SCHEDULE 14C
(RULE 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Check the appropriate box:
[X] Preliminary Information Statement [ ] Confidential, for Use
of the Commission
Only (as permitted by Rule 14c-5(d)(2))
[ ] Definitive Information Statement
HOLMES MICROSYSTEMS, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
HOLMES MICROSYSTEMS, INC.
57 West 200 South
Suite 310
Salt Lake City, Utah 84101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held ____, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of Holmes Microsystems, Inc., a Texas corporation (the "Company" or
"Holmes"), will be held at the offices of the Company, 57 West 200 South,
Suite, 310, Salt Lake City, Utah 84101 on _________________, 1999, at 10:00
a.m. local time. An Information Statement for the Meeting is enclosed.
The Meeting is for the following purposes:
(1) To approve a one hundred-to-one reverse stock split of the
Company's issued and outstanding common stock, par value $.001 per share (the
"Common Stock").
(2) To authorize the issuance of 610,711 post reverse-split shares to the
president of the Company for the assumption of all of the outstanding debt of
the Company.
(3) To transact any other business that may properly come before the
Meeting and any adjournments thereof.
The close of business on ________, 1999, has been fixed as the record
date for determining shareholders entitled to notice of and to vote at the
Meeting and any adjournments thereof. For a period of at least ten days prior
to the Meeting, a complete list of shareholders entitled to vote at the
Meeting will be open to the examination of any shareholder during ordinary
business hours at the offices of the Company at 57 West 200 South, Suite 310,
Salt Lake City, Utah 84101.
Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Information Statement.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. HOWEVER, ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON.
By Order of the Board of Directors
Kip Eardley, President
Salt Lake City, Utah
_______, 1999
HOLMES MICROSYSTEMS, INC.
57 West 200 South
Suite 310
Salt Lake City, Utah 84101
INFORMATION STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _______, 1999
This Information Statement is being first mailed on ________, 1999, to
shareholders of Holmes Microsystems, Inc., a Texas corporation (the "Company"
or "Holmes"), by the Board of Directors in connection with a Special Meeting
of Shareholders (the "Meeting") of the Company to be held at the offices of
the Company, 57 West 200 South, Suite 310, Salt Lake City, Utah 84101, on
_______________, 1999, at 10:00 a.m., local time, and at such other times and
places to which the Meeting may be adjourned.
The purpose of the Meeting is to consider and act upon the following:
(1) The approval of a one hundred-to-one reverse stock split of
the Company's issued and outstanding common stock, par value $.001 per share
(the "Common Stock").
(2) The authorization of the issuance of 610,711 post reverse-split
shares to the president of the Company for the assumption of all of the
outstanding debt of the Company.
(3) Such other matters as may properly come before the Meeting and
any adjournments thereof.
A shareholder owning 30,778,149 shares (64.06%) of the outstanding Common
Stock has indicated its intent to vote in favor of each of these proposals.
RECORD DATE AND VOTING SECURITIES
The record date for determining the shareholders of the Company
entitled to notice of and to vote at the Meeting and any adjournments thereof
was the close of business on _________, 1999 (the "Record Date"), at which
time the Company had issued and outstanding approximately 48,051,547 shares of
Common Stock, 3,750 shares of Series A Convertible Preferred Stock, and 840
shares of Series B Convertible Preferred Stock.
QUORUM AND VOTING
The presence at the Meeting, in person or by proxy, of the holders of
a majority of the shares entitled to vote thereat is necessary to constitute a
quorum to transact business. In deciding all questions and other matters, a
holder of Common Stock on the Record Date will be entitled to cast one vote
for each share of Common Stock then registered in such holder's name. A
holder of the Series A or Series B Convertible Preferred Stock at the Record
Date shall be entitled to vote the number of shares into which the preferred
shares are convertible. Thus, the holder of the Series A Convertible
Preferred Stock is entitled to cast 225,000 votes and the holder of the Series
B Convertible Preferred Stock is entitled to cast 2,940,000 votes. The total
number of votes eligible to be cast at the Meeting are 51,216,547. The
approval of each of the proposals will require the affirmative vote of a
majority of the shares entitled to vote at the Record Date. The holders of
the preferred shares, if outstanding on the Record Date, have agreed to vote
for the proposals set forth in this Information Statement.
Shares referred to as "broker non-votes" (shares held by brokers or
nominees as to which they have no discretionary authority to vote on a
particular matter and have received no instructions from the beneficial owners
or persons entitled to vote thereon), if any, are counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. However, for purposes of determining the outcome of any matter
requiring discretionary authority to vote, broker non-votes will be treated as
not voting with respect to that matter (even though those shares are
considered present for quorum purposes and may be entitled to vote on other
matters).
