424(b)(3)
333-39806
MAX INTERNET COMMUNICATIONS, INC.
7,361,682 Shares
Common Stock
This prospectus relates to the offer and sale of up to 7,361,682 shares
of common stock by certain of our stockholders. They are named under the heading
of "Selling Stockholders" appearing at page 5. We will not receive any of the
proceeds from the sale of common stock by the selling stockholders. We will pay
all expenses in connection with this offering, and the selling stockholders will
only be responsible for paying any sales or brokerage commissions or discounts
with respect to sales of their shares.
Our common stock is traded on the Nasdaq SmallCap Market under the
symbol "MXIP". On June 15, 2000, the closing bid price for our common stock was
$3.06 per share.
For a discussion of certain considerations associated with the purchase
of the common stock offered hereby, see "Risk Factors" beginning on page 2.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
July 12, 2000
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RISK FACTORS
In addition to the other information presented in this prospectus,
prospective investors should carefully consider the following factors in
evaluating an investment in our common stock.
We have a limited operating history. We have a limited history of
operations. We were formed in accordance with a plan of reorganization of Weaver
Arms Corporation confirmed by the United States Bankruptcy Court in the Central
District of California on January 20, 1994. In June 1997, we acquired all of the
issued and outstanding common stock of Voxcom Systems, Inc. and AmeraPress, Inc.
and commenced business operations. Those companies have been closed or sold.
We face uncertainty of market acceptance of our products and services.
Developing market acceptance for our products and services will require
substantial marketing and sales efforts and the expenditure of a significant
amount of funds. We cannot assure you that we can successfully develop or
position our products or services. We also cannot assure you that any marketing
efforts we undertake will result in increased demand for or market acceptance of
our products and services.
We have recently changed the focus of our business. During 1998, we
changed our business focus from marketing home based business opportunities to
the manufacture of computer hardware and software. The closing of our home based
business operations followed an action by the U.S. Federal Trade Commission
challenging our compliance with federal laws. We defended such action and
eventually settled the case with the Federal Trade Commission for a $35,000
administration fee and payment of pending requests for refunds from customers.
However, we decided not to resume the home based business units. Instead we
decided to focus our resources in the computer products segment.
We have experienced severe cash shortages and other liquidity problems.
We experienced severe cash shortages resulting from the operations of the
discontinued businesses, plus the initial advertising, marketing, selling and
overhead expenses related to the new computer product. We met these needs
through the issuance of equity securities. We may require additional cash
infusions before we experience consistent profitability. We may also require
additional capital to finance the expected growth of our business, including the
build-up of accounts receivable and purchases of inventory.
We cannot assure you that we will be able to compete effectively.
Competition for computer software and equipment is intense. New products and
developments are announced regularly by larger and more active competitors in
the industry. We cannot assure you that we can compete effectively.
We depend on key personnel and the loss of those personnel could
adversely affect us. We are highly dependent on our key management personnel for
current operations and the expansion of our markets and products acceptance. The
loss of one or more key persons could have a material adverse effect on our
business and results of operations.
Our ownership is concentrated in Management and they have significant
influence over matters submitted to our stockholders. Members of the Board of
Directors and certain officers own an aggregate of approximately 27% of our
outstanding common stock as of the date of this prospectus. They have a
significant influence over the outcome of matters submitted to the stockholders
for approval, including election of our directors.
There is a limited market for our common stock and it is possible that
you could experience volatility in our stock prices. Until recently there has
been only a limited trading market for our common stock. A substantial trading
market may not continue for our common stock. Recent history relating to the
market prices of newly public companies indicates that there may be significant
volatility in the market price of our common stock. The price of our stock has
ranged between $3 and $28 per share during the past six months.
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We have adopted various anti-takeover provisions which could limit
offers to acquire us or your stock. In addition to the voting control held by
officers and directors, we have in place certain agreements and provisions which
could hinder or preclude an unsolicited acquisition of the company. Our Articles
of Incorporation authorize the Board of Directors to issue, without stockholder
authorization, shares of preferred stock, in one or more designated series or
classes. Our Articles or Bylaws also contain other provisions that could hinder
or preclude an unsolicited acquisition, including provisions that:
o limit the ability of stockholders to call special meetings unless
called by stockholders owning at least 66-2/3% of the common stock;
o prohibit removal of directors from office except for "cause" by the
affirmative vote of holders of at least 66- 2/3% of the common stock;
and
o prohibit amendment of certain provisions of the Bylaws except upon a
vote of 66-2/3% of the common stock.
