HARRELL INTERNATIONAL, INC.
211 East Louisiana Street
McKinney, Texas 75069
Form 10-KSB
For the fiscal year ended:
September 30, 1999
Submitted to
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
Commission File No. 0-2661
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB.
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1999
Commission File No.: 0-2661
HARRELL INTERNATIONAL, INC.
(Exact name in its charter)
Delaware 13-1946181
(State of Incorporation) (I.R.S. Employer Id.No.)
211 East Louisiana Street, McKinney, Texas 75069
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(972) 542-9525
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Par Value $.01
(Title of Class)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
(1) YES X NO
(2) YES X NO
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in
this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this form 10-KSB or any amendment to this Form 10-KSB.
[ X]
Issuer's revenues for its most recent fiscal year
$588,906
The Company has no current information regarding the
prices of stock traded by non-affiliates. The aggregate
market value of the registrant's Class A Common Stock held
by non-affiliates of the registrant, computed by reference
to the average bid and asked prices of such stock as of July
1, 1991, the last available quotation date: Approximately
$95,099.
The number of shares of the registrant's Class A, $.01
par value Common Stock outstanding as of September 30,1999
was 976,580.
In October 1997, the Company changed transfer agents
from Chase Mellon to Registrar and Transfer Company. When
transferring the records to Registrar and Transfer Company,
Chase Mellon showed additional shares of common stock of the
Company as being issued and outstanding. Chase Mellon gave
no explanation for this discrepancy, and for the past
several years has consistently reported the number of shares
outstanding as approximately 976,580. The Company has
disputed the report and demanded that Chase Mellon provide
supporting documentation. Thus far, Chase Mellon has not
provided any response or explanation other than the letter
attached as Exhibit 4. The Company will continue to follow
up. It is not known at this time whether Chase Mellon's
records are in error, and for purposes of this report and
until a satisfactory answer is received from Chase Mellon,
the Company shall continue to use 976,580 as the number of
outstanding shares.
PART I
Item I. Description of Business
(A) Business Development: During the last three years the
Company has focused on hotel management and in the
acquisition, development and management of hotels through
joint ventures and partnerships.
(B) Business of the Issuer:
HISTORY
HARRELL INTERNATIONAL, INC. (the "Company") is a
Delaware corporation which was originally incorporated in
1959 in Massachusetts under the name of Formula 409, Inc.
In 1967, the Company's name was changed to The Harrell
Corporation and in 1968 to Harrell International, Inc. The
Company changed its state of incorporation from
Massachusetts to Delaware in March, 1987. The Company
originally manufactured and sold a multi-purpose household
spray cleaner under the registered trademark "Formula 409."
In 1970, the Company sold the rights to "Formula 409" to
Clorox Corporation. During the period 1970 to 1983 the
Company was primarily engaged in the business of acquiring
and operating food and non-food brokers which represented
the products of various unrelated manufacturers to either
the U. S. Domestic Civilian Market or to the U. S. Military
Resale System. In 1983, the Company completed the
divestiture of its consumer products brokerage businesses
and entered a phase during which its revenues were derived
primarily from the collection of receivables acquired in
connection with such divestitures.
During fiscal 1988, the Company continued to attempt to
develop a business as an international marketing agent for
foreign-produced goods in the United States and for U.S.
products abroad. However, because of disappointing results
and the high costs of continuing to operate the Company, the
Board of Directors decided to explore the liquidation or
reorganization of the Company.
During the fall of 1988, Wilson Harrell, then President
of the Company, began the search for a possible merger
candidate, and to negotiate the sale of notes receivable
from the divestiture of its consumer product brokerage
business. The Company and Sarvis, Incorporated entered
into a Note Purchase Agreement dated as of August 15, 1989.
The sale of the Sarvis Note was consummated on October 11,
1989.
Following the sale of the Sarvis Note, the Company
continued searching for a possible merger candidate. In
early March, 1990, Wilson Harrell renewed discussions with
Geoffrey G. Dart ("Dart"), of Clover, Inc., an Australian
businessman with whom the Company had negotiated to the
point of a verbal understanding in September, 1988.
On June 12, 1990, the Company and Clover, Inc.
("Clover") entered into a Stock Purchase Agreement.
Pursuant to the Stock Purchase Agreement, as amended in
August 1990, in exchange for a purchase price of $500,000,
Clover was issued certain shares of Class A Common Stock and
warrants to purchase shares of a new Class B stock. In
addition, Dart was elected president and CEO and added as a
new director. Clover paid $65,000 at closing with the
remainder due within approximately six months, in two
installments of $185,000 and $250,000 respectively. Clover
failed to make either additional payment and on December 23,
1991, the Company and Clover entered into a Restructuring
Agreement.
In light of Clover's failure to make the additional
installments and the Company's need for capital in order to
pursue the business plan discussed above, the Company
determined that it should seek a new capital partner. On
December 23, 1991, the Company's Board of Directors
authorized Wilson Harrell and Geoffrey Dart to actively seek
such a partner. In October 1991, the Company borrowed
$50,000 from Xenex International, Inc., a Florida
corporation. In 1992 the Company and Xenex entered into
agreements whereby Xenex agreed to treat the $50,000 loan as
an equity investment in the Company and invest an additional
$100,000 into the Company in exchange for 291,228 shares of
the Company's common stock. In 1993 Xenex loaned the
Company $150,000, and in 1994 the parties entered into an
agreement (the "Debt Agreement") to convert the loan into
stock of the Company. On December 15, 1994, Agreement was
reached between Businesship International, Inc.("BI") and
its wholly owned subsidiary Xenex, Inc. to merge Xenex, Inc.
into Businesship International, Inc. The effect was to
transfer 291,228 shares of the Company's Class A Common
Stock from Xenex, Inc. to BI.
On August 18, 1992, the Company entered into an
Agreement with Hotel Management Group, Inc., a Texas
corporation ("HMG"), wherein the Company acquired one
hundred percent (100%) of HMG's issued and outstanding
shares in exchange for 200,000 shares of the Company's Class
A Common Stock.
Effective as of September 1, 1996 the Company and BI
entered into a Preferred Stock Purchase and Release of Debt
Agreement (the "Modification Agreement") that modified and
replaced the Debt Agreement. Under the terms of the
Modification Agreement, the parties agreed that the Company
would issue 243,331 shares of $1.00, par value preferred
stock (the "Preferred Stock") in exchange for a release of
the Company's obligation to BI on the Xenex Loan. Under the
Modification Agreement the Preferred Stock is
nonconvertible, nonvoting, noncumulative dividend, with
dividends of 10% of par value. The Company has the right,
but not the obligation, to redeem the Preferred Shares at
any time at par value. The Preferred Shares are not
registered under federal securities laws or the laws of any
state.
On December 31, 1996, the Articles of Incorporation of
the Company were amended to authorize 1,000,000 shares of
Preferred Stock and to eliminate the Class B Common Stock.
On December 31, 1996, the closing of the Modification
Agreement occurred and the 243,331 shares of Preferred Stock
were issued to BI.
SUBSEQUENT EVENTS
On November 23, 1999, the Company entered into a Stock
Acquisition and Option Agreement (the "Stock Agreement")
with Merchant Capital Holdings, Ltd. ("MCH"), a British
Virgin Islands Company, whereby MCH agreed to buy 1,000,000
shares of the Company's Class A Common Stock for US$1.00 per
share, together with certain options to purchase additional
shares of Class A Common Stock. As part of the Stock
Agreement, two advisors of MCH, Geoffrey Dart ("Dart") and
Gerard Thompson ("Thompson") were appointed to the Board
of Directors of the Company, with Dart appointed as Chairman
of the Board. In connection with the transactions
contemplated under the Stock Agreement, the Company, MCH,
Norman L. Marks (and his family affiliates) and Paul L.
Barham (and his family affiliates) entered into a
Shareholders Agreement, providing for certain transfer
restrictions and voting agreements, on the Class A Common
Stock held by certain of the parties. Also, MCH required,
as part of the Stock Agreement, that two Employment
Agreements be entered into between the Company and Norman
Marks and Paul Barham.
OPERATIONS
APARTMENT MANAGEMENT
In late 1992, Hotel Management Group assumed the
management of the Athena Gardens Apartments, Athens, Texas,
Riviera Apartments, Dallas, Texas, and Villa Martinique
Apartments, Irving, Texas. The Riviera Apartments were sold
in 1996 and the Villa Martinique Apartments sold in
September 1999. Currently, HMG manages only the Athena
Gardens Apartments, and that project is currently under
contract to be sold by its owners. In the fiscal year
ending September 30, 1999, revenues from apartment
management were approximately $45,987 constituting
approximately 8% of the Company's total revenues.
HOTEL MANAGEMENT
Hotel Management Group - California, Inc.("HMG
California")
Effective January 1, 1994, Hotel Management Group,
Inc. formed a wholly owned subsidiary, Hotel
Management Group - California, Inc., to hold the
management contract for the operations of the
Biltmore Hotel and Suites in Santa Clara,
California. The Biltmore Hotel is a 262 room full
service hotel with 8,000 square feet of meeting
space. HMG California's management contract is a
two-year renewable contract that began in January
1992 and has a current expiration of December 31,
2001. HMG California receives a management fee
equal to ten percent (10%) of the hotel's net
income pre debt, after a 3% reserve for furniture,
fixtures and equipment.
HMG California entered into a management contract
of the Rancho Santa Barbara Marriott in May
1995.The Marriott is a 149 room full service hotel
with 8,000 square feet of meeting space and health
and spa facilities. HMG California's management
contract is a two-year renewable contract that
began in June 1995 and has a current expiration of
December 31, 2001. HMG California receives a
management fee equal to ten percent (10%) of the
hotel's net income pre-debt, after a 3% reserve
for furniture, fixtures and equipment.
Management fee revenues of HMG California amounted
to approximately $457,128 constituting
approximately 77% of the Company's total revenues.
Ennis, Texas hotel
In August 1997, HMG entered into a management
agreement to manage the Holiday Inn Express in
Ennis, Texas for a fee of $2,500 per month. The
contract was canceled by mutual agreement on
February 1, 1999. Management fee revenues from the
hotel in Ennis amounted to approximately $15,000,
constituting approximately 2.5% of the Company's
total revenues.
Hotel Management Group - Virginia, Inc. ("HMG
Virginia")
On February 17, 1998 Hotel Management Group -
Virginia, Inc. assumed the management of the
Chamberlin Hotel in Hampton Virginia, an historic
225 room hotel overlooking the Chesapeake Bay.
Plans called for a $2M renovation of the property.
On November 6, 1998 the owner took over the
management of the hotel and incorporated it into a
portfolio of hotels that it had acquired, which it
then was intending to operate without the use of a
third party management company. Management fee
revenues of HMG Virginia amounted to approximately
$5,000 constituting approximately 1% of the
Company's total revenues.
H.M.Group - Alabama, Inc. ("HMG Alabama")
On December 1, 1998, H.M.Group - Alabama, Inc.
assumed the management of the Governors House
Hotel in Montgomery Alabama, a 200 room full
service hotel. Management fee revenues of HMG
Alabama amounted to approximately $51,300
constituting approximately 9% of the Company's
total revenues.
Hotel Management Group has managed nationally
recognized franchises, including Sheraton, Holiday Inn,
and Ramada, and is approved as one of a few independent
management companies accepted by Marriott to manage its
full service franchised hotels.
Number of Employees
At September 30, 1999, the Company and its subsidiaries
had 296 full time employees and 87 part time employees. Of
these employees, 5 are paid from the revenues of the
Company. The remaining 378 are paid from the revenues of the
hotels or apartments.
Item 2. Description of Property
(A) Principal Offices
The Company maintains its administrative and executive
offices in leased commercial office space located at 211
East Louisiana Street, McKinney, Texas. In the opinion of
management, the premises are suitable and adequate for the
present requirements of the Company and ample comparable
space is available on comparable terms in the market.
(B) Investment Policies
The Company may from time to time invest in hotel
properties. Typically such investment would be a partial
interest in the hotel property in concert with a hotel
developer or other investors. While it currently has no
such investments, the Company is seeking such investment
with both existing hotel properties and hotels to be
constructed. Expected ownership in any such hotel would be
a minority position in a real estate limited partnership.
Such hotel ownership is anticipated to be coupled with a
management contract for the hotel(s). These hotel
investments, if made, are expected to be for long term
capital appreciation rather than primarily for current
income.
Item 3. Legal Proceedings
There were no material legal proceedings, either on-going,
instituted by or against, or otherwise involving the
Registrant during the period ended September 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security
holders during the fourth quarter of the fiscal year ended
September 30, 1999.
PART II
Item 5. Market for Common Equity and Related Security
Holder Matters
(a) The following table shows the range of closing bid
prices for the Company's Common Stock in the over-the-counter
market for the fiscal quarters indicated, as
reported by the National Quotation Bureau. The quotations
represent limited or sporadic trading and, therefore, do not
constitute an "established public trading market". The
quotations represent prices in the over-the-counter market
between dealers in securities, without retail markup,
markdown or commission and may not represent actual
transactions.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1999
Bid Prices Bid Prices
Fiscal Period High Low High Low
<S> <C> <C>
First Quarter NOT QUOTED NOT QUOTED
Second Quarter NOT QUOTED NOT QUOTED
Third Quarter NOT QUOTED NOT QUOTED
Fourth Quarter NOT QUOTED NOT QUOTED
</TABLE>
(b) As of September 30, 1999, there were 694 record
holders of the Company's $.01 par value Class A Common
Stock.
(c) There have been no cash dividends paid on the
Company's Common Stocks in fiscal years 1996, 1997, 1998 or
any subsequent year. On September 30, 1999, the Company
paid the 10% dividend on the 243,331 shares of Preferred
Stock. The Company has no present plans to pay further
dividends on the Company's Common Stock.
Item 6. Management's Discussion and Analysis or Plan of
Operation
RESULTS OF OPERATIONS
A. Revenues
Revenues for the periods ended September 30, 1998 and
1999 were primarily produced from the Company's interest in
Hotel Management Group. The decrease in revenues in 1999
over 1998 was a result of no longer having the properties in
Oklahoma, Tennessee and Virginia, but there was improved
performance in the hotels with incentive based management
fees that the Company operates in California.
The Company anticipates income from Hotel Management
Group to increase as the subsidiary secures more management
contracts and consulting assignments. The Company expects to
be able to meet its normal cash needs from operations.
B. Employee Compensation
Employee compensation expense includes salaries for
Messrs Barham and Marks as well as accounting staff of
HMG.
In January 1998, the Company purchased $500,000 and
$300,000 increasing life insurance policies on the
lives of each Paul L. Barham and Norman L. Marks,
respectively. The purposes of the policies are both
(i) to protect the Company's financial interest in the
event of the premature death of either of these key
employees, and (ii) to provide an employee benefit to
these key employees. The Company is the owner and
beneficiary of the policies, although the cash value
accumulation will accrue to the benefit of the key
employees and is payable to the employees upon their
retirement or termination of employment, or their heirs
in the event of their death during employment.
C. General and Administrative Expenses
General and Administrative Expenses were reduced in
response to slightly lower revenues.
LIQUIDITY AND CAPITAL RESOURCES
Funds generated from company operations are the major source
of liquidity. The Company generated $69,376 in cash from
operating activities in the 1999 fiscal year. At September
30, 1999, the Company had $263,693 in cash and $274,443 in
working capital. The Company expects to make one or more
investments in hotel properties in the next fiscal year.
The source of cash for such investments is expected from
sale of the Company's Class A Stock to MCH pursuant to the
Stock Agreement. Management of the Company believes that it
will have sufficient working capital to fund its operating
and investing needs during fiscal 2000.
YEAR 2000 COMPUTER ISSUES
The Company currently believes that it does not have
significant exposure to Year 2000 computer problems
including Company, vendor, and customer issues. The
Company's current computer systems and any anticipated
upgrades are Year 2000 compliant.
Item 7. Financial Statements
The following financial statements are filed as a part
of this report:
See the Index to Financial Statements on page F-1
immediately following page 23 of this report. All such
financial statements, schedules and supplementary data are
incorporated herein by this reference.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There were no disagreements regarding matters of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. Thus, pursuant
to Item 304 of Regulation 8-KSB, and Rule 12b-2 under the
Exchange Act, no further disclosure regarding the Company's
change in accountants is necessary or provided herein.
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons: Compliance with Section 16 (a) of the
Exchange Act
The following table provides certain information
concerning each of the directors of Harrell International,
Inc. (the "Company") as of September 30, 1999.
<TABLE>
<CAPTION>
Name Principal Occupation Consecutive Age
for the past 5 years Service Since
<S> <C> <C> <C>
Paul L. Barham CFO, Hotel Management 1992 46
Group, since December
1989
Current Position:
Chief Financial
Officer, Harrell
International
Norman L. Marks President, Hotel 1995 58
Management Group,
since December 1989
Current Position:
Chief Operating
Officer, Harrell
International
</TABLE>
The following table provides certain information concerning
each of the executive officers of the Company as of
September 30, 1999.
<TABLE>
<CAPTION>
Name Age All Positions and Terms of Office
with the Company and Five Year
Employment History
<S> <C> <C>
Norman L. Marks 58 Executive Vice President and
Chief Operating Officer from
August 19, 1992, Member of Board
of Directors from September 20,
1995. President of Hotel
Management Group, Inc. since
December 1989
Paul L. Barham 46 Vice President and Chief
Financial Officer of the Company
from August 19, 1992, Member of
Board of Directors of Company
from August 19, 1992; Secretary
to Board of Directors of Company
from August 19, 1992; CFO, Hotel
Management Group since December
1989.
</TABLE>
There has been no involvement by the executive officers or
directors in any legal proceeding during the last five (5)
years that is material to an evaluation of the ability or
integrity of such officer or director.
The Company has not made inquiry of its Directors, Officers
and 10 % or more security holders, and otherwise does not
have information to determine the level of compliance with
the reporting obligation under Section 16 (a) of the
Exchange Act.