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth information regarding the beneficial
ownership of Common Stock as of the Record Date by (i) each person known by
the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) the Company's executive
officers and (iv) all directors and executive officers of the Company as a
group.
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL BENEFICIAL PERCENT
OWNER OR GROUP OWNERSHIP OF CLASS
Kip Eardley -0- -0-
5814 South 900 East
Salt Lake City, Utah 84117
Howard M. Oveson 30,778,149 64.06%
57 West 200 South
Suite 310
Salt Lake City, Utah 84101
Marilyn Welch 3,147,100 6.55%
Las Vegas, Nevada
Executive Officers and -0- -0-
Directors as a Group (1 Person)
MANAGEMENT'S PLAN OF OPERATION
The Company has had no revenues from operations in the last two fiscal
years and the interim period through October 31, 1999. Until the fiscal year
ended January 31, 1994, the company had been engaged in the sale of modems
which provided data and facsimile capabilities for portable computers. The
company had used the trade name "FAX EM" as an overall description of its
products. As of the year ended January 31, 1994, the company ceased all sales
and operations and became totally inactive. All of the liabilities of the
Company set forth in the financial statements attached to this Information
Statement were incurred in the course of the Company's prior operations.
For the years ended January 31, 1998 and 1999, the Company had
outstanding judgments in the amount of $526,711, all of which were obtained by
product and service providers when the Company failed to pay obligations to
such persons. The Company also issued promissory notes in the amount of
$84,000 to affiliates of the Company for funds advanced to the Company which
present management believes were used for the Company's operations. These
obligations were incurred when the Company was operating its modem
business.
When current management took control of the Company in December 1996,
Mr. Eardley began the process of attempting to settle the outstanding
obligations and convert or repurchase the outstanding preferred stock. At the
commencement of this year he agreed to assume all of the outstanding
judgements and promissory notes and attempt to settle these individually using
his own funds. In September 1999, this agreement was memorialized in writing
and Mr. Eardley agreed, subject to shareholder approval, to accept 610,711
post 100-for-1 reverse split shares as consideration for such assumption.
Through the end of the third quarter ended October 31, 1999, Mr. Eardley had
settled $492,806 of the outstanding judgments. Mr. Eardley is continuing to
negotiate settlement of the remaining outstanding liabilities and has agreed
to indemnify the Company against the full amount of these remaining
liabilities.
The Company had previously issued 7,500 shares of Series A Convertible
Preferred Shares and 840 shares of Series B Convertible Preferred Shares. On
June 1, 1999, management of the Company negotiated a repurchase of 3,750 of
the Series A shares for $5,000. These funds were advanced by Mr. Eardley, who
agreed to apply such amount as additional capital contribution on the shares
to be issued to him in connection with the assumption of the outstanding
liabilities of the Company. Thus, the Company has no obligation to repay the
$5,000 advanced by Mr. Eardley. The repurchased shares were canceled and
returned to the authorized but unissued shares of the Series A Preferred
Stock. In November 1999, the Company agreed to issue 50,000 post-reverse
split shares to the holder of the Series B Preferred Shares in connection with
the conversion of such preferred shares. The Company is also negotiating the
conversion of the remaining Series A Convertible Preferred Shares.
The Company was originally organized for the purpose of engaging in
any lawful activity permitted under Texas state law; however, the Company does
not have any significant cash or other material assets, nor does it have an esta
blished source of revenues, except as provided by management, sufficient to
cover operating costs and to allow it to continue as a going concern. The
Company intends to take advantage of any reasonable business proposal
presented which management believes will provide the Company and its
stockholders with a viable business opportunity. The board of directors will
make the final approval in determining whether to complete any acquisition,
and, unless required by applicable law, the articles of incorporation, or the
bylaws, or by contract, stockholders' approval will not be sought.
The Company has no funds with which to pursue a new business venture.
The president of the Company has offered to advance an undetermined amount of
funds for the Company to seek and locate a potential merger or acquisition
candidate, and to postpone repayment of such advances until a new business
venture is acquired. In addition, he has negotiated with counsel to perform
legal services for the Company and to postpone payment for such services until
a merger or acquisition transaction is completed. Management anticipates that
it will negotiate with the owners of the new business venture to repay the
advances from him and to pay the legal costs incurred by the Company through
the consummation of an acquisition or merger. Mr. Eardley estimates that he
will be able to advance sufficient funds to the Company to meet the Company's
cash needs until a transaction with a new business venture can be consummated,
but the amount of such funds will be contingent upon the costs of locating and
consummating a transaction with a new business venture, which costs are
impossible to estimate. If the funds advanced by the president are
insufficient to locate a suitable business opportunity, he may seek additional
advances on behalf of the Company from Mr. Howard M. Oveson, a principal
shareholder of the Company. There is presently no agreement or specific
arrangement with Mr. Oveson to provide such additional funds and there is no
assurance that such funds would be available. The Company may also seek
equity financing if additional funds are necessary through the sale of shares
of its common stock. It is very unlikely that traditional forms of financing,
such as bank loans, would be available to the Company.