We are also subject to Nevada statutes regulating business
combinations. Any of these agreements or provisions could discourage, hinder or
preclude an unsolicited acquisition and could make it less likely that
stockholders receive a premium for their shares as a result of any such attempt.
These provisions may have a depressive effect on the market price of the common
stock.
We have limited the liability of our officers and directors. Nevada law
provides that a Nevada corporation may limit the personal liability of a
director or officer to the corporation or its stockholders for breaches of
fiduciary duty, except under certain circumstances. Our Articles provide for the
maximum limit of the personal liability of officers and directors allowable
under Nevada law.
We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We will instead retain any profits to fund growth and
expansion.
We may not be able to successfully integrate subsequent strategic
acquisitions that we may make. A material element of our strategy has been to
expand our business through strategic acquisitions. While we continuously
evaluate opportunities to make strategic acquisitions, we have no present
commitments or agreements with respect to any material acquisitions. Any
acquisition could have an adverse effect upon our results while the acquired
business is adapting to our management and operating practices. In addition, we
cannot assure you that we will be able to establish, maintain or increase
profitability of an entity once it has been acquired. We may not be able to
obtain adequate financing for any acquisition on terms acceptable to us.
Our foreign operations are subject to exchange rate fluctuations. A
portion of the company's purchases, sales and operations occur outside the
United States. Since the revenues and expenses of the company's foreign
operations are generally denominated in local currencies, exchange rate
fluctuations between local currencies and the dollar subject the company to
currency exchange risks with respect to the results of its foreign operations.
Therefore, the company is subject to these risks to the extent it is unable to
denominate its purchases or sales in U.S. dollars or otherwise shift to its
customers or suppliers the risks of currency exchange rate fluctuations.
Therefore, fluctuations in exchange rates may affect the results of the
company's international operations reported in U.S. dollars and the value of
such operations' net assets reported in U.S. dollars. Additionally, the results
of operations, financial condition and competitive position of the company may
be affected by the relative strength of the currencies in countries where its
products are sold.
We face various risks in international trade. Because a portion of the
company's purchases and sales of products are made internationally,
international trade may be important to the company's business. International
trade is subject to numerous risks, including labor strikes, shipping delays,
political or economic instability, military actions and import duties. There is
no assurance that the United States, countries in South America or Europe or
other nations will not in the future impose trade restrictions which could
adversely affect the company's operations.
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Management defalcations in the company's Brazilian subsidiary resulted in a
substantial adjustment to the company's sales for the second quarter of fiscal
2000 and has strained the company's working capital due to large concentrations
of inventory in expectation of sales that were later reversed.
THE COMPANY
We conduct business under the name MAX Internet Communications, Inc. We
assemble through contractors and market a high performance, multi-media add-in
card. The card provides both hardware and software to personal computers,
emphasizing the ability to conduct video communications via the Internet. Our
address is 8115 Preston Road, Eighth Floor - East, Dallas, Texas 75225, and our
telephone number is (214) 691-0055, fax (214) 691-5984.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the company with the SEC are hereby
incorporated by reference:
o The Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1999.
o The Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2000.
o The proxy statement for our annual meeting of stockholders in
November 1999.
In addition, all documents filed by the company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act on or subsequent to the date of
this prospectus but prior to the termination of the offering shall be deemed to
be incorporated herein by reference and made a part of this prospectus from the
respective dates of the filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded to
the extent that a statement contained herein, or in any other subsequently filed
document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
We will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any document described above, other than exhibits (unless such exhibits are
specifically incorporated by reference in any such document). Requests for such
copies should be directed to Leslie Crone, MAX Internet Communications, Inc.,
8115 Preston Road, Eighth Floor - East, Dallas, Texas 75225, (214) 691-0055.
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SELLING STOCKHOLDERS
On May 31, 2000, Boxer Partners, LLC acquired (i) certain convertible
debentures of the Company which, on June 13, 2000, were converted into a
pro-rata number of shares of the Company's Series C Preferred Stock, (ii) an
adjustable warrant and (iii) a closing warrant. The holder of such securities is
prohibited from using them to acquire shares of our common stock to the extent
that such acquisition would result in such holder, together with any affiliate
thereof, beneficially owning in excess of 9.999% of the outstanding shares of
our commn stock following such acquisition. This restriction may be waived by a
holder on not less than 61 days' notice to us.