Item 10. Executive Compensation
The following table shows the aggregate cash
compensation for services in all capacities paid or accrued
by the Company and its subsidiaries during the fiscal year
ended September 30, 1999, and in each of the two prior
years, to (i) each executive officer whose aggregate cash
compensation exceeded $100,000 during such year and (ii) all
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Name of Individual or Capacity in Year Compensation(1)
Number of Persons in which served
Group
<S> <C> <C> <C>
Norman L. Marks COO 1997 $103,700
Norman L. Marks COO 1998 $105,787
Norman L. Marks COO 1999 $104,375
Paul L. Barham CFO 1997 $103,700
Paul L. Barham CFO 1998 $105,787
Paul L. Barham CFO 1999 $104,375
- Position Vacant - CEO 1997 $0
- Position Vacant - CEO 1998 $0
- Position Vacant - CEO 1999 $0
<FN>
(1) This does not include medical expense reimbursement,
club dues, or the value of automobiles (and their
maintenance, repair and insurance) furnished to all of
the executive officers of the Company, which in the
aggregate for all officers amounted to $15,600 during
fiscal year 1999.
</TABLE>
At the present time the Company has, and at all times
during the past three fiscal years, the Company had no
pension, retirement, annuity, deferred compensation,
incentive or stock purchase, thrift or profit-sharing plan,
except the accumulated cash value of the life insurance
policies detailed under item 6B above.
Directors receive no fees for serving in such capacity.
Item 11. Security Ownership of Certain Beneficial Owners
and Management
The following table sets forth as of September 30,
1999, (i) the name of each current director of the Company
and each person or entity known to the Company to be the
beneficial owner of more than 5% of the Company's Class A
Common Stock, (ii) the number of shares of the Company's
Class A Common Stock beneficially owned by each such current
director and 5% beneficial owner and all officers and
directors of the Company as a group, and (iii) the percent
of outstanding Class A Common Stock so owned by each such
director, 5% beneficial owner and management group:
<TABLE>
<CAPTION>
Name and Address of Number of Shares of Class Approximate
Beneficial Owner A Common Stock Percent of
Beneficially owned as of Class
September 30, 1999 (1)
DIRECTORS:
<S> <C> <C>
Paul L. Barham (2) 0 0
211 East Louisiana
Street
McKinney, Texas 75069
Norman L. Marks (3) 0 0
211 East Louisiana
Street
McKinney, Texas 75069
5% BENEFICIAL OWNERS:
Businesship 291,288 29.82%
International, Inc.
One Alhambra Plaza
Suite 1400
Coral Gables, FL 33134
Barham Family 100,000 10.24%
Interests, Inc. 63,639 options (4)
211 East Louisiana
Street
McKinney, Texas 75069
Marks & Associates, 100,000 10.24%
Inc. 63,639 options (4)
211 East Louisiana
Street
McKinney, Texas 75069
The Estate of Wilson 164,570 (5) 16.85%
Harrell
7380 Pine Valley Road
Cumming, GA 30131
Shillingtons, Inc 50,000 5.12%
2661 Midway Road,
Suite 224
Carrollton, Texas
75006
<FN>
(1) Except as noted below, the individual listed has
sole voting and investment power.
(2) Barham and his other family members own 100,000
shares through Barham Family Interests, Inc.
(3) Marks and his other family members own 100,000
shares through Marks and Associates, Inc.
(4) On September 27, 1996, Businesship International
granted Barham Family Interests, Inc., and Marks and
Associates, Inc., each an option to acquire 63,639 shares
from BI. The options shall automatically expire on
September 30, 2001, if not exercised.
(5) The 5,850 shares of Class A Common Stock owned by
Charlene Echols Harrell, Wilson L. Harrell's widow, are
included in the estate's beneficial ownership in the above
table.
</TABLE>
Item 12. Certain Relationships and Related Transactions
Transactions involving related parties in the last two
years are outlined in Item 1 of this report.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits --
(1) The following exhibits, as required by Item
601 of Regulation SB, are attached hereto or
incorporated herein by this reference:
(2) Certificate of Incorporation as last
amended, effective as of January 21, 1989, a
copy of which was filed with the Company's
Form 10-K report for the fiscal year ended
September 30, 1990.
(3) Bylaws
(4) Material Contracts:
(A) Preferred Stock Purchase and Release of
Debt Agreement between the Company and
Businesship International, Inc. dated
September 1, 1996, a copy of which was
attached to the Company's Form 10-KSB
for the fiscal year ended September 30,
1996.
(B) Stock Acquisition and Option Agreement
between the Company and Merchant
Capital Holdings, Ltd., dated November
23, 1999.
(C) Employment Agreements (2) between the
Company and Messrs. Marks and Barham
dated November 23, 1999.
(D) Shareholders' Agreement dated November
23, 1999 by and among the Company,
Merchant Capital Holdings, Ltd.,
Messrs. Marks and Barham, Barham Family
Interests, Inc., and Marks &
Associates, Inc.
(5) Additional Exhibits:
Letter from Chase Mellon Shareholder
Services dated September 22, 1999, together
with an attached memorandum dated June 8,
1992 to W. Powers, Vice President of Mellon
Securities Trust Co.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HARRELL INTERNATIONAL, INC.
By:
Paul L. Barham
Vice President,
Chief Financial Officer
And Director
DATE: ________________________
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by
the following persons comprising the majority of the
current Directors on behalf of the registrant and in the
capacities and on the dates indicated.
_________________________________________ ____________________
Paul L. Barham, Vice President, Date
Chief Financial Officer and Director
_________________________________________ ____________________
Norman L. Marks, Vice President Date
Chief Operating Officer and Director
HARRELL INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets at September 30, 1999 and 1998 F-3
Consolidated Statements of Income For the Years Ended F-4
September 30, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity F-5
For the Years Ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows For the Years Ended F-6
September 30, 1999 and 1998
Notes to Consolidated Financial Statements F-7
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Harrell International, Inc.
We have audited the accompanying consolidated balance sheets of Harrell
International, Inc. and subsidiaries as of September 30, 1999 and 1998,
and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Harrell International, Inc. and subsidiaries as of September
30, 1999 and 1998, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Jackson & Rhodes P.C.
Dallas, Texas
November 23, 1999
HARRELL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and 1998
<TABLE>
<CAPTION>
Assets
1999 1998
<S> <C> <C>
Current assets:
Cash $263,693 $194,792
Accounts receivable, net allowance for doubtful
accounts of $33,248 in 1998 66,994 116,543
Note receivable 0 9,869
Other assets 14,237 150
Total current assets 344,924 321,354
Property and equipment:
Furniture and fixtures 42,483 42,008
Less accumulated depreciation (32,228) (25,964)
Total property and equipment 10,255 16,044
Other assets:
Investment in limited partnerships (Note 5) 1,850 1,850
$357,029 $339,248
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $39,518 $30,400
Dividends payable 24,331 0
Accrued salaries 6,632 16,496
Total current liabilities 70,481 46,896
Long-term debt:
Amounts payable to related parties 0 8,000
Total liabilities 70,481 54,896
Commitments and contingencies (Note 7) 0 0
Shareholders' equity:
Preferred stock, $1 par, 1,000,000 shares author
243,331 shares issued and outstanding (Note 3) 243,331 243,331
Common stock:
Class A, $.01 par; 9,000,000 shares authorized
976,580 shares issued and outstanding 9,766 9,766
Class B, $.01 par; 1,000,000 shares authorized
no shares issued or outstanding 0 0
Additional paid-in capital 2,077,287 2,077,287
Accumulated deficit (2,043,836) (2,046,032)
Total shareholders' equity 286,548 284,352
$357,029 $339,248
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
HARRELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenues:
Management fees $568,117 $623,719
Consulting fees 7,300 3,500
Other 13,489 1,299
Total revenues 588,906 628,518
Expenses:
Employee compensation 406,466 393,318
General and administrative 155,914 179,426
Total expenses 562,380 572,744
Operating income 26,526 55,774
Gain on sale of joint ventures 0.000 13,889
Net income (see Note 6) 26,526 69,663
Preferred dividends accrued 24,331 24,331
Net income available for common shareholders $2,195 $45,332
Basic earnings per common share $0.00 $0.05
Weighted average shares outstanding 976,580 976,580
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
HARRELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock - Class A
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Balance, September 30, 243,331 $243,331 976,580 $9,766
Net income 0 0 0 0
Preferred dividends
payable ($.10 per share) 0 0 0 0
Balance, September 30, 243,331 243,331 976,580 9,766
Net income 0 0 0 0
Preferred dividends
payable($.10 per share) 0 0 0 0
Balance, September 30, 243,331 $243,331 976,580 $9,766
<CAPTION>
Additional Total
Paid-In Accumulated Shareholders'
Capital Deficit Equity
<C> <C> <C>
$2,077,287 ($2,091,364) $239,020
0 69,663 69,663
0 (24,331) (24,331)
2,077,287 (2,046,032) 284,352
0 26,526 26,526
0 (24,331) (24,331)
$2,077,287 ($2,043,837) $286,547
See accompanying notes to consolidated financial statements.
F-5
HARRELL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1999 and 1998
</TABLE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income available for common shareholders $2,195 $45,332
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 6,240 3,360
Gain on sale of joint venture 0 (13,889)
Changes in assets and liabilities:
Accounts receivable 49,549 (27,079)
Other assets (4,218) 3,789
Accounts payable and accrued liabilities 11,921 (1,577)
Accounts payable to related parties (8,000) 0
Preferred dividends accrued 24,331 24,331
Accrued salaries (12,642) 8,281
Net cash provided by operating activities 69,376 42,548
Cash flows from investing activities:
Purchase of furniture and equipment (475) (11,241)
Proceeds from sale of joint venture/limited part 0 113,239
Net cash provided by (used in) investing ac (475) 101,998
Cash flows from financing activities:
Dividends paid 0 (48,662)
Net increase (decrease) in cash 68,901 95,884
Cash at beginning of year 194,792 98,908
Cash at end of year $263,693 $194,792
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
1. Description of Business
Organization
Harrell International, Inc., a Delaware corporation (the
"Company"), began operations in 1959. The Company entered into the
acquisition, development and management of real estate properties
including joint ventures and partnerships (in which its interests
would be that of a general partner having substantial involvement
in management) beginning December 1990. The Company plans to focus
its real estate activities upon purchase, development and
management of hotels, and other income-producing properties located
in the southwestern and southeastern United States. The Company
acquired Hotel Management Group, Inc. ("HMG") in August 1992. The
Company has created five other wholly-owned subsidiaries see Note
4.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
balances and transactions are eliminated in consolidation.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ
from those estimates.
Cash Equivalents
For statement of cash flow purposes, the Company considers short-term
investments with original maturities of three months or less
to be cash equivalents.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is
computed on the straight-line method over the estimated lives of
the assets, principally over three years.
F - 7
2. Summary of Significant Accounting Policies (Continued)
Investments in Joint Ventures
The Company uses the equity method of accounting for its
investments in joint ventures. Accordingly, the Company recorded
its investment in joint ventures at cost and records subsequent
contributions, returns of capital and equity in earnings as an
adjustment to the initial investment (Note 6).
Income Taxes
The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109) which utilizes the asset and liability method of
computing deferred income taxes. The objective of the asset and
liability method is to establish deferred tax assets and
liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such
amounts are realized or settled.
Earnings Per Common Share
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per
Share ("SFAS 128"). SFAS 128 provides a different method of
calculating earnings per share than was formerly used in APB
Opinion 15. SFAS 128 provides for the calculation of basic and
diluted earnings per share. Basic earnings per share includes no
dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares
outstanding for the period. Dilutive earnings per share reflects
the potential dilution of securities that could share in the
earnings of the Company. The Company was required to adopt this
standard in the fourth quarter of calendar 1997. Because the
Company has no potential dilutive securities outstanding, the
accompanying presentation is only of basic earnings per share.
3. Preferred Stock Transaction
By agreement with Businesship International ("Businesship") dated
September 27, 1996, the outstanding balance of a certain note of
$243,331, including accrued interest of $26,398, was converted into
preferred stock to be issued by the Company. The preferred shares
were from a new class of stock authorized by the Company and are
nonvoting, non-convertible and will pay a 10% dividend ($24,331
annually), beginning with the year ended
F - 8
3. Preferred Stock Transaction (Continued)
September 30, 1996. The Company shall have the right, but not the
obligation, to redeem the shares at any time at par value. By
agreement, the Company paid a full year's dividend on the preferred
shares for 1996.
4. Acquisition of Hotel Management Group
In August 1992, the Company purchased 100% of the issued and
outstanding common stock of HMG. HMG is engaged in the business of
managing the general operations of hotels and providing them with
accounting services.
Hotel Management Group California, Inc.
Effective January 1, 1994, HMG formed a wholly-owned subsidiary,
Hotel Management Group - California, Inc. ("HMG - California"), to
hold the management contract for the operations of the Biltmore
Hotel and Suites in Santa Clara, California. HMG California now
also manages the Rancho Santa Barbara Marriott.
Hotel Management Group Tennessee, Inc.
Effective September 23, 1996, HMG formed a wholly-owned subsidiary,
Hotel Management Group Tennessee, Inc. ("HMG Tennessee"), to
hold the management contract for the Sheraton Four Points Hotel in
Memphis, Tennessee. The Company also had a limited partnership
interest in the hotel. (See Note 5.)
Hotel Management Group Oklahoma, Inc.
Effective May 20, 1997, HMG formed a wholly-owned subsidiary, Hotel
Management Group Oklahoma, Inc. ("HMG Oklahoma"), to hold the
management contract for the Ramada Inn in Tulsa, Oklahoma. The
Company also had a limited partnership interest in the hotel. (See
Note 5.)
Hotel Management Group Virginia, Inc.
On February 17, 1998, HMG formed a wholly-owned subsidiary, Hotel
Management Group Virginia, Inc. to hold the management contract
for the Chamberlin Hotel in Hampton Virginia.
F - 9
4. Acquisition of Hotel Management Group (Continued)
Hotel Management Group Alabama, Inc.
On December 1, 1998, Hotel Management Group Alabama, Inc., a
wholly owned subsidiary of HMG, assumed the management of the
Governors House Hotel in Montgomery, Alabama.
5. Hotel Investments
Tennessee Hotel Project
On October 17, 1996 the Company purchased, for $100,000, a minority
limited partnership interest in the Sheraton Four Points Hotel,
located near the Memphis Airport in Memphis, Tennessee and a
subsidiary of the Company was contracted to manage the hotel.
The Company completed negotiations for the sale of its limited
partnership interest in the hotel, received the return of its
investment on April 3, 1998, and resigned as manager.
Tulsa Hotel Project
On June 4, 1997, the Company acquired a limited partnership
interest in the Ramada Inn, located on I-44 in Tulsa, Oklahoma. At
the same closing a subsidiary of the Company contracted with the
new ownership to manage the hotel.
On June 3, 1998, the Company sold its interest in the hotel and
resigned as manager of the hotel.
6. Income Taxes
As of September 30, 1999, the Company had net operating loss
carryforwards of approximately $2,581,000 for book and tax
purposes. Unused operating loss carryforwards may provide future
tax benefits, although there can be no assurance that these net
operating losses can be recognized in the future. Also, if
substantial changes in the Company's ownership should occur, there
may be an annual limitation on the amount of the carryforwards
which can be utilized. Accordingly, deferred tax assets have been
offset in the accompanying financial statements by a valuation
allowance.
F - 10
6. Income Taxes (Continued)
The loss carryforwards expire as follows:
<TABLE>
<CAPTION>
Year of Expiration Operating Loss
Carryforward
Expirations
<S> <C>
2000 $ 210,000
2001 485,000
2002 74,000
2003 26,000
2004 1,116,000
2005 278,000
2006 35,000
2007 134,000
2008 105,000
2009 118,000
Total $2,581,000
</TABLE>
7. Commitments and Contingencies
Leases
The Company leases its office facilities from an unrelated party.
The lease expires on December 31, 1999 and the lease commitment for
the remaining three month period is $7,260. The Company also
leases an off-site storage facility on a month-to-month basis.
Rental expense for the years ended September 30, 1999 and 1998
amounted to $29,290 and $28,002, respectively.
Concentration of Credit Risk
The Company invests its cash and certificates of deposit primarily
in deposits with major banks. Certain deposits, at times, are in
excess of federally insured limits. The Company has not incurred
losses related to its cash.
8. Management Fee Revenues
The Company received approximately 81% and 64% of gross management
revenues from the Biltmore Hotel in California for the years ended
September 30, 1999 and 1998, respectively.
F - 11
9. Accounting Developments
SFAS 130
Statement of Financial Accounting Standards (SFAS) 130, "Reporting
Comprehensive Income", establishes standards for reporting and
display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the
same prominence as other financial statements. Results of
operations and financial position are unaffected by implementation
of this new standard.
SFAS 131
SFAS 131, "Disclosure about Segments of a Business Enterprise",
establishes standards for the way that public enterprises report
information about operating segments in annual financial
statements and requires reporting of selected information about
operating segments in interim financial statements issued to the
public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS
131 defines operating segments as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. This accounting
pronouncement will not have an effect on the Company's financial
statements, since the
SFAS 131
Company only operates in one segment of business, the management of
real estate properties.
SFAS 132
Statement of Financial Accounting Standards (SFAS) 132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits,"
revises standards for disclosures regarding pensions and other
postretirement benefits. It also requires additional information
on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis. This statement
does not change the measurement or recognition of the pension and
other postretirement plans. The financial statements are
unaffected by implementation of this new standard.
F - 12
9. Accounting Developments
SFAS 133
Statement of Financial Accounting Standards (SFAS) 133, "Accounting
for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for sale security, or a
foreign-currency-denominated forecasted transaction. Because the
Company has no derivatives, this accounting pronouncement has no
effect on the Company's financial statements.
10. Subsequent Events
On November 23, 1999, the Company entered into a Stock Acquisition
and Option Agreement (the "Stock Agreement") with Merchant Capital
Holdings, Ltd. ("MCH"), a British Virgin Islands Company, whereby
MCH agreed to buy 1,000,000 shares of the Company's Class A Common
Stock for US$1.00 per share, together with certain options to
purchase additional shares of Class A Common Stock. As part of the
Stock Agreement, two advisors of MCH, Geoffrey Dart ("Dart") and
Gerard Thompson ("Thompson") were appointed to the Board of
Directors of the Company, with Dart appointed as Chairman of the
Board. In connection with the transactions contemplated under the
Stock Agreement, the Company, MCH, Norman L. Marks (and his family
affiliates) and Paul L. Barham (and his family affiliates) entered
into a Shareholders Agreement, providing for certain transfer
restrictions and voting agreements, on the Class A Common Stock
held by certain of the parties. Also, MCH required, as part of the
Stock Agreement, that two Employment Agreements be entered into
between the Company and Norman Marks and Paul Barham.