The investigation of specific business opportunities and the
negotiation, drafting, and execution of relevant agreements, disclosure
documents, and other instruments will require substantial management time and
attention and will require the Company to incur costs for payment of
accountants, attorneys, and others. If a decision is made not to participate
in or complete the acquisition of a specific business opportunity, the costs
incurred in a related investigation will not be recoverable. Further, even if
an agreement is reached for the participation in a specific business
opportunity by way of investment or otherwise, the failure to consummate the
particular transaction may result in the loss to the Company of all related
costs incurred.
Currently, management is not able to determine the time or resources
that will be necessary to locate and acquire or merge with a business
prospect. There is no assurance that the Company will be able to acquire an
interest in any such prospects, products, or opportunities that may exist or
that any activity of the Company, regardless of the completion of any
transaction, will be profitable. If and when the Company locates a business
opportunity, management of the Company will give consideration to the dollar
amount of that entity's profitable operations and the adequacy of its working
capital in determining the terms and conditions under which the Company would
consummate such an acquisition. Potential business opportunities, no matter
which form they may take, will most likely result in substantial dilution for
the Company's shareholders due to the likely issuance of stock to acquire such
an opportunity. If management fails to locate and complete a transaction with
a merger candidate, it is likely that current management would resign and that
the Company would eventually be dissolved by the State of Texas.
PROPOSAL No. 1
REVERSE SPLIT OF THE OUTSTANDING STOCK
The Board of Directors has adopted, and proposes that the shareholders
of the Company approve, a one hundred-to-one reverse stock split (the "Reverse
Stock Split") of the Company's issued common stock, par value $.001 per share
(the "Common Stock"). The effect of the Revere Stock Split would be to
increase the authorized but unissued shares by a factor of 100.
REASONS FOR THE REVERSE STOCK SPLIT
The Company has been inactive since 1994 and presently has no assets or
on-going operations. Since 1996 the Company has been attempting to settle its
outstanding liabilities and seek a new business venture. Management believes
that the acquisition of any new business venture would include the issuance of
shares of the Common Stock as part of the purchase price therefor. And, it is
likely that any person agreeing to sell a business venture to the Company
would anticipate obtaining a controlling interest in the Company. Therefore,
management believes that the Reverse Stock Split would provide sufficient
authorized but unissued shares of Common Stock to permit the Company to issue
a controlling interest in the Company to any potential acquiree.
On June 25, 1999, the Company entered into a letter of intent with
Rascals Enterprises, Inc. ("Rascals"), a Delaware corporation in connection
with a proposed reverse acquisition by Rascals. The Company did not have
sufficient unissued shares of Common Stock to consummate the transaction and
was not able to accomplish a reverse split of the outstanding shares in order
to meet the time commitment in the letter of intent. Therefore the letter of
intent was terminated on or about July 14, 1999.
The Company believes the completion of the Reverse Stock Split may not
cause the trading price of the Common Stock to increase proportionately since
there is currently no active or established trading market of the Common
Stock. There can be no assurance that the Reverse Stock Split will result in
any change in the price of the Common Stock or that, if the price of the
Common Stock does increase as a result of the Reverse Stock Split, such
increase would be proportional to the amount of the reverse split.
SEARCH FOR NEW BUSINESS VENTURE
The Company is currently seeking potential business acquisitions or
opportunities to enter into in an effort to commence new business operations.
The Company does not propose to restrict its search for a business opportunity
to any particular industry or geographical area and may, therefore, engage in
essentially any business in any industry. The Company has unrestricted
discretion in seeking and participating in a business opportunity.
The Company's Board of Directors shall make the final determination
whether to complete any such venture; the approval of shareholders will not be
sought unless required by applicable laws, rules and regulations, its Articles
of Incorporation or Bylaws, or contract. Neither the Company's Articles of
Incorporation nor its Bylaws presently require stockholder approval for any
such acquisition and management does not intend to amend these documents to
require shareholder approval. The Company does not intend to provide any
disclosure documentation to its shareholders prior to any acquisition
transaction. However, as a reporting issuer subject to the reporting
requirements of the 1934 Act, the Company will be required to disclose any
such transaction in a Current Report on Form 8-K, including audited financial
statements of the acquired entity and consolidated pro forma financial
statements. Any change in management would be preceded by a statement filed
with the SEC and mailed to the shareholders describing the new management.