On June 13, 2000, Millennium Partners, LP acquired shares of the
Company's Series C Preferred Stock and a closing warrant. The holder of such
securities is prohibited from using them to acquire shares of our common stock
to the extent that such acquisition would result in such holder, together with
any affiliate thereof, beneficially owning in excess of 9.999% of the
outstanding shares of our common stock following such acquisition. This
restriction may be waived by a holder on not less than 61 days' notice to us.
On June 16, 2000, Cranshire Capital, L.P. and EURAM Cap Strat. "A" Fund
Limited acquired shares of the Company's Series C Preferred Stock and a closing
warrant. The holder of such securities is prohibited from using them to acquire
shares of our common stock to the extent that such acquisition would result in
such holder, together with any affiliate thereof, beneficially owning in excess
of 9.999% of the outstanding shares of our common stock following such
acquisition. This restriction may be waived by a holder on not less than 61
days' notice to us.
Because the number of shares of our common stock that will be issuable
upon exercise of the adjustable warrant and conversion of the preferred stock is
based upon fluctuations of the market price of our common stock prior to a
vesting or conversion thereunder (as applicable), the actual number of shares of
our common stock that will be issuable and benefically owned upon exercise of
such adjustable warrant or conversation of the preferred stock cannot be
determined at this time. Because of this fluctuating characteristic, the Company
has agreed to register a number of shares of our common stock that exceeds the
number of our shares of common stock currently beneficially owned by the holders
thereof. The number of shares of our common stock listed in the table below as
being benefically owned by each applicable selling stockholder includes the
shares of our common stock that are issuable to it, subject to the 9.999%
limitation, upon exercise of the warrants or conversion of the preferred stock
(as applicable). However, the 9.999% limitation would not prevent the holder
thereof from acquiring and selling in excess of 9.999% of shares of our common
stock through a series of acquisitions and sales under the warrants or preferred
stock while never beneficially owning more than 9.999% at any one time.
This Prospectus relates to the resale of shares of our common stock by
the selling stockholders. The table below sets forth information with respect to
the resale of shares of our common stock by the selling stockholders. We will
not receive any proceeds from the resale of common stock by the selling
stockholders, although we may receive proceeds from the exercise of warrants.
Assuming all of the shares of our common stock registered below are sold by the
respective selling stockholders, none of the selling stockholders will continue
to own any shares of our common stock.
<TABLE>
Number of Shares Number of Shares
Beneficially Owned of Common Stock Percentage Number of Shares of Common Stock
Name of Beneficially Owned of Common of Common Stock Offered Following
Selling Stockholder Prior to the Offering Stock Sold Hereby the Offering (1)
------------------- --------------------- -------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Boxer Partners, LLC 1,860,662 9.99% 3,114,552 0
Millennium Partners, L.P. 1,175,718 6.65% 3,440,277 0
Cranshire Capital, L.P. 254,745 2.16% 450,705 0
EURAM Cap Strat. "A" Fund Ltd. 137,170 2.16% 242,687 0
Wall Street Consultants, Inc. 113,461 0.66% 113,461 0
(1) Assumes sale of all shares offered hereby.
</TABLE>
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PLAN OF DISTRIBUTION
The shares may be sold from time to time by the selling stockholders or
by pledgees, donees, transferees or other successors in interest. Such sales may
be made in the over-the-counter market or on any stock exchange on which the
common stock of the company may be listed at the time of sale or otherwise at
prices and terms then prevailing or at prices related to the then current market
price, or in negotiated transactions. The shares may be sold by one or more of
the following:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of
applicable exchange;
o privately negotiated transactions;
o broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers engaged by the selling stockholders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling stockholders, but excluding brokerage commissions or underwriter
discounts. The company has agreed to indemnify the selling stockholders against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the company consists of 100,000,000
shares of capital stock, composed of 50,000,000 shares of common stock, par
value $0.0001 per share, of which there were 17,734,242 shares outstanding as of
June 1, 2000, and 50,000,000 shares of preferred stock, par value $.0001 per
share.
