2.2, no preemptive
rights, rights of first refusal or other third party rights in favor of
any person or entity.
(d) There are 400 or more shareholders of record of Houston.
2.6 Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Seller is required in connection with the consummation of the transactions
contemplated by this Agreement.
2.7 Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against Seller or Houston which questions the
validity of this Agreement or the right of Houston or the Seller to enter into
it, or to consummate the transactions contemplated hereby, or which might
result, in the aggregate, in any material adverse changes in the assets,
condition, affairs or prospects of Houston. Houston is not a party or subject to
the provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality.
2.8 Disclosure. The Seller has fully provided and made available to Buyer
all the information which Buyer has requested in making the investment decision
as to whether to purchase the HOC Common Stock and there is no other information
of any kind of which Seller is aware which in Seller's judgment acting in good
faith would be material.
2
<PAGE> 3
2.9 Corporate Documents. The Articles of Incorporation and Bylaws of Houston
are in the form which has been provided to Buyer previously.
2.10 Title to Property and Assets. Houston owns no property or assets and
since Seller acquired control of Houston in November 1994, has engaged in no
business, has acquired no assets, and has incurred no obligations, other than
the amount of $8,500 due to Seller.
2.11 Financial Statements. The Seller has delivered to Buyer Houston's audited
financial statements (balance sheet and profit and loss statement), at June 30,
1995. There are no financial statements which are available subsequent to the
June 30, 1995, statements. The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and fairly present the financial
condition and operating results of Houston as of the dates, and for the periods,
indicated therein, subject to normal audit adjustments.
2.12 Changes. Since December 1, 1994, there has not been:
(a) Any change in the assets, liabilities, financial condition or
operating results of the Houston from that reflected in the Financial
Statements, except changes in the ordinary course of business which have
not been, in the aggregate, materially adverse;
(b) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the
Houston;
(c) Any waiver by Houston of a valuable right or of a material debt
owed to it, except allowing outstanding warrants for the acquisition of
Houston shares to expire;
(d) Any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by Houston, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Houston; or
(e) Any change or amendment to a material contract or arrangement by
which Houston or any of its assets or properties is bound or subject.
2.13 Insurance. Houston has no insurance policies.
2.14 Obligations, Agreement and Actions. Houston is not bound by or subject
to, and none of its assets or properties is bound by or subject to, any written
or oral contract, commitment or arrangement with any person or entity.
2.15 Absence of Undisclosed Liabilities. Houston has no material liabilities
or obligations, either accrued or unaccrued, fixed or contingent, except as set
forth on Schedule 2.15 attached hereto.
2.16 Tax Returns and Audits. Houston and Seller have filed, on a timely basis,
all income, franchise and other tax returns and reports of every nature required
to be filed by each of them, accurately reflecting any and all net operating
losses, tax credit carryovers and carrybacks, and taxes owing to the United
States, or any other
3
<PAGE> 4
government or any subdivision thereof, domestic or foreign, state or local, or
any other taxing authority, and has paid in full all taxes shown on said
returns to be due and owing. There are and will hereafter be no tax
deficiencies (including penalties and interest) of any kind assessed against
Houston or Seller, with respect to any taxable periods ending on or before the
Closing other than tax deficiencies relating solely to an election (or deemed
election) pursuant to Section 338 of the Internal Revenue Code with respect to
the acquisition of the Common Stock by Buyer which the parties hereto agree
shall not be treated as a liability of Houston or a breach of or a
misstatement in any representation or warranty of Seller made herein.
3. Representations and Warranties of the Buyer.
The Buyer hereby represents and warrants to Seller that:
3.1 Purchase Entirely for Own Account. This Agreement is made with the Buyer,
and each of them, in reliance upon the Buyer's representations to the Seller
that the HOC Common Stock to be received by the Buyer will be acquired for
investment for the Buyer's own accounts, not as nominees or agents, and not
with a view to the resale or distribution of any part thereof, and that the
Buyer has no present intention of selling or granting any participation in or
otherwise distributing the same.
3.2 Accredited Investing. Buyer is an "accredited investor" within the meaning
of Rule 501 of Regulation D promulgated by the Securities and Exchange
Commission ("SEC"), as presently in effect.
3.3 Organization, Good Standing and Qualification. Caroline is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York and has all requisite corporate power and authority to carry
on its business as now conducted. Caroline is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure so
to qualify would have a material adverse effect on its business or properties.