The selection of a business opportunity in which to participate is
complex and risky. Additionally, as the Company has only limited resources
available to it through advances by management, it may be difficult to find
good opportunities. There can be no assurance that the Company will be able
to identify and acquire any business opportunity based on management's
business judgement.
Management intends to consider a number of factors prior to making any
decision as to whether to participate in any specific business endeavor, none
of which may be determinative or provide any assurance of success. These may
include, but will not be limited to, an analysis of the quality of the
entity's management personnel; the anticipated acceptability of any new
products or marketing concepts; the merit of technological changes; its
present financial condition, projected growth potential and available
technical, financial and managerial resources; its working capital, history of
operations and future prospects; the nature of its present and expected
competition; the quality and experience of its management services and the
depth of its management; its potential for further research, development or
exploration; risk factors specifically related to its business operations; its
potential for growth, expansion and profit; the perceived public recognition
or acceptance of its products, services, trademarks and name identification;
and numerous other factors which are difficult, if not impossible, to properly
or accurately analyze, let alone describe or identify, without referring to
specific objective criteria.
Regardless, the results of operations of any specific entity may not
necessarily be indicative of what may occur in the future, by reason of
changing market strategies, plant or product expansion, changes in product
emphasis, future management personnel and changes in innumerable other
factors. Further, in the case of a new business venture or one that is in a
research and development stage, the risks will be substantial, and there will
be no objective criteria to examine the effectiveness or the abilities of its
management or its business objectives. Also, a firm market for its products or
services may yet need to be established, and with no past track record, the
profitability of any such entity will be unproven and cannot be predicted with
any certainty.
Management will attempt to meet personally with management and key
personnel of the entity sponsoring any business opportunity afforded to the
Company, visit and inspect material facilities, obtain independent analysis or
verification of information provided and gathered, check references of
management and key personnel and conduct other reasonably prudent measures
calculated to ensure a reasonably thorough review of any particular business
opportunity; however, due to time constraints of management, these activities
may be limited.
The Company is unable to predict the time as to when and if it may
actually participate in any specific business endeavor. The Company
anticipates that proposed business ventures will be made available to it
through personal contacts of directors, executive officers and principal
stockholders, professional advisors, broker dealers in securities, venture
capital personnel, members of the financial community, attorneys and others
who may present unsolicited proposals. In certain cases, the Company may agree
to pay a finder's fee or to otherwise compensate the persons who submit a
potential business endeavor in which the Company eventually participates. Such
persons may include the Company's directors, executive officers, beneficial
owners or their affiliates. In this event, such fees may become a factor in
negotiations regarding a potential acquisition and, accordingly, may present a
conflict of interest for such individuals.
Although the Company has not identified any potential acquisition target,
the possibility exists that the Company may acquire or merge with a business
or company in which the Company's executive officers, directors, beneficial
owners or their affiliates may have an ownership interest. Current Company
policy does not prohibit such transactions. Because no such
transaction is currently contemplated, it is impossible to estimate the
potential pecuniary benefits to these persons.
Although it currently has no plans to do so, depending on the nature and
extent of services rendered, the Company may compensate members of management
in the future for services that they may perform for the Company. Because the
Company currently has extremely limited resources, and is unlikely to have any
significant resources until it has completed a merger or acquisition,
management expects that any such compensation would take the form of an
issuance of the Company's stock to these persons; this would have the effect
of further diluting the holdings of the Company's other stockholders.
However, due to the minimal amount of time devoted to management by any person
other than the Company's sole director and executive officer, there are no
preliminary agreements or understandings with respect to management
compensation. Although it is not prohibited by statute or its Articles of
Incorporation, the Company has no plans to borrow funds and use the proceeds
to make payment to its management, promoters or affiliates.
Further, substantial fees are often paid in connection with the
completion of these types of acquisitions, reorganizations or mergers, ranging
from a small amount to as much as $250,000. These fees are usually divided
among promoters, founders, or principal shareholders, after deduction of
legal, accounting and other related expenses, and it is not unusual for a
portion of these fees to be paid to members of management or to principal
stockholders as consideration for their agreement to retire a portion of the
shares of common stock owned by them. Management may actively negotiate or
otherwise consent to the purchase of all or any portion of its common stock as
a condition to, or in connection with, a proposed merger or acquisition. It
is not anticipated that any such opportunity will be afforded to other
stockholders or that such stockholders will be afforded the opportunity to
approve or consent to any particular stock buy-out transaction. In the event
that such fees are paid, they may become a factor in negotiations regarding
any potential acquisition by the Company and, accordingly, may present a
conflict of interest for such individuals.