F - 13
STOCK ACQUISITION AND OPTION
AGREEMENT
This Stock Acquisition and Option Agreement (the "Agreement") dated effective
as of the day of November 1999, is made by and between MERCHANT CAPITAL
HOLDINGS, a British Virgin Islands corporation ("MCH")(MCH is sometimes
referred to as the "Purchaser") and HARRELL INTERNATIONAL, INC., a Delaware
corporation ("HII") and is joined in by Norman L. Marks, an individual
resident of Texas ("Marks") and Paul L. Barham, an individual resident of
Texas ("Barham"), Geoffrey Dart, an individual resident of United Kingdom
("Dart") and Gerard Thompson, an individual resident of the United Kingdom
("Thompson") and provides as follows:
RECITALS
HII desires to sell, and the Purchaser desires to purchase 1,000,000 shares
(the "Shares") of the authorized Class A $.O1 par value voting common capital
stock of HII (the "Stock");
As part of the agreement of the Purchaser to purchase the Shares, Purchaser
requires that HII issue options to Purchaser to purchase additional shares of
Stock;
Dart and Thompson are affiliated with or are consultants and advisors to MCH;
Barham and Marks are the current executive officers and management of HII;
Purchaser also requires that Barham and Marks enter into three year employment
agreements with HII with appropriate noncompetition and confidentiality
covenants and as an inducement to provide for certain options for Barham and
Marks to purchase additional shares of Stock;
In consideration of the mutual promises of the parties; in reliance on the
representations, warranties, covenants, and conditions contained in this
Agreement; and for other good and valuable consideration, the parties agree as
follows:
ARTICLE 1
PURCHASE OF STOCK
1.01. Purchase of Stock. HII agrees to sell, convey, transfer, assign, and
deliver to MCH 1,000,000 (One Million) shares of the Stock, and MCH agrees to
purchase such Shares from HII for the sum of $US 1.00 per share ($1,000,000.00
in total)(the purchase price of the entire 1,000,000 shares of Stock is
sometimes hereinafter referred to as the "Full Purchase Price").
1.02. Closing of Purchases. On or before ten days after execution of this
Agreement (the "Initial Closing Date"), MCH shall purchase 250,000 Shares. MCH
agrees to close the purchase of an additional 250,000 Shares not later than
seven months after the Initial Closing Date. MCH agrees to close the purchase
of the remaining 500,000 Shares not later than eleven months after the Initial
Closing Date. After the Initial Closing Date, there may be multiple closings,
provided that each closing is for not less than 25,000 shares. At the
closings, the Purchaser shall tender certified funds in US$ by wire transfer
or cashier's check to HII, and HII shall tender to the Purchaser the original
certificate(s) evidencing the Shares being purchased. The shares, when
delivered to and accepted by Purchaser, shall be free and clear of all adverse
claims, security interests, liens, claims and encumbrances (other than
restrictions under applicable securities laws and Section V - Voting
Agreements of the Shareholders Agreement, hereafter defined). As an
alternative, at the request of either party, HII shall engage a bank local to
HII, having assets of at least US$ 1.0 billion, to serve as escrow agent (the
"Escrow Agent") for the receipt of the purchase price and delivery of the
original Share certificate(s). Purchaser shall be deemed to be in default
under this Agreement if HII does not receive the full purchase price for the
Shares being purchased according to the schedule set forth in this Paragraph
1.02 by the close of business on the dates specified, subject to Paragraph
1.06 hereof. (The date of the timely receipt by HII of the Full Purchase Price
pursuant to this Paragraph 1.02 is referred to hereinafter as the "Final
Closing Date").
1.03 Option of HII to Repurchase the Shares. In the event that Purchaser
fails to tender the Full Purchase Price in accordance with the timetable and
procedures set forth in Paragraph 1.02 above, HII shall have the exclusive
continuing two-year option (but not the obligation) to repurchase all Shares
sold to Purchaser pursuant to this Agreement for a purchase price of $US 1.00
per share. This option shall be the exclusive remedy of HII for the failure of
Purchaser to purchase the Shares.
1.04 Compliance with Securities Laws. Purchaser and HII agree to comply with
all securities laws applicable to each in the performance of this Agreement,
including U.S. federal securities laws and the laws of any other jurisdiction
to which each may be subject. Purchaser acknowledges that within ten (10) days
of the Initial Closing Date Purchaser may be required to file a Form 13D with
the Securities Exchange Commission (the "SEC").
1.05 Restrictions on Transfer. Purchaser understands and agrees that,
notwithstanding the registration of the Shares by HII, Purchaser may be deemed
an affiliate of 1111 and its Shares deemed "restricted securities" subject to
the resale restrictions of the Securities Act of 1933 (the "Act") and Rule 144
promulgated thereunder. In addition, the Shares shall be subject to the
Shareholders Agreement (hereafter defined) which imposes certain agreements
and restrictions on the voting of the Shares.
1.06 Subsequent Closings and Recision Rights. The obligation of MCH to
purchase the Shares after the Initial Closing Date is subject to the truth and
accuracy (in all material respects) of the representations and warranties of
HII under Article 6 hereof as of the Initial Closing Date. !n the event that
there is pending or threatened litigation by a third party shareholder against
HII or management of HII relating to this Agreement, the Shares, the Purchaser
Options or the Employee Options on or prior to the Final Closing Date, MCH may
elect, by written notice to HII prior to the Final Closing Date, to terminate
this Agreement and any future obligations and rights to acquire Shares or
Purchaser Options hereunder and rescind the transactions already consummated
by such time. In the event of such recision, MCH shall return all
certificates evidencing the Shares properly endorsed to HII, the Purchaser
Options shall be canceled and HII shall return to MCH (without interest
thereon) all funds received by HII for the Shares. Such funds shall be
returnable in a lump sum within forty-five (45) days of the notice of
recision from MCH, provided that HII has adequate cash reserves and liquidity
to make such lump sum payment and continue its normal operations with a
reasonable liquid reserve. If HII does not have such liquid reserves when the
notice of recision is received, HII may return to MCH such funds pursuant to
a promissory note bearing ten percent (10%) interest and having a final
maturity date of not more than three years. Upon the closing of such
recision, the parties shall execute a mutual release and termination
agreement.
ARTICLE 2
PURCHASER STOCK OPTIONS
2.01 Issuance of Options to Purchaser. Upon a closing of the issuance of
Shares to MCH pursuant to Paragraph 1.02 hereof, HII shall grant to MCH the
right to purchase one share of Stock for each US$1.00 received by HII at such
closing. Upon receipt of the Full Purchase Price on the Final Closing Date,
HII shall grant to MCH the right to purchase an additional 1,000,000 shares of
Stock (such option shares are collectively referred to as the "Purchaser
Option Shares", and the right to purchase the Purchaser Option Shares is
called the "Purchaser Options").
2.02 Exercise of Purchaser Options. The Purchaser Options are exercisable
commencing on January 1, 2000, and, if not exercised by Purchaser shall
automatically expire on December 31, 2005 (the period during which the
Purchaser Options may be exercised is called the ("Purchaser Option Period").
The Purchaser Options may be exercised in whole or in part at any time during
the Purchaser Option Period by written notice to HII. (the "Notice")
accompanied by a tender of the Purchaser Exercise Price (as hereafter defined)
for the number of shares being purchased.
2.03 Exercise Price. The price payable to HII for the shares issued upon
exercise of Purchaser Options (the "Purchaser Exercise Price") is determined
based on the later of the date of the Notice or the tender of the full
Purchaser Exercise Price for the number of shares being purchased, as follows:
January 1, 2000 to December 31, 2000: $US 1.00 per share
January 1, 2001 to December 31, 2001: $US 1.10 per share~
January 1, 2002 to December 31, 2002: $US 1.20 per share
January 1, 2003 to December 31, 2003: $US 1.30 per share
January 1, 2004 to December 31, 2004: $US 1.40 per share
January 1, 2005 to December 31, 2005: $US 1.50 per share
2.04 Closing. Closing shall occur as soon as possible following receipt of
the Notice by HII and shall be effected through HII or the Escrow Agent.
2.05 Restrictions on Transfer. The Purchaser Option Shares shall be
registered with the SEC, but Purchaser acknowledges that the Purchaser may be
deemed an affiliate of HII and the Purchaser Option Shares may be deemed
"restricted securities" subject to the resale restrictions of the Act and Rule
144 promulgated thereunder unless such shares are registered in accordance
with Article 5 hereof. In addition, the Purchaser Options and the Purchaser
Option Shares shall be subject to the Shareholders Agreement (hereafter
defined) which imposes certain restrictions on transfer and voting.
ARTICLE 3
AGREEMENTS WITH MANAGEMENT
3.01 Employment Agreement. HII, Barham and Marks agree to enter into three
(3) year employment agreements (the "Employment Agreements"), effective as of
the Initial Closing Date. The Employment Agreements shall contain
noncompetition covenants, confidentiality provisions and shall be
substantially in the form of Exhibit "A" attached hereto and made a part
hereof. In connection with and as a condition to the Employment Agreements,
HII shall grant to Barham and Marks certain Employee Stock Options in
accordance with Article 4 hereof.
3.02 Board of Directors. On the Initial Closing Date, Barham and Marks agree
to increase the board of directors of HII to four (4) members. Barham and
Marks agree to appoint Dart and Thompson to the board, with Dart becoming
Chairman of the Board. Barham and Marks also agree to cause HII to modify its
bylaws such that one director, on a rotating quarterly basis, shall be
designated to cast a deciding vote in the event of a director deadlock.
However, any proposal before the board of directors that would have the effect
of modifying this Agreement shall require unanimous consent of the directors.
The designated director for the three months following the Initial Closing
Date shall be Marks, who will then be followed in the next three month periods
by Dart, Barham and Thompson respectively.
3.03 Shareholders Agreement. The Purchaser, Barham, and Marks (or the
affiliates of any of them, including without limitation, Marks & Associates,
Inc., Barham Family Interests,
Inc., Dart, and Thompson) agree to enter into a shareholders and voting
agreement, substantially in the form of Exhibit "B" attached hereto and made a
part hereof (the "Shareholders Agreement"). The Shareholders Agreement shall
cover any shares of Stock currently owned or hereafter acquired by or
controlled by any of the parties thereto, including any shares of Stock issued
by virtue of any Purchaser Options or Employee Options referenced in this
Agreement.
ARTICLE 4
EMPLOYEE STOCK OPTIONS
4.01 Issuance of Options to Barham and Marks. The Employment Agreements shall
provide that HII shall grant to Barham (or his family interests) the right to
purchase 1,000,000 shares of Stock (the "Barham Option Shares") and shall
grant to Marks (or his family interests) the right to purchase 1,000,000
shares of Stock (the "Marks Option Shares") (collectively, the Barham Option
Shares and the Marks Option Shares are collectively called the "Employee
Option Shares"; the right to purchase the Employee Option Shares is called the
"Employee Options"). The Employee Options shall be nontransferable, except to
family interests of Barham and Marks.
4.02 Exercise of Employee Options. The Employee Options are exercisable
commencing on January 1, 2000, and, if not exercised by Employees shall
automatically expire on December 31, 2005 (the period during which the
Employee Options may be exercised is called the ("Employee Option Period").
The Employee Options may be exercised in whole or in part at any time during
the Employee Option Period by written notice to HII from the respective holder
of the Employee Options (the "Notice") accompanied by a tender of the Employee
Exercise Price (as hereafter defined) for the number of shares being
purchased.
4.03 Exercise Price. The price payable to HII for the shares issued upon
exercise of Employee Options (the "Employee Exercise Price") is determined
based on the later of date of the Notice or the tender in full of the Employee
Exercise Price, as follows:
January 1, 2000 to December 31, 2000: $US 1.00 per share
January 1, 2001 to December 31, 2001: $US 1.10 per share
January 1, 2002 to December 31, 2002: $US 1.20 per share
January 1, 2003 to December 31, 2003: $US 1.30 per share
January 1, 2004 to December 31, 2004: $US 1.40 per share
January 1, 2005 to December 31, 2005: $US 1.50 per share
4.04 Closing. Closing shall occur as soon as possible following receipt of the
Notice by HII and shall be effected through HII or the Escrow Agent.
4.05 Restrictions on Transfer. Employees acknowledge that the Employees may be
deemed affiliates of HII and the Employee Option Shares may be deemed
"restricted securities" subject to the resale restrictions of the Act and Rule
144 promulgated thereunder, unless such Shares are registered in accordance
with Article 5 hereof. In addition, the Employee Option Shares shall be
subject to the Shareholders Agreement which imposes certain restrictions on
transfer.
ARTICLE 5
REGISTRATION RIGHTS
5.01 Registrable Securities. "Registrable Securities" means the Shares,
Purchaser Option Shares and Employee Option Shares.
5.02 Demand Registration Rights. After the initial Closing Date (the
"Effective Date"), HII hereby agrees to file, at HII's cost and expense, upon
demand by any holder of Registrable Securities ("Demand Rights"), a
registration statement on any appropriate form under the Act with respect to
all of the Registrable Securities (the "Registration Statement"). HII agrees
to use its best efforts to have the Registration Statement declared effective
as soon as reasonably practicable after such filing and to keep the
Registration Statement continually effective for a period of two (2) years
following the date on which the Registration Statement is declared effective
by the Securities and Exchange Commission ("SEC") or until all Registrable
Securities included in the Registration Statement can be publicly offered and
sold without registration, whichever is earlier.
5.03 Incidental Registration Rights. Holders of the Registrable Securities
("Holders") and HII agree that if HII files a Registration Statement on a form
suitable for secondary offering whereby HII is offering shares to the public
for its own account (the "Secondary Offering"), and the Registrable Securities
are not covered by an effective Registration Statement or the Registrable
Securities cannot be publicly sold without registration, said Secondary
Offering will include, at HII's cost and expense (except underwriting
discounts, commissions ans filing fees relating to the Registrable Securities
held by the Holders and included therein), that the number of Registrable
Securities on a one-for-one basis with all other shares registered in the
Secondary Offering by HII, which inclusion is subject to the sole and absolute
discretion of the underwriter if the Secondary Offering is underwritten.
Holder's right to register shares in a subsequent Secondary Offering shall
also be on a one-for-one basis with all shares registered on behalf of HII up
to and until Holders have had an opportunity to register and sell all the
Registrable Securities, subject to the discretion of the underwriter involved
in the Second Offering.
5.04 Notice to Holders. HII shall promptly notify Holder of the occurrence of
any event as a result of which any prospectus included in a Registration
Statement filed pursuant to this Article 5 includes any misstatement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing.
5.05 Limitations on Obligations of HII. HII's obligations under this Article 5
with respect to Holders are expressly conditioned upon Holders promptly
furnishing to Hl! in writing such information concerning each Holder as HII
shall reasonably request for inclusion in the Registration Statement. If any
Registration Statement including the Registrable Securities is filed, HII
shall indemnify the Holders (and each underwriter for such holder and each
person, if any, who controls such underwriter within the meaning of the Act)
from any loss, claim, damage or liability arising out of or based upon any
untrue statement of a material fact contained in such Registration Statement
or any omissions to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except for
such statement or omission based on information furnished in writing by the
Holders expressly for use in such Registration Statement, each director and
each person, if any, who controls HII within the meaning of the Act against
any loss, claim, damage or liability arising from any such statement or
omission which was made in reliance upon information furnished in writing to
HII by the Holders expressly for use in such Registration Statement.
If all of the Registrable Securities are not included in the Secondary
Offering, the included Registrable Securities for each Holder shall be
determined on a pro rata basis between the Holders based on the percentage of
the Registrable Securities owned by each Holder.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF HII
In order to induce MCH to enter into this Agreement, except as disclosed in
writing to MCH, HII represents, warrants, and covenants to Purchaser,
effective as of the date of this Agreement and again as of the Initial Closing
Date, as follows:
6.01. Corporate Existence: Qualification. HII is a corporation duly organized,
validly existing and in good standing under the laws of the state in which it
is incorporated and is qualified or licensed and in good standing in all
jurisdictions in which the nature of its business or the properties owned by
it require or will require it to be qualified or licensed to do business. HII
has one wholly owned subsidiary, Hotel Management Group, Inc., which has six
wholly owned subsidiaries, Hotel Management Group (California), Hotel
Management Group (Tennessee), Hotel Management Group (Oklahoma), Hotel
Management Group (Virginia), HM Group (Alabama), and Hotel Management Group
(Mississippi)(collectively, the "Subsidiaries"). The term "HII" shall also
include the Subsidiaries, as applicable.
6.02. Capitalization. Hil has 9,000,000 shares of Class A, $.01 par value
Common Stock authorized, of which, HII believes 976,580 shares are issued and
outstanding. This number of shares has been repeatedly reported to HII by the
previous transfer agent for HH, Chase Mellon, and has been consistently
reported to the SEC as the number of shares outstanding. However, last
year HII changed transfer agents, and Chase Mellon delivered some shareholder
information to the new transfer agent that conflicts with all previous
reports. This information, which HII management believes to be erroneous,
indicates an additional approximately 54,000 of Class A shares outstanding.
HII has disputed this report and demanded that Chase Mellon provide supporting
documentation. Thus far, Chase Mellon has not provided any response or
explanation of the other than the letter attached as Exhibit "C" hereto. To
the best of HII's current knowledge, all issued and outstanding shares of
stock have been duly authorized and validly issued and are fully paid and
nonassessable. HII has 1,000,000 shares of Preferred Stock, $1.00 per share
par value, authorized, of which 243,331 preferred shares are issued and
outstanding. The outstanding preferred shares are nonvoting, noncumulative,
noneonvertible and provide for a 10% dividend (annually). There are no
outstanding subscriptions, options, contracts, commitments, warrants, calls,
agreements, understandings or other arrangements or rights of any character
affecting or relating in any manner to the issuance of stock or other
securities of HII (whether by subscription, option, exchange, right of
conversion, right of refusal or otherwise) or entitling anyone to acquire
shares of stock or other securities of any kind of HII.