Common Stock
Voting Rights. Each holder of shares of common stock is entitled to one
vote for each share of common stock for the election of directors and on each
other matter submitted to a vote of the stockholders of the company. The holders
of common stock have exclusive voting power on all matters at any time. No
preferred stock with superior voting rights is issued and outstanding.
Liquidation Rights. Upon liquidation, dissolution or winding up of the
company, holders of shares of common stock are entitled to share ratably in
distributions of any assets after payment in full or provision for all amounts
due creditors and provision for any liquidation preference of any other class or
series of stock of the company then outstanding.
Dividends. Dividends may be declared by the Board of Directors and paid
from time to time to the holders of common stock, on such record dates as may be
determined by the Board of Directors, out of the net profits or surplus of the
company.
Warrants
Certain stockholders of the company hold one Class A warrant for each
common share owned by them. Each warrant entitles the holder to purchase one
share of common stock for $4.00. If not exercised, Class A warrants expire in
June 2001. For Class A warrants exercised before May 1999, the holder received
one Class B warrant for each Class A warrant exercised. Each Class B warrant
entitled the holder to purchase one share of common stock for $20.00. All Class
B warrants have been redeemed. At June 1, 2000, there were 3,697,441 Class A
warrants outstanding.
There are also outstanding warrants and stock options to purchase a
total of 5,803,689 shares of common stock at prices ranging from $0.10 to
$10.00.
Preferred Stock
The Board of Directors of the company has the authority to divide the
authorized preferred stock into series, the shares of each series to have such
relative rights and preferences as shall be fixed and determined by the Board of
Directors. The provisions of a particular series of authorized preferred stock,
as designated by the Board of Directors, may include restrictions on the payment
of dividends on common stock. Such provisions may also include restrictions on
the ability of the company to purchase shares of common stock or to purchase or
redeem shares of a particular series of authorized preferred stock. Depending
upon the voting rights granted to any series of authorized preferred stock,
issuance thereof could result in a reduction in the voting power of the holders
of common stock. In the event of any dissolution, liquidation or winding up of
the company, whether voluntary or involuntary, the holders of each series of the
then outstanding authorized preferred stock may be entitled to receive, prior to
the distribution of any asset or funds to the holders of common stock, a
liquidation preference established by the Board of Directors, together with all
accumulated and unpaid dividends. Depending upon the consideration paid for
authorized preferred stock, the liquidation preference of authorized preferred
stock and other matters, the issuance of authorized preferred
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stock could result in a reduction in the assets available for distribution to
the holders of common stock in the event of the liquidation of the company.
As of June 1, 2000, the authorized preferred stock consisted of (i) a
series of 100,000 authorized shares of Series A preferred stock of which 80,000
shares are outstanding, (ii) a series of 350,000 authorized shares of Series B
preferred stock, of which all 350,000 shares have been converted into common
stock and canceled. Following is a brief summary of certain provisions of each
outstanding authorized preferred stock, and (iii) a series of 150,000 shares of
Series C Preferred Stock, of which 45,000 shares are issued and outstanding.
Series A Preferred Stock
There were 80,000 shares of Series A preferred stock outstanding on
June 1, 2000, owned by Larry Cahill (40,000 shares), Lawrence R. Biggs, Jr.
(24,000 shares), Donald G. McLellan (8,000 shares), and Vision Finance &
Management (8,000 shares).
Voting Rights. Holders of Series A preferred stock have no right to
vote their shares, except that holders of Series A preferred stock, voting as a
separate class by majority vote, must approve any amendment to the Designation
of Rights and Preferences of Series A preferred stock, to (i) increase or
decrease the number of authorized shares of Series A preferred stock, (ii)
increase or decrease the issue price, (iii) effect an exchange, reclassification
or cancellation of all or part of the shares of Series A preferred stock, (iv)
effect an exchange, or create a right of exchange, of all or any part of the
shares of another class into shares of Series A preferred stock, (v) change the
designations, preferences, limitations, or relative rights of the Series A
preferred stock, (vi) change the shares of Series A preferred stock into the
shares of another class, or (viii) cancel or otherwise affect accumulated but
undeclared dividends on the Series A preferred stock.