None of the Company's directors, executive officers or promoters, or
their affiliates or associates, has had any negotiations with any
representatives of the owners of any business or company regarding the
possibility of an acquisition or merger transaction with the Company, except
for prior negotiations in connection with the abandoned transaction with
Rascals. Nor are there any present plans, proposals, arrangements or
understandings with any such persons regarding the possibility of any
acquisition or merger involving the Company.
EFFECTIVE INCREASE OF AUTHORIZED SHARES
The Company presently has authorized 49,000,000 shares of common stock
and 1,000,000 shares of preferred stock, both with a par value of $.001. The
Company proposes to effect the Reverse Stock Split without changing the
authorized number of shares of Common Stock or the par value of such shares.
Thus, the Reverse Stock Split will have the effect of increasing the number of
authorized shares of Common Stock. The Preferred Stock will not be affected by
the Reverse Stock Split. The Company does not have any shares of Preferred
Stock issued and outstanding. The Board of Directors believes the proposed
amounts of Common Stock and preferred stock authorized for issuance are
adequate to meet the Company's needs in the foreseeable future. If the Reverse
Stock Split is approved, no shareholder approval will be solicited for the
issuance of all or any portion of the Common Stock unless required by law or
any rules or regulations to which the Company may be subject.
EFFECT OF REVERSE STOCK SPLIT ON SHAREHOLDERS
The Reverse Stock Split will not affect any shareholder's proportionate
equity interest in the Company, except for those shareholders who would
receive one more or one less share of Common Stock in lieu of fractional
shares. Holders of Common Stock will continue to be entitled to receive such
dividends as may be declared by the Board of Directors. The Company's
reporting obligations under the Securities Exchange Act of 1934, as amended,
will not be affected by the Reverse Stock Split.
EFFECT OF THE REVERSE STOCK SPLIT ON CAPITAL STOCK
Of the 49,000,000 shares of Common Stock authorized by the Company's
Articles of Incorporation, the Company had outstanding 48,051,547 shares on
the Record Date, leaving 948,453 authorized but unissued shares of Common
Stock available for issuance. Following the Reverse Stock Split, the Company
will have approximately 480,515 shares of Common Stock outstanding, leaving
48,519,485 authorized but unissued shares of Common Stock available for
issuance. Such action could result in potential dilution of the percentage
ownership interest of existing shareholders if the effective increase in the
authorized but unissued shares of Common Stock were to result in management
issuing a significant number of such shares, which is very likely. The par
value of the Common Stock will remain at $.001 per share. Because the number
of issued shares of Common Stock will decrease but the par value will remain
the same after the Reverse Stock Split, the Company's stated capital will
decrease by approximately $47,571, and the Company's surplus account will
increase by a corresponding amount. This change in the Company's capital
accounts will be reflected in the Company's financial statements, along with a
notation of the change in outstanding shares of Common Stock, as a result of
the Reverse Stock Split.
There were no shares of Preferred Stock issued on the Record Date or
reserved for issuance in the future. The Preferred Stock will be unaffected by
the Reverse Stock Split.
If the Reverse Stock Split is approved by the shareholders, the
Company will file an amendment to the Articles of Incorporation reflecting
the Reverse Stock Split, with the Secretary of State of the State of Texas
promptly following the conclusion of the Meeting. The Reverse Stock Split will
become effective on the date of such filing (the "Effective Date"). On the
Effective Date, without further action of the Company or its shareholders, (i)
every one hundred shares of Common Stock outstanding will automatically be
reverse split into one share outstanding. Based on information as of the
Record Date, the Company anticipates that the number of outstanding shares of
Common Stock, after giving effect to the Reverse Stock Split, will be
approximately 480,515 shares. Upon filing the amendment to the Articles of
Incorporation, the Company will notify the shareholders that the Reverse Stock
Split has been effected.
CERTAIN ANTI-TAKEOVER EFFECTS OF THE REVERSE STOCK SPLIT
As described above, approval of the Reverse Stock Split will increase the
number of authorized shares of Common Stock available for issuance. Under
certain circumstances, the Board of Directors could create impediments to, or
delay persons seeking to effect, a takeover or transfer of control of the
Company by causing such additional authorized shares to be issued to a holder
or holders who might side with the Board in opposing a takeover bid that the
Board of Directors determines is not in the best interests of the Company and
its shareholders. Such an issuance could diminish the voting power of existing
shareholders who favor a change in control, and the ability to issue the
shares could discourage an attempt to acquire control of the Company. While it
may be deemed to have potential anti-takeover effects, the Board is proposing
the Reverse Stock Split solely for the purpose of increasing the number of
authorized but unissued shares of Common Stock which would be available for
issuance in any reverse acquisition by a new business venture. The proposed
amendment is not prompted by any specific effort or takeover threat currently
perceived by management.