6.03. Authority. HII has all requisite right, power and authority to own,
lease and operate its properties, and to carry on its business as its business
has previously been carried on. The execution, delivery and performance by Hil
of this Agreement and any other agreements contemplated hereby, and the
consummation of the transactions contemplated hereby and thereby, have been
duly authorized by HII. This Agreement and any other agreement contemplated
hereby and thereby have been or will be as of the Initial Closing Date and any
subsequent closing, duly executed and delivered by HII and constitutes or will
constitute a valid and legally binding obligation of HII, enforceable against
them in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
6.04 Absence of Certain Changes. Events or Conditions. Since June 30, 1999,
HII has:
(a) conducted its business in the ordinary course, not engaged or agreed to
engage in any extraordinary transactions or distributions, and not engaged or
agreed to engage in any other transaction except at arm's length and for fair
consideration; (b) not disposed of any of its assets, except in the ordinary
course of business; (c) not materially increased the level of compensation of
any employee; (d) not issued any stock or securities or rights with respect to
any stock or securities, or paid any dividends, redeemed any securities or
otherwise caused any assets to be distributed to any of its owners; (e) not
borrowed any funds under existing lines of credit or otherwise, except as
reasonably necessary for the ordinary operation of its business in a manner,
and in amounts, in keeping with historical practices, or made any loans or
guaranteed the obligations of any other persons; (t) not suffered any material
and adverse change in its assets, business, or operations, nor have any of its
assets suffered any material and adverse change in value other than ordinary
wear and depreciation; (g) not changed or amended its charter documents or
bylaws; (h) not entered into any contract, commitment, or transaction which is
not in the ordinary course of its business; and (i) not failed to keep its
properties and assets insured with at least as much liability and property
damage, fire, and other casualty coverage as was effective during 1998.
6.05. Tax Returns and Audits. To the best of its knowledge and belief, HII
has: (a) filed in accordance with applicable laws all federal, state, and
local tax returns required to be filed by it; (b) paid all taxes, assessments,
penalties, and interest charges shown to be due and payable on each such
return or otherwise due or to become due or required to be paid; and (c)
accrued or created reserves for all taxes due or to become due by it for all
periods ending before, on or with the date of this Agreement. To the best of
its knowledge and belief, the income tax liabilities of H!I have been
satisfied or properly accrued and reflected on its financial statements for
all taxable years prior to and including the taxable year ended September 30,
1999. HII has not been delinquent in the payment of any tax, assessment or
governmental charge, nor has any tax deficiency been proposed or assessed
against it which has not been satisfied. HII has not executed any waiver of
the statute of limitations on the assessment or collection of any tax.
6.06 Litigation. HII is not subject to or bound by any court, regulatory
commission, board or administrative judgment, order or decree, and no suit,
action, proceeding or other litigation in any court or before any
administrative or arbitration panel or commission or before or by any
governmental department or agency to which it is a party is pending.
6.07 Rights and Authorizations, HII owns or holds all licenses, permits,
approvals, and other authorizations (collectively "Authorizations") which are
used in or required in connection with HII's business. HII have no knowledge
and have not received any notice that any such Authorization is not valid or
sufficient or in full force and effect. Neither the execution and delivery nor
the consummation of the transactions contemplated hereby will cause a
termination of, or interfere in any respect with, the operation under any such
Authorizations.
6.08. Disclosure. No representation or warranty made by HII in this
Agreement or in any filings with the SEC as required under the Act or the
Securities Exchange Act of 1934 (the "Exchange Act") contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements contained herein not misleading.
6.09. Compliance with Laws. HII has conducted its business and used its
property in substantial compliance with all applicable federal, state and
local environmental, land use, and zoning laws and regulations, except where
the failure to comply with such laws and regulations, in the aggregate, has
not and will not have a material adverse effect on HII.
6.10 Indemnification. HII agrees to indemnify and hold harmless MCH, and its
directors, officers, agents and employees, from and against any and all loss,
damage or liability due to or arising out of a breach by the indemnifying
party of any representation or warranty contained in this Agreement.
Notwithstanding the foregoing, however, no representation, warranty,
acknowledgment or agreement made by HII shall in any manner be deemed to
constitute a waiver of any rights granted to HII under federal or state
securities laws.
6.11 Documents Genuine. All originals and/or copies of HII's articles of
incorporation and bylaws, each amended to date, and all minutes of meetings
and written consents in lieu of meetings of shareholders, directors and
committees of directors of HII, financial data and any and all other
documents, material, data, files or information which have been or upon
request will be furnished to Purchaser, are true, complete, correct and
unmodified originals and/or copies of such documents, information, data, files
or materials.
6.12 Consents/Approvals/Conflicts. Except for the compliance with applicable
federal and state securities laws, no consent, approval, authorization or
order of any court or governmental agency or other body is required for HII to
consummate the sale of the Shares. Neither the execution, delivery,
consummation or performance of this Agreement shall conflict with, constitute
a breach of HII's and its Subsidiaries' respective articles of incorporation
or bylaws, as amended to date, or any note, mortgage, indenture, deed of trust
or other agreement or instrument to which HII or any Subsidiaries are a party
or by which they are bound nor, to the best of HII's knowledge and belief, any
existing law, rule, regulation or any decree of any court or governmental
department, agency, commission, board or bureau, domestic or foreign, having
jurisdiction over HII, nor result in creation of any lien or other encumbrance
upon the Shares.
6.13 Environmental Matters. HII has received no written notice of any
investigation or inquiry by any governmental entity under any applicable laws
pertaining to the health or the environment, including without limitation (i)
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendments ans Reauthorization Act of 1986,
as amended, and (ii) the Resource Conservation and recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984, as
amended. To the actual knowledge of HII, HII has not disposed of any hazardous
substance on any property owned or leased by HII or its Subsidiaries and no
condition exists on such property which would subject HII or its Subsidiaries
or such property to any remedial obligations under any applicable
environmental laws.
6.14 Labor Relations. HII has not experienced and is not currently
experiencing, nor does HII know of any reason to expect, any labor troubles or
strikes, work stoppages, slow-downs or other material interference with
impairment of the business of HIl by labor, nor has HII committed any unfair
labor practice. HII is not currently experiencing, nor does HII know of, any
current or contemplated union organization effort or negotiations, or requests
for negotiations, for any representation or any labor contract relating to the
employees of HII.
6.15 Finder's Fee. HII is not, and neither HII not the Purchaser shall become,
obligated with respect to any finder's, broker's or agent's fee in connection
with the transaction contemplated hereby.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF MCH
MCH represents, warrants, and covenant to HII, effective as of the date of
this Agreement and again as of the Initial Closing Date, as follows:
7.01 Corporate Organization. MCH is a corporation duly organized, validly
existing and in good standing under the laws of the British Virgin Islands,
and has all requisite corporate power and authority to enter into this
Agreement and perform its obligations hereunder.
7.02. Authorization. MCH has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
At Closing, the Board of Directors of MCH shall have duly authorized the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and no other corporate proceedings on the
part of MCH will be necessary to approve and authorize the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby. This Agreement shall have been duly executed and
delivered by MCH and constitute the valid and binding agreement of MCH,
enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium
and other similar laws affecting the enforcement of creditors' rights
generally and except as such enforceability may be affected by equitable
principles (whether considered in a proceeding at law or in equity).
7.03 Compliance with Securities Laws. MCH has complied with all securities
laws applicable to it in connection with the transactions contemplated by this
Agreement, including any applicable laws of any jurisdiction under which MCH
is incorporated or authorized to do business.
7.04 Experience and Knowledg~. MCH has such knowledge and experience in
financial and business matters that MCH is capable of evaluating the merits
and risks of an investment in the Company and the suitability of the
securities subscribed for as an investment for MCH.
7.05 Information Provided. MCH has received and has read H!I's most recent
Form 10-KSB annual report for the fiscal year ended September 30, 1998 and
Form 10-QSB quarterly report for the nine month period ended June 30, 1999, on
file with the SEC (all such reports, the "Public Information"). MCH has
received and read this Agreement, including all exhibits annexed hereto, and
MCH confirms that all documents, records and books pertaining to MCH's
proposed investment in H!I have been made available to MCH. MCH has had an
opportunity to ask questions of and received satisfactory answers from HII or
any person or persons acting on HII' s behalf, concerning the terms and
conditions of this investment, and all such questions have been answered to
the full satisfaction of the MCH. MCH has received no representations or
warranties from HII or its directors, officers, employees or agents, other
than those contained in the Public Information or this Agreement.
7.06 Speculative Investment. MCH represents that (i) it has been called to
MCH's attention, by those individuals with whom MCH has dealt in connection
with MCH ' s investment in HII, that MCH's investment in HII is speculative
and involves a high degree of risk of loss by MCH of MCH's entire investment
in HII and that MCH must bear the economic risk of such investment for an
indefinite period of time because there is currently no market for the Shares,
(ii) no assurances are or have been made regarding any economic advantages
(including tax) that may inure to the benefit of the MCH, (iii) no assurances
are or have been made concerning dividends or capital distributions by HII of
cash to its shareholders, and (iv) MCH is aware that MCH's subscription
constitutes an obligation of MCH, subject to Paragraph 1.06 hereof. MCH is
able to bear the economic risk of the investment in the securities subscribed
for, and MCH has sufficient net worth to sustain a loss of MCH' s entire
investment in HII without economic hardship if such a loss should occur;
7.07 No Assurance of Profit. MCH acknowledges and is aware that it never has
been represented, guaranteed, or warranted to MCH by any broker, HII, its
directors or officers, its agents or employees, or any other person, expressly
or by implication, any of the following: (i) the approximate or exact length
of time that MCH will be required to remain as owner of the Shares; (ii) the
percentage of profit and/or amount of or type of consideration, profit or loss
to be realized, if any, as a result of the investment in the Shares; or (iii)
that any future projections of HII will in any way indicate the predictable
results of the ownership of securities or of the overall financial performance
of HII.
7.08 Indemnification. MCH agrees to indemnify and hold harmless HII, and its
directors, officers, agents and employees, from and against any and all loss,
damage or liability due to or arising out of a breach by the indemnifying
party of any representation or warranty contained in this Agreement.
Notwithstanding the foregoing, however, no representation, warranty,
acknowledgment or agreement made herein by the MCH shall in any manner be
deemed to constitute a waiver of any rights granted to MCH under federal or
state securities laws.
ARTICLE 8
COVENANTS
HII hereby covenants and promises to Purchaser as follows:
8.01 Conduct of Business of HII. During the period from the date of this
Agreement to the !nitial Closing Date, HII will conduct its business and
operations according to its ordinary and usual course and consistent with past
practice.
8.02. Access to Information. H!I will afford Purchaser and its
representatives access, during normal business hours, to all of its business,
operations, properties, books, files and records and will cooperate in
Purchaser's examination thereof. Purchaser agrees that all information,
including the existence and contents of this Agreement and the other
agreements among the parties, so provided will be treated as confidential
(except for necessary disclosures to professional advisors, and except for
securities law disclosures), that Purchaser will not disclose or make any use
of such onfidential information unless the same is or shall become available
to it through nonconfidential means or shall otherwise come into the public
domain. If the transactions contemplated by this Agreement are not consummated
for any reason, then after this Agreement is terminated, Purchaser will
continue to hold in confidence all information obtained from HII and will
return to HII all copies of any confidential documents obtained by Purchaser
in connection with the transactions contemplated by this Agreement.
ARTICLE 9
GENERAL
9.01. Notices. All notices required or permitted herein must be in writing
and shall be deemed to have been duly given the first business day following
the date of service if served personally or by telecopier, telex or other
similar communication to the party or parties to whom notice is to be given,
or on the third business day after mailing if mailed to the party or parties
to whom notice is to be given by registered or certified mail, return receipt
requested, postage prepaid, to the party to whom notice is to be given at the
address set forth below or to such other addresses as either party hereto may
designate to the other by notice from time to time for this purpose. All
notices and other communications shall be given as follows:
MCH:
Merchants Capital Holdings, Ltd.
c/o Robert Edwards
Edwards & Associates
17060 Dallas Parkway, Suite 101
Dallas, Texas 75248
HII:
Harrell International, Inc.
211 A East Louisiana Street
McKmnney, Texas 75069
Barham: Paul Barham
1354 Crosstimber
Southlake, Texas 76092
Marks:
Norman Marks
7300 Quarry Chase Trail
Piano, Texas 75025
Dart:
Geoffrey Dart
c/o Robert Edwards
Edwards & Associates
17060 Dallas Parkway, Suite 101
Dallas, Texas 75248
Thompson:
Gerard Thompson
4th Floor Nuffield House
41-46 Picadilly
London, United Kingdom WIVONB
9.02. Integrated Agreement. This instrument contains and constitutes the
entire agreement between and among the parties herein and supersedes all prior
agreements and understandings between the parties hereto relating to the
subject matter hereof. There are no agreements, understandings, restrictions,
warranties or representations among the parties relating to the subject matter
hereof other than those set forth or referred to herein. All exhibits attached
hereto and all schedules delivered pursuant hereto are hereby incorporated
herein and made a part of this Agreement. This instrument is not intended to
have any legal effect whatsoever, or to be a legally binding agreement or any
evidence thereof, until it has been signed by all parties hereto. Any
reference to this Agreement shall be deemed to also refer to the exhibits,
schedules, and attachments hereof.
9.03. Construction. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter gender thereof or to the
plurals of each, as the identity of the person or persons or the context may
require. The descriptive headings contained in this Agreement are for
reference purposes only and are not intended to describe, interpret, defme or
limit the scope, extent or intent of this Agreement or any provision contained
herein.
9.04. Invalidity. If any provision contained in this Agreement shall for
any reason be held to be invalid, illegal, void or unenforceable in any
respect, such provisions shall be deemed modified so as to constitute a
provision conforming as nearly as possible to such invalid, illegal, void or
unenforceable provisions while still remaining valid and enforceable, and the
remaining terms or provisions contained herein shall not be affected thereby.
9.05. Binding Effect. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their respective
heirs, executors, personal representatives, successors and assigns.
9.06 Litigation Expense. In any action brought by a party hereto to enforce
the obligations of any other party hereto, the prevailing party shall be
entitled to collect from the other parties to such action such party's
reasonable attorneys' and accountants' fees, court costs and other expenses
incidental to such litigation.
9.07 Counterpart Execution. 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 but one and the same instrument.
9.08 Amendment and Waiver. This Agreement may be amended at any time, but
only by an instrument in writing executed by both parties hereto. A party
hereto may waive any requirement to be performed by the other party, provided
that such waiver shall be in writing and executed by the party waiving the
requirement.
9.09. Time of Essence. Time shall be of the essence with respect to the
performance by the parties hereto of their respective obligations hereunder.
9.10. Negation of Third-Party Beneficiary. Nothing contained in this
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement, nor is anything in
this Agreement intended to relieve or discharge the obligation or liability of
any third person to any party to this Agreement.
9.11. Survival of Representations and Warranties. The representations,
covenants, and warranties contained in this Agreement shall survive the
Initial Closing Date for a period of two (2) years and shall be true on and as
of the Initial Closing Date and any subsequent closing as provided herein as
if specifically made thereon. However, the survival period shall be tolled and
suspended at such time and for any period of time at or during which (i) any
party hereto gives notice of a claim for a breach of a representation,
warranty, covenant, or indemnity prior to the expiration date of the survival
period, or (ii) any such breach of a representation, warranty, covenant, or
indemnity occurs and involves fraud or willfulness, and (iii) the breach of
any such representation, warranty, covenant, or indemnity has been within the
actual knowledge of the offending as to the nature and extent of the matter
giving rise to the breach.
9.12. Governing Law. This Agreement has been made and entered into in
Collin County, Texas, and shall be governed by and construed in accordance
with the laws of the State of Texas, and the obligations of the parties
hereunder are performable in Collin County, Texas. Each of the parties hereby
irrevocably consents and submits to the exclusive jurisdiction of the courts
of Collin County, Texas in any proceeding brought to construe or enforce, or
otherwise affecting, this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed below.
HII:
HARRELL INTERNATIONAL, INC.,
a Delaware corporation
By:______________________
Paul Barham, Chief Financial Officer
MCH
MERCHANTS CAPITAL HOLDINGS, LTD.,
a British Virgin Islands corporation
By:_________________________
Printed Name: G.G.Dart
Title: Director
____________________________
Paul L. Barham
____________________________
Norman L. Marks
____________________________
Geoffrey Dart
____________________________
Gerard Thompson
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into the 23rd day of November, 1999, by and between
Harrell International, Inc a Delaware corporation (the "Company"), and NORMAN
L. MARKS ("Marks") (DOB 9.20.1941) to be effective on the Effective Date (as
defined below):
WITNESSETH:
WHEREAS, the Company desires to receive the benefit of Marks's knowledge,
experience, management ability, reputation and contacts in the hospitality
industry; and
WHEREAS, Marks is willing to remain in the employ of the Company on the terms
hereinafter provided;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties do hereby agree as follows:
1. Employment. The Company hereby agrees to employ Marks and Marks hereby
accepts employment and agrees to perform the services specified herein upon
the terms and conditions hereinafter set forth, and as set forth in the
employee handbook.
2. Term. Subject to the provisions of termination hereinafter set forth, the
term of this Agreement shall be effective as of November 23, 1999 (The
"Effective Date") and ending on November 23, 2002. (The "Initial Term")
3. Automatic Annual Renewal. This Agreement will be automatically renewed
annually up to age 62; commencing with a date one year after the date of this
Agreement, for successive three year terms, (the "Renewal Terms") unless
terminated by either party upon written notice submitted to the other, at
least 30 days prior to the end of the first year of the Initial Term or, at
least 30 days prior to the end of any subsequent year, or unless terminated
pursuant to Section 14 hereunder. Further renewals of the three year term
beyond age 62 will be at the Board of Director's discretion. The Renewal Terms
shall be on the same terms and conditions as the Initial Term under this
Agreement except the compensation terms which shall be governed by paragraph
6(i) below. The last day of the Initial Term or any Renewal Term in which
Termination Notice is received shall be referred to as the Termination Date.
In the event that notice is given by the Company of its intention not to renew
this Agreement, the Company can at it's option elect either to pay Marks the
remaining two years of the current term of this Agreement, in a lump sum, or
require that Marks continue in his capacity with the Company and continue to
pay his salary and other benefits in the usual way, or a combination of the
foregoing, ith the continued employment of Marks for a period of less than two
years and an appropriate lump sum, representing the remaining portion of the
two year period of notice, payable on the Termination Date.