3.4 Authorization. All action on the part of the Buyer necessary for the
authorization, execution and delivery of this Agreement, and the performance of
all obligations of Buyer hereunder has been taken or will be taken prior to the
Closing, and this Agreement constitutes a valid and legally binding obligation
of Buyer, enforceable in accordance with its terms.
3.5 Valid Issuance of Common Stock.
(a) The common stock of Caroline which is being transferred by Buyer to
Houston as part of the purchase price, when delivered in accordance with
the terms hereof for the consideration expressed herein, will be issued
in compliance with all applicable federal and state securities laws.
(b) The outstanding shares of common stock of Caroline are all duly and
validly authorized and issued, fully paid and nonassessable.
(c) The shares of common stock of Caroline are each and all free and clear
of all liens, claims, options, charges, security interests, encumbrances
or restriction of any kind.
4
<PAGE> 5
3.6 Governmental Consents. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Buyer is required in connection with the consummation of the transactions
contemplated by this Agreement.
3.7 Litigation. There is no action, suit, proceeding or investigation pending
or currently threatened against the Buyer which questions the validity of this
Agreement or the right of Buyer to enter into it, or to consummate the
transactions contemplated hereby, or which might result, in the aggregate, in
any material adverse changes in the assets, condition, affairs or prospects of
Caroline.
3.8 Disclosure. The Buyer has fully provided and made available to Seller all
the information which Seller has requested in making the investment decision as
to whether to sell the HOC Common Stock and there is no other information of
any kind of which Buyer is aware of which in Buyer's judgment acting in good
faith would be material.
3.9 Corporate Documents. The Articles of Incorporation and Bylaws of Caroline
are in the form which will be provided to the Seller upon Closing.
3.10 Title to Property and Assets. Caroline owns its property and assets free
and clear of all mortgages, liens, loans and encumbrances, except such
encumbrances and liens which arise in the ordinary course of business and which
do not materially impair Caroline's ownership or use of such property or assets
and except as reflected on the financial statements delivered to Seller by
Buyer. With respect to the property and assets leased, Caroline is in
compliance with such leases and, to the best of Buyer's knowledge, holds valid
leasehold interests free of any liens, claims or encumbrances.
3.11 Financial Statements. Caroline has delivered to Seller its unaudited
financial statements (balance sheet and profit and loss statement), at the
dates set forth thereon, all attached as Schedule 3.11 hereof. The financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated and
fairly present the financial condition and operating results of the Buyer as
of the dates, and for the periods, indicated therein, subject to normal audit
adjustments.
3.12 Changes. Since the date on each of the financial statements attached on
Schedule 3.11 hereof, there has not been:
a) Any change in the assets, liabilities, financial condition or
operating results of Caroline's from that reflected in the financial
statements, except changes in the ordinary course of business which have
not been, in the aggregate, materially adverse;
b) Any damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of Caroline;
c) Any waiver by Caroline of a valuable right or of a material debt owed
to it;
5
<PAGE> 6
d) Any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by Caroline, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of Caroline; or
e) Any change or amendment to a material contract or arrangement by
which Caroline or any of its assets or properties is bound or subject.
3.13 Insurance. Caroline has in full force and effect fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow each to replace any of its respective material
properties that might be damaged or destroyed.
3.14 Obligations, Agreements and Actions. Caroline is not bound by or subject
to, and none of its assets or properties is bound by or subject to, any written
or oral contract, commitment or arrangement with any person or entity.
3.15 Absence of Undisclosed Liabilities. Caroline has no material liabilities or
obligations, either accrued or unaccrued, fixed or contingent, except as set
forth on Schedule 3.15 attached hereto.
3.16 Tax Returns and Audits. Caroline has filed, on a timely basis, all income,
franchise and other tax returns and reports of every nature required to be filed
by it, accurately reflecting any and all net operating losses, tax credit
carryovers and carrybacks, and taxes owing to the United States, or any other
government or any subdivision thereof, domestic or foreign, state or local, or
any other taxing authority, and has paid in full all taxes shown on said returns
to be due and owing. There are and will hereafter be no tax deficiencies
(including penalties and interest) of any kind assessed against Caroline, with
respect to any taxable periods ending on or before the Closing other than tax
deficiencies relating solely to an election (or deemed election) pursuant to
Section 338 of the Internal Revenue Code with respect to the acquisition of the
HOC Common Stock by Buyer which the parties hereto agree shall not be treated as
a liability of Buyer or a breach of or a misstatement in any representation or
warranty of Buyer made herein.