Approval of the Reverse Stock Split could have material adverse
consequences to the Company's independent stockholders. Such adverse
consequences include, but are not limited to, the following:
- Although the effect of the Reverse Stock Split would be to
reverse split the outstanding stock on a pro rata basis, thus affecting each
of the shareholders equally, many shareholders would be reduced below 100
shares which would make it significantly more difficult to sell the shares
should any market for the Common Stock be established.
- The present Board of Directors would have available 48,519,485
authorized but unissued shares of Common Stock, some or all of which could be
issued without shareholder approval. The issuance of a significant number of
shares could materially dilute the percentage ownership interest of the
current shareholders and there is no assurance that such issuance would result
in benefits to the existing shareholders such as greater market liquidity or a
higher market price for the shares.
- If the Board of Directors were to issue additional shares to the
current sole director, he could acquire sufficient shares to constitute a
majority of the outstanding shares. As such, he could continue to vote to
retain his position as the sole director; he could adopt provisions which
could make it more difficult for anyone to take over the Company; or he could
condition any take over on the sale of his interest in the Company at a price
greater than could be realized by any other shareholders in any market which
may develop for the Common Stock.
However, management believes that with the current number of shares
outstanding, it would be extremely difficult to attract potential new business
ventures. Since the Company presently has no operations and no potential for
funding without acquiring a new business venture, management believes that the
only reasonable alternative would be to reverse split the outstanding stock in
order to have available a sufficient number of authorized but unissued shares
to issue a controlling block of stock in an acquisition transaction.
EXCHANGE OF CERTIFICATES; NO FRACTIONAL SHARES
After the Effective Date, the Company will authorize the issuance of
certificates representing one share of Common Stock in exchange for each one
hundred shares of Common Stock presently outstanding upon surrender of an
existing certificate evidencing outstanding shares of Common Stock.
No fractional shares of common stock will be issued in connection with
the Reverse Stock Split. Assuming the approval of the Reverse Stock Split, a
shareholder who would otherwise be entitled to receive, in the aggregate, a
number of shares of Common Stock that included a fraction of a share equal to
or greater than one-half will receive, in lieu thereof, that number of shares
rounded up to the next highest whole share. A shareholder who would otherwise
be entitled to receive, in the aggregate, a number of shares that included a
fraction less than one-half will not receive such fractional share and will be
entitled only to that number of shares aggregate, rounded down to the next
lowest whole share; provided, however, that any shareholder owning less than
one share will be rounded up to at least one whole share. All shares
returned to the Company as a result of the Reverse Stock Split will be
canceled and returned to the status of authorized but unissued shares. It is
possible that shareholders holding less than 100 shares (otherwise known as
"Odd Lots") of the Company's Common Stock following the Reverse Stock Split
may have difficulty in disposing of their shares in that the commissions
charged to sell such shares may exceed the value of the shares.
The Company's transfer agent will represent the Company as exchange
agent ("Exchange Agent"), in connection with the Reverse Stock Split. As soon
as practicable after the Effective Date, the holders of the Common Stock will
be notified that the Reverse Stock Split has been effected and will be asked
to surrender to the Exchange Agent any certificate(s) representing outstanding
shares of Common Stock in exchange for new certificate(s) representing the
reduced number of shares of Common Stock that will result from the Reverse
Stock Split. On the Effective Date, each certificate representing shares of
Common Stock will be deemed for all purposes to represent the reduced number
of shares of Common Stock that will result from the Reverse Stock Split,
whether or not the certificates representing outstanding Common Stock are
surrendered for exchange. The Company will not pay the cost of any exchanging
old certificates for new ones.
NO DISSENTERS' RIGHTS
The Texas Business Corporation Act does not vest shareholders of the
Company with dissenters' rights with respect to the Reverse Stock Split.
RESALES OF RESTRICTED SECURITIES
The Reverse Stock Split Amendment will not affect the transferability of
shares of Common Stock or any present restriction on the sale thereof.
Therefore, for purposes of determining the relevant holding period as
prescribed by Rule 144 under the Securities Act of 1933, as amended, the
shares of Common Stock to be issued to each shareholder after the Effective
Date will be deemed to have been acquired on the date on which the shareholder
acquired the shares of Common Stock held immediately prior to the Effective
Date.