4. Duties. Marks has been elected and is engaged for the term of the
Agreement as the President and Chief Operating Officer of this Company. In
such capacity, Marks will, as reasonably requested by the Board of Directors
of the Company from time to time, carry out the functions of his office and
furnish his best advice, information, judgment and knowledge with respect to
the business of the Company and its subsidiaries, which are engaged in the
hospitality business and related businesses.
5. Extent of Service. Marks agrees to perform to the best of his abilities
such duties as hereinabove described and to devote full time, attention and
energy to the business of the Company and the Company's subsidiaries, which
are engaged in the hospitality business, as is necessary to fulfill such
duties.
6. Compensation. The compensation to be paid by the Company to Marks and
which Marks agrees to accept from the Company shall be as follows:
(i) A Salary at an initial annual rate of One Hundred and Ten Thousand
(110,000)Dollars, subject to an automatic annual 5% increase, and to such
increases as the Board of irectors of the Company may, in its sole discretion,
from time to time determine. Such salary compensation shall be payable on a
current basis in equal installments not less frequently than monthly, subject
to applicable withholding.
(ii) An Automobile Allowance, initially at the rate of $650 per month, subject
to such increases as the Board of Directors of the Company may, in its sole
discretion, from time to time determine,
(iii) Participation in the Corporate Executive Bonus Plan, as implemented on
January 24, 1998, subject to any modifications as the Board of Directors of
the Company may, in its sole discretion, from time to time determine,
(iv) The retirement and other benefits accruing to Marks under the "Retirement
- -Only Continuation Fixed and Flexible Premium Life Insurance Agreement",
resolved by the Board of Directors of the Company on January 19, 1998 and
entered into on April 22, 1998, between the Company and Marks,
(v) Participation in the Employee Stock Option plan, when one is implemented,
commensurate with other members of the Board of Directors, key officers and
executives of the Company.
7. Benefits. Marks shall be entitled to participate in such other employee
benefit programs, plans and policies, including but not limited to vacation,
sick, medical, dental, life and long term disability plans, as are maintained
by the Company and as may be established for the executive employees of the
Company from time to time on the same basis as other executive employees are
entitled thereto. It is understood that the establishment, termination or
change in any such xecutive employee benefit programs, plans or policies shall
be at the discretion of the Board of Directors of the Company to exercise in
its sole discretion, from time to time, and any such termination or change in
such program, plan or policy will not affect this Employment Agreement so long
as Marks is treated on the same basis as other executive employees
participating in such program, plan or policy, as the case may be. Upon
termination of employment, without regard to the manner in which the
termination was brought about, Marks's rights in such employee benefit
programs, plans or policies shall be governed solely by the terms of the
program, plan or policy itself and not this Agreement.
8. Working Facilities. During the term of his employment, Marks shall be
furnished with a private office, secretarial services and such other
facilities and services as are commensurate with his position with the Company
and adequate for the performance of his duties under this Employment
Agreement.
9. Expenses. Marks is authorized to incur reasonable expenses for the
discharge of his duties hereunder in the promotion of the business of the
Company, including expenses for entertainment, travel and related items. The
Company shall reimburse Marks for all such expenses upon presentation by Marks
from time to time of itemized accounts of expenditures incurred in accordance
with customary Company policies.
10. Non-Competition. Marks understands that he has been exposed to, and will
further develop and be exposed to, confidential information and trade secrets
of the Company or its customers, including (without limitation), intimate
knowledge of customer requirements, business procedures, price lists,
financial data, records, customer lists and frequency and variety of work
associated with particular customers (hereinafter called "Confidential
Information"). Confidential Information has been and will continue to be
developed for commercial advantage and at the expense of the Company, and
maintenance by the Company of the proprietary nature and confidentiality of
Confidential Information to the fullest extent is important to the Company. As
part of the essence of the consideration hereof, Marks agrees that (i) during
the term of the employment of Marks under this Agreement and for a period of
one year immediately following termination of his employment with the Company
if such termination is by the Company with Cause, or by Marks without Good
Reason, Marks will not, for himself or on behalf of any other person or
persons, firm, partnership, company or corporation, engage in any other
business which is in competition with the Company, either as a principal,
partner, agent, employee, director or officer, within the cities in which the
Company operates hotels unless Marks has received written consent from the
Company, (except that this shall not be construed as preventing Marks from or
requiring him to obtain consent of the Company prior to purchasing less than
five percent (5%) of the outstanding shares of publicly traded stock of any
competitive business or enterprise in the trade area of the Company); (ii)
that during the term of the employment of Marks under this Agreement, and for
a period of one year immediately following termination of his employment by
the Company with Cause, or by Marks without Good Reason, Marks will not, for
himself or on behalf of or in conjunction with any other person or persons,
firm, partnership, company or corporation, call upon any client or clients of
the Company with whom his first contact occurred during his period of
employment or consultation with the Company or its predecessors for the
purposes of soliciting business from and/or diverting or taking away business
of such clients of the Company. In the event this section is determined by a
court of competent jurisdiction to exceed geographical, temporal or scope of
activity limitations permitted by applicable law, this section shall be
reformed by the court to the maximum permitted limitation.
11. Non Disclosure of Information. Marks recognizes and acknowledges that he
will have access to certain Confidential Information of the Company which is a
valuable, special and unique asset of the Company's business. He therefore
covenants and agrees, which covenant and agreement is of the essence of this
Agreement, that during or after the term of his employment, he will not
reveal to anyone not an employee, officer, agent or consultant of the Company
at any time the Confidential Information of the Company, and that upon
termination of his employment, he will return to the Company all records and
documents (and all copies thereof) and all other property belonging to the
Company or relative to its business.
12. Solicitation and Enticement of Employees. Marks agrees that during the
term of his employment by the Company and for a period of one (1) year after
termination of his employment with the Company, he will not solicit or entice
any other employee of the Company to leave the Company to go to work for any
other business or organization which is in direct or indirect competition with
the Company.
13. Successor Companies. Notwithstanding anything in this Agreement to the
contrary, Sections 10, 11 and 12 hereof shall not apply and shall be of no
force and effect in the event Marks is employed by any person who purchases
voting control of the Company purchases substantially all of the assets of the
Company, or is the survivor of any merger or other combination with the
Company.
14. Termination.
(a) Death. In the event Marks dies during the term of this Agreement, the
Company shall pay to his executors, administrators or heirs and amount equal
to the Marks's salary and benefits for the remaining period of any term
hereunder (but in no event shall such sum be less than two (2) years' salary),
in a lump sum, which amount the Company will insure on the life of Marks, as
long as such insurance is available at commercially reasonable terms. If such
insurance is not available, the Company will pay such amounts to his
executors, administrators or heirs in monthly installments. The Company shall
thereafter have no further liability to his executors or administrators or to
any other person claiming under him for compensation in accordance with the
terms hereof, except that arising under the Retirement -Only Continuation
Fixed and Flexible Premium Life Insurance Agreement. Benefits shall be payable
in accordance with their respective terms as provided in Section 6 hereof
b) Disability. In the event Marks should be prevented from performing his
duties hereunder by reason of illness or incapacity for a period of twelve
months during the term hereof, the Company shall have the right to terminate
the employment of Marks under this Agreement. The Company shall continue to
pay to Marks his compensation under Sections 6 and 7 above in relation to such
twelve months of disability prior to termination, and following termination
the Company will pay any amount of compensation remaining under the term of
this Agreement; but in no event shall such sum be less than two (2) year's
salary.
(c ) Termination by Company for Cause. The Company may terminate Marks's
employment under this Agreement for Cause at any time. For purposes of this
Agreement, the Company shall have "Cause" to terminate Marks's employment if
he (i) is convicted of one or more acts constituting a felony; or (ii) is
convicted of fraud or one or more acts constituting serious moral turpitude;
or (iii) misappropriates the Company's assets or engages in gross misconduct
materially injurious to the Company or its affiliates or subsidiaries; or (iv)
willfully refuses or grossly neglects to perform the duties reasonably
assigned to him by the Board of Directors of the Company. Upon any
termination of Marks's employment under this section, the Company shall have
no further obligation under this Agreement to make payments to, or bestow any
benefits upon Marks after the date of the termination, other than compensation
payments or benefits accrued, due and payable to Marks prior to the date of
termination under Sections 6 and 7 above.
(d) Termination by Company Without Cause. In the event of the termination of
Marks's employment under this Agreement by the Company without cause (except
as may be otherwise provided in this Section 14), any remaining amounts of
compensation due to Marks under Sections 6 and 7 for the remaining term of
this Agreement (but in no event less than two year's salary) shall be paid in
full, on the Termination Date, which date shall be no more than 30 (thirty)
days after the Company terminates Marks's employment hereunder.
(e) Termination by Marks With Good Reason. Marks may terminate his employment
for Good Reason. For purpose of this Agreement," "Good Reason" shall mean: (i)
without Marks's consent, the assignment to Marks of substantial duties
inconsistent with Marks's position, duties, responsibilities and status with
the Company, or any removal of Marks from his title's and offices, except in
connection with the termination of Marks's employment for the cause or
disability or as a result of Marks's death; (ii) any material change in this
Agreement without Marks's consent (iii) the Company's requiring Marks to
relocate anywhere other than the Dallas, Texas area except for required travel
on the Company's business travel obligations, or, in the event Marks consents
to such relocation out of the State of Texas the failure by the Company to pay
or reimburse Marks for all reasonable moving expenses incurred by Marks
relating to a change of Marks's principal residence in connection with such
relocation and to indemnify Marks against any loss (defined as the difference
between the actual bona fide sale price of such residence and the fair market
value of such residence as determined by a member of the Society of Real
Estate Appraisers designated by Marks and satisfactory to the Company)
realized in the sale of Marks's principal residence in connection with any
such change of residence.In the event of termination under this Section 14(e),
the Company shall pay to Marks the balance of his compensation under Section 6
and any accrued entitlements under Section 7 for the remaining term of this
Agreement (but in no event less than two year's salary) on the Termination
Date.
(f) Change, of Control. In the event of a Change of Control (as defined
below), Marks shall have the right during the 120-day period after
consummation of the Change of Control to terminate his employment and the
Company shall continue to make semi-monthly payments to him for a period of
three (3) years at the rate per year in effect under Sections 6 and 7 as of
the date of termination. For purposes of this Agreement," Change of Control"
means:
(i) the acquisition by any individual, entity or group (within the meaning of
Section 13(d) (3) or 14(d) (2) or the Securities Exchange Act of 1934, as
amended (the Exchange Act")) (a "Person") (other than Merchant Capital
Holdings ("MCH"), any entity controlled by Geoffrey Dart, Gerard Thompson or a
Person who is the beneficial owner of 10% or more of the combined voting power
of the outstanding voting securities of Harrell International as of the date
hereof) of beneficial ownership (within the meaning of Rule I 3d-3 promulgated
under the Exchange Act) of a majority of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors; provided however that any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company shall not constitute a Change of
Control; or
(ii) approval by the shareholders of the Company of reorganization, merger of
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, all or substantially all of the
individuals and entities who were the beneficial owners of the outstanding
voting securities of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, a majority of the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors of the corporation resulting from
such Business Combination (including without limitation a corporation which as
a result of such transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership immediately prior to
such Business Combination. In the event of such termination following a
Change of Control, Marks shall have no right to, and the Company shall have no
obligations to pay, any other or further sums, except for the payment required
pursuant to this Section 14(1), for or in relation to severance or other
compensation relating to termination of his employment
with the Company
15. Specific Performance. The Company and Marks jointly and severally,
acknowledge that it would be impossible to calculate or ascertain accurately
and definitively the damages the Company would sustain from a breach by Marks
of the provisions of Sections 10, 11, and 12 hereof and that no adequate
remedy at law exists. Accordingly, in the event of a threatened breach by
Marks of said provisions, the Company shall be entitled to an injunction
restraining such prohibited activity. Nothing herein, however, shall be
construed as prohibiting the Company for such pursuing breach or threatened
breach, including the recovery of damages from Marks.
16. Stock Options upon purchase of Shares by Merchant CapitalHoldings, Ltd.
The execution of this Agreement is required by Merchant Capital Holdings, Ltd,
("MCH") as part of its closing of the Stock Acquisition and Option Agreement
(the "SAOA") that it is entering into contemporaneously with the Company. As a
material inducement to Marks to agree to the Non Competition provisions in
paragraph 10 herein, and to enter into this Agreement, Marks will be issued
six year options, from the date at which MCH purchases each installment of
shares and receives options to purchase further shares in the Company, for
Marks to purchase shares in the Company equal to 50% of each installment of
options issued to MCH under the SAOA, at prices and under terms equal to the
MCH share options.
17. Option to Rescind this Agreement In the event that MCH do not complete the
purchase of one million shares as detailed in the SAOA by the deadline or any
agreed upon extension thereof, Marks, at his sole election, shall have the
right to rescind this Agreement.
18. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified mail (return
receipt requested) to the addresses as follows:
If to Marks: If to the Company:
7300 Quarry Chase Trail 211 E. Louisiana St.
Plano Texas 75025 McKinney, TX 75069
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
19. Assignment. The rights and obligations of the Company under this Agreement
shall injure to the benefit of and be binding upon its successors and assigns.
The rights and obligations of Marks under this agreement are of personal
nature and shall neither be assigned nor transferred in whole or in part by
Marks.
20. Governing Law. This Agreement shall be subject to and governed by the laws
of the State of Texas.
21. Non-Waiver. No waiver of or failure to assert any claim, right, benefit or
remedy hereunder shall operate as a waiver of any other claim, right, benefit
or remedy of the Company or Marks.
22. Amendment. This Agreement may be modified or amended only by written
instrument executed by the parties hereto.
23. Entire Agreement This Agreement sets forth the entire agreement between
the parties pertaining to the subject matter hereof and hereby supersedes and
cancels any and all previous agreements entered into between the parties
hereto or their parents, affiliates, or predecessors. Marks hereby disclaims
reliance on any promise of the Company or its parent, affiliates, or
predecessors, other than as set forth specifically herein.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first
above written.
For the Company Norman L. Marks
______/Signature/________ ______/Signature/________
Gerard Thompson, Director
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into the 23rd day of November, 1999, by and between
Harrell International, Inc a Delaware corporation (the "Company"), and PAUL L.
BARHAM ("Marks") (DOB 9.21.1953) to be effective on the Effective Date (as
defined below):
WITNESSETH:
WHEREAS, the Company desires to receive the benefit of Barham's knowledge,
experience, management ability, reputation and contacts in the hospitality
industry; and
WHEREAS, Barham is willing to remain in the employ of the Company on the terms
hereinafter provided;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties do hereby agree as follows:
1. Employment. The Company hereby agrees to employ Barham and Barham hereby
accepts employment and agrees to perform the services specified herein upon
the terms and conditions hereinafter set forth, and as set forth in the
employee handbook.
2. Term. Subject to the provisions of termination hereinafter set forth,
the term of this Agreement shall be effective as of November 23, 1999 (The
"Effective Date") and ending on November 23, 2002. (The "Initial Term")
3. Automatic Annual Renewal. This Agreement will be automatically renewed
annually up to age 62; commencing with a date one year after the date of this
Agreement, for successive three year terms, (the "Renewal Terms") unless
terminated by either party upon written notice submitted to the other, at
least 30 days prior to the end of the first year of the Initial Term or, at
least 30 days prior to the end of any subsequent year, or unless terminated
pursuant to Section 14 hereunder. Further renewals of the three year term
beyond age 62 will be at the Board of Director's discretion. The Renewal Terms
shall be on the same terms and conditions as the Initial Term under this
Agreement except the compensation terms which shall be governed by paragraph
6(i) below. The last day of the Initial Term or any Renewal Term in which
Termination Notice is received shall be referred to as the Termination Date.
In the event that notice is given by the Company of its intention not to renew
this Agreement, the Company can at it's option elect either to pay Barham the
remaining two years of the current term of this Agreement, in a lump sum, or
require that Barham continue in his capacity with the Company and continue to
pay his salary and other benefits in the usual way, or a combination of the
foregoing, with the continued employment of Barham for a period of less than
two years and an appropriate lump sum, representing the remaining portion of
the two year period of notice, payable on the Termination Date.
4. Duties. Barham has been elected and is engaged for the term of the
Agreement as the Chief Executive Officer of this Company. In such capacity,
Barham will, as reasonably requested by the Board of Directors of the Company
from time to time, carry out the functions of his office and furnish his best
advice, information, judgment and knowledge with respect to the business of
the Company and its subsidiaries, which are engaged in the hospitality
business and related businesses.
5. Extent of Service. Barham agrees to perform to the best of his abilities
such duties as hereinabove described and to devote full time, attention and
energy to the business of the Company and the Company's subsidiaries, which
are engaged in the hospitality business, as is necessary to fulfill such
duties.
6. Compensation. The compensation to be paid by the Company to Barham and
which Barham agrees to accept from the Company shall be as follows:
(i) A Salary at an initial annual rate of One Hundred and Ten Thousand
(110,000)Dollars, subject to an automatic annual 5% increase, and to such
increases as the Board of Directors of the Company may, in its sole
discretion, from time to time determine.
Such salary compensation shall be payable on a current basis in equal
installments not less frequently than monthly, subject to applicable
withholding.
(ii) An Automobile Allowance, initially at the rate of $650 per month,
subject to such increases as the Board of Directors of the Company may, in its
sole discretion, from time to time determine,
(iii) Participation in the Corporate Executive Bonus Plan, as implemented on
January 24, 1998, subject to any modifications as the Board of Directors of
the Company may, in its sole discretion, from time to time determine,
(iv) The retirement and other benefits accruing to Barham under the
"Retirement Only Continuation Fixed and Flexible Premium Life Insurance
Agreement", resolved by the Board of Directors of the Company on January 19,
1998 and entered into on April 22, 1998, between the Company and Barham,
(v) Participation in the Employee Stock Option plan, when one is
implemented, commensurate with other members of the Board of Directors, key
officers and executives of the Company.
7. Benefits. Barham shall be entitled to participate in such other employee
benefit programs, plans and policies, including but not limited to vacation,
sick, medical, dental, life and long term disability plans, as are maintained
by the Company and as may be established for the executive employees of the
Company from time to time on the same basis as other executive employees are
entitled thereto. It is understood that the establishment, termination or
change in any such executive employee benefit programs, plans or policies
shall be at the discretion of the Board of Directors of the Company to
exercise in its sole discretion, from time to time, and any such termination
or change in such program, plan or policy will not affect this Employment
Agreement so long as Barham is treated on the same basis as other executive
employees participating in such program, plan or policy, as the case may be.