Preemptive Rights. No holder of Series A preferred stock will be
entitled as a matter of right to subscribe or receive additional shares of any
class of stock of the company, whether now or hereafter authorized, or any
bonds, debentures or other securities convertible into such stock.
Liquidation Rights. In the event of any liquidation, dissolution or
winding up of the company, holders of Series A preferred stock are entitled to
be paid an amount equal to $100 per share. Such Series A preferred stock amount
is to be paid before any amounts are distributed to the holders of the common
stock.
Conversion Rights. There are no conversion rights for holders of Series
A preferred stock.
Dividends. The holders of Series A preferred stock are not entitled to
receive any dividends.
Redemption Rights. The Series A preferred stock is redeemable by the
company. The redemption price is $100 per share.
Series C Preferred Stock
There were 45,000 shares of Series C Preferred Stock outstanding on
June 15, 2000, owned by four investors, having a total issue price and
liquidation value of $4,500,000.
Voting Rights. Except as otherwise requried by law, the Series C
Preferred Stock has no voting rights. However, so long as any shares of Series C
Preferred Stock are outstanding, the company will not, without the affirmative
vote of the holders of a majority of the shares of the Series C Preferred Stock
then outstanding, (a) alter or change adversely the powers, preferences or
rights given to the Series C Preferred Stock or alter or amend the Certificate
of Designation governing the Series C Preferred Stock, (b) authorize or create
any class of stock ranking as to dividends or distribution of assets upon
liquidation senior to or otherwise pari passu with the Series C Preferred Stock,
(c) amend its articles of incorporation or other charter documents so as to
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affect adversely any rights of the holders, (d) increase the authorized number
of shares of Series C Preferred Stock, or (e) enter into any agreement with
respect to the foregoing.
Pre-emptive Rights. The Series C Preferred Stock does not by its terms
entitle the holders to any pre- emptive right to acquire additional shares of
the company.
Liquidation. Upon any liquidation, dissolution or other winding up of
the company, the holders of Series C Preferred Stock are entitled to receive a
liquidation preference out of the assets of the company in an amount equal to
the issue price ($100 per share) before any distribution may be made to the
holders of any junior securities, which includes the common stock and all other
series of preferred stock.
Conversion Rights. Shares of Series C Preferred Stock are convertible
at the option of the holders into shares of common stock at a conversion rate
equal to the lesser of $3.317 (as adjusted for capital transactions) or 85% of
the average of the ten lowest market prices of the common stock on the Nasdaq
over the 22 trading days prior to the date of conversion. Conversion will occur
automatically on June 13, 2005 at such conversion rate. Shares of common stock
underlying the Series C Preferred Stock are being registered in this
registration statement.
Redemption. The company may redeem the Series C Preferred Stock after
September 30, 2000 for a price equal to 120% if the market price of the common
stock trades below $3.317 (as adjusted) for ten consecutive trading days.
The holders may cause redemption for cash at the greater of 120% of the
issue price or the product of the market prices of the common stock and the
conversion ratio (issue price divided by conversion price) upon certain events
of default by the company.
Dividends. Holders are entitled to receive cumulative dividends equal
to 6% of the issue price, payable at the time of conversion or redemption, in
cash or at the option of the company, by accreting the stated value.
Certain Rights of Holders of Common Stock
The company is a Nevada corporation organized under Chapter 78 of the
Nevada Revised Statutes. Accordingly, the rights of the holders of common stock
are governed by Nevada law. Moreover, the rights of holders of common stock
differ from the rights of such holders of equity in the corporation or other
entity acquired by virtue of different provisions appearing in the Articles of
Incorporation and bylaws of the company. Although it is impracticable to set
forth all of the material provisions of the Nevada statutes or the company's
Articles and bylaws, the following is a summary of certain significant
provisions of the Nevada statutes and/or the company's Articles and bylaws that
affect the rights of securities holders.