4. Conditions of the Buyer's Obligations at Closing.
The obligations of Buyer under subsection 1.1 of this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions:
4.1 Representations and Warranties of the Seller. The representations and
warranties of the Seller contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 Performance by the Seller. The Seller shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
4.3 Other Agreement. Buyer shall be obligated to purchase up to all of
Seller's remaining Common Stock for the sum of $75,000 in cash which amount is
subject to an escrow agreement among Raymond J. Schneider ("Schneider"),
Richard W. Morrell and Harvey V. Risien, Jr. (the "Escrow Agreement"). In
addition, Houston shall pay to Seller an amount in cash equal to $8,530 payable
over a five (5) year period in self-liquidating
6
<PAGE> 7
monthly installments, together with interest accruing at a rate of six percent
(6%) per annum, as represented in the form of note attached hereto as Schedule
4.3.
5. Conditions of the Seller's Obligations at Closing.
The obligations of the Seller to Buyer under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by the
Buyer and the Seller:
5.1 Representations and Warranties. The representations and warranties of
the Buyer contained in Section 3 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the Closing.
5.2 Performance by the Buyer. The Buyer shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by him on or before the Closing.
5.3 Escrow Agreement. Buyer shall deliver to Seller a fully executed Escrow
Agreement together with written acknowledgment from Schneider that he has
possession of the certificate of deposit and power of attorney called for in the
Escrow Agreement.
6. Survival of Representations and Warranties and Indemnification
6.1 Survival of Representations and Warranties. Notwithstanding the closing
of the transactions contemplated by this Agreement, the representations and
warranties of Seller and Buyer contained in this Agreement shall survive the
closing until the date one (1) year after the date of the Closing and not
thereafter.
6.2 Indemnification by Seller. Seller covenants and agrees to indemnify and
save harmless Buyer from any and all direct costs, expenses, losses, damages and
liabilities incurred or suffered directly or indirectly by Buyer (including
reasonable legal fees and costs) proximately resulting from or attributable to
the material breach of, or a material misstatement in, any one or more of the
representations or warranties of Seller made in or pursuant to this Agreement.
Notwithstanding any other provision of this Agreement, Buyer acknowledges and
agrees that no representation of Seller hereunder or omission from this
Agreement or his schedules shall be deemed materially misleading and no warranty
hereunder by Seller shall be deemed breached if Buyer has obtained accurate
information regarding the matter prior to the Closing and in no event shall
Seller's liability for any such event exceed $75,000 or at Seller's option the
return of the shares of Houston retained by Seller. Further, Seller shall not be
liable or responsible for any act, omission or conduct respecting the management
or operation of Houston occurring after the date of Closing.
6.3 Indemnification by Buyer. Buyer covenants and agrees to indemnify and
save harmless Seller from any and all costs, expenses, losses, damages and
liabilities incurred or suffered by Seller (including reasonable legal fees and
costs) proximately resulting from or attributable to the material breach of, or
a material misstatement in, any one or more of the representations or warranties
of Buyer made in or pursuant to this Agreement or which relate to acts,
omissions or conduct respecting the management or operation of Houston occurring
after Closing.
7
<PAGE> 8
6.4 DEFENSE AGAINST ASSERTED CLAIMS. If any claim or assertion of liability is
made or asserted by a third party against a party indemnified pursuant to this
Article 6 ("Indemnified Party") based on any liability or absence of right
which, if established, would constitute a matter for which the Indemnified Party
would be entitled to indemnification by another party hereto ("The Indemnifying
Party") the Indemnified Party shall with reasonable promptness give to the
Indemnifying Party written notice of the claim or assertion of liability and
request the Indemnifying Party to defend the same. The Indemnifying Party shall
have the right to defend against such liability or assertion, in which event the
Indemnifying Party shall give written notice to the Indemnified Party of the
acceptance of defense of such claim and the identity of counsel selected by the
Indemnifying Party with respect to such matters. The Indemnified Party shall be
entitled to participate with the Indemnifying Party in such defense and also
shall be entitled at its option to employ separate counsel for such defense at
the expense of the Indemnified Party. In the event the Indemnifying party does
not accept the defense of the matter as provided above or in the event that the
Indemnifying Party or its counsel fails to use reasonable care in maintaining
such defense, the Indemnified Party shall have the full right to employ counsel
for such defense at the expense of the Indemnifying Party. All parties hereto
will cooperate with each other in the defense of any such action and the
relevant records of each shall be available to the other with respect to such
defense.