Upon termination of employment, without regard to the manner in which the
termination was brought about, Barham's rights in such employee benefit
programs, plans or policies shall be governed solely by the terms of the
program, plan or policy itself and not this Agreement.
8. Working Facilities. During the term of his employment, Barham shall be
furnished with a private office, secretarial services and such other
facilities and services as are commensurate with his position with the Company
and adequate for the performance of his duties under this Employment
Agreement.
9. Expenses. Barham is authorized to incur reasonable expenses for the
discharge of his duties hereunder in the promotion of the business of the
Company, including expenses for entertainment, travel and related items. The
Company shall reimburse Barham for all such expenses upon presentation by
Barham from time to time of itemized accounts of expenditures incurred in
accordance with customary Company policies.
10. Non-Competition. Barham understands that he has been exposed to, and will
further develop and be exposed to, confidential information and trade secrets
of the Company or its customers, including (without limitation), intimate
knowledge of customer requirements, business procedures, price lists,
financial data, records, customer lists and frequency and variety of work
associated with particular customers (hereinafter called "Confidential
Information"). Confidential Information has been and will continue to be
developed for commercial advantage and at the expense of the Company, and
maintenance by the Company of the proprietary nature and confidentiality of
Confidential Information to the fullest extent is important to the Company. As
part of the essence of the consideration hereof, Barham agrees that (i) during
the term of the employment of Barham under this Agreement and for a period of
one year immediately following termination of his employment with the Company
if such termination is by the Company with Cause, or by Barham without Good
Reason, Barham will not, for himself or on behalf of any other person or
persons, firm, partnership, company or corporation, engage in any other
business which is in competition with the Company, either as a principal,
partner, agent, employee, director or officer, within the cities in which the
Company operates hotels unless Barham has received written consent from the
Company, (except that this shall not be construed as preventing Barham from or
requiring him to obtain consent of the Company prior to purchasing less than
five percent (5%) of the outstanding shares of publicly traded stock of any
competitive business or enterprise in the trade area of the Company); (ii)
that during the term of the employment of Barham under this Agreement, and for
a period of one year immediately following termination of his employment by
the Company with Cause, or by Barham without Good Reason, Barham will not, for
himself or on behalf of or in conjunction with any other person or persons,
firm, partnership, company or corporation, call upon any client or clients of
the Company with whom his first contact occurred during his period of
employment or consultation with the Company or its predecessors for the
purposes of soliciting business from and/or diverting or taking away business
of such clients of the Company. In the event this section is determined by a
court of competent jurisdiction to exceed geographical, temporal or scope of
activity limitations permitted by applicable law, this section shall be
reformed by the court to the maximum permitted limitation.
11. Non Disclosure of Information. Barham recognizes and acknowledges that he
will have access to certain Confidential Information of the Company which is a
valuable, special and unique asset of the Company's business. He therefore
covenants and agrees, which covenant and agreement is of the essence of this
Agreement, that during or after the term of his employment, he will not reveal
to anyone not an employee, officer, agent or consultant of the Company at any
time the Confidential Information of the Company, and that upon termination of
his employment, he will return to the Company all records and documents (and
all copies thereof) and all other property belonging to the Company or
relative to its business.
12. Solicitation and Enticement of Employees. Barham agrees that during the
term of his employment by the Company and for a period of one (1) year after
termination of his employment with the Company, he will not solicit or entice
any other employee of the Company to leave the Company to go to work for any
other business or organization which is in direct or indirect competition with
the Company.
13. Successor Companies. Notwithstanding anything in this Agreement to the
contrary, Sections 10, 11 and 12 hereof shall not apply and shall be of no
force and effect in the event Barham is employed by any person who purchases
voting control of the Company purchases substantially all of the assets of the
Company, or is the survivor of any merger or other combination with the
Company.
14. Termination.
(a) Death. In the event Barham dies during the term of this Agreement, the
Company shall pay to his executors, administrators or heirs and amount equal
to the Barham's salary and benefits for the remaining period of any term
hereunder (but in no event shall such sum be less than two (2) years! salary),
in a lump sum, which amount the Company will insure on the life of Barham, as
long as such insurance is available at commercially reasonable terms. If such
insurance is not available, the Company will pay such amounts to his
executors, administrators or heirs in monthly installments.
The Company shall thereafter have no further liability to his executors or
administrators or to any other person claiming under him for compensation in
accordance with the terms hereof, except that arising under the Retirement
- -Only Continuation Fixed and Flexible Premium Life Insurance Agreement.
Benefits shall be payable in accordance with their respective terms as
provided in Section 6 hereof.
(b) Disability. In the event Barham should be prevented from performing his
duties hereunder by reason of illness or incapacity for a period of twelve
months during the term hereof, the Company shall have the right to terminate
the employment of Barham under this Agreement. The Company shall continue to
pay to Barham his compensation under Sections 6 and 7 above in relation to
such twelve months of disability prior to termination, and following
termination the Company will pay any amount of compensation remaining under
the term of this Agreement; but in no event shall such sum be less than two
(2) year's salary.
(c ) Termination by Company for Cause. The Company may terminate Barham's
employment under this Agreement for Cause at any time. For purposes of this
Agreement, the Company shall have "Cause" to terminate Barham's employment if
he (i) is convicted of one or more acts constituting a felony; or (ii) is
convicted of fraud or one or more acts constituting serious moral turpitude;
or (iii) misappropriates the Company's assets or engages in gross misconduct
materially injurious to the Company or its affiliates or subsidiaries; or (iv)
willfully refuses or grossly neglects to perform the duties reasonably
assigned to him by the Board of Directors of the Company. Upon any termination
of Barham's employment under this section, the Company shall have no further
obligation under this Agreement to make payments to, or bestow any benefits
upon Barham after the date of the termination, other than compensation
payments or benefits accrued, due and payable to Barham prior to the date of
termination under Sections 6 and 7 above.
(d) Termination by Company Without Cause. In the event of the termination of
Barham's employment under this Agreement by the Company without cause (except
as may be otherwise provided in this Section 14), any remaining amounts of
compensation due to Barham under Sections 6 and 7 for the remaining term of
this Agreement (but in no event less than two year's salary) shall be paid in
full, on the Termination Date, which date shall be no more than 30 (thirty)
days after the Company terminates Barham's employment hereunder.
(e) Termination by Barham With Good Reason. Barham may terminate his
employment for Good Reason. For purpose of this Agreement," "Good Reason"
shall mean: (i) without Barham's consent, the assignment to Barham of
substantial duties inconsistent with Barham's position, duties,
responsibilities and status with the Company, or any removal of Barham from
his title's and offices, except in connection with the termination of Barham's
employment for the cause or disability or as a result of Barham's death; (ii)
any material change in this Agreement without Barham's consent (iii) the
Company's requiring Barham to relocate anywhere other than the Dallas, Texas
area except for required travel on the Company's business travel obligations,
or, in the event Barham consents to such relocation out of the State of Texas
the failure by the Company to pay or reimburse Barham for all reasonable
moving expenses incurred by Barham relating to a change of Barham's principal
residence in connection with such relocation and to indemnify Barham against
any loss (defined as the difference between the actual bona fide sale price of
such residence and the fair market value of such residence as determined by a
member of the Society of Real Estate Appraisers designated by Barham and
satisfactory to the Company) realized in the sale of Barham's principal
residence in connection with any such change of residence. In the event of
termination under this Section 14(e), the Company shall pay to Barham the
balance of his compensation under Section 6 and any accrued entitlements under
Section 7 for the remaining term of this Agreement (but in no event less than
two year's salary) on the Termination Date.
(f) Change of Control. In the event of a Change of Control (as defined below),
Barham shall have the right during the 120-day period after consummation of
the Change of Control to terminate his employment and the Company shall
continue to make semi-monthly payments to him for a period of three (3) years
at the rate per year in effect under Sections 6 and 7 as of the date of
termination. For purposes of this Agreement," Change of Control" means:
(i) the acquisition by any individual, entity or group (within the meaning of
Section 13(d) (3) or 14(d) (2) or the Securities Exchange Act of 1934, as
amended (the Exchange Act")) (a "Person") (other than Merchant Capital
Holdings ("MCH"), any entity controlled by Geoffrey Dart, Gerard Thompson or a
Person who is the beneficial owner of 10% or more of the combined voting power
of the outstanding voting securities of Harrell International as of the date
hereof) of beneficial ownership (within the meaning of Rule I 3d-3 promulgated
under the Exchange Act) of a majority of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors; provided however that any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company shall not constitute a Change of
Control; or (ii) approval by the shareholders of the Company of
reorganization, merger of consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination"), in
each case, unless, following such Business Combination, all or substantially
all of the individuals and entities who were the beneficial owners of the
outstanding voting securities of the Company immediately prior to such
Business Combination beneficially own, directly or indirectly, a majority of
the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors of the corporation resulting
from such Business Combination (including without limitation a corporation
which as a result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination. In the event of such
termination following a Change of Control, Barham shall have no right to, and
the Company shall have no obligations to pay, any other or further sums,
except for the payment required pursuant to this Section 14(1) , for or in
relation to severance or other compensation relating to termination of his
employment with the Company
15. Specific Performance. The Company and Barham jointly and severally,
acknowledge that it would be impossible to calculate or ascertain accurately
and definitively the damages the Company would sustain from a breach by Barham
of the provisions of Sections 10, 11, and 12 hereof and that no adequate
remedy at law exists. Accordingly, in the event of a threatened breach by
Barham of said provisions, the Company shall be entitled to an injunction
restraining such prohibited activity. Nothing herein, however, shall be
construed as prohibiting the Company for such pursuing breach or threatened
breach, including the recovery of damages from Barham.
16. Stock Options upon purchase of Shares by Merchant Capital Holdings, Ltd.
The execution of this Agreement is required by Merchant Capital Holdings, Ltd,
("MCH") as part of its closing of the Stock Acquisition and Option Agreement
(the "SAOA") that it is entering into contemporaneously with the Company. As a
material inducement to Barham to agree to the Non Competition provisions in
paragraph 10 herein, and to enter into this Agreement, Barham will be issued
six year options, from the date at which MCH purchases each installment of
shares and receives options to purchase further shares in the Company, for
Barham to purchase shares in the Company equal to 50% of each installment of
options issued to MCH under the SAOA, at prices and under terms equal to the
MCH share options.
17. Option to Rescind this Agreement In the event that MCH do not complete the
purchase of one million shares as detailed in the SAOA by the deadline or any
agreed upon extension thereof, Barham, at his sole election, shall have the
right to rescind this Agreement.
18. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified mail (return
receipt requested) to the addresses as follows:
If to Barham: If to the Company:
1354 Crosstimber Drive 211 E. Louisiana St.
Southlake, Texas 75069 McKinney, TX 75069
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
19. Assignment. The rights and obligations of the Company under this Agreement
shall injure to the benefit of and be binding upon its successors and assigns.
The rights and obligations of Barham under this agreement are of personal
nature and shall neither be assigned nor transferred in whole or in part by
Barham.
20. Governing Law. This Agreement shall be subject to and governed by the laws
of the State of Texas.
21. Non-Waiver. No waiver of or failure to assert any claim, right, benefit or
remedy hereunder shall operate as a waiver of any other claim, right, benefit
or remedy of the Company or Barham.
22. Amendment. This Agreement may be modified or amended only by written
instrument executed by the parties hereto.
23. Entire Agreement This Agreement sets forth the entire agreement between
the parties pertaining to the subject matter hereof and hereby supersedes and
cancels any and all previous agreements entered into between the parties
hereto or their parents, affiliates, or predecessors. Barham hereby disclaims
reliance on any promise of the Company or its parent, affiliates, or
predecessors, other than as set forth specifically herein.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
For the Company Paul L. Barham
______/Signature/________ ______/Signature/________
Gerard Thompson, Director
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (the "Agreement") dated effective as of the 23rd
day of November 1999, is made by and between MERCHANT CAPITAL HOLDINGS, LTD, a
British Virgin Islands corporation ("MCH"), HARRELL INTERNATIONAL, INC., a
Delaware corporation (the "Company'), Norman L. Marks, an individual resident
of Texas ("Marks"), Paul L. Barham, an individual resident of Texas
("Barham"), Barham Family Interests, Inc., a Texas corporation ("BFI"), and
Marks & Associates, Inc. ("MA") and provides as follows:
WITNESSETH:
1. MCH, BFI, MA, Barham, and Marks (collectively, the "Signatory
Shareholders") currently own certain shares of the Company's Class "A" $0.01
par value common stock (the "Company Stock") and/or options to acquire shares
of common stock of the Company (the "Options").
2. The options subject to the restrictions on transfer shall be the
aggregate of (i) all Options now or hereafter owned by the Signatory
Shareholders, (ii) any shares issuable by reason of exercise of the Options
(the "Exercised Shares"), together with any shares that may be issued as a
stock dividend, stock split or other division of or upon any of the Exercised
Shares, (iii) any securities that may be issued in exchange for such Options
or Exercised Shares pursuant to any merger, consolidation or other
reorganization of Company (all such shares and rights to shares made the
subject of the transfer restrictions herein being hereinafter referred to
collectively as the "Option Rights").
2. The shares of stock of Company subject to the voting agreements of
Section V of this Agreement shall be the aggregate of (i) the Option Rights,
(ii) all other shares of Company Stock now or hereafter owned by the Signatory
Shareholders, (iii) any shares that may be issued in lieu of such shares for
whatever reason, together with any shares that may be issued as a stock
dividend, stock split or other division of or upon any of such shares, (iv)
any shares that may be issued in exchange for such shares pursuant to any
merger, consolidation or other reorganization of Company (all such shares and
rights to shares made the subject to the voting agreements contained herein
being hereinafter referred to collectively as the "Shares").
3. The Signatory Shareholders and the Company deem it to be in their best
interests, and in the best interests of Company, to restrict the voting of the
Shares and the transfer of the Option Rights now or hereafter owned by
Shareholders, to provide for certain purchase arrangements in connection with
such restrictions, and to provide for certain voting agreements with respect
to such securities.
4. The term "Shareholder," as used in this Agreement, means and includes
all Signatory Shareholders and any other holder of any Option Rights or Shares
of the Company acquired from a Signatory Shareholder.
5. The term "Purchase Agreement" shall mean that certain Stock Acquisition
and Option Agreement by and among certain of the Signatory Shareholders and
the Company, and which the form of this Agreement is attached as Exhibit "B"
thereto.
NOW THEREFORE, for and in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
SECTION I
RESTRICTIONS ON TRANSFER OF THE OPTIONS; RIGHTS OF FIRST REFUSAL;
1 .01. Restriction Against Transfer.
(a) So long as this Agreement is in force and effect, no Option Rights shall
be transferred or sold or otherwise disposed of (by gift or otherwise),
voluntarily, involuntarily, or by operation of law, except as provided in this
Agreement. SECTION I of this Agreement shall govern all transfers of Option
Rights. No Shareholder shall sell, assign, transfer, pledge, encumber or in
any other way dispose of any of his Option Rights to any person or entity,
except pursuant to the provisions of SECTION I of this Agreement; provided,
however, that if any permitted transfer of Option Rights is proposed to be
made under the terms of this Agreement, the transferee of such Option Rights
must expressly assume in a signed writing the rights and obligations of a
Shareholder hereunder and agree that such Option Rights shall continue to be
subject to the terms and conditions of this Agreement prior to such proposed
transfer becoming effective.
(b) No Shareholder shall pledge any of his Option Rights without the prior
written consent of all other Shareholders; provided that in event of any
pledge of any Option Rights, any Shareholder may require as a condition to his
approval of such pledge that any lender taking such Option Rights in pledge
agree to be bound by the terms of this Agreement in making any disposition of
such Option Rights, by foreclosure or otherwise.
(c) Any merger, consolidation, or other reorganization of Company into or
with any other entity owned or controlled jointly by Shareholders shall not be
deemed to be a transfer, sale or other disposition of Option Rights within the
meaning of Subsection 1.01(a) and, thus, shall not result in the imposition,
upon any Shareholder, of the obligations of SECTION I of this Agreement.
1.02. Notice of Sale. At least forty-five (45) days prior to the date of
any
proposed voluntary sale, transfer, exchange or other disposition of any Option
Rights for valuable consideration to any person or entity, the Shareholder
desiring to make such transfer (the "Seller"), shall first obtain a bona fide
offer for the purchase of such Option Rights, and shall further give written
notice (the "Notice of Sale") by registered or certified mail to all
Shareholders and to Company, all such Notices of Sale to be mailed on the same
date, in accordance with the terms of Subsection 6.14, stating that a bona
fide offer has been received. The Notice of Sale shall set forth:
(a) The number of the Option Rights (the "Offered Option Rights") which
Seller desires to sell, transfer, or otherwise dispose of;
(b) The cash price or other consideration per share to be received by it in
connection with such sale, transfer or other disposition of such Option
Rights;
(c) All of the terms of the proposed sale, transfer or disposition, as well
as the name and address of the party to whom the Offered Option Rights are
proposed to be sold, transferred or otherwise disposed of pursuant to such
offer; and
(d) The address at which Company and/or the Option Shareholders may give to
him the notice of exercise provided for in Subsection 1.09(b).
1.03. Permitted Transfers. The following sales of Option Rights will
deemed
"Permitted Transfers" that shall not give rise to any option to purchase to
any other Shareholder:
(a) Transfer to a family member or an entity controlled by family members of
the Selling Shareholder.
1.04. [deleted] - Disability
1.05. [deleted] - Termination of Employment
1.06. Notice of Gift. If any Shareholder wishes to make a gift of Option
Rights, then such Shareholder (the "Gifting Shareholder") shall promptly, and
in any event no later than forty-five (45) days before the effective date of
such gift, give written notice of such proposed gift ("Notice of Gift") to
Company and all Shareholders other than the Gifting Shareholder (such other
Shareholders also collectively referred to, for purposes of this Agreement, as
the "Option Shareholders"), all such Notices of Gift to be mailed on the same
date, in accordance with the provisions of Subsection 6.14 of this Agreement.