Possible Anti-Takeover Provisions
Special Meetings of Stockholders; Director Nominees. The company's
bylaws and Articles provide that special meetings of stockholders may be called
by stockholders only if the holders of at least 66-2/3% of the common stock join
in such action. The bylaws and Articles also provide that stockholders desiring
to nominate a person for election to the Board of Directors must submit their
nominations to the company at least 60 days in advance of the date on which the
last annual stockholders' meeting was held, and provide that the number of
directors to be elected (within the minimum - maximum range of 3-21 set forth in
the Articles and bylaws) shall be determined by the Board of Directors or by the
holders of at least 66-2/3% of the common stock. While these provisions of the
Articles and bylaws have been established to provide a more cost-efficient
method of calling special meetings of stockholders and a more orderly and
complete presentation and consideration of stockholder nominations, they could
have the effect of discouraging certain stockholder actions or opposition to
candidates selected by the Board of Directors and provide incumbent management a
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greater opportunity to oppose stockholder nominees or hostile actions by
stockholders. The affirmative vote of holders of at least 66-2/3% of the common
stock is necessary to amend, alter or adopt any provision inconsistent with or
repeal any of these provisions.
Removal of Directors. The Articles of the company provide that
directors may be removed from office only for cause by the affirmative vote of
holders of at least 66-2/3% of the common stock. Cause means proof beyond the
existence of a reasonable doubt that a director has been convicted of a felony,
committed gross negligence or willful misconduct resulting in a material
detriment to the company, or committed a material breach of such director's
fiduciary duty to the company resulting in a material detriment to the company.
The inability to remove directors except for cause could provide incumbent
management with a greater opportunity to oppose hostile actions by stockholders.
The affirmative vote of holders of at least 66-2/3% of the common stock is
necessary to amend, alter or adopt any provision inconsistent with or repeal
this provision.
Control Share Statute. Sections 78.378 - 78.3793 of the Nevada statutes
constitute Nevada's control share statute, which set forth restrictions on the
acquisition of a controlling interest in a Nevada corporation which does
business in Nevada (directly or through an affiliated corporation) and which has
200 or more stockholders, at least 100 of whom are stockholders of record and
residents of Nevada. A controlling interest is defined as ownership of common
stock sufficient to enable a person directly or indirectly and individually or
in association with others to exercise voting power over at least 20% but less
than 33.3% of the common stock, or at least 33.3% but less than a majority of
the common stock, or a majority or more of the common stock. Generally, any
person acquiring a controlling interest must request a special meeting of
stockholders to vote on whether the shares constituting the controlling interest
will be afforded full voting rights, or something less. The affirmative vote of
the holders of a majority of the common stock, exclusive of the control shares,
is binding. If full voting rights are not granted, the control shares may be
redeemed by the company under certain circumstances. If full voting rights are
granted, stockholders voting against such rights being granted may demand
payment from the company for the fair value of their shares. The Board of
Directors may adopt a resolution amending the Bylaws within ten days following
the acquisition of any controlling interest to provide that the foregoing
provisions shall not be applicable to such acquisition. The company does not
believe the foregoing provisions of the Nevada statutes are presently applicable
to it because it does not presently conduct business in Nevada; however, if in
the future it does conduct business in Nevada then such provisions may apply.