FEDERAL INCOME TAX CONSEQUENCES
A summary of the federal income tax consequences of the Reverse Stock
Split is set forth below. The discussion is based on present federal income
tax law. The discussion is not, and should not be relied on as, a
comprehensive analysis of the tax issues arising from or relating to the
Reverse Stock Split. This summary does not purport to deal with all aspects of
federal income taxation that may be relevant to a particular shareholder in
light of such shareholder's personal investment circumstances or to certain
types of shareholders subject to special treatment under the Internal Revenue
Code of 1986, as amended (the "Code") (including, without limitation,
financial institutions, broker-dealers, regulated investment companies, life
insurance companies, tax-exempt organizations, foreign corporations and
non-resident aliens). Accordingly, shareholders are urged to consult their
personal tax advisors for an analysis of the effect of the Reverse Stock Split
on their respective tax situations, including consequences under applicable
state, local or foreign tax laws.
Pursuant to Section 368(a)(1)(E) of the Code, the Company believes the
Reverse Stock Split will qualify as a recapitalization to the extent that
outstanding shares of Common Stock are exchanged for a reduced number of
shares of Common Stock. Therefore, neither the Company nor its shareholders
will recognize any gain or loss for federal income tax purposes as a result
thereof.
The shares of Common Stock to be issued to each shareholder to effect the
Reverse Stock Split will have an aggregate basis, for computing gain or loss,
equal to the aggregate basis of the shares of Common Stock held by such
shareholder immediately prior to the Effective Date. A shareholder's holding
period for the shares of Common Stock to be issued will include the holding
period for shares of Common Stock exchanged therefor, provided that such
outstanding shares of Common Stock were held by the shareholder as capital
assets on the Effective Date.
VOTE REQUIRED
Approval of the Reverse Stock Split requires the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock entitled
to vote on the proposal. If the Reverse Stock Split is approved by the
shareholders of the Company, the proper officers of the Company will file an
amendment to the Articles of Incorporation with the Secretary of State of the
State of Texas to effect the Reverse Stock Split as promptly as
practicable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE REVERSE STOCK SPLIT
PROPOSAL NO. 2
PROPOSAL TO ISSUE 610,711 SHARES OF COMMON STOCK
The Company is seeking ratification of a proposal to issue 610,711
post reverse-split shares of Common Stock to Kip Eardley, the sole director
and president of the Company. Mr. Eardley has assumed all of the outstanding
liabilities of the Company in consideration for such shares. At October
31,1999, based upon the unaudited financial statements of the Company, it had
total liabilities of $610,711, including outstanding judgments against it in
the principal amount of approximately $526,711 and outstanding promissory
notes in the principal amounts of $84,000. These liabilities were incurred in
connection with the prior business of the Company which ceased during the year
ended January 31, 1994. Mr. Eardley has settled and filed satisfactions of
judgement for approximately $492,806 of the outstanding judgements set forth
in the financial statements. Mr. Eardley has agreed to indemnify the Company
for the remaining judgements in the amount of $33,905, plus interest, and the
promissory notes in the principal amount of $84,000, plus interest.
Notwithstanding the agreement, the Company will remain principally liable for
the unsettled outstanding judgements and promissory notes. The Company has no
cash or other assets with which to settle the liabilities, and management
believes that the elimination of such liabilities from the balance sheet may
make it easier to attract new business ventures. Also, although Mr. Eardley
believes he has made a reasonable search for all outstanding judgments and
other liabilities of the Company, there is no assurance that judgements or
liabilities other than those reflected on the financial statements may exist.
Mr. Eardley has not agreed to indemnify the Company for any unknown judgements
or other liabilities not reflected on the Company's balance sheet.
The number of shares to be issued to Mr. Eardley was arbitrarily
determined by him at a value of $1.00 per share for each $1.00 of principal
debt assumed. The determination of the number of shares to be issued to him
was also based upon a desire to provide him with numerical control of the
outstanding stock of the Company. As a result of the issuance of the 610,711
shares to Mr. Eardley, he will own approximately 56% of the outstanding
shares. Thus, Mr. Eardley would be able to elect all directors in the future.
Mr. Eardley has not received any compensation, directly or indirectly,
from the Company for his services as an officer of the Company. He may
actively negotiate or otherwise consent to the purchase of all or a portion of
the remaining shares of Common Stock owned by him as a condition to, or in
connection with, a proposed merger or acquisition. It is not anticipated that
any such opportunity will be afforded to other stockholders or that such
stockholders will be afforded the opportunity to approve or consent to any
particular stock buy-out transaction. In the event that such fees are paid,
they may become a factor in negotiations regarding any potential acquisition
by the Company and, accordingly, may present a conflict of interest for such
individuals.
The effect of the issuance of the 610,711 shares to Mr. Eardley would be
to further dilute the holdings of the other stockholders of the Company.