The Notice of Gift shall set forth the number of the Option Rights which the
Gifting Shareholder desires to dispose of by gift (the "Gifted Option Rights")
and the address of the Gifting Shareholder at which Company and/or the Option
Shareholders may give to him the notice of exercise provided for in Subsection
1.09(b).
1.07. Notice of Involuntary Transfer. If the Option Rights of any
Shareholder
become subject to any "Involuntary Transfer," as hereinafter defined, then
such Shareholder whose Option Rights are affected by such Involuntary Transfer
(the "Affected Shareholder") shall promptly, and in any event no later than
thirty (30) days after the date of the Involuntary Transfer, give written
notice of such Involuntary Transfer ("Notice of Involuntary Transfer") to
Company and all Shareholders other than the Affected Shareholder (such other
Shareholders also collectively referred to, for purposes of this Agreement, as
the "Option Shareholders"), all such Notices of Involuntary Transfer to be
mailed on the same date, in accordance with the provisions of Subsection 6.14
of this Agreement. An Involuntary Transfer shall be deemed to have occurred
upon any one of the following events:
(a) A transfer of Option Rights to a debtor-in-possession in bankruptcy,
whether or not the Shareholder shall serve as debtor-in-possession;
(b) A transfer of Option Rights to a Shareholder's trustee in bankruptcy or
to a receiver appointed by any court;
(c) A transfer of Option Rights to a Shareholder's spouse pursuant to a
divorce decree;
(d) A transfer of Option Rights to a purchaser at any creditor's or court
sale;
(e) A transfer of Option Rights to a guardian or conservator of an
incompetent Shareholder;
(f) Issuance of an attachment or turnover order with respect to Option Rights;
(g) Attachment of a federal or state tax lien to the Option Rights; or
(h) Any other transfer of Option Rights by operation of law or by order of
any court other than as a result of the death of a Shareholder.
The Notice of Involuntary Transfer shall set forth the nature of the
Involuntary Transfer, the number of Option Rights affected by the Involuntary
Transfer (the "Affected Option Rights") and the address of the Affected
Shareholder at which Company and/or the Option Shareholders may give to him
the notice of exercise provided for in Subsection 1.09(b). If the Company
shall receive actual notice that an Involuntary Transfer has affected any of
the Option Rights held by any Shareholder, such actual notice may, at the
election of the Company, be treated as a Notice of Involuntary Transfer for
purposes of this SECTION I by the Company's giving notice of such election to
the Affected Shareholder and the Option Shareholders in accordance with the
provisions of Subsection 6.14 of this Agreement.
1.08. Grant of Option to Purchase. (a) A Notice of Sale shall be, in legal
effect, an offer to sell, transfer or dispose of, first to Company and then to
all Option Shareholders, all of the Offered Option Rights, which offer shall
be irrevocable during a period of forty-five (45) days after the date of
receipt of the Notice of Sale by Company. More specifically, during the
forty-five (45) day period after the date of receipt of such a Notice of Sale
by Company, first Company, and then all the Option Shareholders shall have the
preferential right or option to purchase the Offered Option Rights pursuant to
the procedure provided in Subsection 1.09 and subject to the provisions of
Subsection 1.12 [such preferential right or option to purchase is hereinafter
referred to as the "Option to Purchase", which option may actually involve a
series of options as provided in Subsection 1.09(a)]. Any such purchase of the
Offered Option Rights shall be at a price equal to the cash price or other
consideration and upon the same terms and conditions set forth in the Notice
of Sale, except for the closing date of such purchase, which shall be governed
by the terms of Subsection 1.12 hereof. In the event that the consideration
offered in the proposed purchase shall be marketable securities, the offered
price in such proposed purchase shall be deemed to be the average of the
quoted closing bid prices for such securities during the two-week period
preceding Closing if such securities are traded over-the-counter and shall be
deemed to be the average of the quoted close price for such securities during
the two-week period preceding Closing if they are traded on an exchange fixing
a closing price.
(b) death, disability [deleted]
(c) A Notice of Gift or a Notice of Involuntary Transfer shall be, in legal
effect, an offer to sell, transfer or dispose of, first to Company and then to
all Option Shareholders all of the Gifted Option Rights or Affected Option
Rights, as applicable, which offer shall be irrevocable during a period of
forty-five (45) days after the date of receipt of the Notice of Gift or Notice
of Involuntary Transfer by Company. More specifically, during the forty-five
(45) day period after the date of receipt of such a Notice of Gift or Notice
of Involuntary Transfer by Company, first Company, and then all Option
Shareholders shall have the preferential right or option to purchase all of
the Gifted Option Rights or all of the Affected Option Rights, as applicable,
pursuant to the procedure provided in Subsection 1.09 and subject to the
provisions of Subsection 1.12 [such preferential right or option to purchase
is also hereinafter referred to as the "Option to Purchase", which option may
actually involve a series of options as provided in Subsection 1.09(a)]. Any
such purchase of the Option Rights shall be at a price equal to the "Computed
Value" of the Gifted Option Rights or of the Affected Option Rights, as
applicable, as of the date of the Notice of Gift or Notice of Involuntary
Transfer. Such "Computed Value" shall be determined in accordance with
Subsection 1.10.
1.09. Procedure for Exercising Option to Purchase.
(a) (i) Upon receipt by Company of any Notice of Sale, Notice of Gift or
Notice of Involuntary Transfer (any such notice, together with any actual
notice to the Company of specified events treated as such a notice by the
Company at its election, being hereinafter referred to as a "Notice"), the
Option to Purchase shall initially exist in and be exercisable by Company, for
a period of fifteen (15) days beginning with the day on which such Notice was
received by Company.
(ii) In the event Company does not elect to exercise in full the Option to
Purchase during the initial fifteen (15) day period, Company shall immediately
notify each Option Shareholder in the manner set forth in Subsection 6.14 of
the number of Option Rights remaining subject to the Option to Purchase (the
"Remaining Option Rights") and the date of receipt of the Notice, and shall
attach thereto a copy of the Notice. As among the Option Shareholders, the
Option to Purchase the Remaining Option Rights shall initially exist in and be
exercisable by the Option Shareholders, in the proportion which the Option
Rights owned (as of the date of receipt of the Notice by Company) by each
Option Shareholder bear to the aggregate of the Option Rights owned by all
persons who are such Option Shareholders. The Option to Purchase the Remaining
Option Rights shall exist solely as a right of the Option Shareholders for a
period of fifteen (15) days beginning with the sixteenth (16th) day after
which the Notice was received by Company.
(iii) Thereafter [following the expiration of the initial fifteen (15) day
period and the second fifteen (15) day period], for the remaining fifteen (15)
days, in the event the Option to Purchase the Remaining Option Rights is not
exercised in full, the Option to Purchase any Option Rights then remaining
shall exist in and be exercisable by such Shareholders as shall have exercised
in full their Option to Purchase during the second fifteen (15) day period
(the "Exercising Shareholders"), individually, in the proportion which the
Option Rights owned by each Exercising Shareholder bear to the aggregate of
the Option Rights owned by all Exercising Shareholders with respect to such
offer. At any time after the expiration of the second fifteen (15) day period,
any Exercising Shareholder may notify (in writing or otherwise) all Exercising
Shareholders and Company to the effect that he does not desire to exercise all
or any portion of his Option to Purchase during the remaining fifteen (15) day
period, at which time such Option to Purchase shall exist in and be
exercisable by all other Exercising Shareholders, individually, in the
proportion which the Option Rights owned by each such other Exercising
Shareholder bear to the aggregate of the Option Rights owned by such other
Exercising Shareholders, during the remainder of such final fifteen (15) day
period. In the event that any Option Rights remain subject to any Option to
Purchase on the last day of such final fifteen (15) day period and the Option
to Purchase has not been exercised as to such Option Rights as of such date,
Company and/or any Exercising Shareholder who has fully exercised his Option
to Purchase as of such date may exercise an Option to Purchase such Remaining
Option Rights.
(b) The Option to Purchase shall be exercised by Company and/or the Option
Shareholders (including the Exercising Shareholders) by giving of notice by
each to the Shareholder giving the Notice (or who would otherwise be
responsible for giving the Notice in a case where the Company elects to treat
actual notice as a Notice) (such Shareholder hereinafter referred to as a
"Transferor") in the manner set forth in Subsection 6.14 stating that the
exercising party has elected to purchase, the number of Option Rights and the
purchase price therefor. Such notice must be delivered to the Transferor on or
before the expiration of forty-five (45) days after Company's receipt of the
Notice. Subject to the provisions of Subsections 1.11 and 1.12, thereupon the
Transferor shall be obligated to sell to Company and/or the Exercising
Shareholders, and Company and/or the Exercising Shareholders shall be
obligated to purchase from the Transferor, in accordance with the Option to
Purchase so exercised. Each sale and purchase (or, other transfer or
disposition) in accordance with the Option to Purchase so exercised shall
thereafter (after the expiration of the forty-five (45) day period unless the
parties otherwise agree) be completed as provided in Subsection 1.11.
1.10. Determination of Computed Value. For purposes of this Agreement, the
term "Computed Value" of any Option Rights shall be either (i) the average
trading price (calculated as the median) of a share of the Company's common
stock for the calendar month preceding the Notice, according to the records of
the Transfer Agent for the Company, for stock transactions between bona fide
unrelated third parties ("Unrelated Transactions"), provided that during such
preceding month, there were at least twenty (20) Unrelated Transactions that
in the aggregate amounted to at least two percent (2%) of the outstanding
Stock of the Company (such activity is hereafter called "Active Volume") less
the exercise price of the Options at that time, or (ii) if there has not been
an Active Volume for the preceding month or if the Compute Value would be a
negative number, then the Computed Value shall be US$0.10 per share.
1.11. Closing. The closing (the "Closing") of any purchase of the Option
Rights by Company and/or the Exercising Shareholders pursuant to any exercised
Option to Purchase shall take place on the thirtieth (30th) day after the
expiration of the forty-five (45) day option period [or, if such thirtieth
(30th) day shall be a Saturday, Sunday or other business holiday, on the next
succeeding regular business day] at 10:00 a.m., at the offices of Company, or
such other time or place as may be mutually agreeable to the parties. At the
Closing, the Transferor shall deliver to Company and/or the Exercising
Shareholders certificates representing the Option Rights being sold or
transferred, duly endorsed in blank and in proper form for transfer with
applicable federal or state stock transfer tax stamps affixed thereto or with
funds sufficient for payment thereof, such delivery to be contingent upon and
concurrent with delivery by each transferee of the consideration for such
Option Rights require in accordance with the exercised Option to Purchase.
1.12. Purchase of All the Option Rights Covered by an Option to Purchase.
Notwithstanding anything to the contrary contained herein, if, after the
giving of a Notice and receipt of Company's and/or each and every
Shareholder's exercise of the Option to Purchase as provided in Subsection
1.09(b), there remains any portion of the Option Rights subject to the Option
to Purchase not elected to be purchased by Company and/or the Shareholders
(including the Exercising Shareholders), the Transferor shall have the option
to either (i) sell to Company and/or the Exercising Shareholder that portion
of the Option Rights that each has elected to purchase and sell to any other
party the remainder of the Option Rights, or (ii) reject Company's and each
and every Exercising Shareholder's exercise of the Option to Purchase. In the
event that the Option to Purchase has been triggered under Subsection 1.08(a),
and the Seller rejects the exercise of the Option to Purchase of the Company
and of each Exercising Shareholder, Seller may thereafter sell, transfer or
otherwise dispose of the Option Rights to the party and pursuant to the terms
and conditions specified in the Notice of Sale, as set forth in Subsection
1.13 below. It shall never be required that the Shareholder whose Option
Rights are subject to the Option to Purchase sell, transfer or otherwise
dispose of only a portion of the Option Rights covered by the Option to
Purchase to Company and/or the Exercising Shareholders, collectively.
1.13. Disposition to Party Specified in Notice of Sale. If the Option to
Purchase has been triggered under Subsection 1.08(a), and if Company and/or
the Exercising Shareholders fail to exercise the Option to Purchase all of the
Offered Option Rights, Seller ma~ sell, transfer or otherwise dispose of (i)
all of the Offered Option Rights, or (ii) such portion thereof as the
Exercising Shareholders shall not have elected to purchase or acquire, to the
party specified in the Notice of Sale for the consideration and upon the term
and conditions stated herein, and not otherwise; provided that such sale,
transfer or other disposition must be completed at any time within, but not
after sixty (60) days after the expiration of the forty-five (45) day period
during which Company and/or the Shareholders other than Seller may exercise
any rights to acquire such Option Rights. If not completed within the
appropriate period designated above, the Notice of Sale theretofore given
shall in all respects be a nullity and shall be treated as though it never had
been given and any resulting transfer shall be of no force, effect or validity
for any purpose whatsoever. If such other disposition is not consummated on
the same terms as stated in the Notice of Sale, such disposition shall be of
no force, effect or validity for any purpose whatsoever and the notice thereof
shall be rendered ineffective.
SECTION II
SHAREHOLDERS' ELECTION TO PURCHASE
[buy/sell agreement] [deleted]
SECTION III
DEATH OF A SHAREHOLDER; LIFE INSURANCE POLICIES AND PROCEEDS
[deleted]
SECTION IV
CONFIDENTIALITY AND RESTRICTIVE COVENANTS
[deleted]
SECTION V
VOTING AGREEMENTS
5.01. Election of Directors. From the date of this Agreement until MCH has
timely completed the purchase of 1,000,000 Shares from the Company pursuant to
the terms of the Purchase Agreement, MCH shall nominate two candidates, MA
shall nominate one candidate, and BFI shall nominate one candidate for the
four member board of directors; provided that, in the event that the Board of
Directors shall consist of a number of directors other than four, MCH, MA and
BFI collectively shall nominate a number of candidates equal to the total
number of board members, and BFI and MA collectively shall nominate the same
number of candidates as MCH. In the event that MCH fails to purchase the
1,000,000 Shares within the time frame set forth in Section 1.02 of the
Purchase Agreement, thereupon and thereafter until the Termination Date (as
hereinafter defined) MCH shall nominate two candidates, MA and BFI
collectively shall nominate three candidates for a five member board of
directors; provided that, in the event that the Board of Directors shall
consist of a number of directors other than five, MCH, MA and BFI collectively
shall nominate a number of candidates equal to the total number of board
members, and BFI and MA collectively shall nominate one more candidate than
MCH if the number of board members is an odd number or two more than MCH if
the number of board members is even. From the Final Closing Date (as defined
in the Purchase Agreement) until the Termination Date, MCH shall nominate
three candidates and BFI and MA collectively shall nominate two candidates for
the five member board of directors; provided that, in the event that the Board
of Directors shall consist of a number of directors other than five, MCH, MA
and BFI collectively shall nominate a number of candidates equal to the total
number of board members, and MCH shall nominate one more candidate than BFI
and MA collectively if the number of board members is an odd number or two
more than BFI and MA collectively if the number of board members is even. In
each such case, the group of candidates so nominated by MCH, MA and BFI shall
be called the "Nominated Group". From the date of this Agreement until the
Termination Date each Shareholder agrees to support and vote his Shares in
favor of the election of each of the persons in the Nominated Group to the
Company's Board of Directors.
5.02. Election of Officers. Each Shareholder who is a director of the Company
agrees to support and vote in favor of the election of each of the following
persons to the following officer positions of the Company as long as such
person's position with the Company shall not be subject to termination for
cause, as hereinafter defined: Geoffrey Dart, Chairman of the Board; Paul L.
Barham Vice Chairman of the Board and Chief Executive Officer; Norman L.
Marks, President and Chief Operating Officer.
5.03 Definition of Cause. For purposes of this Section V, "cause" shall be
deemed to include (but shall not be limited to) employment in any capacity
with a competitor of the Company, dishonesty with respect to the Company,
substantial malfeasance or nonfeasance of duty to the Company, unauthorized
disclosure of confidential information of the Company, a material breach of an
obligation imposed under any provision of this Agreement, and other conduct
substantially prejudicial to the business of the Company. The good faith
determination of the Board of Directors as to the existence of cause shall be
conclusive on the affected party.
5.04 Approval of Options. Each Shareholder agrees to vote for the approval of
the Purchaser Options and Employee Options (as such terms are defined in the
Purchase Agreement) if such options or option shares are presented to the
shareholders of the Company for approval at any special or annual meeting of
the stockholders of the Company.
SECTION VI.
GENERAL PROVISIONS
6.01. Noncompliance. If any Option Rights shall be disposed of otherwise
than
in accordance with the terms and conditions of SECTION 1 the Option
Shareholders may either (a) treat the transfer as a nullity, or (b) have the
right, exercisable at any time prior to the expiration of six (6) months after
such Option Shareholders receive written or other notice of such disposition,
to purchase the Option Rights at such price and on substantially similar terms
as would have been in effect had there been compliance with the terms of this
Agreement. In enforcing such right or purchase on behalf of the Option
Shareholders, any such Shareholder may without prejudice to any and all other
rights or remedies that may be available to the Option Shareholders hold and
refuse to transfer the Option Rights to any purchaser or transferee to whom
any of the Option Rights were sold or otherwise transferred in violation of
the terms of this Agreement.
6.02. Regulatory Approval: Denial of Same. In the event that any
regulatory
approval is required in order to close any transfer contemplated hereby, the
dates for closing of transfers contemplated hereby provided shall be extended
so as to permit a reasonable time in order to apply for and receive such
regulatory approval, notwithstanding any contrary provision of this Agreement.
In the event that any necessary regulatory approval for any transfer
contemplated hereby is denied or any regulatory authority contests any
transfer contemplated hereby, the transfer proposed may be abandoned by the
Shareholder proposing to acquire Option Rights, in such transfer, and such
Shareholder may send notice of such abandonment to all other parties hereto
pursuant to Subsection 6.14 hereof, which notice shall have the effect of a
Notice under SECTION I hereof as to all Shareholders other than the party
giving such Notice and other than the Shareholder whose Option Rights are the
subject of the proposed transfer. The giving of such Notice shall be without
liability to the Shareholder giving such Notice in the circumstances described
above and his obligation to purchase such Option Rights hereunder shall
forthwith terminate with respect to such proposed transfer, but his
obligations hereunder shall not otherwise be affected.