7. MISCELLANEOUS.
7.1 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties provided any such assignment shall have first been
approved in writing by the other party to this Agreement than the assignor.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
7.2 GOVERNING LAW. This Agreement shall be governed by and construed under the
laws of the State of Texas as applied to agreements among Texas residents
entered into and to be performed entirely within Texas.
7.3 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
7.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.5 NOTICES. Any notice required or permitted under this Agreement shall be
given in writing and shall be deemed effectively given upon personal delivery
to the party to be notified or upon deposit with the United States Post Office,
by registered or certified mail, postage prepaid and addressed to the party to
be notified at the address indicated for such party on the signature page
hereof, or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties.
7.6 FINDER'S FEE. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction.
7.7 EXPENSES. Each party shall pay its or his respective costs and expenses
incurred with respect to the negotiation, execution, delivery and performance
of this Agreement.
8
<PAGE> 9
7.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of all parties hereto.
7.9 SEVERABILITY. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.10 BINDING AGREEMENT. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto, together with their respective legal
representative, successors and assigns.
7.11 ENTIRE AGREEMENT. This Agreement and all exhibits and schedules hereto
which are incorporated herein and the Escrow Agreement constitute the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersede all prior or contemporaneous agreements, any
representations or communications, whether written or oral, between the parties.
The terms of this Agreement may not be amended except by a writing executed by
all parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SELLER:
/s/ HARVEY V. RISIEN, JR.
---------------------------------------
Harvey V. Risien, Jr.
BUYER:
/s/ RICHARD W. MORRELL
---------------------------------------
Richard W. Morrell
35 CAROLINE CORPORATION:
By: /s/ RW MORRELL
------------------------------------
Name: RW Morrell
----------------------------------
Title: Pres
---------------------------------
9
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF THE REGISTRANT
35 Caroline Corporation, a New York corporation
<PAGE> 1
EXHIBIT 21.2
NYS DEPARTMENT OF STATE
================================================================================
FILING RECEIPT INCORPORATION (BUSINESS)
================================================================================
CORPORATION NAME
- ----------------
35 CAROLINE CORP.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
DATE FILED DURATION & COUNTY CODE FILM NUMBER CASH NUMBER
- ---------- ---------------------- ----------- -----------
06/02/89 P SARA CO17999-3 412568
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
NUMBER AND KIND OF SHARES LOCATION OF PRINCIPAL OFFICE
------------------------- ----------------------------
<S> <C>
100NPV
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDRESS FOR PROCESS REGISTERED AGENT
------------------- ----------------
THE CORPORATION
35 CAROLINE STREET
SARATOGA SPRINGS NY 12866
- --------------------------------------------------------------------------------
FEES AND/OR TAX PAID AS FOLLOWS:
- --------------------------------
AMOUNT OF CHECK $______ AMOUNT OF MONEY ORDER $_____ AMOUNT OF CASH $00110.00
$6.00 DOLLAR FEE TO COUNTY $ 100.00 FILING
$ 00010.00 TAX
FILER NAME AND ADDRESS $ CERTIFIED COPY
- ---------------------- $ CERTIFICATE
MCMAHON & MCMAHON, P.C. TOTAL PAYMENT $ 0000110.00
16 LAKE AVENUE
SARATOGA SPRINGS NY 12866 REFUND OF $
TO FOLLOW
================================================================================
GAIL S SHAFFER -- SECRETARY OF STATE
</TABLE>
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
35 CAROLINE CORP.
Under the Section 402 of the Business Corporation Law
The undersigned for the purpose of forming a corporation pursuant to
section 402 of the Business Corporation Law of the State of New York, does
hereby certify and set forth:
1. The name of this corporation is 35 CAROLINE CORP.
2. The purposes of the corporation are to carry on the business or
purchase, sale, rental and repair of motor vehicles and may be organized under
the Business Corporation law of the State of New York. The corporation is not
formed to engage in any act or activity requiring the consent or approval of any
state official, department, board, agency, or other body without such consent or
approval first being obtained.
3. The office of this corporation is to be located in the County of
Saratoga, State of New York.