Business Combination Statute. Sections 78.411 - 78.444 of the Nevada
statutes set forth restrictions and prohibitions relating to certain business
combinations and prohibitions relating to certain business combinations with
interested stockholders. These Sections generally prohibit any business
combination involving the company and a person that beneficially owns 10% or
more of the common stock (an "Interested Stockholder") (A) within five years
after the date (the "Acquisition Date") the Interested Stockholder became an
Interested Stockholder, unless, prior to the Acquisition Date, the company's
Board of Directors had approved the combination or the purchase of shares
resulting in the Interested Stockholder becoming an Interested Stockholder; or
(B) unless five years have elapsed since the Acquisition Date and the
combination has been approved by the holders of a majority of the common stock
not owned by the Interested Stockholder and its affiliates and associates; or
(C) unless the holders of common stock will receive in such combination, cash
and/or property having a fair market value equal to the higher of (a) the market
value per share of common stock on the date of announcement of the combination
or the Acquisition Date, whichever is higher, plus interest compounded annually
through the date of consummation of the combination less the aggregate amount of
any cash dividends and the market value of other dividends, or (b) the highest
price per share paid by the Interested Stockholder for shares of common stock
acquired at a time when he owned 5% or more of the outstanding shares of common
stock and which acquisition occurred at any time within five years before the
date of announcement of the combination or the Acquisition Date, whichever
results in the higher price, plus interest compounded annually from the earliest
date on which such highest price per share was paid less the aggregate amount of
any cash dividends and the market value of other dividends. For purposes of
these provisions, a "business combination" is generally defined to include (A)
any merger or consolidation of the company or a subsidiary with or into an
Interested Stockholder or an affiliate or associate; (B) the sale, lease or
other disposition by the company to an Interested Stockholder or an affiliate or
associate of assets of the company representing 5% or more of the value of its
assets on a consolidated basis or 10% or more of its earning power or net
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income; (C) the issuance by the company of any of its securities to an
Interested Stockholder or an affiliate or associate having an aggregate market
value equal to 5% or more of the aggregate market value of all outstanding
shares of the company; (D) the adoption of any plan to liquidate or dissolve the
company proposed by or under an agreement with the Interested Stockholder or an
affiliate or associate; (E) any receipt by the Interested Stockholder or an
affiliate, except proportionately as a stockholder, of any loan, advance,
guarantee, pledge or other financial assistance or tax credit or other tax
advantage; and (F) any recapitalization or reclassification of securities or
other transaction that would increase the proportionate shares of outstanding
securities owned by the Interested Stockholder or an affiliate. Sections 78.411
- 78.444 of the Nevada statutes are presently applicable to the company.
Special Meetings. The company's bylaws and Articles provide that
special meetings of the stockholders of the company may be called by the
Chairman of the Board, the Board of Directors or upon written request of
stockholders holding not less than 66 2/3% of the common stock.
Mergers, Consolidations and Sales of Assets. Nevada law provides that
an agreement of merger or consolidation, or the sale or other disposition of all
or substantially all of a corporation's assets, must be approved by the
affirmative vote of the holders of a majority of the voting power of the
corporation (except that no vote of the stockholders of the surviving
corporation is required to approve a merger if certain conditions are met,
unless the articles of incorporation of such corporation states otherwise, and
except that no vote of stockholders is required for certain mergers between a
corporation and a subsidiary), but does not require the separate vote of each
class of stock unless the corporation's articles of incorporation provides
otherwise (except that class voting is required in a merger if shares of the
class are being exchanged or if certain other rights of the class are affected).
The company's Articles do not alter the provisions of Nevada law.
Directors; Removal of Directors. Under Nevada law, the number of
directors may be fixed by, or determined in the manner provided in, the articles
of incorporation or by-laws, and the Board of Directors may be divided into
classes as long as at least 25% in number of the directors are elected annually.
Nevada law further requires that a corporation have at least one director.
Directors may be removed under Nevada law with or without cause by the holders
of not less than two-thirds of the voting power of the corporation, unless a
greater percentage is set forth in the articles of incorporation.
Amendments to Bylaws. The company's bylaws may be amended by the Board
of Directors or stockholders, provided, however that certain provisions can only
be amended by the affirmative vote of holders of at least 66 2/3% of the common
stock. These provisions relate to special meetings of stockholders, actions by
written consent of stockholders, nomination of directors by stockholders,
proceedings for the conduct of stockholder's meetings and the procedures for
fixing the number of and electing directors.
Limitation on Liability of Directors
Section 78.037 of the Nevada statutes provides that a Nevada
corporation may limit the personal liability of a director or officer to the
corporation or its stockholders for breaches of fiduciary duty, except that such
provision may not limit liability for acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or payment of
dividends or other distributions in violation of the Nevada statutues. The
company's Articles provide that no director shall be personally liable to the
company or its stockholders for monetary damages or breach of fiduciary duty as
a director, except for liability (A) for any breach of the director's duty of
loyalty to the company or its stockholders, (B) for acts or omissions not in
good faith or which involved intentional misconduct or a knowing violation of
law, (C) liability under the Nevada statutes, or (D) for any transaction from
which the director derived an improper personal benefit.