Giving effect to the Reverse Stock Split, Mr. Eardley would then own
approximately 56% of the total outstanding shares of Common Stock. No shares
of Common Stock have preemptive rights.
Approval of the issuance of the 610,711 shares of Common stock to Mr.
Eardley requires the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote on the proposal.
As a result of the issuance of the shares to Mr. Eardley and the
assumption of the existing liabilities, and assuming Mr. Eardley is able to
settle all of the obligations, the liabilities set forth on the balance sheet
of the Company at October 31, 1999, would be eliminated, stated capital would
be increased by $3,000, additional paid-in capital would be increased by
$*607,711, and the accumulated deficit would be decreased by a like amount.
Because of Mr. Eardley's interest in the proposed transaction, the Board
of Directors is not making a recommendation relating to this proposal.
FINANCIAL STATEMENTS
Copies of the Company's unaudited financial statements for the years
ended January 31, 1999, and the nine month period ended October, 1999, are
attached hereto.
By Order of the Board of Directors
Kip Eardley, Secretary
Salt Lake City, Utah
___________, 1999
Holmes Microsystems, Inc.
Balance Sheets
October January
31, 1999 31, 1999
ASSETS
Current Assets
Cash $ -0- $ -0-
Total Assets $ -0- $ -0-
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Judgements payable $ 33,905 $ 526,711
Notes Payable 84,000 84,000
Total Current Liabilities 117,905 610,711
Stockholders' Equity
Preferred stock - Series A; $.001 par value;
100,000 shares authorized; 3,750 and
7,500 shares issued & outstanding
8% noncumlative convertible 4 8
Preferred stock - Series B; $.001 par value;
5,000 shares authorized;
840 shares issued and outstanding
10% cumlative convertible 1 1
Common Stock; $.001 Par Value;
49,000,000 shares authorized;
48,051,547 shares issued and outstanding 48,051 48,051
Paid In Capital 4,835,143 4,342,333
Accumulated Deficit (5,001,104) (5,001,104)
Total Stockholder' Equity (117,905) (610,711)
Total Liabilities & Stockholders' Equity $ -0- $ -0-
Holmes Microsystems, Inc.
Statement of Operations
For the nine For the nine For Year
Months ended Months ended Ended
October October January
31, 1999 31, 1998 31, 1999
Revenues $ -0- $ -0- $ -0-
Operating Expenses -0- -0- -0-
Net Income $ -0- $ -0- $ -0-
Net Income Per Share $ .00 $ .00 $ .00
Holmes Microsystems, Inc.
Statements of Cash Flows
For the nine For the nine For Year
Months ended Months ended Ended
October October January
31, 1999 31, 1998 31,1999
Cash Flows from Operating
Activities
Net Income $ -0- $ -0- $ -0-
Adjustments to
Reconcile Net Income to
Net Loss Used by
Operating Activities:
Forgiveness of Debt -0- -0- -0-
Increase in Accounts
Payable -0- -0- -0-
Net Cash Used by
Operating Activities -0- -0- -0-
Cash Flows from Financing
Activities
Advances from Officer -0- -0- -0-
Net Cash Used from
Financing Activities -0- -0- -0-
Net Decrease in Cash -0- -0- -0-
Cash at Beginning of Year -0- -0- -0-
Cash at End of Year $ -0- $ -0- $ -0-
Disclosures from Operating
Activities
Interest $ -0- $ -0- $ -0-
Taxes -0- -0- -0-
Holmes Microsystems, Inc.
Statement of Change in Stockholders' Equity
Preferred Preferred Additional
Stock Stock Common Paid-In Accum.
Series A Series B Stock Capital Deficit Total
Balance as
of 1/31/97
Shares 7,500 840 48,051,547
Amount $ 8 $ 1 $ 48,051 $ 4,342,333 $(5,001,104) $(610,711)
Net Income $ -0- $ -0-
Balance as
of 1/31/98
Shares 7,500 840 48,051,547
Amount $ 8 $ 1 $ 48,051 $ 4,342,333 $(5,001,104) $(610,711)
Net Income $ -0- $ -0-
Balance as
of 1/31/99
Shares 7,500 840 48,051,547
Amount $ 8 $ 1 $ 48,051 $ 4,342,333 $(5,001,104) $(610,711)
Net Income $ -0- $ -0-
Retirement of
Preferred
Shares
Shares (3,750)
Amount $ (4)
Amount
Contributed
for
Settlement
of Debt 492,810
Balance as
of 10/31/99
Shares 3,750 840 48,051,547
Amount $ 4 $ 1 $ 48,051 $ 4,835,143 $(5,001,104) $(117,905)