4. The aggregate number of shares which this corporation shall have
authority to issue is One hundred (100) shares of one class only, which shares
are without par value.
5. The Secretary of State of New York is hereby designated the agent
of this corporation upon whom process against this corporation may be served.
The post office address to which the Secretary of State shall mail a copy of any
process against
<PAGE> 3
this corporation served upon him as agent of this corporation is 35 Caroline
Street, City of Saratoga Springs, County of Saratoga, State of New York 12866.
IN WITNESS WHEREOF, the undersigned have executed, signed and
acknowledged this certificate of incorporation this 26th day of May, 1989.
/s/ JOHN MARK
-------------------------------
JOHN MARK
Incorporator
40 Van Dam St.
Saratoga Springs, NY 12866
/s/ RICHARD W. MORRELL
-------------------------------
RICHARD W. MORRELL
Incorporator
3 Third St.
Round Lake, NY 12151
STATE OF NEW YORK
SS:
COUNTY OF SARATOGA:
On this 26th day of May, 1989 before me the subscriber, personally
appeared JOHN MARK AND RICHARD W. MORRELL me personally known and known to me to
be the same persons described in and who executed the within Instrument and they
acknowledged to me that they executed the same.
/s/ EDWARD J. MCMAHON
-------------------------------
Notary Public.
EDWARD J. MCMAHON
Notary Public, Saratoga County
State of New York
Commission Expires 12/31/90
<PAGE> 1
EXHIBIT 21.3
BY-LAWS
OF
35 CAROLINE CORP.
ARTICLE I - OFFICES
The office of the Corporation shall be located in the City, County and State
designated in the Certificate of Incorporation. The Corporation may also
maintain offices at such other places within or without the United States as the
Board of Directors may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1 - Annual Meetings:
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2 - Special Meetings:
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten percent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Business Corporation Law.
Section 3 - Place of Meetings:
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places within or without the State of New York as
shall be designated in the notices or waivers of notice of such meetings.
Section 4 - Notice of Meetings:
(a) Written notice of each meeting of shareholders, whether annual
By-Laws - 1
<PAGE> 2
or special, stating the time when and place where it is to be held, shall be
served either personally or by mail, not less than ten or more than fifty days
before the meeting, upon each shareholder of record entitled to vote at such
meeting, and to any other shareholder to whom the giving of notice may be
required by law. Notice of a special meeting shall also state the purpose or
purposes for which the meeting is called, and shall indicate that it is being
issued by, or at the direction of, the person or persons calling the meeting.
If, at any meeting, action is proposed to be taken that would, if taken, entitle
shareholders to receive payment for their shares pursuant to the Business
Corporation Law, the notice of such meeting shall include a statement of that
purpose and to that effect. If mailed, such notice shall be directed to each
such shareholder at his address, as it appears on the records of the
shareholders of the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices intended for him be
mailed to some other address, in which case, it shall be mailed to the address
designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Quorum:
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Certificate and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), at all meetings
of shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and sufficient to constitute a quorum for
the transaction of any business. The withdrawal of any shareholder after the
commencement of a meeting shall have no effect on the existence of a quorum,
after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares to vote thereon, may adjourn the meeting. At any such adjourned
meeting at which a quorum is
By-Laws - 2
<PAGE> 3
present, any business may be transacted which might have been transacted at the
meeting as originally called if a quorum had been present.
Section 6 - Voting:
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number, Election and Term of Office:
(a) The number of the directors of the Corporation shall be two (2), unless and
until otherwise determined by vote of a majority of the entire Board of
Directors. The number of Directors shall not be less than three, unless all of
the outstanding shares are owned beneficially and of record by less than three
shareholders, in which event the number of directors shall not be less than the
number of shareholders.
By-Laws - 3
<PAGE> 4
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares entitled to vote in the
election.
(c) Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
Section 2 - Duties and Powers:
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special meetings; Notice:
(a) Special meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
By-Laws - 4
<PAGE> 5
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at his residence or usual place of business, at least two (2)
days before the day on which the meeting is to be held, or shall be sent to him
at such place by telegram, radio or cable, or shall be delivered to him
personally or given to him orally, not later than the day before the day on
which the meeting is to be held. A notice, or waiver of notice, except as
required by Section 8 of this Article III, need not specify the purpose of the
meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
At all meetings of the Board of Directors, the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be
absent, then the President shall preside, and in his absence, a Chairman chosen
by the Directors shall preside.