In the opinion of the Securities and Exchange Commission, the
indemnification and limitation of liability provisions described in "--
Indemnification of Directors and Officers", above, and "-- Limitation on
Liability of Directors" would not eliminate or limit the liability of directors
and officers under the federal securities laws.
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Appraisal Rights
The Nevada statutes provides dissenting or objecting security holders
with the right to receive the fair value of their securities in connection with
certain extraordinary corporate transactions. These appraisal rights are
available with respect to certain mergers and share exchanges and in connection
with the granting of full voting rights to control shares acquired by an
interested stockholder. However, unless the transaction is subject to the
control share provisions of the Nevada statutes, a stockholder of a Nevada
corporation may not assert dissenters' rights, in most cases, if the stock is
listed on a national securities exchange or held by at least 2,000 stockholders
of record (unless the articles of incorporation expressly provide otherwise or
the security holders are required to exchange their shares for anything other
than shares of the surviving corporation or another publicly held corporation
that is listed on a national securities exchange or held of record by more than
2,000 stockholders).
Distributions
Dividends and other distributions to security holders are permitted
under the Nevada statutes as authorized by a corporation's articles of
incorporation and its board of directors if, after giving effect to the
distribution, the corporation would be able to pay its debts as they become due
in the usual course of business and the corporation's total assets would exceed
the sum of its total liabilities plus (unless the articles of incorporation
provide otherwise) the amount needed to satisfy the preferential rights on
dissolution of holders of stock whose preferential rights are superior to those
of the shares receiving the distribution.
Preemptive Rights
Under the Nevada statutes, stockholders of Nevada corporations
organized prior to October 1, 1991 have preemptive rights unless the articles of
incorporation expressly deny those rights or the stock issuance is among those
described in Section 78.265. A stockholder who has preemptive rights is
entitled, on terms and conditions prescribed by the board of directors, to
acquire proportional amounts of the corporation's unissued or treasury shares in
most instances in which the board has decided to issue them. The company's
Articles expressly deny availability of preemptive rights to the company's
stockholders.
Cumulative Voting
Under the Nevada statutes, the articles of incorporation of a
corporation may provide for cumulative voting, which means that the stockholders
are entitled to multiply the number of votes they are entitled to cast by the
number of directors for whom they are entitled to vote and then cast the product
for a single candidate or distribute the product among two or more candidates.
Cumulative voting is not available to stockholders of a Nevada corporation,
however, unless its articles expressly provide for that voting right, and the
company's Articles do not contain a provision permitting stockholders to
cumulate their votes when electing directors.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by
this Prospectus will be passed upon for the company by Glast, Phillips & Murray,
a Professional Corporation, Dallas, Texas. Ronald L. Brown, an attorney with
Glast Phillips & Murray, is a director of the company and owns 50,000 shares of
common stock and options to acquire 150,000 shares of common stock. Another
member of the firm owns warrants to purchase 30,000 shares of common stock.
AVAILABLE INFORMATION
The company has filed under the Securities Act with the SEC a
registration statement on Form S-3 with respect to its shares of common stock
offered hereby. This prospectus was filed as a part of the registration
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statement. As permitted by the rules and regulations of the SEC, this prospectus
omits certain information contained in the registration statement, and reference
is hereby made to the registration statement for further information with
respect to the company and its common stock.
The company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith, files
reports, proxy and information statements, and other information with the SEC.
Reports, proxy statements and other information filed by the company with the
SEC pursuant to the informational requirements of the Exchange Act may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should also be available for inspection and copying at the regional offices of
the SEC located at 7 World Trade Center, New York, New York 10048; Room 1204,
Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago, Illinois
60604; and Suite 500 East, 5757 Wilshire Boulevard, Los Angeles, California
90036. Copies of such material may also be obtained upon written request
addressed to the SEC, Public Reference Section, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The SEC also maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that filed electronically with the SEC at
http://www.sec.gov.
No person has been authorized to give any information or to make any
representation other than as contained or incorporated by reference in this
prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the company. Neither the delivery of
this prospectus nor any sale of common stock made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any date subsequent to the date hereof. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the securities
offered by this prospectus to any person or by anyone in any jurisdiction in
which it is unlawful to make such an offer or solicitation.
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