6.03. Purchase from Defaulting Shareholders. It being the desire of all
parties hereto to prevent a foreclosure by any bank or other lender as to any
of the Option Rights pledged thereto, it is agreed that in the event any
Shareholder is in default for a period of sixty (60) days on any interest or
principal payment due to any such pledgee bank or other lender, or subsequent
pledgee, or in the event foreclosure is threatened sooner by any such pledgee,
any of the other Shareholders shall have the option to purchase the Option
Rights owned by such defaulting party at private sale from the pledgee bank or
other lender, and will thereafter, in the event of purchase by a Shareholder,
offer the Option Rights so purchased to the other Shareholders, under the
terms of this Agreement at the price paid therefor, said offer, to the extent
not accepted by Company, to be made proportionately among all other
Shareholders in the manner provided in SECTION I for a sale of Option Rights
pursuant to receipt of a Notice.
6.04. Continued Application of Agreement. Any Option Rights sold,
transferred,
pledged, hypothecated or otherwise encumbered or disposed of by any
Shareholder voluntarily or involuntarily or by operation of law, shall
continue to be subject to the provisions of this Agreement, and any transferee
of such Option Rights shall be deemed to be a Shareholder as defined in this
Agreement for all purposes herein, whether or not such transferee acknowledges
or executes this Agreement.
6.05. Legend on Stock Certificates. From and after the effective date of
this
Agreement, each certificate evidencing the Option Rights shall bear the
following legends:
On the front side:
"TRANSFER OF THE OPTION RIGHTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED -
SEE REVERSE SIDE."
On the reverse side:
"THE OPTION RIGHTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
AND TRANSFER THEREOF IS RESTRICTED BY THE TERMS AND PROVISIONS OF
THAT CERTAIN SHAREHOLDER'S AGREEMENT DATED NOVEMBER -, 1999,
EXECUTED BY THE CORPORATION AND CERTAIN SHAREHOLDERS OF THE
CORPORATION, A COPY OF WHICH IS ON FILE IN THE OFFICES OF THE
CORPORATION."
6.06. Representation and Warranties. All representations and warranties
furnished by one party to another in accordance with any of the terms or
provisions of this Agreement shall survive the closing of any purchase and
sale of Option Rights hereunder and shall not be affected by any
investigation, verification or approval by any party hereto or by and on
behalf of any party to this Agreement.
6.07. Parties Bound by Agreement. This Agreement shall be binding upon the
parties hereto, their heirs, administrators, executors, successors and
assigns, and transferees, and the parties hereto covenant and agree that their
respective heirs, administrators, executors, successors and assigns, and
transferees will execute any and all instruments, releases, assignments and
consents that may be required of them to execute the provisions of this
Agreement fully.
6.08. Anti-Dilution Provisions. In the event that subsequent to the date
hereof and prior to the closing of any sale and purchase of any of the Option
Rights hereunder --
(a) there shall have occurred any reclassification or combination of Option
Rights, a stock split, recapitalization, reorganization, merger, consolidation
or other similar occurrence affecting any of the Option Rights which otherwise
but for such occurrence would have been deliverable at any such Closing, then
the resulting stock and securities (and cash, if any) shall be those that
shall be assigned and delivered (and paid over if cash is involved) by Seller
or Transferor or Selling Shareholders at the Closing to the purchaser or
purchasers; or
(b) there shall have been declared but not paid upon or in respect of any of
the Option Rights involved at the Closing any dividend or other distribution,
the amount of such dividend or other distribution shall be deducted in
determining the per share purchase price and shall be paid to Seller or
Transferor or Selling Shareholder; provided, that the purchaser of the Option
Rights shall have the right, at its or his option, to elect to include the
amount of the dividend or other distribution in the determination of the per
share purchase price, in which event the dividend or other distribution shall,
when received by the Seller or Transferor or Selling Shareholder, be promptly
delivered to the purchaser or purchasers.
6.09. Modification of Agreement. This Agreement may be amended in any
respect
by the written unanimous consent of all the parties to the Agreement and not
otherwise; provided, however, that no amendment shall affect the rights of any
transferee acquiring his interest in Option Rights prior to the date of such
amendment without the written consent of such transferee.
6.10. Termination of Agreement: Termination Date. The date of termination
of
this Agreement (the "Termination Date") shall be the earliest of any of the
following events:
(a) The written agreement of all parties hereto to terminate this Agreement;
(b) The dissolution, bankruptcy or insolvency of Company;
(c) At such time as only one Shareholder remains, the Shares and Option
Rights of the other Shareholder or Shareholders having been transferred to the
remaining Shareholder;
(d) Upon the unanimous election of all other Shareholders if another
Shareholder violates any provision of this Agreement, provided that no such
election will be allowed in case of violation of the provisions of Subsection
6.11 hereof; or
(e) Five years from the date of this Agreement.
6.11. Shareholder Wills. Each Shareholder who is a natural person agrees
to
include in his will or to execute a codicil thereto including a direction and
authorization to his Executor to comply with the provisions of this Agreement;
provided that the failure of any Shareholder to include such a direction and
authorization in his will or in a codicil thereto shall not affect the
validity or enforceability of this Agreement.
6.12. Filing of Agreement. A duplicate copy of this Agreement shall be
filed
in the minute book of the Company.
6.13. Severability. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement.
6.14. Notices. Any notice required to be given pursuant to this Agreement
must
be in writing and may be given by registered or certified mail and, if given
by registered or certified mail, shall be deemed to have been given and
received forty-eight (48) hours after a registered or certified letter
containing such notice, properly addressed with postage prepaid, is deposited
in the United States mail; and if given other than by registered or certified
mail, it shall be deemed to have been given when actually delivered to and
received by the party to whom addressed. Notices shall be given to the parties
hereto at the following addresses:
MCH:
Merchants Capital Holdings, Ltd.
c/o Robert Edwards
Edwards & Associates
17060 Dallas Parkway, Suite 101
Dallas, Texas 75248
Company:
Harrell International, Inc.
211 A East Louisiana Street
McKinney, Texas 75069
Barham: Paul Barham
1354 Crosstimber
Southlake, Texas 76092
Marks:
Norman Marks
7300 Quarry Chase Trail
Piano, Texas 75025
Barham Family Interests, Inc.
1354 Crosstimber
Southlake, Texas 76092
MA:
Marks & Associates, Inc.
7300 Quarry Chase Trail
Piano, Texas 75025
To all other Shareholders, at the address that may be shown on the stock
records of Company at the time of said notice. Any party hereto may, by giving
ten (10) days' written Notice to the other parties, designate any other
address in substitution of the foregoing address to which notices shall be
given.
6.15. Specific Performance. The parties hereto declare that it is
impossible
to measure in money the damages which will accrue to a party hereto, his
heirs, executors, administrators, and other legal representatives, by reason
of a failure to perform any of the provisions of this Agreement. Therefore, if
a party hereto, his heirs, executors, administrators of other legal
representatives shall institute any action or proceeding to enforce the
provisions hereof, any person against whom such action or proceeding is
brought hereby agrees that specific performance may be sought and obtained for
any breach of this Agreement, without the necessity of proving actual damages.
6.16. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original.
6.17. Governing Law. This Agreement has been made and entered into in
Collin
County, Texas, and shall be governed by and construed in accordance with the
laws of the State of Texas, and the obligations of the parties hereunder are
performable in Collin County, Texas. Each of the Shareholders and the Company
hereby irrevocably consents and submits to the exclusive jurisdiction of the
courts of the State of Texas in any proceeding brought to construe or enforce,
or otherwise affecting, this Agreement.
6.18. Time. Time is of the essence of this Agreement.
6.19. Assignment. This Agreement shall be binding on and inure to the
benefit
of the parties hereto, their respective executors, administrators, other legal
representatives, successors and assigns; provided, however, that the benefits
of this Agreement shall not be assigned to any other party whomsoever without
the express consent of all of the other parties hereto.
6.20. Implementation of Transfer of Option Rights. Any Seller or Selling
Shareholder or other Transferor will, at any time and from time to time after
the sale or other transfer of any of the Option Rights pursuant to SECTION I
hereof, upon request of the purchaser, do, execute, acknowledge and deliver
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be required to convey, transfer and vest in
such purchaser the full right, title, interest in and enjoyment of such Option
Rights.
6.21. Entire Agreement: Superseding Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and may not be modified or amended except in writing signed by all the
parties hereto. This Agreement supersedes any prior agreement related to the
subject matter hereof.
6.22. Waiver. No term or condition of this Agreement shall be deemed to
have
been waived, nor shall there be any estoppel to enforce any provision of this
Agreement, except by written instrument of the party charged with such waiver
or estoppel.
6.23. Indemnification. Each Shareholder agrees to indemnify and hold all
other
Shareholders harmless from any liability, loss, cost or expense (including,
but not limited to, attorney's fees and expenses of investigation, litigation
and settlement) that such Shareholders may ever suffer, sustain or become
subject to as a result of (i) a breach of any representation, warranty or
covenant made by such Shareholder in connection with a purchase or sale of his
Option Rights pursuant to this Agreement, or (ii) his failure to perform any
obligation required by this Agreement to be performed by him.
6.24. Attorneys' Fees. If any action at law or in equity, including an
action
for declaratory relief, is brought to enforce or interpret the provisions of
this agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and court costs from the other party or parties, which fees
and costs may be set by the court in the trial of such action or may be
enforced in a separate action brought for that purpose, and which fees and
costs shall be in addition to any other relief which may be awarded.
6.25. Singular, Plural, Pronouns, Etc. Whenever the context hereof shall
so
require, the singular shall include the plural, the male gender shall include
the female gender and the neuter, and visa versa.
6.26. Headings. The headings contained in this Agreement are for purposes
of
reference only and shall not limit or otherwise affect the meaning of any of
the provisions contained herein.
6.27. Spouses. The spouse of any party hereto that is a natural person has
joined in this Agreement and agreed to be bound thereby to the extent of any
community property or other interest that such spouse may have or claim in any
of the Option Rights or the Shares. The Company and all Shareholders shall in
all matters related to or arising under the Agreement be entitled to deal with
the registered holder of any Option Rights or Shares without regard to any
community property interest that may be held by the spouse of such holder.
EXECUTED as of the date first set forth above.
Company:
HARRELL INTERNATIONAL, INC.,
a Delaware corporation
By:________________
Paul Barham, Chief Financial Officer
MCH:
MERCHANTS CAPITAL HOLDINGS, LTD.,
a British Virgin Islands corporation
By:_________________
Printed Name: G.G.Dart
Title: Director
__________________
Paul L. Barham
__________________
SPOUSE
___________________
Norman L. Marks
___________________
SPOUSE
BARHAM FAMILY INTERESTS, INC.,
By:_______________
MARKS & ASSOCIATES, INC.,
By:______________
LETTER FROM CHASE-MELLON
CHASEMELLON
SHAREHOLDER SERVICES
450 West 33rd Street
New York
NY 10001
September 22, 1999
William P. Tatler
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
Re: Harrell International Inc.
Dear Mr. Tatler
This is in reference to the five- (5) issues that were forwarded to your
company with regards to Chasemellon Shareholder Service being terminated as
Transfer Agent and Registrar.
After reviewing the historical transactions for this company, I am confirming
that the two-(2) issue files represented by cusip. 41364811 COM NPV and
41364811 COM PV were forwarded to you in error. These cusips were setup for
processing only.
Listed below are descriptions for the three additional cusips that are active
files:
1) Cusip: 41364820
Company: Harrell International, Inc.
Common $1.00 PV
Total shares outstanding: 966,193
Shareholders: 690
Special notes: This is the main cusip. Company formerly
The Harrell Corporation, Formula 409,
Inc., and Fred B. Spinney Distributors,
Inc.
2) Cusip: 4136489A
Company: Harrell International, Inc.
Com NPV
Total shares outstanding: 5,587
Shareholders: 28
Special notes: Shareholders holding shares of Formula
409, Inc.
Exchange Rate: Com NPV ( 5 old = 1 new)
3) Cusip: 4136489B
Company: Harrell International, Inc.
Com $1.00 PY
Total shares outstanding: 48,888
Shareholders: 397
Special notes: Shareholders holding shares of Fred B.
Spinney Distributors, Inc.
Exchange Rate: Com$1.OOPV(1 old=.06)
Attached is a copy of a memorandum dated June 8, 1992 with a brief description
of the three issue, prior to the conversation to Mellon Securities Trust, Inc.
I would like to apologize for delay in forwarding this information to you,
please feel free to contact me if you have any questions concerning the
information listed above.
Sincerely,
Kirk Alexander
Relationship Manager
CC: PaulBarham
CFO/ Harrell International
Thomas C. Self
Thomas & Self
A Professional Corporation
LETTER FROM CHASE-MELLON
CHASEMELLON
SHAREHOLDER SERVICES
450 West 33rd Street
New York
NY 10001
September 22, 1999
William P. Tatler
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
Re: Harrell International Inc.
Dear Mr. Tatler
This is in reference to the five- (5) issues that were forwarded to your
company with regards to Chasemellon Shareholder Service being terminated as
Transfer Agent and Registrar.
After reviewing the historical transactions for this company, I am confirming
that the two-(2) issue files represented by cusip. 41364811 COM NPV and
41364811 COM PV were forwarded to you in error. These cusips were setup for
processing only.
Listed below are descriptions for the three additional cusips that are active
files:
1) Cusip: 41364820
Company: Harrell International, Inc.
Common $1.00 PV
Total shares outstanding: 966,193
Shareholders: 690
Special notes: This is the main cusip. Company formerly
The Harrell Corporation, Formula 409,
Inc., and Fred B. Spinney Distributors,
Inc.
2) Cusip: 4136489A
Company: Harrell International, Inc.
Com NPV
Total shares outstanding: 5,587
Shareholders: 28
Special notes: Shareholders holding shares of Formula
409, Inc.
Exchange Rate: Com NPV ( 5 old = 1 new)
3) Cusip: 4136489B
Company: Harrell International, Inc.
Com $1.00 PY
Total shares outstanding: 48,888
Shareholders: 397
Special notes: Shareholders holding shares of Fred B.
Spinney Distributors, Inc.
Exchange Rate: Com$1.OOPV(1 old=.06)
Attached is a copy of a memorandum dated June 8, 1992 with a brief description
of the three issue, prior to the conversation to Mellon Securities Trust, Inc.
I would like to apologize for delay in forwarding this information to you,
please feel free to contact me if you have any questions concerning the
information listed above.
Sincerely,
Kirk Alexander
Relationship Manager
CC: PaulBarham
CFO/ Harrell International
Thomas C. Self
Thomas & Self
A Professional Corporation
Memorandum to: W.Powers, V.P.
Mellon Securities Trust Co.
Date: June 8, 1992
CCS:
V. Albanese
J. Keegan
K. Brennan
R. Scott
A. Ericson
C. Mittler
N. Baker
N. Sandauer
R. Weinman
RE: MSTC/CHASE Conversion HARRELL INTERNATIONAL, INC.- (CMB-PTA/REG/DDA/Ex)
(formerly The Harrell Corporation, Formula 409, Inc., and
Fred B. Spinney Distributors, Inc.)
Cusip- 4l364820/9A/9B Common Stock $1.00 p.v., Old Common no p.v., Old
Common $1.00 p.v.
Contract Revenue- $4,867.00
Balances- See Special Notes below
Ctf Overprint-Banknote Company of America
S/H Notifications- Scotti Graphics
# of S/H's- 1,123
The captioned company has indicated agreement to convert to Mellon effective
the opening of business on July 1, 1992. In this regard, enclosed please find
the following documents:
- - Certified copy of Certificate of Incorporation filed with the Secretary
of State of Delaware (formerly Massachusetts)on March 19, 1987 and amendments
dated 4/1/68, 4/7/67, 4/29/63, 5/9/62, 10/20/61 and various prior dates.
dated January 7, 1975.
- - Certified copy of company's By-laws dated September 26, 1961.
- - Certified copies of specimen certificates dated 4/22/68, 3/29/63 and
9/14/61.
- - Most current schedule of CMB fees effective January 1, 1990. This
account was operating under a 1 year fee guarantee. No fee increase was
effected in 1991/2 due to contract negotiations and Sale of the Business..
- - Copy of Account Officer's Status Sheet.
With regard to this conversion of Chase's appointment to Mellon, please
provide me with the following for our files:
1. Signed copy of this Memorandum acknowledging receipt of the above
mentioned documents.
2. Certification of last certificate numbers used under Chase's appointment
as PTA and REG.
3. Copy of Certificate of Cremation (Destruction) for any and all
certificates with Chase's name as agent that have to be destroyed.
4. Notification of the new prefix(s) to be utilized for Mellon's
- - appointment as successor agent (as applicable)
5. Certification of outstanding shares and reserves as of the close of
business on June 30, 1992.
6. Final billing for this account for the month of June through
6/30/92.
7. Certified S/H file list as of the close of business on 6/30/92
1__on fische (all classes).
8. Balance tracking amounts and certification for the company's next
dividend payment.
9. Reconciliation and copies of tickets transferring funds described under
Special Notes below.
10 Anticipated Account Officer Assignment.
Special Notes:
1. Unclaimed shares/monies, if any, should be transferred to Mellon's
control effective 7/1/92. Note company's last dividend was paid on September
5, 1990 to shareholders of record 6/29/90 at the rate of $1.11 per share.(Co.
does not have a quarterly payment schedule).
2. Unpaid dividend/REORG monies should be transferred to Mellon's control
effective 7/1/92.
3. Undistributed cash-in-lieu funds should be transferred to Mellon's
control effective 7/1/92. (There are no funds being held by Chase.
4. Exchange rates: Old Common $1.00 p.v.- 5 old = 1 New
Old Common no p.v.- 1 old = .06 New
Should you have questions on these matters, please contact the account
officer, A. Ericson (718)242-2727 or the undersigned (718)242-7283.
John E Strain, V.P.
RE: HARRELL INTERNATIONAL, INC.
The undersigned acknowledges receipt of the aformentioned documents for Mellon
Securities Trust Company relating to Harrell International, Inc.
William Powers, V.P. Date
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 263693
<SECURITIES> 0
<RECEIVABLES> 66994
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 344924
<PP&E> 42483
<DEPRECIATION> 32228
<TOTAL-ASSETS> 357029
<CURRENT-LIABILITIES> 70481
<BONDS> 0
0
243331
<COMMON> 9766
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 357029
<SALES> 0
<TOTAL-REVENUES> 588906
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 562380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2195
<INCOME-TAX> 0
<INCOME-CONTINUING> 2195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2195
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