Section 6 - Quorum and Adjournments:
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the
Certificate of Incorporation, or by these By-Laws. Participation of any one or
more members of the Board by means of a conference telephone or similar
communications equipment, allowing all persons participating in the meeting to
hear each other at the same time, shall constitute presence in person at any
such meetings.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
BY-Laws - 5
<PAGE> 6
Section 7 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or these By-Laws, the action 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. Any action authorized, in writing, by all of the directors
entitled to vote thereon and filed with the minutes of the Corporation shall be
the act of the Board of Directors with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance
of such resignation shall not be necessary to make it effective.
By-Laws - 6
<PAGE> 7
Section 10 - Removal:
Any director may be removed with or without cause at any time by the
shareholders, at a special meeting of the shareholders called for that purpose,
and may be removed for cause by action of the Board.
Section 11 - Salary:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated nor shall any director be
liable in any way by reason of the fact that any one or more of the directors of
this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact
of such interest be disclosed or made known to the Board of Directors, and
provided that the Board of Directors shall authorize, approve or ratify such
contract or transaction by the vote (not counting the vote of any such director)
of a majority of a quorum, notwithstanding the presence of any such director at
the meeting at which such action is taken. Such director or directors may be
counted in determining the presence of a quorum at such meeting. This Section
shall not be construed to impair or invalidate or in any way affect any contract
or other transaction which would otherwise be valid under the law (common,
statutory or otherwise) applicable thereto.
By-Laws - 7
<PAGE> 8
Section 13 - Committees:
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board. At all
meetings of a committee, the presence of all members of the committee shall be
necessary to constitute a quorum for the transaction of business, except as
otherwise provided by said resolution or by these By-laws. Participation of any
one or more members of the committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time, shall constitute presence in person
at any such meeting. Any action authorized in writing by all of the members of a
committee entitled to vote thereon and filed with the minutes of the Committee
shall be the act of the committee with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the committee.
ARTICLE IV - OFFICERS
Section I - Number, Qualifications, Election and Term of Office;
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time
By-Laws - 7A
<PAGE> 9
deem advisable. Any officer other than the Chairman of the Board of Directors
may be, but is not required to be, a director of the Corporation. Any two or
more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by the Board at any time.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these by-laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
By-Laws - 8
<PAGE> 10
Section 6 - Sureties and Bonds:
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock:
(a) The certificates representing shares of the Corporation shall be in such
form as shall be adopted by the Board of Directors, and shall be numbered and
registered in the order issued. They shall bear the holder's name and the number
of shares, and shall be signed by (i) the Chairman of the Board or the President
or a Vice President, and (ii) the Secretary or Treasurer, or any Assistant
Secretary or Assistant Treasurer, and may bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) The Board of Directors may authorize the issuance of certificates for
fractions of a share which shall entitle the holder to exercise voting rights,
receive dividends and participate in liquidating distributions, in proportion to
the fractional holdings; or it may authorize the payment in
By-Laws - 9
<PAGE> 11
cash of the fair value of fractions of a share as of the time when those
entitled to receive such fractions are determined or it may authorize the
issuance, subject to such conditions as may be permitted by law, of scrip in
registered or bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder, except as therein
provided.
Section 2 - Lost or Destroyed Certificates:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
Section 3 - Transfers of shares;
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed. with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for
By-Laws - 10
<PAGE> 12
all purposes and, accordingly, shall not be bound to recognize any legal,
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 expressly provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
ARTICLE VI - DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be
By-Laws - 11
<PAGE> 13
approved from time to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of directors.
Section 2 - By Directors:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders- If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
The undersigned incorporator certifies that he has adopted the
foregoing by-laws as the first by-laws of the Corporation, in accordance with
the requirements of the Business Corporation Law.
Dated: JULY 1, 1989
-----------------------------
/s/ RW MORRELL
-----------------------------
Incorporator
By-Laws - 12
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in the Form SB-2 Registration Statement of Houston
Operating Company of our report for the year ended December 31, 1998, dated
February 26, 1999 relating to the financial statements of Houston Operating
Company which appear in such Form SB-2.
/s/ OPPENHEIM & OSTRICK
- --------------------------------
Oppenheim & Ostrick
Certified Public Accountants
Culver City, California
April 1, 1999
